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Learn about the critical steps to starting an open-source software company, including primary approaches and what to look for in a co-founder.
The path for building a new company based on open-source software (OSS) shares similarities and differences with the steps described in the Unusual Field Guide. In this playbook, we cover these nuances when it comes to OSS companies:
This OSS Field Guide highlights the key issues that open-source founders must think about and best practices they can apply in the early stages of company-building to lay the foundation for success. We draw on our firsthand experiences of founding and working with companies that have a proven track record in open-source communities. We also include insights from the founders of more than a dozen leading open-source companies, including Vercel, Elastic, Cockroach Labs, Grafana Labs, DataStax, Temporal, Astronomer, Styra, Heptio, Sysdig, InfluxDB, Neon, and PostHog.
If you are an OSS founder, we welcome you to navigate this Field Guide using the questions that are top of mind for you. We have highlighted several key questions that OSS founders usually encounter in our table of contents below. If you find any questions that are not covered here, feel free to contact us at learn@unusual.vc with your suggestions.
For many founders, the first thing that comes to mind with open source is the challenge of building a revenue-generating business from software that is made available to anyone to use with minimal limitations. But open-source businesses hold many potential advantages, including broad distribution and self-service user adoption. Building a community of enthusiastic users can enable faster product iteration and defensibility against competitors.
While open source has impacted many software categories, it has especially played an outsized role in areas such as developer tools, cloud infrastructure, data management, and machine learning. For many software engineers, open source has become the default for trying out and adopting new products. Additionally, many larger companies may require transparency for certain types of software, and open source helps build their trust and confidence to partner with startups.
There are now many examples of successful companies that originated with open source. HashiCorp, Confluent, GitLab, MuleSoft, Elastic, and MongoDB all began with OSS projects that eventually grew to become publicly traded companies. Databricks, Cockroach Labs, Grafana Labs, and Redis are more examples of successful companies built on OSS that have reached multibillion-dollar valuations that remain private.
Here are several factors to consider to help you decide whether open source is right for your business:
For certain classes of products and the users who adopt them, open source is table stakes. For example, many software developers prefer to use OSS tools because they are self-service and quick to get started with. There’s no need to talk to a salesperson, sign up, nor pay for anything. These users may also value OSS being extensible and customizable to fit their own needs and preferences.
Additionally, many organizations care whether products that serve business-critical functions are open source. For example, enterprises that are considering using a new database built by a startup will likely want it to be open source so they have visibility into how the database works and also have assurances that they will be able to continue using the software even if the startup fails or is acquired.
As Peter Mattis, Co-founder and CTO of Cockroach Labs shared, “We wanted to get people to a reassured feeling that, ‘We're building this thing. If you adopt it, even if we go away, you're still going to be able to keep on running it because it’s open source.’”
For Paul Dix, Co-founder and CTO of InfluxDB, it was a no-brainer to go open source — users need transparency into the code to feel confident about adoption. “Developers like flexibility when selecting a database — they’re choosing a core piece of infrastructure. They want it to be open source to be able to run it where and when they want. And they don't want to be tied to a vendor,” Dix says.
Open source is most likely the right path if you're operating in a domain area where open-source standards have been developed or are being formed by an existing community. Take, for example, the Cloud Native Computing Foundation (CNCF), which is a vibrant hub of users, companies, and OSS projects. The CNCF community has established many open standards for computing, networking, storage, security, observability, and other technology areas. If you are building a company in one of these areas, then starting with OSS is likely to be important to establish credibility with your target ecosystem.
As an example, Heptio (acquired by VMware) was a company founded by the creators of Kubernetes, an open-source project born at Google, that provided a suite of OSS tools that made it easier for companies to operate Kubernetes. Craig McLuckie, Heptio Co-founder and CEO, shared: “Open contributor communities can give you an accelerant in building a successful open-source company. It creates a more competitive market but if you can figure out what your advantage is relative to others, you’re going to be in good shape.”
If competitors or incumbents have alternative product offerings that are closed-source, open source may enable a differentiated GTM that drives greater adoption and mindshare among users, which allows your company to grow market awareness more quickly. “Mindshare is the biggest value of open source,” says Nikita Shamgunov, Co-founder and CEO of Neon. “You can quickly grow awareness from letting anyone anywhere install your product.”
Certain product capabilities may lend themselves more easily to community contributions that enable faster product development. Users may build a set of features that are made available for everyone, removing the need for your engineering team to build them. For example, Confluent, the company behind Apache Kafka, supports a number of OSS/community connectors.
Many founders also cite hiring as a key benefit of developing OSS. Many engineers value the opportunity to share their work publicly, which can attract them to working on an OSS project, and you can better target technical candidates who are engaged users or contributors to your project.
Not all open-source software companies are started in the same way. Some founders are inspired by an existing open-source solution and see an opportunity to bring that solution to a broader audience by building a company. Other founders start with an unsolved problem and work to build an open-source solution from scratch. Both approaches to starting an open-source company are valid, and the right approach depends on the scenario you find yourself in as a founder with the problem you’ve identified. Ask yourself these questions:
Your answers to these questions will determine whether you leverage an existing project or build from scratch. Let’s visit the main scenarios in more detail.
Form a company around an existing project that you were involved in building
The “spin-out” scenario arises when a person has helped solve a problem internally at an established company, and recognizes that the internal solution is broadly and generally applicable to other users and organizations. If the solution is already an open-source project, the employee may look to leverage the existing project to start a new company.
In spin-out scenarios, we encourage founders to seek the support of their previous company before leveraging the work. In some cases, the company may not be supportive of someone leaving, or other considerations regarding the existing project may prohibit the founder from starting a new company based on it. In these cases, it may be best to start a new open-source project inspired by the existing project.
Examples:
Start a company based on an existing project that you did not originate
Some open-source companies start as a result of significant technical innovation in an organization or community that the founders weren’t directly a part of. This knowledge may be made available via an OSS project or published research and result in identifying an opportunity to leverage it to solve a broad problem. This approach is similar to the spin-out scenario in that this innovation serves as the basis for starting a new company around an OSS project.
If you take this approach, it’s worth keeping in mind that you’ll want to do all you can to maintain goodwill with the people involved with developing the key innovation and the company sponsoring it so as to not be viewed as co-opting their work. You want the creators to support you and in 90% of successful cases, the original builders come onboard and get involved with the new company.
Examples:
Building a new open-source project inspired by an existing solution
Some founders may identify an opportunity to bring an OSS project to market that’s inspired by an existing solution for a single company. This approach makes sense in a few scenarios:
Like the “spin-out” approach, founders taking the “inspired by” approach should do what they can to maintain goodwill with the people or companies involved with the original innovation.
Examples:
Read our case study: How open source fuels Cockroach’s unsquashable growth
Read about how Grafana built a self-serve motion
Building a new open-source project to challenge a closed-source leader
In established market categories where there are existing or emerging incumbents that have closed-source products, founders may identify an opportunity to use OSS as a way to directly challenge those leaders and capture market share with a new company.
Examples:
Building a new open-source project to address an unsolved problem
If you’re tackling an uncharted problem that has no connection to an existing project, you can pioneer a new project from the ground up. Despite what you might think, starting from scratch isn’t necessarily more difficult than the other approaches. The main thing to prepare for is that you’ll likely start without established adoption and awareness about the solution you want to build.
Examples:
As we note in the Unusual Field Guide, choosing a co-founder to start a company is perhaps the most important decision you will make in your entire company journey. In addition to the considerations highlighted in the Field Guide, selecting a co-founder for an OSS company involves some nuances.
Choosing the right co-founder for an OSS company requires ensuring that together you can establish project credibility, generate awareness through evangelism, and are committed to building a successful commercial business. As you consider whether someone is the right co-founder, ask yourself these questions:
If your company is based on an existing OSS project and you are not one of the creators or early contributors to the project, then it is highly valuable, perhaps imperative, to bring on someone who is, in order to establish project credibility. This credibility ensures that users and companies who want to use the OSS view your company as the project’s de facto leader/steward and will turn to your team first for help rather than going to anyone else.
It is also important that you or your co-founder be able to play the role of evangelist to drive visibility and awareness with users and customers. It can be highly effective for one of you to act as a “lightning rod” to provide thought leadership, express sharp opinions against competitors, and stir up attention with your audience. Providing a strong “voice” is necessary to rally enthusiasm among your user base and if you don’t have this skillset, consider partnering with a co-founder who does.
Finally, it’s critical that you and your co-founder share the same perspective on OSS and its role in building a successful business. You may find that some potential co-founders are dogmatic about OSS to the point that they only care about making software freely available to anyone but not necessarily maximizing long-term revenue and shareholder value via a commercial offering. It’s critical to ensure that your co-founder is committed to using OSS as a means to building a large, successful business.
This is part one of The Open Source Software Field Guide for Founders. Read part two: Developing open-source software customers.
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Check out this episode of the Startup Field Guide Podcast, where Loris Degioanni (co-founder and CTO of Sysdig) chats with Wei Lien Dang about why he founded Sysdig and how he leveraged the power of open source for growth and industry disruption. Sysdig is a cloud native application protection platform that helps stop cloud and container security attacks.
Be sure to check out more Startup Field Guide Podcast episodes on Spotify, Apple, and YouTube.
A full transcript of this episode can be found on the Unusual Ventures blog.
