How Open Source Companies Are Built

February 16, 2018
Authors:

 

We recently brought together open source leaders from organizations both large and small to discuss how they balance building a leading enterprise with a free and widely available offering for the community. The timing couldn't have been better as 2018 marks the 20-year anniversary of the term "open source" and the accelerating technology landscape enabled by the open source movement.

Moderated by Netflix Director of Product Security Bryan Payne, the panel featured a mix of leaders from publicly traded and private open-source companies: Red Hat CEO Jim Whitehurst; Cloudera SVP, Products Charles Zedlewski; npm co-founder and COO Laurie Voss (a BVP portfolio company); and Scytale founder and CEO Sunil “SJ” James, a former investor with BVP currently incubating his startup in our San Francisco office.

From left to right: Bryan Payne (Netflix), Charles Zedlewski (Cloudera), Jim Whitehurst (Red Hat), Laurie Voss (npm), and Sunil “SJ” James (Scytale).

We thought it would be useful to share several themes that stood out to us:

 

When the code is free, the ecosystem is key

Giving your source code away for free makes it more challenging to generate revenue – at first. But one of the advantages of the open source approach is that it can be more conducive to building an ecosystem than a proprietary piece of technology. And vibrant ecosystems very often lead to unicorn companies.

Since open source products tend to be priced at roughly one-quarter of a typical proprietary software product, open source companies naturally get a smaller share of the pie. But a dynamic ecosystem creates a bigger pie, allowing a company to benefit from exponential growth afforded by the expanding community.

 

Let the community guide growth

The panelists emphasized the importance of understanding their value proposition to their communities. Identifying the problems they solve leads to opportunities for the company to become even more useful (and generate revenue). Open source customers also enjoy the ability to influence roadmaps directly and are happy to pay for additional features that enhance the work they are already doing.

While pursuing revenue growth, however, it is important to communicate a clear strategy and approach to the community. In order to build and maintain trust with the communities, open source leaders need to be radically transparent and provide information and context around key decisions.

 

Open source is becoming crucial to attracting top talent                      

The popularity of open source makes it a major hiring draw. The panelists reported that CIOs of major corporations routinely indicate that they can’t hire the best and brightest if they don’t provide their employees with the opportunity to contribute to open source projects. One panelist mentioned that they get multiple requests per week for assistance in drafting a new open source policy from their customers’ legal departments. Simply put, companies cannot hire the technical talent they want without providing this freedom.

 

Leadership needs to focus on culture

What’s different about running an open source company? For one, it requires a fundamentally different leadership style. In a traditional company, the role of a leader is to provide a vision and hold people accountable to execute on it. In an open source company, the relentless focus on innovation requires leaders to prioritize creating a culture and normalizing a set of behaviors that allow the community to help shape and execute on the vision.

Our thanks to everyone who attended, Bryan for moderating a great discussion and Jim, Charles, Laurie and SJ for sharing these insights and many others.