Building a business model

Yesterday I wrote a very long blog post about the European open source startup scene and an article about it in Sifted. I wanted to expand just a little bit more on one idea: How unreasonable is it for a venture fund to expect a company they invest in to have not just a fabulous open source project, but also a viable business model?

I mention this because it’s one of the main critics of European VCs when it comes to open source startups: They want to see the revenue, not the 1 million downloads.

I am, of course, not a VC. But this doesn’t strike me as ridiculous. If I were thinking about putting a couple million euros into a company, I would absolutely do due diligence on business model / commercialization strategy.

Monetizing open source projects successful is not that easy — and I actually suspect fewer companies succeed at it than the ecosystem admits. That’s because it’s possible to be acquired for strategic reasons long before profitability — and when that happens, we often don’t know what the bottom line looked like.

I’ve also noticed that successful open source companies/founders often talk about a long struggle to find the right monetization model. Zero founders will admit to that struggle while they’re in it, though. Because so few companies talk about it publicly, we don’t know how common the struggle is.

Basically, monetizing open source is not easy, or obvious. An open source project with millions of downloads is not a slam dunk for commercial success. If you recognize from the outset that it’s not easy, you’re more likely to be successful eventually and to be able to persevere when things are rough.