What exactly are you selling?

In the open source startup world, we often divide companies into two categories: pre-revenue and post-revenue. But there’s an important distinction between between two phases in the pre-revenue stage:

Companies that are still figuring out what they’re going to sell

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Companies that know what they’re selling, but haven’t actually closed a deal yet

If you, like most open source companies, are starting out with a free open source project and initially focused just on growing the user base and community around that project, that first step is not trivial. It involves:

• Committing to a revenue model. Yes, yes, people say “open core is the way” but there are many different flavors of open core, other than ‘we slap a nice UI on our project and badaboom, enterprise edition!’

• Related, but also non-trivial: you decide who your commercial offering is for. I like the buyer-based commercial model Sid Sijbrandij talks about, though I’d re-name it user-based pricing, since one tier (the open source) has no buyer. Regardless, you should have a hypothesis about your buyer’s profile before you decide on a revenue model.

• Then, you need to actually make decisions about what features you should build to provide value to your buyer, decide on a pricing model, decide on a price (which should probably be higher than you think).

None of the above is set in stone — startups iterate on their product and they also iterate on their revenue model, pricing, buyer personas, etc. But you do have to start somewhere, and if you think strategically about how who your open source project serves and the value it can provide to people willing to pay for it from the beginning, you’ll get to a good fit faster.