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Open Source / Tech Life

Entrepreneurship for Engineers: Selling Open Source Software

For founders of open source startups (and the sales teams they eventually hire), what is unique about sales when their company also offers a free alternative? 
Aug 11th, 2023 5:07am by
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Entrepreneurship for Engineers is a monthly column by longtime New Stack contributor Emily Omier that explores the concerns of developers who want to build tools for other developers — and build a business around their innovations. We welcome your feedback, and ideas for future columns.

No matter what kind of company you intend to build — open source or proprietary, DevTool or not — at least one of the company founders will have to close deals at the beginning of the company’s life. Even as the company gets larger, founders still need to be involved in sales, especially big deals.

For founders of open source startups (and the sales teams they eventually hire), what is unique about sales when there’s a free alternative your company is also promoting?

I was inspired to delve into this topic after seeing Nicholas Erdenberger, chief revenue officer at dbt Labs, talk on selling free software at HeavyBit’s DevGuild conference. But I’ve also spoken with experienced salespeople in the open source ecosystem to get their perspectives as well. Here’s what I’ve learned.

First, the Basics

Sales are obviously critical to any company’s success, but it’s also not the first thing you do as a company. Once you think about sales as the process of ushering a deal over the finish line, this becomes clearer.

“I’m going to talk about basics and fundamentals, that if you don’t screw up, you will be successful, Erdenberger said at the beginning of his talk at DevGuild. “And that a lot of people do screw up, so we should probably focus on them.”

Create an open source project people love. “This sounds really obvious, but I see people do this all the time: They hire salespeople to help develop the open source project, or help fund the open source project,” Erdenberger said. “This is a really bad idea,”

Made a commitment to commercialization. “There are a lot of technical founders in here who love the open source thing that they built and have to be ready to make trade-offs between prioritizing that open source and that community that you love, and prioritizing building a software business,” Erdenberger said.

Have a framework for the open source versus the paid product. This means a rationale, not a feature list, that can be shared and understood externally and internally, with your customers, community and team. If you have a list of 20 features, it should be easy for all of those stakeholders to see which belong to open source and which belong to paid.

Build a working commercial product. “It doesn’t have to be awesome,” Erdenberger said. But it does have to do what you say it does and provide a value that customers are willing to pay for.

You have to be realistic about where your product is now, versus what kind of customers you are chasing, added Lee Wright, vice president of sales at Quix, a data platform company. If you are a seed-stage company with zero compliance certifications, talking about how to get into multinational banks is just a waste of time.

“I’m always saying that salespeople are not magicians,” said Wright. “What salespeople categorically do not do is generate demand.

As an open source company, you have to make sure you have the basics in place to drive adoption of your project and to generate leads before you think about hiring salespeople. And even if you’re still at the founder sales stage, you need to have all of these fundamentals in place to be successful there, too.

Sales Tactics

When you’re selling for an open source business, Wright said, you have basically three levers to pull. You can create net new users, convert open source users to paid customers, and expand existing accounts.

Account expansion isn’t much different from a proprietary software sales situation, but the other two can be — especially the process of converting an open source user to paid.

“The most important thing to know as a seller is 99% of people who use your open source project are never going to pay you a penny,” Wright said.

As a seller — and as a founder — you have to be comfortable with this.

“Salespeople who come from a non-open source software background, at first they get annoyed with customers who want to do everything themselves for free,” said Reg Deraed, continental Europe field sales director at Canonical. (And he admits to feeling the same way when he first started working at Canonical.)

But now, he sees every enterprise that uses his company’s product Ubuntu as a win, even if they don’t pay.

For an open source user to convert to a paid customer, Wright said, one of three things has to happen: They are in production and there’s a major incident, the person responsible for operating the software leaves, or there are changes to their enterprise platform requirements.

“If there’s no change, you don’t have a buying trigger,” he said, and they’ll never pay.

But the trick is you want to make sure your phone number is the first one a user thinks of calling if they ever do experience a buying trigger. That means staying in touch with them and being useful, not pushy or sales-y, on a regular basis.

For net new users, the sales cycle also isn’t dramatically different from any other software sales, Wright and Deraed agreed. “You need a [proof of concept], need to have proof of a business case, etc.,” Wright said.

Deraed said he explains it to new team members who come from a proprietary software sales background as like selling a traditional software license plus support contract — except that there’s no license in this case. The difference is you might have net new users who ultimately decide that your software is awesome — but they’ll be fine with the open source project.

Founder Sales and Embracing Rejection

Deraed echoed Erdenberger’s notion that CEOs have to do sales at the beginning — and that is true of all startups, not just open source companies.

“If the CEO doesn’t know why customers buy the product, the sales team won’t either,” Deraed said.

Wright had two specific pieces of advice for founders. The first is embracing rejection.

“You will lose 99% of deals,” he said. “Founders I’ve met have really struggled with this. At every stage of the funnel, you’re going to have about a 70% drop off.”

The second is that while you, as a founder, are thinking about your own company all day, every day, your customers aren’t. You’re just one thing on their massive to-do list, and you need to have patience as a result.

The true art of sales, Wright said, has nothing to do with whether or not your product is open source: “It’s literally saying, What is it you’re trying to achieve, and by when? And yes, I can help you do that.”

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