Can You Build a Viable Business from Your Open-Source Software Project? Three Steps to Validate Your Vision

In the first two posts of this series, I posed key questions you need to answer if you want to start an open-source software company and followed that up with make-or-break answers for VC-backing. You may have read both posts and thought, “Yeah, I’ve got this. I’m ready to start selling.”

Hold on; not so fast. You’ll need to do more homework. By this point, you should have a profile of your ideal customer — understand their challenges and how their life would improve with your solution. You should have an MVP (remember your OSS project is not your product), nailed your product description, and perfected your 20-second elevator pitch.?

Even after you’ve got everything above, you still have more homework. All of this information is exactly what you need, yet it’s all just theoretical. If you want your product in the market, then you must validate your idea in the market.?

Specifically, I’d advise you to follow three mission-critical steps:

Step 1: Test your assumptions with potential customers?

This is the fun part: heading out into the real world to learn if anybody agrees with you – or even knows what you’re talking about.

The methodology here calls for interviews with potential customers. These aren’t yes/no interviews like public opinion surveys; they’re discussions based on a few well-honed questions that should elicit open-ended responses and honest feedback.

Who are these interviewees and where do you find them? They are individuals who match the description of the ideal customer that you developed. Chances are, many of them will be like you: developers familiar with the benefits and challenges of open-source software. But don’t just talk to your friends or colleagues. Seek out people who are thought leaders in the field. Maybe they’ve spoken at conferences, posted particularly insightful blogs, or written articles for trade or professional journals.

One thing is for sure: don’t over rotate on the views of venture capitalist or other possible investors. They have minimal value to provide at this stage. On the contrary, what you learn from these interviews will form the core of your presentation when you start selling.

The goal is to conduct 15-20 interviews. A subset (say, 3-6) ideally will be with managerial-level people who have the budget to pay for your solution.

Developing a discussion guide for these interviews is an art form, so get help from people with the proper skill set and experience (e.g., sales and marketing professionals). A portion of the discussion will be a high-level description of your open-source project and your plans to commercialize it. I emphasize that this is a portion of the discussion; it’s not a half-hour sales pitch. It’s an invitation for honest feedback, constructive criticism, suggestions for improvement, and an informed judgment as to the viability of the product concept.

?The objective of each discussion is to answer questions like:

• Do they see the problem the same way you do? Be attuned to the language they use. Be cautious of disingenuous confirmation, people avoid conflict.
• What is their degree of urgency for solving this problem? Would your solution be nice-to-have or must-have?
• What would a solution mean to them and to their organization? Probe for how benefits would be measured.
• What solutions have been tried before, and what were the outcomes?
• What’s their reaction to the idea of a commercial product based on your project?
• What suggestions do they have for improvement?
• Who/what is the competition, both direct and indirect? If there is an incumbent vendor, what are their strengths and weaknesses?
• What’s the process for a product like yours to be specified, recommended, and purchased?
• Who has the budget to pay for your product, and up to what dollar amount?

The results of these discussions will vary widely. You may love what you hear, you may be discouraged. But you’ll have a view of reality. The best response you can hope for is one that’s detailed, not just “this sounds cool.”

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Step 2: Find a design partner to provide feedback

Here’s the thing though: talk is cheap. As great as these conversations go, they’re just conversations. It’s time to turn that positive interview into usage. Here’s where validating your product becomes mission critical.

Feedback is a gift, particularly in the early days of a venture. Your first step to real, actionable feedback is to find design partners. Design partners are the first few users you enlist to help you define your company’s problem space, and help you shape your solutions as you gear up your product for market. A good design partner represents your target market, has an interest in your solution, and has the time to test it. Depending on your project, you’ll want to build a team of 5 diverse design partners who will test your product in a sandbox environment. They’re not there to cheer you on, they’re there to dig in and assess the usability and need for your solution.Their feedback should guide you in building a useful product that solves a real problem for your target buyer.

At this stage of your company's evolution, your? priority lies in understanding the market and your users thoroughly. By observing their behaviors closely, you can develop a solution that effectively addresses the correct problem, ensuring a good product-market fit.?

Step 3. Iterate, Iterate, Iterate?

Remember, feedback is how we grow. As you collect user feedback, leverage it to align your product vision with the market’s wisdom. Make the necessary improvements, which might involve changing features, improving user experience, or adjusting your pricing strategy. The key is to be flexible and willing to make changes based on what your users are telling you.

Once you’ve iterated (and iterated and iterated), make an honest evaluation of all that you’ve heard, and answer these questions:

• Have you heard validation of the assumptions and hypotheses you made?
• Where is the strongest agreement? Where are there gaps?
• What are the common themes? Is there consistent product direction feedback??
• Is there enough consistent feedback to give you confidence that there could be an identifiable and addressable market?

Ideally, you will have the answers to all these questions — and more importantly, the evidence and documentation to back it up. Even still, you’ll need to continue refining your product functionality, user experience and packaging depending on how far along you are.

As you continue this process, you’ll crystallize how your product functions, who would use it, why it’s needed, and how it will become market-ready. In short: all the reasons why it would succeed in the market. Embracing a continuous feedback loop not only enhances the overall quality of your product but also fosters stronger relationships with your design partners — who may even convert into paying customers.

After all this, how do you make the leap?

When the aforementioned homework is done and you’ve validated the product concept through design partnerships, you may be ready to take your solution to market.?

At a high-level, here are some questions that can determine how you make the leap:?

• How much capital do you need? To reach a meaningful initial product milestone, how many engineers are needed and therefore how much capital is required? Take that forecast and gross it up by 50% - things always take longer and cost more
• Do you need? angel or seed financing? If you’re raising a couple hundred thousand dollars, you’re looking at angel funding (individuals) or perhaps pre-seed funding on the slightly higher-end. If you need a few million ($2 - $5M), you’re looking at seed financing from an established seed fund.? If you need $10M or more, you’re targeting Series A which typically means you have several hundred thousand of ARR.??
• How will you price your open-source software? A lot of factors play into how you price your product. This topic can be its own separate thread. At a minimum, look at the feedback from your design partners, including customer ROI and cost savings. Do your market research: how do your competitors price their comparable products? What are their monetization strategies? Consider how your pricing will scale as your customer base grows.
• What features are next on your roadmap? This demonstrates your commitment to continuing to provide value for your early customers.
• How will you sell and acquire new customers? I recommend a read through April Dunford’s How to Build a Killer Sales Pitch.
• Does a product-led growth approach suit your software? Here’s a primer for figuring out if PLG? makes sense in your go-to-market strategy.?

Good luck on your journey!