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Ten things the world can learn from open source

Ten principles that work in open source, and should work for other industries, too.

We tend to think of open source as a software-development phenomenon, and so it is. But the ideas behind open source are starting to be felt beyond the software world. I mentioned the other day about how open source is creeping into hedge funds, consumer electronics, and shopping malls, but it's also being felt in government intelligence operations and more.

With this in mind, I put together a list of ten principles that I've gleaned from my open source experience, which I believe can be applied to just about any business.

  1. Adoption precedes monetization. This seems like such a simple, intuitive concept, but many (most?) businesses are built on an orthogonal principle of control and maximum monetization. It took Jonathan Schwartz of Sun Microsystems to remind me.

    If you're starting a business, adoption is your first consideration. Period. Nothing else comes close in terms of importance. If prospects don't have interest in your product, it doesn't matter what you charge or how well you protect and control your product. You will (deservedly) go bankrupt.

  2. Lots of customers is a greater barrier to entry than lots of intellectual property (IP). This is a corollary principle to #1, and is taken from something Mike Moritz of Sequoia Capital once said. Focusing on adoption continues to be the right strategy, even when you have adoption. Adoption is what keeps competitors out, not artificial barriers created through copyright or patent law. This is largely due to Principle #3:

  3. A business' brand is its greatest asset in driving sales. Not its IP. Not its sales team. Brand. Brand is what gives a customer trust that the product (and service behind it) is worth buying, even when another product is cheaper, easier, etc. Vendors need to invest heavily in their brands (through public relations, for example), and it's the primary area that lawyers become supremely helpful, i.e., through trademark law. A brand should be earned and protected at all costs.

  4. Lower barriers to evaluating and using your product. With a strong brand, this becomes easier to stomach, but it's critical at every phase of a company's growth (see Principles 1 and 2). It is arguably an easier decision, for example, for MySQL to open source its database under a very liberal license (the GPL) than a new entrant to the market, because that new entrant lacks the same brand that convinces people to pay, even when they can get the product for free. Even so, because adoption is paramount, evaluation without strings attached is critical.

  5. Sell customer value, not vendor value. This is related to Principle 4, and it's egregiously misunderstood in the software world, where we often sell the wrong things. Service is any company's primary value. Other products (like an Enterprise Content Management system) simply create a relationship from which service can be sold. Open-source companies understand this because our business model requires it.

    Most businesses aren't widgets businesses where you ship a tangible product and the customer has no further contact with you as a vendor. Even fewer are happier about being in that kind of business, because it's tough to earn repeat business if your product is thought of as a few pieces of metal/plastic/fabric put together with screws/thread/what-not. Service breeds customer loyalty.

    Having said this, remember that popularity without profits is a dumb business. You need a trigger that invites payment. That trigger should be additional value beyond the code, if in the software world, or beyond your tangible product, if in a different industry. For example, I may choose to eat steak for dinner tonight, but my choice as to restaurant comes down to the expertise that a particular restaurant prepares and serves that steak. I have lots of choices where to eat. Service is the value that dictates which restaurant I choose.

  6. Product use should breed re-use and further sharing. Otherwise put, you want your customers to also be your sellers/marketers/etc. This is how marketing truly scales in an open-source company, and it's the way great businesses in any industry grow. You don't want to have an isolated relationship with a customer where you give, they take, and that's it. You want them to contribute back in some meaningful way, and to contribute to the next downstream potential prospect.

  7. A collective product best serves a collective market. In other words, a diversity of inputs best creates diverse outputs, which is what a rich market looks like. You may be very smart, and may understand a range of different customer requirements. But as one person/company, you cannot hope to reflect the diverse customer needs that could feed you cash in return for solutions to those needs. But if you can harness the power of a community, your business can be "localized" in a way that makes you relevant and critical to a wide array of customers.

  8. Invest in service and your product, not sales. By this I don't mean that vendors shouldn't invest at all in sales. Of course they should. But if it costs a vendor more to sell a product than it does to build the product, it has a product that isn't worth selling. The real money should go into development, and then the product should largely sell itself(through brand, customers marketing to prospective customers, etc.).

  9. Transparency breeds trust, and trust breeds revenue. Open source teaches ust o reveal the supposed crown jewels--source code--but it also teaches open-source companies to provide open roadmaps, user forums, etc. The more transparent a company, the less time that is wasted on helping customers to justify a purchase decision. Give them maximum information and then sell to them on their terms, when they're ready to buy. In the open-source world this translates into dramatically shorter sales cycles because by the time a customer knocks on your door, they're already sold.

  10. People make a business. In Principle 2 I said that brand is a business' greatest asset in driving sales. This is true. But people are the force behind that brand, as people build the product, deliver the service, talk with the customer, etc. A company's greatest investment should be in its people (who, in turn, invest their time in building exceptional products for the customer). Open source teaches this by elevating the status and importance of those who write code: developers are king. The better the quality of the people that go into the company, the better the quality of code that comes out.

    To me, this means that we should be generous, not stingy, with salaries and perks. Look at Google. Google "wastes" all sorts of money on employee perks, and it pays off in spades. Companies that invest in people will win. Period.

These are just 10 lessons I've learned from my time in open source. Many are not specific to open source, of course, but that's the point: open source is, in some ways, just a mechanism for making the software world operate like the rest of the world's industries. Most industries don't get to write once, lock-in forever.

Fortunately, through open source, the days of doing this in the software world are numbered. We have much to learn from other industries. It's nice to see we have a few things to teach them, too.

What lessons have I missed?