RE: Charging the Charger

A valid question Brian. I can only speak from my own experience here, so
YMMV substantially.

If you have a wonderful idea for some software, and you want to keep it
proprietary, you can go to Sand Hill Road in San Jose, go down to the
park, shake a tree and a venture capitalist falls out. You tell him all
about your wonderful idea, and hopefully for a percentage of the
company, he gives you bootstrapping capital.

Now, you can do the same thing for open source software, but you have to
have a much more innovative business plan. I couldn't just go to the
folks on Sand Hill Road and say, "Hey, there's this cool new software,
Open Office, but it needs technical support. I'm going to set up a 1-900
number and charge people $2.99 a minute to answer people's questions
about Open Office. I'll advertise in PC Week." and hope that he's going
to drop $1,000,000 in my lap for 10% of the company so I can set up a
call center. It's just not going to happen. There's no barriers to
entry, and frankly it's a weak plan as I've stated it here.

If on the other hand, I say "Hey, I have this idea for software that
will change the way people do X, and it will save Y kinds of people N
dollars so that their ROI is 7 months, and there are 350,000 Y people
out there and here's how I can reach them. Oh, and here are my projected
financials." then I'm going to get the money if the numbers work and are
believable.

All that being said, there are some indications that the VCs are (in
their typical lemming like fashion) investing in open source companies
without doing as much due dilligence because it's a new model and how do
you do due diligence on a new economic model anyway?

Now, I don't disagree with the fellow who wanted to bootstrap through
consulting either, for lots of projects that can work as well. In my
last endeavor, I used that together with venture capital to great
success. But for some projects, you just need money (or lots of donated
time) up front to get to the point where you have anything worth
selling.

If you want to bootstrap a support organization like Brian suggests,
that's possible. On the other hand, it's hard to leverage a business
successfully with that kind of approach. I'm not saying it can't be
done, far from it, but I am saying that it's more likely to stay a Mom
and Pop operation than a business that is leveraged through the
appropriate application of capital investment. If you like Mom and Pop,
that's great, at least until WalMart comes to town.

-Kelly

-----Original Message-----
From: Brian Behlendorf [mailto:[email protected]] 

But the licensing fees don't start rolling in until there's a product
built, marketed, and sold - so what bootstraps that?

It seems to me that companies intending to provide support for existing
Open Source software have a lower barrier to market entry than companies
intending to sell licensing contracts and support for products yet to be
built.  I can incorporate a new company on day one, and on day two start
selling support contracts for OSS products I and my co-founders are
familiar with, without spending for much more than the cost of a web
site and phone number.  Selling support contracts does not require a big
team, even for 24/7 coverage - I could start with just 2-3 people and
just a handful of customers to get to breakeven, and then hire up as my
customer base grows. Whereas, developing a substantial software product
requires a non-trivial team (a couple of dozen, if you include QA,
docs/packaging, product management, and competitive marketing), and pure
speculation that you'll get to a sustainable level of sales.

 	Brian







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