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The Open Startup and the Open Business Model

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I was wondering recently why companies are spending so much on software solutions when there are many open source versions of the same software available for free.

If I were a company leader investing in software infrastructure first I would hire a hacker to consult me, and customize an open source software for my personal needs. If a single hacker wouldn’t be enough I would sponsor an already running open source project to get my solution.

The relation between angel investors, venture capital — the current startup culture — and hackers is the same like the model sketched above.

Software And Internet Is Built By Hackers

So why don’t we follow the rule of asymmetry governing our times, and focus on those who are adding the biggest value to the final result?

Lets put the packagers — investors, angels, capitalists — to the other side and examine what is their value added to our work, and see if we can replace their generous but sooner-or-later very expensive help.

Yes, I’m thinking here Linux, Apache, sendmail, MySQL, PHP, Ruby, Processing and so on. They were not founded, bootstrapped or startupped yet they survived — or even more, services and solutions built on them brought billions to startups, angels and capitalists.

The Combinator And The Cowboy Model

Currently there are two highly visible, proven and viable models a hacker can follow if thinking in startups: Paul Graham’s Y Combinator and the 37 Signals.

37 Signals … of who’s? Of David Heinemeier Hansson’s or Jason Fried’s?

The fact the combinator model is associated with an icon, and the cowboy model has no singular hero attached makes the basic difference between the two approach.

Y Combinator combines hackers with investors at the best price on the market. Paul is an angel guarding his hackers — and the best insurance for the investors. Without Paul there is no business, no connection between the producers — hackers — and distributors, packagers — capitalists.

37Signals is a younger concept, a roll-your-own solution. They are not connecting anybody but giving the best tools of the market for free to hackers, and, with their 3.000.000 customers are setting up the trend on the net for paid services — on how startups must generate revenue, and what consumers to pay for.

They are a completely standalone entity: they don’t depend on technology, on human resources (their tool Ruby on Rails is open source), on capital and on packaging/marketing. Since they have a cutting edge technology and business model they had already assured a large supporter base without the help of  third parties.

In contrast, the combinator model still follows the obsolete client-server architecture. If you are a hacker your application has to be accepted by Paul. Paul is your channel connecting to investors and making your product famous. You are depending on monetization and on your mentor.

The Open Business Model

Imagine as a hacker you have a good solution for a problem industry leaders are buzzing about. You already have a good partner, a co-founder with to start up. And you know two guys are far not enough to do the job. How would you proceed?

I would open up my company, my startup. The only shareholders would be hackers who invest time into the source code. The repository would be secured on Github, shares would be calculated based on code contributions, costs and revenues would be visible to all shareholders.

Since the problem to solve is hot, the business model is very new and exciting, and the contributors are all masters of modern media I think the buzz would hit high.

Such an Open Startup would have all the attention it needs to live and to prosper.


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