February 14, 2024

Open Source is not a Business Model, rather it can support quite a few different Business Models. In this series of articles, I will look at some of those models with a focus on the models which work well embracing Open Source for Real.

Professional Services – Consulting, Training, Custom Engineering is Perhaps one of the oldest business models that supported Open Source development efforts for decades. The reason it is so old and so common – it happens naturally. As you develop an Open Source project and it gets users, some of them need help… and they naturally come to you, ask for help, and offer to pay for that. This means you may not need to explicitly do Sales and Marketing initiatives to start.

To start a Professional Services business around an Open Source Project you do not need to be a founder, you do not even need to be a developer, being an active community member and having a reputation may well be enough. When we started Percona we did not have any Server developers, this came later, but we had a great reputation in the community for being able with MySQL Performance Problems.

Benefits and Drawbacks of Professional Services Business Model

The great thing about Professional Services Business – it is rather easy to get started. Many solo practitioners start part-time, while keeping their day job, to check if this path is for them. You also may be able to ramp up pretty quickly. If you are building a business around an already successful Open Source project, as was the case with Percona and MySQL you may get fully booked in a few short weeks.

If you want to grow beyond individual consultants it is also quite possible to grow through “Bootstrapping” without the need to attract external funding – when you get a significant pipeline you can’t serve you hire another expert from the community (you probably have one in your network). In the early stages, this approach “great people doing a great job” works very well, it is only as you grow larger you need to get significant complicated processes and organizational structure.

As you grow a professional services team it is also rather easy to incorporate Managed Services and Support business models, which we will discuss in subsequent articles.

You are also quite likely to find willing partners if you’re doing Professional Services – many Cloud companies or venture-funded “Product” companies do not want to do Professional Services in-house but rather find partners to do it for them.

Another positive is that you get a fantastic insight into customers’ problems and how their companies operate which can put you in a great position to build Products for such customers. Through professional services, you go much deeper than “customer interviews” and also can observe what they do rather than what they tell you.

Let’s look at the downsides now – Professional Services is a hard business, as unlike with Subscription businesses you need to be constantly selling new just to keep revenue at the same level. Margins tend to be relatively low, scaling happens through people, which is hard, especially when you need to scale beyond your network of competent professionals. Business can also have volatility, seasonal, and otherwise where sometimes you have more work than you could possibly handle and other times there is no paid work for your staff. Also while the Professional Services business is easy to bootstrap it usually does not attract Venture Capital and also does not have the same valuation multiple compared to product companies.

Also, it is worth pointing out the high risk of burnout – especially in the early stages chances are you will need to market, sell, deal with contract negotiation, deliver services, collect money, deal with bookkeeping and taxes all by yourself. On the opposite side, I know quite a few entrepreneurs are very happy having built small lifestyle professional services businesses – they work with great smart people on interesting problems without the heavy burden of trying to build a $1B company.

Starting Professional Services Business

How to Start a Professional Services Business as an Engineer with no budget. This is what I’m going to focus on – if you have $10M to spend you can (and perhaps should) start at a different level.

I think the first thing you need to do is to build a reputation, Personal Brand. Most likely even if the company you work for would not want you to provide commercial services on the side, they would not mind you being active in Open Source Community. Here are some ideas on how you can build your name:

  •       Engage with the Community on Forums, Slack, Mailing List, GitHub Issues
  •       Start a Blog and Write Technical Articles
  •       Engage on Social Media
  •       Start YouTube channel or Podcast
  •       Contribute to the Project – Code, Documentation, Tutorials
  •       Help People (for free)

Especially if you do not serve external customers at your job providing help for free to your friends or community members can be a fantastic experience, so you get into your first paid contract with more confidence.

Whenever you’re an Open Source Project Founder or participate in an existing Open Source ecosystem you will start getting enquires to get help with specific projects…  as well as job offers.  This will give you lots of choices –  you can start a professional services gig part-time if your job allows it, change the job to one that does not require you to be exclusive, or if you’re confident enough jump head first into the wonderful world of professional services.

Professional Services Tips

The biggest mistake I see in Professional Services is not pricing your work correctly.  Way too often I see inexperienced founders looking at their previous Salary, converting it to hourly, and increasing it just a bit.  This is not nearly enough. If you’re starting as a Solo consultant remember you will need to do “everything” so you should plan to no more than 50% of billable time, plus you will be likely responsible for additional taxes and expenses. So you should be looking at more than double, hopefully triple your full-time hourly rate to be in good shape. Whenever the market is bare it is another story.

When there is confidence – what may look like a lot of money for you can well be pocket change for a large corporation. I remember my voice would be shaking the first time I would ask someone for $10K for the project (a lot of money for me at that time). Be confident your services are worth what you’re asking and you’re providing outstanding customer value and you will be much more successful with Sales.

While “Time and Materials” contracts are simple and allow for a lot of flexibility they also have limited margins.  Different models can work better. For example, you can charge “per Project” – during the early days at Percona “MySQL Performance Audit” was a very successful packaged service. It was easier to sell as customers could visualize results because we could provide them with sample reports, easier to sell, and have higher margins as we could build tools and processes to improve the cost of delivery over time.  Another creative way some companies use (ie in Cloud Costs Optimization Space) is pricing based on the portion of costs saved – this can work great as you can position it as no out-of-pocket expenses for the customer, but you need to ensure there is a good way to track such costs saved, which is not always easy.

Finally – do not forget to offer the next steps. When you deliver services, you gain valuable insight into customers’ systems and organizations. More often than not, you’ll discover additional ways to assist customers beyond the scope of their current contracts. Do it well and you can dramatically increase billings from the same customers, reduce sales and marketing expenses, and achieve faster growth. The problem you may run into, though, is that Engineers involved in Service delivery may not be the most comfortable having these conversations. Additionally, they may have other Engineers as their peers, who may not be the right people to discuss this with either. If this is the case consider making sure Engineers have some form of internal debrief (written or as a conversation) with Sales which is focused on further opportunities. You will likely notice that some Engineers are better at spotting opportunities than others. You can work with these individuals to help teach the rest of the team the craft of finding opportunities.

Strategic Consulting for Open Source Founders

Interested in taking a deeper look at your company’s Professional Services Business and getting specific advice on how to take it to the next level? I would be glad to help!

 Subscribe via RSS

Notify of
Inline Feedbacks
View all comments
Would love your thoughts, please comment.x