This year, we celebrated the 7th year of Cloud 66! It's been a long journey and I can't be more proud of what we have achieved in those years and so look forward to the next 7 years.
In our market (Platform as a Service - PaaS), we've come to accept the exceptionally high rate of companies that go out of business as a fact of life. We now even run ad campaigns to reach out to customers left behind by shutting PaaS companies on a regular basis.
In this post, I am going to share my experience of having run a developer-centric company from $0 revenue to profitability for the past 7 years. May it help some fellow founders.
Building Dev businesses: The good, the bad and the ugly
First, the good: the best part of building a developer-centric business is that you are the first user of your own product. This makes product development easier and finding early customers less expensive. This is a big deal in the early days of your business.
The bad: developer-centric businesses are somewhat the collection of bad parts of B2C and B2B. Generally (and this is a wide generalization) in a B2C business, your challenges are pricing and scaling your support. The biggest challenge of a B2B company is usually the long sales cycles. Now, this might not be always the case depending on your product, but when selling to a consumer the person giving you the credit card and the user are the same. In B2B this is usually not the case. Developer tools are sold to developers who usually choose their own tools (so act like consumers) but have difficulty justifying the cost to the business as the business (the money people) don't understand developer tools well enough to pay for them.
The ugly: selling tools, always comes with the "I can do it myself" challenge. The main point here is the time it takes to build and maintain the product for yourself.
Some years ago, I wanted to run some ethernet cables in my house. I thought to myself: how difficult can it be? We get some CAT-5 cables, sockets and plugs and we're good to go. Why should I pay an electrician for this? In reality, I ended up buying cable clamps, Ethernet connection testers, socket boxes, cable fish tapes and more just for a couple of cables. Good tools take time to build but more importantly require constant maintenance to adjust to the changing business and telling that to your customers is not always easy.
The key to success
If I wanted to condense the essence of success in a developer-centric business in 2 words, it would be this "unit economy". This, of course, is true for all businesses. You might look successful giving out $1 bills for 99 cents and have hockey stick growth, but at some point, the chickens are going to come home to roost. Cases in point? Uber and WeWork. But this space is full of companies who go out, raise a ton of VC money, burn it on giving out hard-earned technology for free and then have to go back and raise more, turn into a consultancy or write an "incredible journey" letter for their customers and leave them holding the can. Get your unit economy right and you're more than half the way there.
Open Source Business vs Open Source In Business
We use and contribute a lot of Open Source Software. We are not an open source business (we don't make money from open source) and I am a strong believer that open source is not a good business model. Open source businesses gain a lot of traction (sometimes vanity traction like stars and forks) but ultimately fail to turn that into a successful business. Before you list Elastic, Scaleworks or MongoDB as open source success stories, I urge you to look at their public market track record and how they have performed compared to other companies in their spaces. It's one thing to believe the hype generated by their private investors before they IPO, and another to see their numbers for yourself when they finally pass the bucket to the public markets. Many founders in this space start with open source and get themselves into a bind they cannot get out of easily. My advice: use open source, contribute to it and be a good citizen of the software community but think really hard before deciding to build a business based on open source.
As developers, we love using tools that make us more productive, reduce the risk of errors and bugs and keeps us informed about our work in production. This makes it easy to think building a developer tool company is going to be easy because there are many customers for your product. While this thinking might be slightly optimistic, I think by applying the basic rules of product development and business, you can achieve a lot more than simply following the Silicon Valley startup book and get caught up in the hype we always see in this space.