Building Open-Source? Product-Market Fit Is Not Enough

‍Commercial open-source companies walk a tightrope. On one side, there's the open-source project: transparent, community-driven, and free. On the other, the commercial product: packaged, monetizable, and built to scale.

While the team is the foundation, COSS success hinges on how well you align four key elements: the open-source project, its community, the commercial product, and the market you're addressing.

Most COSS journeys start with the project. In some cases, a community of users, contributors, and ideally evangelists forms over time. This is what Peter Levine and Jennifer Li call Project-Community Fit - when a project sparks real engagement and contributions from developers.

On the other end, there's Product-Market Fit (PMF). Unlike Peter & Jennifer, I like to see PMF as a universal concept that applies the same way for any startup, and follows Michael Seibel's take, building on Marc Andreessen's classic: "The customers are buying the product just as fast as you can make it – or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can."

So here's the big question: how do you connect your open-source project to your commercial product without breaking the magic? That's where Project-Product Fit (PPF) comes in.

PPF defines the positioning decisions that let you monetize by aligning your product with the market, without alienating the community that formed around your project.

PPF should act as a framework that reveals a clear value jump between your open-source project and your commercial product. The hard part is that while the project and product should offer clearly different values, they also need to be intrinsically connected.

The trickiest situations are when the project and product are too disconnected ("are they even really open-source?"), or worse, when they're too similar in both adoption and value, and users don't see a compelling reason to pay beyond supporting the author's hard work (I wish it worked that way!)

So how do you differentiate the project from the product in a way that feels natural and fair? It comes down to a blend of two things: ease of adoption and perceived value.

➡ Ease of adoption is how quickly someone can discover and start using your project or product. For the project, this includes things like a good README, solid documentation, approachable codebase, ease of deployment & install etc. For the product, it generally means be production-ready, make it damn easy to adopt & scale (e.g offering a managed version) or bundling in the usual enterprise bells and whistles (SSO, RBAC, audit logs, SLAs) to meet the needs of larger customers.

➡ Perceived value is what users or customers actually get out of your project or product. Your product should deliver more value than your project, especially for your ideal customer profile (ICP), if you want to monetize effectively.

Perceived value is subjective: for your product, developers, team leads, and managers may each see different benefits (and what's "critical" for one persona might be just "nice to have" for another). It's your job to build a sales motion with compelling pitches for every stakeholder on the customer side.

Depending on the pain you're solving, your competition, and the market you're in, the way your product connects to your project can vary a lot.

The most common approach today is to drastically improve ease of adoption, often through a sleek managed version with smooth onboarding. In other cases, the real value kicks in when you add specific features that customers care deeply about or literally cannot go to production without, or when you handle the technical complexity around scaling usage.

You can represent this through a three-zone diagram, where your project would generally be somewhere in the blue zones and your product in the green one:
➡ Red zone: this zone is for hard to adopt and low value projects... you might want to avoid that one!
➡ Blue zone: this zone covers all shades of projects, from what I call "toy projects" (easy-to-use tools that solve a simple pain) to "power tools" that resonate well with a niche of advanced users but come with a steep learning curve.
➡ Green zone: the sweet spot where your product offers a higher blend of ease of adoption and perceived value, allowing you to monetize.

In some cases, companies build in both directions, targeting different customer segments with offerings focused on ease of adoption on one side and value on the other.

Either way, you want to create a smooth, continuous back-and-forth between project and product so that:
➡ Qualified power users and contributors naturally become customers (qualified and naturally being the most important words here: as my friend Luke notes, developer trust is fragile and aggressive sales tactics backfire)
➡ Customers contribute back to the project: this is when the flywheel kicks in and everything compounds (less intuitive but equally important in the long term)

Back in 2023, I met Tal and Shahar during YC's W23 batch. They were building Keep, an open-source AIOps platform that sits on top of your existing observability stack and helps engineering teams cut through the noise when things go wrong. Despite initially passing on their pre-seed raise, we led their seed round in 2024, while Matvey joined as 3rd co-founder.

Even though they follow a classic "open-core" approach, I find the positioning of their Project and Products interesting (hence the investment 🤓).

The open-source project is the entire AIOps platform, licensed under MIT. Yep, the full thing (🤯) so how do they monetize on top of that?

They built two clear product layers:
➡ A managed version, with a big upgrade in ease of adoption and some value-add features like enrichment, noise reduction, and autoscaling
➡ An enterprise edition, including enterprise features and focused on deeper value creation, including an AI layer that correlates alerts, logs, and traces automagically

Support is included in all plans, which does add value, but as we know, support alone is rarely enough and doesn't scale into a big business.

Product-Market Fit is necessary, but it's not enough for COSS companies. If your product isn't positioned clearly in relation to your project, you risk confusing users, diluting value, or worse, alienating the community that gave your company life.

Project-Product Fit forces you to make explicit choices: What stays in the project? What moves into the product? And more importantly, why? The best outcomes happen when this separation feels intuitive, when users understand the line, and that line is drawn with intention.

Good PPF lets your project remain open, useful, and attractive, while your product becomes a continuity worth paying for. It's about building trust and technology through clarity, not gating functionality out of fear.

And when the fit is right, the loop starts to work: contributors can become customers when they need to, and customers become contributors because they believe in what you're building.

In the end, strong Project-Product Fit is what enables a COSS company to scale without compromise and differentiate from closed-source alternatives.