Smallstep’s Open Core Strategy: Lessons from Building Both Community and Enterprise Value

Building an open core business requires a delicate balance between community growth and commercial success. In a recent episode of Category Visionaries, Mike Malone shared how Smallstep has navigated this challenge while turning certificate management technology into a seven-figure enterprise business.

The Open Core Challenge

Mike is refreshingly candid about the challenges of the open core model: “Don’t. I think that has been one of our greatest challenges. If we’re talking about unsolved problems in the world, I’d say sustainable open source has been one of them.” This stark assessment sets the stage for understanding how Smallstep approached the challenge differently.

Finding the Right Balance

The company recognized early that open source could be both an asset and a liability. As Mike explains, “it’s a marketing asset and it’s a feature for some enterprise customers to have an open source, an open core.” However, he notes that you end up “competing with yourself” and risk “anchoring people from a pricing perspective at zero.”

Building Community Value

Rather than treating open source as just a marketing tool, Smallstep invested in genuine community building. This commitment extends beyond their own project – they recently “sponsored a guy named Felipe Velsardo, who is a core contributor to some Golaying libraries, like low level cryptography, X 509 libraries that we use in our open source, largely because he’s also interested in those problems.”

The Enterprise Advantage

Interestingly, their strong open source commitment became a competitive advantage in enterprise sales. Mike points out that it “derisks from sort of a vendor lock in perspective” and allows customers to “join a community and they can sort of be the change they want to see in the world when it comes to the software that they’re purchasing.”

Metrics That Matter

The success of their approach is evident in the numbers: “millions of open source downloads” and tracking that indicates “dozens of Fortune 500 are on our website reading docs for open source.” More importantly, they’ve translated this into commercial success, now “selling six and beginning to sell seven figure deals” with “over 100 customers taking advantage of various scale offerings.”

Content as Community Building

Their content strategy plays a crucial role in bridging community and commercial interests. By giving their team “really broad mandate to just write about what they’re passionate about that’s in this space,” they’ve created content that resonates with both developers and enterprise buyers.

The Product Differentiation

The key to their commercial success has been clear differentiation between open source and enterprise offerings. Their commercial products focus on “delivering sort of the enterprise level capabilities around identifying things that need to be secured, seeing when there’s a lapse in policy or compliance in your security program, assigning tasks and noticing where really giving that observability visibility and summary view.”

Looking Forward

Smallstep’s vision extends beyond just balancing open source and commercial interests. They’re focused on making “enterprises and large software systems and the Internet as a whole is more secure and safer for everybody.” This broader mission helps unite both their community and commercial efforts.

Their journey offers valuable lessons for founders building open core businesses:

1. Be realistic about the challenges of open source sustainability
2. Invest in genuine community value beyond your own project
3. Use open source strategically in enterprise sales
4. Create clear differentiation for commercial offerings
5. Build content that serves both community and commercial goals

The key to Smallstep’s success wasn’t just finding the right balance between open source and commercial interests – it was understanding how to make these seemingly competing interests work together. For founders building open core businesses, their story shows that with the right approach, open source can be more than just a marketing tool – it can be a fundamental part of your value proposition.