Open source model for startups - is it possible?

Imagine there is a web based start up at its early stage which is open for anyone who wants to contribute. You can contribute into:

• coding/implementation
• business plan
• marketing research
• advertising and promoting
• infrastructure, etc.

...I'm with you so far. As Susan Jones said, this is pretty much how Startup Weekend works...

Afterwards when the company is up and running all participants will get shares based on how much time, energy and resources they invested.

...and this is where I think you run off the rails. How do you determine the value of everyone's time, energy, and resources? What happens when three guys who did nothing but whine a lot (but generated LOTS of email chatter), and commented 10 lines of code point out the huge amount of "work" they put in and demand 40% equity? What happens when the person who wrote that one component you couldn't live without decides to take it and walk because he/she doesn't like his/her cut? What happens when someone decides to walk and their work is so intertwined with the rest of the project that it is impossible to separate, even with liberal use of "git blame" and a tweezer? And who will be willing to be the outlier putting in ridiculous levels of work and expertise, with the possibility that he/she will get 4% down the road after having made the whole thing possible?

Also, who wants the extra tax liability that comes with getting their shares after they are valuable rather than before?

I can definitely see the possibility of having an "open season" early in a project, sort of like we have at Startup Weekend. However, before people have too much invested, and long before the company is worth much, you need to incorporate, come up with a shareholder agreement, and divvy up shares for founders (probably with some sort of vesting deal).

Normally works with a group of close friends that have a good amount of trust between each other else cash will need to be involved up front. Really a true open source resourced startup without any starting cash isn't possible. From lics, gov fees, infrastructure etc.. some outflow of cash is required even as an extreme bootstrapping.

Startup weekends are based on a similar model

That's what we tried at http://fairsoftware.net, originally. The problem you face is that everyone is happy to contribute ideas and talk, but almost no one wants to do the dirty work (of coding, or making cold calls to potential customers).

For a new twist on that idea, check out http://bettermeans.com. Especially the video on the home page is worth watching.

So the comparison is lacking one important thing. The product (end result) for open source project is available to everyone for consumption (even the people who did not contribute to the project). The main thing to note is that there is no depletion of resources (code) just because it is being consumed (used) by various people. However in case of startup (not the product/service/app that startup is building but the result of startup) is going to be revenue earned which will deplete when used and such a resource can only be divided among people who contributed and that too in the proportion of the contribution they made...so I will say open source model for startups is (99.9999999%) impossible unless it is a startup in social services domain that expect contributors to provide services free of cost to not earn any money but to just do good to sons and daughters of mother earth :)

I have an idea of how this may work, but only in certain situations where the work load is measurable, and the quality of work can be verified.

It would also require the team to be split into two. The core team (genuine employees - not "open-source"), and your open-source contributors. This would work well in a scenario where you were developing a product, but you required a huge amount of data to be added for the product to succeed (far more than an employable team could ever manage).

Using something similar to Joel's Totally Fair Method to Divide Up The Ownership of Any Startup Forming a new software startup, how do I allocate ownership fairly? you could do the following:

• 50% equity divided between founders.
• 10% equity divided between early stage employees
• 10% equity divided between second stage employees
• 10% equity divided between open-source contributors in year 1
• 10% equity divided between open-source contributors in year 2
• 5% equity divided between open-source contributors in year 3
• 5% equity divided between open-source contributors in year 4

Using Open Street Maps as an example, you would develop the framework etc with your core team. It would be near impossible to turn it into such a detailed map without voluntary contributions. In each stage of the open-source equity tier every addition to the map would be rewarded with a point (this may be weighted so more substantial contributions got more points than small contributions). Points may be withdrawn if another user marks your contribution as erroneous. When each equity tier closes you could then divide the equity in correlation to the amount of points each contributor has earned.

Does anybody see any flaws in this model? / Can improve it?