When you start a company with a product or service to sell, Bob Young, co-founder of Red Hat and Lulu.com, told a packed room at the All Things Open conference at the Raleigh Convention Center, “You don’t sell a product’s features, you sell benefits.”

Young, who said he started Red Hat from his wife’s sewing closet 16 years ago, said he learned that early on. It’s the same lesson Louis Gerstner, Jr. who led IBM to a corporate turnaround in the 1990s learned, Young said.

“He discovered that IBM’s customers didn’t really like the company’s products all that much. Someone else always did them better. So he asked them why they bought them. They said IBM is the only company with an office everywhere they did business. So, he wasn’t selling a product, he was selling a service.”

That was one of their early insights at Red Hat, where the company initially gave away its software. Young said the company would go to tech conferences where they told attendees, “We’re just the opposite of everyone else here. They sell you software and give away a hat an tee-shirt. We give away the software and sell you the hat and tee-shirt.”

Young said he grilled the company’s early open source Linux customers on why they were using the product. Developers would often say they would rather use another product. At then Southwest Bell, for instance, “They had more money than God and didn’t in any way have to use Linux. They didn’t believe in open source.”

But Linux gave them a benefit they couldn’t find anywhere else, Young said. “Only by using Linux could he tweak the code to his specific needs.”

Understand Your Customer

Even so, when Red Hat queried its customers about why they used Linux, control over their technology and the code was never the top reason. But out ten reasons that would vary user by user, it was one thing always on the list somewhere. Which was another lesson: you have to understand your customer and his real needs, even if the customer doesn’t, Young said.

“You have to know where the customer is coming from,” he added. “It’s like when your kids say, ‘Daddy, I need an ice cream cone’ and you say, “No, you want an ice cream cone, you need spinach. You have to think beyond what the customer is telling you.”

Young, who spoke about his career frequently during the talk, said that “I became an entrepreneur because I was a bad student and couldn’t get a job. No one would hire me.” His first profession he said, was “Typewriter salesman,” although it was clear he was always more than that.

Dream Big for Big Rewards

“What I always enjoyed about business,” he said, “is the collaborative nature of working with your customer. I always thought collaboratively about industries. Most businesses treat their competitors as their enemies. They aren’t. If you can solve a customer problem by collaborating with a competitor, that’s what you should do. If you can solve it giving away software, that’s what you should do.”

Young marveled that Red Hat now has 9,000 employees, up from the 400 when he was CEO. “Red Hat fired me as CEO in 2000,” he said, “but I knew I didn’t have the skills to grow it from 400 to 9,000 people, so I was happy to pass that on.”

Young said he’s very much in favor of open source in law, health care and other areas of life.

He also offered this advice: “If you solve a social problem that makes the world a better place, the world will reward you handsomely for it. You might as well dream big. That’s where the big rewards are.”