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Selling Shovels In a Gold Rush (Long Read)

(Long but good read... I've heard this metaphor before and think it is a very good comparison. The shovels in the "Weed Rush" would have to be the lights, correct? I do not take credit for this article at all and the link is posted below)

Posted by Leigh Drogen on February 26th, 2012
In a gold rush, some entrepreneurs dig for gold, and some sell shovels. Which is smarter depends on how much gold is really in the ground, your ability to extract it, and your personal risk tolerance.

But one thing always stays the same, in any gold rush, boom, bubble, secular ascent, whatever you want to call it, there comes a point where an inordinate amount of money begins flowing towards those selling the shovels, no matter if the diggers are getting rich or not. And often, the amount of capital flowing into buying those shovels, has a direct correlation to the investment capital directed at digging for the gold.

I’m starting to see the shovel sellers in this tech boom get rich, famous, or both, some for no other reason than the fact that they are famous for being famous. That doesn’t mean we’re in a bubble, and it certainly doesn’t mean there isn’t gold in the ground or that entrepreneurs aren’t extracting it, there is, and they are. What it means is that we are now firmly entrenched in a gold rush, a boom, where investment capital is flowing in at such a high rate, that the shovel sellers are becoming famous and or rich whether they are really helping extract that gold or not.

A few points. One of the main reasons we find ourselves in a tech boom, specifically an early stage tech boom, has to do with the current cost of starting a tech company, especially on the web, the minimal costs of running that business, and the ability to build faster and cheaper than ever, giving entrepreneurs multiple chances to pivot their product with the capital they have at hand. But it’s not only the cost that’s changed, it’s the infrastructure. The tools have not only gotten better, some of them are now free (open source). And to go a step further, large swaths of infrastructure are already built for you in many instances. Using the gold rush metaphor, it’s like going from having to build your own rudimentary crane from wood you found in the forest using the hatchet you bought, to just buying an excavator and having it air dropped in to your dig site.

Whole libraries of code, analytics packages, payment platforms, and other infrastructure that isn’t part of your company’s IP is just there for the taking, where as 10 years ago you would have had to build all of those things yourself, from scratch. Do you realize how much time and money that saves? How many more opportunities to test critical assumptions of your product and market you get?

This is what is fueling the boom, the quality, access, and price of the shovels. And without a doubt, there is more gold in the ground.

But there are both entrepreneurs and shovel sellers now who are getting rich and famous off the fat. This always happens in a boom, it’s a natural outcome.

I see 20 year old kids dropping out of college, starting businesses, saying and doing all the right things, raising venture capital, failing, and becoming famous for being, well, famous. Instead of trying again, a few are now selling shovels in the form of teaching other entrepreneurs how best to build their businesses. Wait, why are you teaching other people how to succeed at this when you’re 20 years old and have never had success yourself?

I gave a talk to the Interactive Media Group and Investment Clubs at the Wharton School of Business last week. I was invited there to talk about my experience moving from the investment management world to the tech world, why I chose to make that jump, and what we are currently building at Estimize. The only reservation I had in giving the talk was that I did not want to be seen as going there and acting like I was a model of success, well before I’ve achieved any in the tech world. Yes, I was a big part of building a great community, product, and business at StockTwits, and yes Estimize is on a path to be a big success, but we have certainly not achieved our goals yet of building a strong and lasting business. I can not say that this venture has been “successful” yet, we’re a long way from that.

I wanted to make it clear that I was there specifically to tell my story, why I made the jump, how I think about both the finance and tech worlds today as it relates to me and to those students, given my specific experiences. I do not want to be seen in any way as a model or success well before I’ve earned it, because I’m seeing a lot of that right now out there. I want to be seen as doing it the right way, doing it clean, working as hard as I can, and seeing where the chips fall. If that’s how you approach being an entrepreneur, no one, including your investors or yourself should fault you for failure or look down upon you.

But in the event that I do fail (which I won’t), I don’t want to be famous for preaching the lessons I’ve learned. I want to go straight back and take another shot. Those who can’t do teach, and I’m not a teacher.

Be cognizant of who is selling you what shovel when you’re looking for gold.

One more thing. Fred Wilson writes a short but poignant post today about journalists covering the tech scene in NYC looking for stories of how this boom is producing lavish lifestyles for the entrepreneurs. In his always understated but direct way, he slaps one journalist in the face digitally for specifically seeking out these stories by contacting him for leads, instead of just reporting on what’s actually going on.

So what’s actually going on? Here’s what. There is a huge difference between this generation of tech entrepreneurs (my generation) and the previous vintage from more than a decade ago. The biggest is that we aren’t looking to buy boats, cars, houses, fancy suits, and other ridiculous things. This generation, as you are about to see in a big way with the Facebook cash out, is putting its money back into the ecosystem, providing capital for other entrepreneurs, building second or third businesses, and supporting others. I’m not saying “it’s different this time” in the sense that you don’t have fear and greed as in all booms ( which eventually lead to bubbles), I’m saying that what we do with that money is different, we want different things. We want recognition for building things that disrupt broken things, we want to build better communities, we want to be seen as having done it without help from our parents, without help from a broken and corrupt system.

Yes we’re here to get rich, but what we want to do with that money definitely isn’t the same.

http://www.leighdrogen.com/selling-shovels-in-a-gold-rush/