
Selling pickaxes during a gold rush - riffer
http://cdixon.org/2011/02/05/selling-pickaxes-during-a-gold-rush/
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maxklein
The problem here is simple: The people buying pick-axes are much smaller than
the people buying gold. If there are 1000 people buying gold, there are 100
people mining for gold, and 10 people selling pickaxes. So the pick-axe market
is quickly going to be dominated by someone who executes well and can offer
the best pick-axes at prices less than what anyone else can compete with.

It's like frameworks - only a few rise to prominence, and that's because they
are constantly developed, well marketed, etc. There is little space for a lot
of choice in the tools market. The winners take all.

In the consumer market, however, even if you don't make a blow-out hit, your
chance of getting by are much bigger. Even if you find a little gold, you can
always sell it off and survive. But if you're selling pick-axes and they are
lower quality and more expensive than the axes of the other established
players, you'll not sell anything and die quickly.

In both cases it just comes down to who is smarter and faster and can better
manage their finances to expand wisely. Both the pick-axe business and the
gold business need proper intelligence and good business sense, and those who
can bring both will be successful in either business.

Another consideration is this: It's easy to find gold. It's not easy to sell
pick-axes. For pick-axes you need a supply chain, a cheap source, a marketing
strategy. Gold panning requires a pan and some luck. The people who go for the
Gold rush are normal people hoping to get lucky. They lack the skills to
actually produce and sell jeans. Even if they tried, most of them would not be
able to sell pick-axes.

So you can't really advice them to go sell pick-axes, as that is a more
skilled business than panning for Gold.

~~~
jasonkester
I think you missed the point of the analogy.

The "Miners" in this scenario are all the companies trying to cash in on the
dot com boom. There are _thousands_ of them, and only 14 are going to make it
big.

Those thousands of companies will burn through tens of millions of consulting
hours. Consider those hours to be picks, and hopefully you'll start to see
what the analogy means.

If you sell 2000 hours of consulting this year, you're guaranteed to be ahead
somewhere between 100k and 300k, depending on your rate. If you instead spend
those hours building the next Twitter, chances are very good you'll end the
year with nothing at all.

Just like 90% of the people who headed off to the Yukon with a shiny new pick
in their hand.

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maxklein
I believe you miss the point of the analogy.

The analogy is not about people selling _services_ to the gold diggers, it's
about selling _tools_ to the gold diggers.

The services market would be akin to the people who sell food to the miners.

~~~
jmm
Perhaps you're both being a bit too literal? I think what Chris is trying to
say is that while it may be more obvious to pursue a consumer facing startup
because of the attention they get, entrepreneurs should still keep in mind the
less shiny/immediately gratifying things. Because the existence of the first
set creates an opportunity for the second. Things like Heroku.

Kind of apropos... I got stuck on a trip recently without a book, and grabbed
a copy of _Heyday_ off a shelf. It's a historical fiction novel about the gold
rush period and how things in CA played out. Not a terrible read, if you're
into that kind of thing.

~~~
maxklein
What I'm saying is that the numbers don't add up. There are not 10 herokous or
similar - platforms are a winner take all game. The market is also much
smaller than consumer goods.

It's not clever to think there is more opportunity in selling B2B products :
the market is MUCH tougher and the competition is a lot more skilled.

This gold-digger analogy is seductive because it fits in so perfectly with the
programmer mindset, but look outside the bubble: most money is made in selling
goods to consumers, not to businesses.

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spokey
> There are not 10 herokous or similar

1\. Salesforce's Force.com

2\. Amazon's EC2

3\. Google's AppEngine

4\. Microsoft's Windows Azure

5\. VMWare/Salesforce's VMForce

6\. Makara

7\. CloudBees

8\. PiCloud

9\. PHPFog

10\. DuoStack

I'm not sure it's obvious that PaaS is "winner take all", but even if it is,
right now there are several deep-pocketed companies fighting to be that
winner. Sounds pretty good if you're looking for an exit.

~~~
maxklein
Those are not hosting the same languages as Herouku, so there is no direct
competition.

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mhb
Pickaxe factory factory factory is where the real money is. [1]

[1]
[http://discuss.joelonsoftware.com/default.asp?joel.3.219431....](http://discuss.joelonsoftware.com/default.asp?joel.3.219431.12)

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cletus
I haven't heard this particular phrase before vut I'm familiar with the
concept. I've seen more than one show on the Wild West, various gold rushes
and so forth. This concept comes up again and again.

One show coined this as "mining the miners", which I like.

There is a danger here though. If your business is selling pickaxes then it
lives and dies by the mining industry. But I guess that applies to a lot of
business types.

Another danger for B2B type businesses like Akamai is with no brand identity
and loyalty you are in danger of being swapped and/or commoditized.

~~~
jorkos
To your point, i think the analogy holds when thinking about specific
verticals. In fitness for example, sell bowflex or PBX90 where the gold is
great fitness.

The analogy breaks down however when you see that in the B2C internet space,
the issue is that you have to create the gold through your service; it's not
known what everyone wants, you have to create it.....and thus the opportunity.

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leif
I definitely thought this was an article about minecraft. :-/

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revorad
A pickaxe marketplace. That's where the real gold is.

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tastybites
Usually in the bay area I hear this as "selling shovels to the miners". Here
in LA a distinction is less often made because the tech scene is much less
focused on hot web properties and there is a very large number of media
companies that either do service-oriented things or produce tools.

 _the most important consideration should be working on a product you love_

This makes for great blog content, but I fundamentally disagree with this.
What's equally important is love just plain doing business. Do you think
people with successful urinal cake distribution or timesheet tracking ERP
companies love their product? The world is filled with unlovable, unglamorous
businesses. The love of doing business (which is the politically correct way
of saying making money) is equally as viable a path to success than loving
your actual product.

~~~
beoba
It is also easy to love your work even if you aren't terribly interested in
the industry. For example, urinal cake distribution sounds pretty awful until
you think about the individual or team whose task it is to make it work as
efficiently as possible.

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nika
I first heard this analogy in the 1990s with regards to the dotcom boom.

I've found that every bit of good investment advice I've seen is very
applicable to startups. This is great training for weeding out ideas and
thinking about business models.

So, all of the popular investing books are useful in this regard. For
instance, you'd think Warren Buffett would not be useful for a high tech
startup, but I find his philosophy extremely compelling when thinking about
the startup business. (To that end, I recommend buffettology)

Further, all of the metrics one uses to evaluate the prospects of a company
one is going to invest in by buying shares, are also applicable to valuation
of your business when selling shares to investors, especially in later rounds
when you have revenue and hopefully profits.

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mkramlich
I spend a portion of my year selling pick axes and another portion panning for
gold. The cash I make from the former buys me the time and safety to do the
latter.

