Gold and shovels

The gold rushIn 1848 James Marshall discovered gold in California. News spread quickly all over the world, about unimaginable riches that grew out of the ground. Historians estimate that around 300,000 people, mostly from the eastern states of US, but also from Asia, Europe, Australia and Latin America, travelled to California using every means available, suffering deprivations and all kinds of risks, dreaming of finding gold and getting rich. Very few of them made their fortune. The vast majority returned to their homes as poor as when they had set out, many poorer still. Nevertheless, there were some people who never looked for gold, and yet made huge amounts of money during the California Gold Rush: they were the ones who sold the shovels to the goldminers.

The startup phenomenon bears many of the characteristics of the California Gold Rush. Hundreds of thousands, if not millions, of young entrepreneurs across every continent, dream of becoming millionaires thanks to the “gold” of their ideas. Perhaps, like the “forty-niners”, they are unaware of the little shops around them that sell them shovels.

I have been told of companies that sell access to twitter accounts with tens of thousands of followers, for a fee. “Fast growth”, the call it. I call it a scam. Not only it is dishonest but pointless too. Nothing can substitute the organic growth of a startup. Without organic growth you cannot receive reliable signals from your market and you therefore navigate in the dark. You live in a distorted reality field. And, equally crucially, customer stickiness is very low when you try to buy it by the bushel. Buying business contacts is also dubious. There are several individuals who have suggested offering their network for a fee and a position on the board as non-executive directors.  I always say no. Better use LinkedIn and be friendly and go to parties. There are many ways to network and generally people are open and friendly, if you have something interesting to say. Some are assholes of course, but you don’t need them. Add to the shovelware sellers a number of dubious “growth hackers” and you get the picture. I was approached by a company who wanted 2,500 pounds per month to help us grow our company. Their most successful project so far was helping another company increase their customer base 300% in one month! Impressive, you might say. Not so if you learned, like I did, that the company had only 1 customer at the beginning of that month.

Money can’t buy you love. But it can certainly buy you lots of shovels.

There are of course some very necessary shovels. A good logo, for instance, or a promotional video, tools for software development, or a desk where you and your co-founder can meet and work. But thankfully, and that’s the amazing thing about the startup gold-rush, there are numerous freemium tools to start realizing your idea that  won’t cost you a penny.

At the end of the day, just like with those hardened by the California sun forty-niners, to strike gold you need two things. To be looking for gold. And to strike lucky.