Selling Shovels in the New Gold Rush

Back during the 1849 California Gold Rush, few prospectors struck it rich. Most of the people who made money back then were those who “sold shovels” or provided other services to the same miners who traveled far to live hard lives panning for gold.

Is it any different today?

In the Gold Rush that is the startup scene, I’ve met two classes of shovel sellers over the time I worked on my startup.

Some Good or Unavoidable Shovels

– Pay for office space, naturally. If you have an office.
– Pay for incorporating, when you do it. Unavoidable regulation but pretty cheap.
– Pay someone outside your startup to produce something not worth doing in-house. For example, to outsource a logo or UI design. Depending on what you’re doing, going rate anywhere from $100s to many $1000s. Just have to make sure that results are on target.
– Pay for off-the-shelf commodity operations, such as mailing list management systems.
Bad or Completely Avoidable Shovels – Here are a few of the more interesting bad ones I’ve encountered
 
– Pay to get followers on Twitter. The concept is you can instantly get thousands of followers if you pay for them. Not sure how it works. But late last year when I saw a new startup suddenly have 10,000 followers I wondered how that happened. They still have 10,000 today. And no one ever @ messages them. I don’t get the point. This was what I like to call a “Bonfire sale of the vanity metrics.”
– Pay for @ messages. Somebody tried to sell me access to people with large numbers of Twitter followers who I guess then tweet out their support. I guess that’s what it was supposed to be. Never looked into it. Going rate was $5,000 for 10 power tweeters. The world would be better off if you gave that money to charity.
– Pay for introductions. The concept was they would introduce me to people for money. I asked if they really meant a commission in the event of a sale, but they weren’t even interested in that; they just wanted to monetize their address book. I thought this was so weird that I actually cold-called and set up meetings myself. So I channeled that one into something positive for me.
– Pay for money. I’ve never gone out to raise money but I’ve had people request to raise money for me for a fee. When I politely tell them that I’m not fundraising it breaks their hearts.
– Pay for informal advice. Seems to be used mostly by those whose experience is exclusively from the ’90s bubble. Funny thing is, I usually have to fend off advice-givers. This is obviously not the same as having a true advisor or board member who receives equity.
– Pay to pitch. Going rates I’ve heard seem to be between $150 – $500. I just think that’s wrong, like asking a band to pay to play.
– Pay to present. Slight twist on the above. I was invited to pitch (which I don’t really do) at a conference (for free) but then told there was a fee to present. I’ll spare you the theater of the absurd conversation that followed. Again, that’s just wrong. Hey, come on, I hope to one day be paid to speak publicly, not the other way around (the best I’ve done is be compensated for a plane ticket when I spoke at an event earlier this year).The whole experience has been fascinating to me. Hats off to you sellers of shovels. And to those of you looking for gold, keep your heads down.
I wrote this post for my startup years ago and am reposting it here. People who like this tend to also like my Startup Sacrilege book. You can learn about my work here.
Filed in: startup data