Selling Shovels in a Gold Rush

As rumours of the discovery of gold spread across the nation, the first millionaire of the California Gold Rush was not mining the gold itself but capitalising on the miners’ needs, selling picks, shovels, and pans. Companies can turn to this metaphor to evaluate whether their business model will stand the test of time, rather than chasing short-lived trends and ‘striking gold’.

The AI revolution and other Industry 4.0 trends can be likened to a gold rush, and in 2021, it seemed there was enough gold to go around. With venture capital money flowing and valuations peaking, entrepreneurs flocked in a race to create the next unicorn. Today’s market is less buoyant, but there is still much opportunity for businesses with sustainable models to flourish.

In the case of AI, one can look to Nvidia whose share price ballooned in 2023, reaching a market capitalisation of over $1 trillion. It closed Friday at $433 per share, up 200% from the beginning of the year. Nvidia sells graphics processing units which speed computational processing and support large language models behind AI chatbots like ChatGPT. With consumer-facing AI startups cropping up across verticals, safer bets for investors may include backend processing and infrastructure players. Another ‘picks and shovels’ example is Plaid, providing payment and authorisation software to fintech companies like Venmo and Robinhood.

This is not to say there is no room for new players in more niche verticals, however, companies should understand how they will survive trend cycles and be applicable to a large enough target market. Instead of running after changing consumer trends, entrepreneurs can evaluate which B2B models may enable businesses within an industry, regardless of specific trends within it.

Whether it is supplying critical components, developing vital infrastructure, or offering essential services, positioning a company as a reliable and foundational player attracts investors seeking stability and long-term growth potential amid the modern-day Gold Rush.

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