The scOutpost: Gold Diggers and Shovels

There are many metaphors to simplify and describe life in the startup world. So, in discussing new opportunities with another entrepreneur friend, I thought I would post this framework for your consideration:
For the new opportunity, ask yourself:
1) Is it a Gold-Digger or a Shovel-Seller opportunity?
2) Which am I best at or most interested in? Is there a match?

The shovel salesman, as you might guess, sells the proverbial shovel to gold-diggers. It is easy to get into, the economics are very straight-forward and predictable, and it can grow into a nice business.
The gold-diggers have more inherent risk in what they are trying to accomplish. It generally requires more expertise to be successful and a lower percentage of them succeed. But when they do succeed, the payoff can be huge.

In today's startup world, the Gold-Diggers can be the "technology plays" that require building a technical team and proprietary technology. Most importantly, they require more funding and runway because significant revenue may not begin for 2-3 year's time. Most likely, if they succeed in their product plan, they become attractive acquisition targets in the $20-$40M range (I'm reminded of Paul Graham's great post Hiring is Obsolete). If the userbase or revenue takes off by that point, the valuation can be much higher. Business plan projections for these opportunities are super-speculative at best in the early days.

Today, in the generation of Web 2.0, it is easier than ever to create a Shovel-Seller business, tapping existing and proven markets such as online advertising, for example. Many new startups are biting into that huge market that Google's AdSense/AdWords has been in, but finding niches in some of Google's inefficiencies. You can usually get something going by cobbling together existing technology and services with a simple website and minimal team. It may not be as defensible, but at least it will be generating revenue faster to help fund market expansion efforts.

Now, evaluate yourself, and make sure your skills and desires match up. If you are a new MBA looking to apply your business skills to the startup thing, a Gold-Digger opportunity will not be a good match since the first few years are all about the technology/product and less about an actual business. If you want to have a VC-backed company or live for the high risk/high reward, then a Shovel-Selling opportunity might not be the best match since little capital is generally required to begin generating revenue. If you are great at building teams, especially technical ones, why not go for a Gold-Digger oportunity? If you want to get something up and moving with minimal hassle, try a Shovel-Seller. If you are interested in a flip, go Gold-Digger, but if you want to build a business for the long term, go Shovel-Seller. Just be honest with yourself.

The first company I started was a Shovel-Seller (although a long sales cycle made it feel like digging for gold), and the second was a Gold-Digger spending nearly 3 years building up a large core engineering team and producing some great next-generation technologies. What next? I should be held to the same standard I talking about, but I'm wondering, can I have both without sacrificing focus? With the simplicity of creating a Shovel-Seller company these days, I'm considering doing one on my own on the side while continuing the quest for the next goldmine.