Time: 1850s, Place: California, Occasion: Gold Rush No.1

Sam Brannan, California’s first millionaire, raced through the streets yelling, “Gold, gold in the American River!” – he wasn’t planning on digging for it, he was planning on selling shovels. His wild run through San Francisco came just after he had purchased every pick axe, pan and shovel in the region. A pan that sold for 20 cents a few days earlier was now available from Brannan for $15.

At around the same time, a Jewish merchant saw that the massive number of native and immigrant gold diggers had one common problem: their cotton pants were tearing like Kleenex against the rough terrain that they had to navigate. He experimented with a new material called denim, and thought that it had the toughness to withstand the activity and yet was economical and comfortable enough. He started selling these new pants to gold diggers, they were called “jeans”. His name was Levi Strauss, he was the founder of the only born-by-gold-rush company that is still standing today. ( Fun facts: Mark Twain tried mining for gold but failed, fortunately his pen was mightier then his pick. Lotta Crabtree “ child actress who made millions singing for gold diggers. )

Fast Forward 100+ years

Time: 1980s, Place: California, Occasion: Gold Rush No.2 ( a.k.a. silicon rush )

The battle of PC is red hot. The horde of Apple, Atari, Commodore, IBM, Compaq, etc. had been busy thrashing it out for years to see who makes a better computer. Meanwhile, a small outfit in Seattle called Microsoft was (arguably) focused on making something that all of these people need – an operating system (particularly one that is built for the new Intel 8086 platform). Then came IBM’s trillion dollar mistake – adopting this OS called DOS and allowing competitors to do the same. The rest is history. It is not fair to blame IBM, people cared about the PC they buy: the features, the compatible games, the processor, the price, the brand, the whole package – who would have thought that OS alone matters most? Afterall, no one cared what software was running in our VCRs and Microwaves. It was not easy to see that a couple of years down the road, who made the PC didn’t matter as along as it ran DOS.

20 years later, the rush continues. Dot Coms were the new American Capitalist Idols. Anyone who interned at McKinsey or is remotely related to Stanford could raise a couple of million to sell dog food online. Unprecedented amount of money were poured into Internet and related infrastructure. One company capitalized on this better then anyone else – not the fortunate gold finders like Yahoo, Amazon or eBay; it’s Cisco. John Chambers acquired an astounding 66 companies within 5 years; with Å“an acquisition strategy that would have made a Roman emperor blush according to Forbes, he turned Cisco from a router maker to the networking powerhouse who had the best products from Voice to Broadband. Cisco’s revenue grew from $1.2 billion to $18.9 billion from 1995 to 2000, literally monopolizing high-end networking equipment for ISPs, data centers, enterprises and cash rich startups. In simpler words, he, like Brannan, went around buying all the tools for the dot com gold diggers.

What’s the moral of the story?

The stories are much simplified to illustrate the message: watch out for the hypes, there are opportunity and traps there. There’s always hype in different shapes and sizes around us, we hear about all the time – the hot technology, the next big thing, the revolution. Some of the current hypes in IT ( as of press time: Q2 06 ) – mobile, web 2.0, social networking, IP Telephony, Fixed Mobile Convergence.

My personal take on this – unless you have a very good reason, don’t follow the hype. No Gold Digging company survived until today, 99% of dotcoms failed. Going after the next big thing has some serious problems – there will be a million gold diggers going after the same pot of gold which may not exist and you can be sure Microsoft is eyeing it. It’s like fighting with 3000 gladiators in a dark room while the nine-headed Hydra wait and watch to see who to devour.

Rather, you could build a business focusing on solving a common need among gold diggers, be it shovels or network equipments. If you can do this well, best case, you become the de facto standard; worst case – you will still be relatively successful, for whether the gold diggers find gold or not, they will still need to buy shovels and pants in the process. The hard part is finding something that is important enough, commonly needed enough and that you can do well enough to focus on. But hey, at least you know who to talk to understand the need better, at least there’s method to building the business.

Don’t be distracted by the glamour of gold, think about the pants that gold diggers need.

About the author:

Darius is the current CEO of tenCube, and we are proud to have him on board in our SGEntrepreneurs team.

Editor’s Note: The picture “Gold Miners” is from the Bancroft Library, California. It depicts the early gold miners who first set foot in San Francisco.