The Gold Rush Strategy
Since writing the North Star Strategy, I've been wondering about successful startups that didn't define an unwavering multi-decade vision. How did they succeed?
PayPal (Confinity) didn't have a North Star. Max Levchin, one of the cofounders, was exceptional at cryptography and figured money was the most valuable thing to encrypt. Their original idea was to let people beam money from device to device on Palm Pilots. While technically impressive, it was practically useless and they had very few customers. However, whilst building their Palm Pilot demo they made a tiny side feature that let people send money to email addresses. Over time they noticed a growing number of eBay users were using this service. After about a year of exploration, they pivoted the entire business to email payments, and the rest is history.
Similarly, Elon's x.com had the original goal of becoming a financial super-app with banking, brokerage and insurance, all under one roof. They also built an email payments feature as part of their super-app, which according to Elon in interviews "took them one day". Just like PayPal, they eventually noticed that email payments were being used far more than anything else they had built. So they focused the entire company in that direction.
One more example to illustrate the pattern. Instagram, originally known as Burbn, was a check-in app with a plethora of features: check-ins, a map to see where friends were, plans, events & hangout co-ordination, even gamification with points and badges. Photo sharing was just one tiny feature, but it had substantially more usage than anything else. The founders caught on and removed everything else they had built, literally deleting most of the app.
I've noticed that these types of companies fit a theme that I call Gold Rush companies. A Gold Rush company:
- Starts by exploring promising terrain
- Succeeds by "finding gold" = discovering pull from users
- "Extracts all the gold" = exploits the revealed pull to its fullest extent
- Starts with a well defined, long-term vision
- Iteratively makes progress towards the North Star
Gold rush companies tend to appear during technological revolutions. They cluster in short waves where a bunch of extremely valuable companies are created within just a few years, until the technology surface gets exploited and there is little "gold" left to discover. For example:
- PayPal
- eBay
- Yahoo
- Hotmail
- Uber
- DoorDash
- OpenSea
- MagicEden
- Metamask
- Phantom
- Uniswap
- Jupiter
- Cursor
- Loveable
- Bolt
- Character.ai
- Perplexity
- Midjourney
For completeness sake, we'll list a few North Star companies as well:
- Tesla - goal of making electric cars, not random exploration
- SpaceX - goal of making life multiplanetary, not random exploration
- OpenAI - goal of making AGI, not random exploration
- Boom Supersonic - goal of bringing back the Concord, not random exploration
- Loyal - goal of helping dogs live longer, not random exploration
- Helion - goal of building fusion, not random exploration
A company's optimal strategy changes based on what type of company you are: gold rush or North Star. In a gold rush company, being early to the technological wave matters. You would have wanted to be an early internet user, an early iPhone user, an early crypto user, an early AI user. The way great ideas are found is by being there, exploring and building before the masses arrive. In other words, you're digging for gold.
In a North Star company, timing is less relevant. Competition is minimal and you're not in a rush. However, North Star companies come with their own set of tradeoffs. They tend to be capital intensive and lack significant revenue in the early years. To stay afloat, they must fight intensely to hit new technological milestones, raise more capital, and keep burn low.
I'm certain there are other types of companies, but North Star and Gold Rush companies both seem to reliably produce outsized outcomes compared to their peers.