The Picks & Shovels Hypothesis

Those who provided 1840s gold seekers with picks and shovels achieved greater returns from the humble tools than prospectors of gold. That story has inspired me to develop another hypothesis that ties today back to the gold rush. I hope you give me a few minutes to sift through stories (pun?) to test this hypothesis:

As in the gold rush, the entrepreneurs creating profits are those supplying the picks and shovels to the economy

Substack, the very platform I use to compose and store my work and where you are choosing to spend your time today is a near perfect example of picks and shovels. Writers and their work (gold) will come and go, but the platform continues to be valuable well beyond an individual writer’s gold.

The Hypothesis’ Gold

Ethically right or wrong, the most optimal state of a business is monopoly - a state where an absence of competitors allows business owners to control the flow of their product or service at the lowest possible cost to themselves AND at the highest possible cost to their customers. It results in a profitable business that lasts as long as the monopoly itself.

The modern-day technology entrepreneur’s gold is the ‘killer app’, the product or service surrounded by a moat, the quintessence (in the words of Ben and David’s Acquired podcast), the special-sauce that causes a J-curve rate of growth. Apple’s killer product may be the iPhone, but its quintessence is achieved via iMessage and Facetime that keep the more innovative, affordable, and popular Android phones at bay. Google may have achieved profits from being the largest advertising network, but its quintessence is derived from the ever-evolving search established long-ago by the pageranq algorithm.

As we have already seen in half a year of stories on this Substack, there have been numerous successes across Iowa over the past six decades. Workiva was a category defining product built to deliver efficiency, accuracy, and trust to public companies who were realizing the scope, depth, and complexity of new legislation and the incumbents’ inability to help navigate. SmartyPig found gold in the untapped market for purpose-driven savings. Don Schoen’s Medinotes created a product category and successfully drove toward their exit(s).

I had imagined there were a dozen successful stories when launching this Substack. But as I percolated on a few drafts and wonder what other gold was found by entrepreneurs near us, a new thought emerged. Was I missing the stories of those making picks and shovels when trying to document the gold rush?

Picks and shovels? In Technology?

The literal picks and shovels of the 1840s gold rush in California have a few parallels in technology. These are the tools built or cornered by entrepreneurs to help an end product come to market. We saw one such instance in Ramco Innovations’ story where their national exclusivity to supply the SunX presence sensor catapulted the tiny Valley Junction firm toward growth. We Iowa entrepreneurs reinventing picks and shovels to drive similar innovations elsewhere?

Modern Builders - Roboflow

One of the best recent examples of the company whose products inherently make others successful is Roboflow. Brad and Joseph, Roboflow’s cofounders developed an app called Magic Sudoku in 2019. They used the iPhone X’s recently introduced augmented reality processor and software to simply point a camera at a Sudoku puzzle, completely or partially unfilled. Their app recognized the filled-in numbers and solved for the solution. What they realized was that though the software to ‘see’ and ‘solve’ the Sudoku was complex, what was exponentially more complex was the method of classifying the innumerable ways in which players wrote the numbers 1 through 9 in the grid.

They developed a solution to their own problem of classifying and annotating the nine digits and recognized what they had in their hands was gold - gold every software developer needed to efficiently develop computer vision applications for the world that would soon begin hyperventilating about artificial intelligence.

Roboflow released their software to developers who could now implement their technology, begin building models quickly, and bring computer vision to their own ideas. Their software became the picks and shovels are now used by over a million developers across nearly 16000 customers including influential names such as Rivian, BNSF Railway and Pella Corporation.

Modern Builders - Dwolla

Dwolla is rightfully credited with launching the wave of startup activity in Iowa in 2009. Brainchild of Ben Milne, it began as a way for merchants to avoid paying credit card fees for customer payments. The startup’s initial vision imagined a future where customers use their newly introduced smart phones to pay (before Venmo, Apple Pay, Google Pay). Communities and merchants across Iowa adopted the platform and significant funds begun moving through Dwolla’s systems. There was even a time when you could, no kidding, pay your Iowa property taxes using Dwolla. Ben and team, to their immense credit, leveraged this attention bestowed upon Iowa to further lift other startups in the community and amplify the region.

Responding to commoditization of mobile payments and the introduction of integrated point of sale systems such as those from Square, Dwolla pivoted from its consumer payments platform to creating interfaces to its underlying money movement systems. These interfaces (called APIs or application programming interfaces) facilitated inter-account payments, digital wallets, bank account verification etc. efficiently, quickly, and reliably for developers building other payments systems for payroll, money transfer, and various other money movement applications.

Picks and Shovels for the digital banking industry.

Additional Modern Builders

There are others who have found value in creating infrastructure. Their work may be un-sexy and not make business headlines but the old adage of ‘boring makes money’ applies swimmingly.

Basis Theory: began with lessons learned from the team’s prior experience. Well-aware of the complexities and regulation underlying storing personal financial information, they went beyond creating a single software/app and built a system to securely encrypt and store data and expose its functions via APIs so other developers needing to encrypt and store data securely could benefit, for a fee, of course. With a growing number of systems needing such services for credit card, banking, insurance or medical data, their picks and shovels APIs are broadly in-use.

Brale: Stablecoins are digital currencies whose value is tied to another financial instrument so they can be digitally traded without many of the underlying complexities of inter-bank or international currency transfers. Although stablecoin issuers such as Tether have created their own infrastructure, banks and financial institutions wishing to create their own stablecoins only need to look to an Iowa-domiciled, global company that has created the entire infrastructure necessary for stablecoins and exposed it via APIs, for a fee, and ease of use, reliability, and expedience.

MACH: Car manufacturers have spent decades of R&D to develop self-driving, autonomous vehicles on the roads today. Ag equipment giants like John Deere maintain significant technology infrastructure to bring autonomy to the farm and industrial sites, infrastructure that’s unaffordable and out of reach of many smaller equipment manufacturers. Mach brings off-road automation technology to these smaller manufacturers with hardware, software, integration services so they too can implement autonomy into their sprayers, mowers, spreaders, haulers, drillers and much more.

Prospecting in the new wild west

The modern-day gold rush has evolved to AI infrastructure and core services. Large warehouses are being rapidly constructed to become data centers with hundreds of thousands of computer servers. Some are owned by a single company while others are being built to rent to the highest and neediest bidder. The servers are filled with graphics processing units (GPUs) from Nvidia, a near monopoly in itself today. The chips and boards are cooled by other monopolies who supply powerful AC units. The power is derived from public monopolies that generate electricity from coal, wind, solar, hydroelectric, or nuclear power. The surprise absence of monopoly exists in simple and complex financing schemes that provide billions in investment. And, in perplexing strategy, the municipality monopolies subsidize by forgoing tax revenue for economic development.

Each of these areas has a different length of life. The building shell once constructed is largely complete. The AC units likely have a 10ish year life. The file server chassis could live forever even though the GPU chips contained within have but a three-year life. Power is controlled by a public utility (monopoly or duopoly at best) as is the water supply. Yet, at the intersection of each of these heavily capitalized sources exist latent opportunities yet to be unearthed. Some of them are likely to be boring yet profitable picks and shovels.

Samuel Brennan may have locked up the markets between San Francisco and Sacramento in 1840s, and I believe similar markets exist around us in 2025, ready to be discovered and monetized.

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I am grateful for the incredible Iowa Writers Collaborative community which inspires me through its curiosity, writing, poetry, songwriting, photography, and selfless service. You can experience the vastness of its expertise here.