Farming versus Mining

Wil Shipley of Delicious Monster, maker of Library, has a nice post up that compares two ways of approaching the software business: farming versus mining. Essentially, farming is the old-fashioned way of building a business to last, building with the long game in mind. Mining is the new way to do business: build a business with the current hot model in order to sell it. Investors, at least the generation of investors who came of age in the last two decades, prefer the latter model: they make money as a business rises, usually with unmaintainable growth, and a number of investors make money as the business crashes and burns. The founders, as well as the investors who find them, of such companies are the new rock stars, but they are even better than rock stars, like other media stars, might begin to lose his or her shine after one flop too many. These new business stars don’t seem to have to worry about that. As long as the flop occurs after everyone has made their money, no worries.

To be fair, the software industry is only one of many industries to be troubled by this dynamic, which dates back to the shift in investing for dividends and slow, but long, stable growth to investing for growth in stock price. Shipley’s analysis is especially interesting because he goes on to make an argument about how easy mining is: ideas are easy. Implementation is hard. Certainly the farmers I know would agree that their work is hard, without guarantee of success, and likely to yield only small successes over a series of years.

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