During the California gold rush, one of the key ways wealth was created was by panning for gold in streams. In effect, wealth was made by taking advantage of "golden revenue streams" rather than by creating them.
After the great dot.com gold rush and crash, there is an important lesson for business here. Rather than creating one's own revenue stream, it is often far more profitable to tap into another's revenue stream and help it grow and flow more efficiently.
In effect, revenue streams are really modern distribution channels. Even products and companies with excellent revenue streams have weak areas which are less profitable than other areas. Just as no stream flows equally through its entire voyage, no revenue stream flows equally through its entire voyage. There are narrow areas where the channel flows faster and there are wide areas where the channel flows slower.
The revenue stream is difficult to see because most businesses focus on the "upstream" source of revenue in product development and manufacturing or the "downstream" value-added harvest of revenue in markets and marketing.
But there is a third way between the beginning source and ending destination of a revenue stream which does not involve the creation or marketing of a product. Rather it involves establishing a connection with an already flowing revenue stream between the source and the destination.
Revenue Stream Strategy
A revenue stream strategy involves two strategic questions. The first question is what revenue stream to enter. The second strategic question is what particular location in a revenue stream to hold and exploit.
A few factors are relevant to the strategic question of what revenue stream to enter. One involves the degree of matching of skills and experience with a particular revenue stream. For example, a person who has been a real estate agent might bring more value to a home buyer and home seller revenue stream than one who has not been a real estate agent.
Another factor involves what might be called a "revenue stream" opportunity index. In this sense, even if one can bring skills and experience to a particular revenue stream, there might not be a "channel" opportunity because most links in the distribution channel flow efficiently or are already defended by strong "third" parties who have laid claims to strategic locations on the "banks" of the revenue stream.
As a general matter, because of distribution inefficiencies, some industries have higher opportunity "revenue stream" indexes than others. In effect, their distribution channels may hold out greater profit for increased efficiencies than others.
Once a particular revenue stream has been selected, there is the decision as where the best position is to enter and defend: upstream towards the source, mid-stream or downstream towards the end. Upstream positions provide greater potentials for payoff while downstream positions provide less potentials for payoff and greater real payoffs. As an example, entering a deal at the "upstream" beginning, such as an early investor, often brings with it stock options and grand promises but little current equity. On the other hand, buying into a deal closer to the "downstream" end, such as a stock holder, brings few promises but current equity.
But apart from general locations, there are always weak links in streams where the flow is not efficient. These areas are similar to bottlenecks on freeways where traffic comes to a standstill. The challenge to one tapping into the revenue stream is to redirect the traffic or add another lane to help it flow more efficiently.
The Internet And New Exploitation of Revenue Streams
One of the mantras of the New Economy hype was that the Internet would destroy these traditional revenue streams or distribution channels. The word at the time was that traditional business distribution channels would be "disintermediated." The suggestion in books like Blown to Bits was that the "middle man" of distribution channels would become a thing of the past. This was so because, as the argument went, there would be a direct relationship between producer and consumer.
The fact is revenue streams and distribution channels have been greatly changed but certainly not destroyed. In fact, the failure of many of the dot.coms was really a failure of distribution channels and a renewed recognition of the importance of the "middle man" in New Economy marketing.
The change, rather than the destruction, of distribution channels and revenue streams is one of the great (but still relatively invisible) results of the New Economy. The Internet makes it easier, more efficient and more controllable to tap into revenue streams via navigators, intelligent bots and affiliate relationships. Instead of building Web sites as stand alone products, new Internet entrepreneurs would be wise to consider creating Web sites to tap into revenue streams of established "bricks and mortar" businesses.
Yet ironically, much of the dot.com gold rush (and bust) was caused by the creation of fictitious revenue streams. The technique had much in common with the Hollywood deal where it has become a type of mantra that a "rolling deal gathers no loss." Basically it involved creating a type of value-added stream by attaching various elements to business deals.
An option agreement for a Hollywood film can show much profit without ever creating a film or box office revenue stream. In the same way, a dot.com business deal was able to create much wealth without ever creating an Internet revenue stream. Like a film deal that attached above line creative talent to deals, dot.com deals attached above line VC talent to deals. In both cases, film and Internet deals, a vast amount of money is made through a fictitious revenue stream before the creation of an actual product.
Alignment Rather Than Differentiation
Today, differentiation is the marketing mantra. One differentiates by creating a "better mousetrap" than the other guy. The business landscape looks like a number of brands locked inside Medieval castles defending themselves from the onslaught of competing brands.
But the wise modern business entrepreneur knows that streams flow in and out of these castle fortresses. And also knows that he or she needs to find commonalities with these fortresses rather than go into battle with them.
In effect, the new business paradigm is alignment more than differentiation. Not creating a new product but rather locating a successful product being created by another and helping make it better. In this sense, aligning oneself along the revenue stream of a major brand may be a more effective strategy than differentiating oneself from a major brand and fighting it. Whether business and young entrepreneurs will be able to see this different paradigm is difficult to say. Business philosophy today seems to favor making "gold" rather than exploitation of golden streams. In an entrepreneurial era, everyone wants to be a magical alchemist. But business might be a lot better off if more alignments were made rather than more battles fought.
Both of those grand, infamous, California gold rushes are over. Yet there still is much gold to be made. Golden streams still flow down the hills from the mother lodes. Others might own the rights to the mother lodes' sources of the gold. But this doesn't mean they own all the value obtainable from the gold.
And, yes, California is still true to its old motto as the "golden state" producing gold for others to understand how to tap into.