Clash of Startups: Cockroaches Vs. Unicorns

Cockroach startups vs Unicorns

“Cockroach” and “Unicorn” startups have been making rounds in the startup and investors realm for a few months now. And trust me when I say this, founders prefer their startup to be called a cockroach for all the right reasons. Cockroaches make people squeamish, but not startups.

Cockroaches have been around a long time, almost 300 million years, which means they were here since dinosaurs ruled the earth. They’ll even probably outlive humans. Similarly, cockroach startups are resilient, known to be recession-proof, know exactly where to invest their money and keeps survival at the core of the business strategy.By contrast, unicorns are fancy and glorified beings, but at the end of the day, they are just mythical beasts. Unicorn startups (companies valued at $1 billion or more) had their time where investors were pumping money into them. They have superfast growth fuelled by Venture Capitalists money. They are not profitable but the idea is that the business will expand and scale first, before they start making money, which will be easy after they have captured a major chunk of the market share. But after a due course of inflated and unsustainable valuations, these startups have started to see their demise.

Dropbox was the first dead decacorn (a unicorn with a valuation of $10 billion or more) to grab attention with many following suit. India’s largest unicorns, Flipkart and Snapdeal struggled to raise fundings at their high valuations in 2015. And the prime reason these startups fall like dominoes is because they fail to live up to the lofty valuations. And when they do, the investors will lose money, and since there are a lot of contributors to that money, the economy will feel the impact.

2015 was free and easy for startup funding, owing to the low-interest rates driving more and more money into venture capital. But 2016, got off to a very different start, with venture capital and startup funding drying up.

Investors have now pulled back from unicorns and have started eyeing on cockroaches that have a “lean investment utilisation” strategy rather than the glamorous “burn” strategy unicorns followed. Unicorns have now begun to lay off employees, pull down their capital intensive marketing gimmicks and kill undead projects that are going nowhere so they can survive.

What makes a Cockroach Startup

  1. Chase sustainable growth, not quick growth that breaks the fundamentals of the business
  2. Know exactly where to spend capital. Bare minimum for fixed assets
  3. Providing value to customers and survival should be at the core of the business strategy
  4. Employ a lean structure by investing in the right technology and employees
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