With the glitter of tech unicorns fading, venture capitalists and investors are looking for decidedly less glamorous startups to back — and those companies have a name to match. Cockroaches.
A cockroach isn’t as clearly defined as a unicorn, startups with pre-IPO valuations of $1 billion or more. Instead, a cockroach, as the Irish Times described earlier this year, “refers to a startup consisting of hard-working founders who keep survival at the core of their business strategy.” It’s also been described as having the ability to quickly become frugal and run lean, although there are no financial parameters to that definition. David Cummings offered a list of characteristics that includes “little-to-no salaries for the entrepreneurs”.
Cockroach Mode for Startups https://t.co/PvUVu9Ziqs
— David Cummings (@davidcummings) November 12, 2015
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So where did this skin-crawling term first gain traction online?
The earliest published reference we could find was from Dave McClure of 500 Startups in a Wired UK article from 2013. In the piece, McClure calls out entrepreneurs for “trying to build audiences without knowing how to monetize them.”
The article goes on: “He said that many people building startups think that engineering and design are the critical factors as to whether their business is successful. “I would challenge that. What’s missing in most startups is scalable, cash-flow profitable (costs you less to acquire the customer than you generate in revenue) distribution.””
A slideshare from McClure posted in June 2015 is the next reference to cockroaches, which has been shared 212 times across LinkedIn, Twitter, Facebook and Google+, according to Buzzsumo. In the presentation, he reiterates his message from two years earlier, that startups need to be lean and run “simpler, faster, smarter, cheaper.”
Three months later, in October 2015, Flickr co-founder Caterina Fake picks up the term for her column in Medium called “The Age of the Cockroach”.
The Age of the Cockroach is upon us: https://t.co/RYqAWnw81t
— Caterina Fake (@Caterina) September 30, 2015
In it, Fake points to the then looming funding crisis as the reason why unicorns will be replaced by cockroaches. She then offers this advice: “Companies that want to outlast the coming funding crisis will need to move fast, cut costs, and plan for a future without much money in it. They will have to lay off staff, move their pricy downtown office to the unsexy exurbs, pivot into revenue-generating business models, kill projects going nowhere, live with less.”
For the next four months, as investment funds continue their write downs and venture capitalists begin talking openly about a shift in their approaches, Fake’s column spread online. It has collected over 8000 shares across social media channels, according to Buzzsumo.
Finally, on February 11, 2016, the term cockroach scuttled its way into a mainstream media publication. It’s Business Insider‘s “Startups are realizing there’s no Plan B: They have to survive the bad times like ‘cockroaches’“.
Startups are realizing there’s no Plan B: they have to survive like ‘cockroaches’ https://t.co/HdYs7fbaIg pic.twitter.com/PFngT0sTvN
— BI Tech (@SAI) February 11, 2016
Frequently Asked Questions
Why were investors turning to cockroach startups in 2016?
In 2016 the glitter of tech unicorns was fading, so venture capitalists and investors were looking for less glamorous startups to back, which came to be called cockroaches.
What characteristics did David Cummings associate with cockroach mode?
In a November 2015 post on cockroach mode for startups, David Cummings listed characteristics that included little to no salaries for the entrepreneurs.
What did Dave McClure's 2015 SlideShare say about cockroaches?
McClure's June 2015 SlideShare repeated his message that startups need to be lean and run simpler, faster, smarter and cheaper. Buzzsumo data showed it was shared 212 times across social networks.
What did Caterina Fake advise startups to do to survive a funding crisis?
Caterina Fake said companies must move fast, cut costs and plan for a future without much money. That meant laying off staff, moving out of pricey downtown offices, pivoting to revenue-generating models and killing projects going nowhere.
How is a cockroach defined compared with a unicorn?
A unicorn has a clear definition: a startup with a pre-IPO valuation of $1 billion or more. A cockroach is less clearly defined and refers to frugal, survival-focused startups, without any specific financial parameters.