In the tech industry, this year is the year of the cockroach.
There is no way around this. Zuckerberg’s “Year of Efficiency” took the form of: Mass layoffs at over 700 tech companiesthe rapidly increasing presence of artificial intelligence to handle tasks previously managed by humans has caused many media-favorite unicorns to panic over rising capital costs. .
This “efficient” business environment is where the often-ignored cockroach companies thrive.
Cockroach companies are those that focus heavily on revenue-generating activities and cost control, often at the expense of growth. These slow-growing companies rarely capture the imagination of people in the tech media or the venture capital community, so they generally never make a name for themselves.
Companies like this stand in stark contrast to the big-name unicorn startups known to grow full steam ahead to multi-billion dollar valuations (or bankruptcy). A unicorn is a company whose exit is based on growth and adoption rather than P&L. Instagram was sold to Facebook for $1 billion in 2012, even though it didn’t make a dime..
In some cases, and in some macroeconomic environments, the unicorn approach works. But not in 2023.
While much of the tech industry is scrambling to get their cost structures right, cockroach companies are on track to keep the noise down and their missions going.
Investors are beginning to see the real appeal of cockroach companies: a fundamentally different approach to revenue.
Cockroach companies are self-sufficient at start-up, hire only the people they absolutely need, focus on building clear unit economics, and run forever on the cash they make from selling products and services at a profit. tend to aim to Unicorn sprints are always dependent on raising the next round of funding, increasing valuations, and trying to top an ever-shrinking runway, so there’s little they can do long-term.
Tech investors seem to have realized that while cockroach companies have distinct customers, unicorn companies’ main customers are the investors themselves. Without them the lights go out.
Funding activity in the first half of 2023 clearly reflects this shift in thinking. Investment in pre-seed companies peaked at $618.5 million in December 2021 and $649.7 million in March 2022, but still topped $150 million in any single month in 2023 not.
It seems uncertain whether it can break through that 25% mark this year.
End-users and consumers in the US also appear to have changed their technology priorities in recent months, demonstrating a distinct distaste for the big tech tactics that prevailed during the Facebook era.
For years, tech companies have relied on the existence of eyeballs, a user base that is tolerant of personal data, and the viability of paying for advertising models.
However, in the aftermath of some tough political cycles and the widespread perception that many of these practices are bad for your mental health, consumers are backlashing, leaving services like Twitter and Facebook and working on smaller scales. It’s becoming more supportive of niche communities.
As evidenced by The growth of interest-based social networksusers vote with their feet, showing technology that they care more about quality than quantity, more signal and less noise.
This race for quality and focus is a set of challenging conditions for unicorn startups that rely on building mass-market audiences.
The surest sign that cockroach companies are gaining traction is the number of new companies and services that have been launched to serve the specific needs of cockroach companies.
The most obvious example is in the recruiting field. Services like Hire the Starters offer fractional, temporary, and contract employee rosters that are ideal for companies that need top talent but want to avoid headcount growth. Traffic on such marketplaces has increased dramatically.
Business services such as tax, payroll, and accounting are also moving away from direct hire services to fractional and subscription-based solutions that provide flexibility to businesses.
Cockroach companies are clearly built to survive the cold economic winter of 2023, but the moment lasts longer than just a few months. Not only is this change evident on the funding side of the technology, but there is a growing ecosystem serving this approach and a clear shift in consumer preferences.
Maybe the year of the cockroach will turn into the decade of the cockroach. And that may mean returning to the story of unicorns not existing any time soon.