The Age of the Cockroach

A Plague is coming to kill off the Unicorns, predicted by tech prognosticators everywhere. Inflated and unsustainable valuations, a shaky stock market, a weak China, and the aftermath of excessive enthusiasm are all pointing to the inevitable. And as the Unicorns fall, they will take many smaller and unmythical startups down. For many years our industry’s venture community has been following a Unicorn-based investment strategy, which has already wounded the Work Horse startups. And the repercussions of the Plague will be felt by startups of all sizes and prospects.

Good things happen slow, and since the comeback from the 2008 crash we’ve been living large, investment was easy to come by. But bad things happen fast. And ups and downs are inevitable.

Who will survive? As always, the less glamorous, but very hardy Cockroaches. Cockroaches have outlasted doomsday asteroids and dinosaur extinctions. They can live for six weeks without food. They are not choosy about what they eat; they don’t need sugar, which other insects crave. They can subsist on grease, hair, or glue. They lack glamour and are ugly and unassuming. You usually don’t see them. They move fast.

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. It’s always time to be the ant and not the bee, and revisit the Sequoia “RIP Good Times” deck of 2008. http://www.slideshare.net/eldon/sequoia-capital-on-startups-and-the-economic-downturn-presentation (and follow the advice starting around slide 42). If you need to get acquired, you should already have done so. The best time to start was six months ago. Next best time is now.

After the plague and the conflagration that follows, the smoke will clear and you will look around to see who is still standing, and you will see the Cockroaches. The Cockroaches will be fewer, and thinner, but will have survived into a time of greater starvation and less hype, but where talented teams are easier to hire, and more loyal to the companies who hire them. Office space will have freed up, and will be cheaper. Many fearsome, funded competitors will have fallen away.

The best thing about the thin times vs. the thick is that startups are forced to be more creative about the products they build, smarter about who they hire and how the company spends its time. Constraints inspire creativity.

The Age of the Unicorns is ending, but the Age of the Cockroaches is beginning. All hail!