As much as we abhor cockroaches, they have become the flavor of today’s startup ecosystem because of their sheer resilience to wither storms. But what has that got to do with investor sentiments?! A lot, it seems and that is how the startup world has coined the term Cockroach startup.
While until 2015, investors threw money at Unicorn companies valued at $1 billion or more, this year it seems to be the turn of Cockroach startups that are built on strong business fundamentals, those that are scalable faster and have strong business models. In other words, startups that can wither adverse business climate, sustain on frugal feeds (read low, calibrated funding), plough earnings back into revenue growth, and require relatively lesser funding to run their businesses.
In the Indian healthcare sector, Practo, NetMeds, Goqii, Lybrate and 1mg have been some of the most talked about investments in recent times. Funds like Ratan Tata-backed Tiger Capital, Sequoia, Angel investors, Norwest Venture Partners etc. have invested collectively invested up to USD 300 M in startups in just one year and have helped entrepreneurs stand amongst the league of established businesses. Some of these investments even acquired a near-Unicorn status (valued at over a billion dollars) in 2015.
Analysts in the start-up ecosystem believe that evergreen sectors like healthcare provide immense potential for entrepreneurs to unlock their business ideas into a sustainable business entities. In India, we have already seen start-up noises in healthcare micro-markets like appointment aggregation, cloud-based HIS (SaaS), online medication dispensing, ambulatory care, cutting-edge hardware, cryopreservation and even genomics.
Startups that have it in them to withstand turbulence (be agile and flexible to demand), stay afloat (recover investments, if not make profit) despite constrained resources (limited investments) are likened to cockroaches.
5 Must-Have Attributes Of Cockroach Startup
1. Ability to survive longer even without much capital infusion
There are many qualities to talk about and all of them are effective, but the list that I have enumerated below are the attributes that are directly impact start-up’s P&L statements and bottom-lines.
India’s startup ecosystem saw a downturn in 2014-15 fiscal year with plenty of high profile layoffs, stalled startups, and rumored acquisitions. The investors were hesitant to loosen their purse strings thanks to the crash of Chinese stock market in June 2015 and general pessimism on world economy
With such a scenario, an ideal start-ups is the one based on sound business model supported by cost-effective value-chain (product ideation, development, marketing, distribution channels, delivery and after sales support) that can sustain efficiencies and ensure steady cash flows that is ploughed back in to the business model
VC funds are like as Seed investors. They will make your big business idea to see light of the day; the entrepreneurs have to keep it running eventually.
2. Ability to sustain profitability at lower business scale
Forget Arrive-and-Conquer mindset! Many start-ups have a utopic vision of scaling their business beyond their capability and capital.
Ideas alone won’t get you there, funds are needed too. If you are assuming some famed VC capital firm or a Russian Billionaire or a Silicon Valley maverick would latch up to your business, you are in for disappointment!
For a start, a successful start-ups should have sound fundamentals like product demand, short product development cycle and controlled capital expenditure.
In a long run, for the investors it is not about the Turnover (income); it is all about the Leftover (profits).
Smaller scale of operations helps in keeping the things tied initially, develops investor confidence in business model and most importantly gives proverbial pat- on-the-back moment for the start-up team.
3. Captive market: Cockroach startups have a focused, long-term business model with a critical mass of a captive market. Fortune reported the “top reason” startups fail is because they make products no one wants. A careful survey of failed startups determined that 42% of them identified the “lack of a market need for their product” as the single biggest reason for their failure. Hence, gauging market demand for a product and catering to it efficiently is a bedrock of a successful startup.
4. Unwavering value focus: Many startups don’t have a reason to exist. Take away their name and logo from their website and you cannot make one from the other. And that is why it is very important to have a distinct value-based proposition to see to your target customers. USP is your company’s business card to investors that would makes them reach their wallets to invest.
Startups must develop a unique selling proposition (USP). Something that positions them differently, so that investors and more importantly the customers are forced to make an apples-to-oranges comparison when comparing them with competitors.
5. Sound business model: Startup should have a clear, distinct and innovative business model to deliver value to targeted customer segment and provides returns to stakeholders (e.g. investors). An important attribute of a successful cockroach startup is laser-like focus on a narrow target market, sometimes called a niche. One such niche in healthcare is cloud-based hospital information system that is adapted by a startup company called Attune Technologies that provides cloud-based health information systems for clinic chains. The startup recently raised $10 million from Qualcomm Ventures.