It’s the Year of the Cockroach in Tech as “Year of Efficiency” Permeates Tech

In tech, it is the year of the cockroach.

There’s no way around it: Zuckerberg’s “year of efficiency” has materialized in the form of mass layoffs at more than 700 tech companies, a rapidly increasing presence of artificially intelligent prompts handling tasks previously managed by humans, and many of the media’s favorite unicorn companies panicking about the rising cost of capital.

This “efficient” business environment is where the often-ignored cockroach company thrives.

A cockroach company is one which places specific emphasis on revenue-generating activity and cost-controls, often at the expense of growth. These gradual-growth companies rarely capture the imaginations of those in the tech media or the venture capital community and so they generally do not become household names.

Companies such as these stand in stark contrast to the celebrated unicorn startups, which are known for their growth-at-all-cost sprints toward multi-billion dollar valuations (or bust). Unicorns are those which aim for an exit based on growth and adoption rather than their income statements, like when Instagram sold to Facebook for $1 billion in 2012 despite never having earned a dime in revenue.

In some cases and in some macroeconomic environments, the unicorn approach works. But that is not the case in 2023.

While many in tech scramble to right-size their cost structures, cockroach companies are humming right along, able to tune out the noise and continue delivering on their respective missions.

Cockroach Companies Make for Smaller Exits but Represent a Safer Investment

Investors have begun to see the real magic of the cockroach company: the fundamental difference in approach toward revenue.

A cockroach company tends to bootstrap at launch, hire only people who are absolutely necessary, and focus on developing clear unit economics, aiming to run forever on the cash it generates from selling products or services at a profit. The unicorn sprint is rarely long-term viable as it always relies on raising the next round of funding, increasing valuation, and trying to out-run its always-shrinking runway.

Tech investors appear to have realized that while the cockroach company has a well-defined customer, the primary customer of the unicorn company is the investor themselves. Without them, the lights go off.

Fundraising activity in the first half of 2023 clearly reflects this mindset shift: investments in pre-seed companies which peaked at $618.5 million in the month of December 2021 and $649.7 million in March 2022 has yet to break $150 million in any single month of 2023.

It appears uncertain if we will break that 25% mark this year.

Consumer Shifts in 2023 Reflect Realignment of Priorities

The American end-user and consumer also appears to have shifted their technology priorities in recent months, expressing an apparent distaste for the big tech playbook that has been prevalent in the Facebook era.

For years, tech companies have banked on the presence of eyeballs, a user base that is loose with its personal data, and the viability of advertising models to pay the bills.

But in the aftermath of a few tough political cycles and a growing acknowledgement that many of these practices are bad for mental health, consumers are pushing back and leaving services like Twitter and Facebook in favor of smaller, more niche communities.

As evidenced by the growth of interest-based social networks, users are voting with their feet and showing tech that they’re interest in quality over quantity, more signal and less noise.

Head of Instagram Adam Mosseri has acknowledged as much, sharing “Friends post a lot more to stories and send a lot more DMs than they post to Feed.”

This race to quality and focus is a challenging set of conditions for unicorn startups which depend on building mass-market audiences.

Tools and Services Rising to Support the Cockroach

The surest sign that cockroach companies are gaining steam is there are a bevy of new companies and services launched to serve their specific needs.

The most obvious example can be found in recruiting, where services like Hire the Starters offer a roster of fractional, temporary, and contract workers ideal for the company who needs top-tier talent but wants to avoid increasing headcount. Traffic on marketplaces such as these has increased dramatically.

Business services like taxes, payroll, and accounting have also shifted away from serving direct hires and more toward fractional and subscription-based solutions which afford companies flexibility.

The Cockroach Company is Here, and May Be Here to Stay

It’s clear cockroach companies are built to survive the cold economic winters of 2023 but their moment last longer than a just these few months. These shifts are not only obvious on the fundraising side of tech but there is a growing ecosystem servicing this approach and an obvious shift in consumer taste.

It may be that the year of the cockroach turns into the decade of the cockroach; and that may mean that pretty soon we’ll go back to talking about how unicorns don’t exist.

Andrew J. Chapin is a tech entrepreneur and writer who is launching the Small Business World Tour podcast this fall.