by Mitch Lairmore | November 6, 2018
Financing a startup can be a challenge. Commercial banks will shy away from startup companies because of the risk. The availability of U.S. Small Business Administration (SBA) loans can encourage commercial banks to consider loaning money to startups but the loans are difficult to obtain.
In addition, if money is needed for product development, bank financing is not usually an option. Banks will normally lend only to companies that have products/services that are ready to be marketed.
Angel investors know from past experience that startup businesses are risky too. They will demand a much higher rate of return to compensate themselves. The higher rate of return requirement will necessitate that the management of the company become aggressive to grow the business rapidly.
A cockroach startup can be an alternative to the model of borrowing funding and rapidly growing the business. So what is a cockroach startup? A defining characteristic of a cockroach is that they are hard to kill. They don’t eat much and they are adaptable to new environments. A cockroach startup is a business approach that emulates these characteristics.
Cockroach startups place less emphasis on growth and more on survival. The strategy assumes that perfecting the business model will take time and mistakes. Therefore, it is critical to stay in business as long as possible. The company focuses on managing costs and having the flexibility to adapt to changing situations. Of course, the cockroach startup places a high importance on obtaining revenue and therefore profit.
The emphasis on organic revenue growth and cost control can limit the cockroach startups near term growth potential. Management in these companies have made a conscience decision to forego potential growth to increase the survivability of the company.
The emphasis on cost control and the ability to be flexible will impact the culture of the company. This environment will likely require employees that can take on new, varied roles and responsibilities and work extended hours. Management will need to create a culture that will entice people to work in that type of environment. Some reasons might include a passion for the business area, ability to “make a difference” and the willingness to delay financial rewards.
An important component in operating a cockroach startup is trying a number of new ideas and measuring the results. The company needs to determine which business approaches will work before they run out of funding so the ability to create tests efficiently is important.
A cockroach startup approach may be a way that entrepreneurs can adapt to eliminate or minimize outside funding needs for launching a new business. By placing emphasis on survival rather than growth, a business will be able to perfect the business model before they run out of money.