Master the thirteen habits of cockroach startups and position yourself for success. Massive success.
Cockroach startups, you ask?
You read it right. Cockroach startups.
How could that disgusting insect have anything to do with business, you ask?
And besides, you say, if you're talking about animals and business, shouldn't I be a unicorn?
Great questions, my dear reader.
Before I get into the details, know two things.
First, whatever you do, avoid being a donkey startup at all costs.
Second, cockroach startups trump unicorns.
If you want to succeed and prosper, forget unicorns and act like cockroach startups.
And I should know.
I was that kid who launched his company right out of school with no experience, money, or team.
My many failures helped me develop success habits that built an 8 figure company.
I followed the path of cockroach startups for massive success. Thirteen years later I sold my EdTech company which was then sold again, but this time, as a half unicorn.
If you're a new entrepreneur or an established one looking for more success, know this.
If I can do it, so can you.
In this post, I separate myth from reality. I reveal the proven techniques and principles that brought me massive success.
Cockroach Startups. Unicorns. Donkeys.
We have venture capitalists (VCs) to thank for names of animals to describe startups.
Companies that can't make money or go out of business are what VCs call donkeys.
Aileen Lee coined the term 'unicorn' for private companies valued at $1 billion, or more.
Investors believe a unicorn startup has a huge growth and profit potential. But despite this, most unicorns are not profitable, have no track record to speak of and are startups.
And believe it or not, within the VC community you have unicorns and 'super unicorns.' Google and Facebook are super unicorns, according to this article.
Get your unicorn fix here where and view the worldwide list of unicorn startups.
When it comes to the term cockroach startups, there's some debate for who coined this term.
The 2007 essay by Paul Graham is where the term first shows up:
Apparently the most likely animals to be left alive after a nuclear war are cockroaches, because they're so hard to kill. That's what you want to be as a startup, initially.
Six years later, Dave McClure writes an article on building lean cockroach startups.
Caterina Fake sealed the deal for the term cockroach startups in her 2015 post here.
Who or what are cockroach startups, you ask?
And that's exactly what we'll explore in the next section.
Most people are disgusted by cockroaches. And for a good reason. Cockroaches are ugly and spread disease.
But when you understand what makes a cockroach a cockroach, you also figure out why these attributes are valuable for a startup.
Cockroaches have been on planet earth for 320 million years, and before dinosaurs, according to this post.
Other 'charming' characteristics of cockroaches include:
From cockroaches in the wild to cockroach startups, let's dive into the similarities.
Characteristics of cockroach startups include:
My first startup, Embanet, had the above characteristics. Despite having no money, experience, or team, I beat the odds.
The result was a profitable 8 figure company that morphed into a half unicorn.
Keep on reading, my dear reader. Good things come to those who wait.
Cockroach startups focus on three things: profitability, profitability, and profitability.
Find and solve massive problems that are painful to many people. Do this, and you change the social fabric of society.
Read this post on how to find and solve massive problems.
Along the way, you'll deliver a real product or service and attract paying customers. And of course, you have a solid business model.
Wait a minute, you ask, shouldn't I be giving away my product or service for free?
Mike McDerment, co-founder of FreshBooks, disagrees. In this article, McDerment shares that if you create value, people will pay you for it.
Does it work?
You bet it does. Over 10 million people have used FreshBooks which has redefined online account services.
Read more about McDerment and the secret behind his success here.
A classic mistake entrepreneurs make is to look at the 'top line' and ignore the 'bottom line.'
As an example, Twitter (a former Unicorn) had first quarter revenues of $548 million. Sounds impressive, right?
It's impressive until you read in the same article that Twitter lost $62 million in the same period. In other words, Twitter is losing $700,000 every day.
To live another day, profitability is everything.
Cockroach startups not only know this but live this. Every day.
And so should you.
Cockroach startups are masters at being resourceful.
Just because you can write the check doesn't mean you should. And most times you shouldn't.
You can read more about not writing the check here.
Why is this important, you ask?
Cockroach startups bootstrap their way to success and don't have the money to write the check.
And this is the best thing that can happen.
When you can't write the check, you're forced to become resourceful and find other ways to get the job done.
Some of the best innovations come from being resourceful.
Think I'm crazy?
Steven Levy writes a brilliant book on Google called In The Plex.
Levy shares how in the early days, Google built its own servers with cheap hard drives. Although Google saved money, there was a high failure rate.
Through resourcefulness, Google solved the problem through software. When one server stops working, other servers continue the job without losing time or data.
The end result, Google has access to massive computing power at a fraction of the cost. Think millions of servers.
This is why Google is always fast when you do your search.
Now let me ask you this.
What would have happened if Google wrote the check?
For starters, server manufacturers like DELL and IBM would be a richer and happier.
Perfect for DELL and IBM and bad for Google.
Google would be slower and wouldn't have access to massive computing power.
Even the environment.
Data centers use a lot of energy from servers and chillers. Chillers keep the room cold to prevent server failure. Google figured out a way to run its data centers without chillers.
The bottom line is the bottom line. According to Levy, Google runs it's data centers at one-third the cost of its competitors.
For every dollar that Google's competitors are spending, Google spends thirty-three cents.
When it comes to cockroach startups, Google started as one. Shortly afterward, Google morphed into a unicorn and again into a super unicorn.
Cockroach startups have small teams that generate big results.
One obvious benefit of small teams is lower expenses. Frugality (Secret #4 of Cockroach Startups) serves both profits and customers well.
With smaller teams come quicker decisions, the creation of company culture, and passion.
All this said small teams have downsides.
Expect long hours, grueling days, and information overload.
But as scrappy cockroach startups know, it's the only way to go.
Smaller teams allow cockroach startups to boost morale and intimately know their customers.
And when it comes to smaller teams, Margaret Meade says it best:
Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.
Cockroach startups have smaller teams, and so should you.
Cockroach startups attract people who want to be part of the movement and buy into the vision, not the money.
And this is a good thing.
Cockroach startups are frugal and can't afford to buy talent. The fact the people search out cockroach startups is a blessing.
Long hours, wearing many hats, and delayed gratification requires people with passion.
In many ways, team members of cockroach startups are like volunteers. This becomes clear when you consider hours spent in the company versus the pay!
And that's not a bad thing.
DeAnn Hollis has this to say about volunteers:
The heart of a volunteer is never measured in size, but by the depth of the commitment to make a difference in the lives of others.
But don't let this romantic vision fool you. Top talent is key for a company to succeed. And cockroach startups are up against fierce competition to attract the brightest.
So how do you attract the best talent if you can't pay top dollar, you ask?
The first tip is to evangelize your mission to current and future employees. Like most cockroach startups, you're solving a massive problem affecting many people.
Second, Vozza suggests that you hire for the mission over money. And Vozza is right on the money (pun intended).
Dr. Andrew Chamberlain, Chief Economist at Glassdoor, agrees. Chamberlain should know. Employees wanting to share experiences about their companies do so at Glassdoor.
Chamberlain's article shares that workplace happiness comes from the following four areas:
Compensation and benefits were the least important factors. Glassdoor's graph below says it all.
And for you statistics geeks, Chamberlain's study has a sample size of 615,000
Your company mission and culture does more for your success than a bank account full of money.
Third, cockroach startups offer more autonomy and job satisfaction. Vozza recommends that you play this up with prospective hires.
Last, know where to look for your future talent. This is easier said than done. But know this, recruiters should be your last resort.
Chances are your existing team already know people who are the perfect fit. And if you're true to your mission, you're known in the right circles as the place to work.
What cockroach startups lack in size and money is more than made up for in mission, vision, and culture.
Cockroach startups know that time, not money, is the most precious resource.
My first startup, Embanet, took five years before realizing moderate success. And once the success came in, it didn't stop as I marched my way to building an 8 figure company.
But suppose I closed my doors in year 2 from lack of money.
Ok, you say, what's your point?
The point is most companies, cockroach startups included, don't fail from bad ideas. Instead, failure comes from not living another day.
And for cockroach startups, it's all about figuring out how to live another day.
Why is this important?
Most entrepreneurs aren't ready for the future success that awaits them. Figure out how to live another day so you can catch up and realize your sweet success.
This is also why Success Secret #2 of Cockroach Startups is critical. Resourcefulness, and not resources, will help you live another day.
It all adds up.
As an example, in my first startup, five-star hotels were not an option. In fact, some of the hotels wouldn't even get one star!
And speaking of hotels, members of the same sex shared rooms. No exceptions.
Uncomfortable, yes!. But essential.
When you live another day, you're making your offering better. You're getting more customers. Your team becomes stronger. The company mission gains traction.
All good things, particularly when we explore the next secret of cockroach startups.
Cockroach startups play small at first, so they can play big later and dominate.
Playing small means experimenting. All the time. With everything.
Marketing is a 'black box' for most entrepreneurs. Too much money goes in, and not enough comes out!
Half the money I spend on advertising is wasted; the trouble is I don't know which half. - John Wannamaker
In my first startup, we either spent a few hundred or a few million dollars on marketing.
You read that right.
We performed marketing tests every day. Some marketing tests cost $25 and others $200. But no more.
The failure rate on our tests was 87%. But our success rate on what we launched was 100%.
Most entrepreneurs spend big money on a few tests because of a 'hunch' or what a marketing agency said. Failure is certain, and they don't live another day to figure it out.
Your savior is my Two Golden Rules Of Marketing™.
Golden Rule #1: Measure the result of every marketing activity.
Golden Rule #2: Spend as little money as possible and perform as many marketing tests as possible.
We played small at first so we could play big and dominate.
And we did.
In the next section, I share the highlights of this post and reveal tools you need for marketing success.
You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. If you take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes. ―Morpheus, to Neo in The Matrix
Ready to take the blue pill, my dear reader, and market like world class cockroach startups?
What I'm revealing here is the system I used to build an 8 figure business. And later into a half unicorn.
Suppose we're performing five marketing tests. Each test costs $20. Total spend is $100.
The graph below shows total leads per test.
Which test wins? If you said, test one with 200 leads is the way to go and to stop wasting time with test five with 25 leads, you're not alone. But it's still too early.
Let's calculate the cost per lead, as shown below.
AT $0.20 per lead, test one puts test five at $1.25 per lead to shame, right? Perhaps. But it's still too early to tell.
Let's review the number of customers that converted per test, as shown below.
Say it ain't so. Test one had zero customers and that 'waste of time' test five had seven customers.
Believe it or not, we're still not done. We have one last metric, and the most important one when it comes to marketing.
The most important measure of marketing success is the cost per customer. This holds for cockroach startups as much as it does for any business.
Let's look at the graph below.
Marketing test five steals the thunder at the cost of $2.86 per customer. Marketing test one turned out to be all talk and no show with zero customers and lost $20.
You may be asking what do you do if you don't have your product or service in the market?
It's a great question.
The short answer is you don't need to, and shouldn't. We didn't launch any of our programs until our marketing test told us to.
How did we get people to 'pay' for something that didn't exist?
We accepted credit cards or checks but never processed the charge. The act of paying is what we look for.
If a program didn't launch, we returned the check and spoke to each prospective customer.
Your big insight here is that the cost per customer metric should be the only used to figure out a 'go' or 'no-go.'
And now you know why our marketing tests failed 87% of the time, but we maintained a 100% success rate for launches.
It's now time to reveal the next secret of cockroach startups. And I'll give you a hint.
Cockroach startups can do this one thing that most companies can't or won't do.
People don't care how much you know until they know how much you care. ― Theodore Roosevelt
Successful cockroach startups know that every customer counts.
In the early days of Embanet, I knew every online learner using our system. By the first name.
Was this scalable?
Not a chance.
Was it necessary?
You better believe it was.
In the early days at Embanet, everyone was one big family.
I learned the hopes and dreams of our online learners, faculty, and staff. We laughed together. We cried together.
Together we built a thriving community. Our stories became legendary. And a company culture made in the process.
I trained new Embanet hires one thing over-and-over again. Treat each customer interaction as though the company depended on it. Because it did.
Embanet was the underdog and didn't have the luxury of making a mistake.
Don't get me wrong. The early days of a startup are tough. And the word 'tough' doesn't even begin to describe how difficult it is.
But it's those same early days that offer a small window where you can do things you'll never be able to do again.
Like knowing every customer by the first name. And being part of a close-knit community that stands for something.
And this, my dear reader, is the intersection of where dreams are born and legacies made.
Follow the lead of cockroach startups and ensure that every customer counts.
Think you can, or think you can’t – either way, you are right. – Henry Ford
The founders of successful cockroach startups are involved in sales. No exceptions.
I bet you think sleazy, liar, and pushy when you hear 'salesperson.'
Would you call Elon Musk or Steve Jobs these names?
True selling is transferring your passion about a topic to others through education.
When done right you inspire, ignite, and trigger interest in those around you.
But how can I sell, you say, when I don't enjoy selling to people?
Think about the last time you raved about that new gadget or restaurant you love to your friends.
If in doubt, remember me. I was that kid right out of school with no money, experience, or team.
What did I know about sales?
I wasn't terrible. Nope. I was horrible.
Despite my inexperience, I beat professional sales people.
In fact, I never sold. I educated.
And when a prospect said 'no,' I asked 'why.'
What I learned from why a prospect who said no was worth more to me than the sale. The feedback made both my company and myself better.
People became customers because they knew I would work my ass off for them. And I did.
And your future customers will do the same for you.
Follow the lead of cockroach startups and be your first salesperson.
You must be your own salesperson when your first start. Here's your five to thrive of why:
The bottom line is the bottom line. The passion you bring as a founder speaks for itself.
Successful cockroach startups know this and so should you.
Even when you have a sales team, you'll always be the best salesperson. There's nothing like the heart and passion of a founder.
And if you're smart, as I know you are, you'll ensure your entire company sells.
From your customer service to technical support to your back office.
Every time anyone in your company speaks to a customer or prospect it's an opportunity. Make the most of it.
True story. At Embanet prospective clients would visit our office before becoming a customer.
And who could blame them? In the early days, Embanet had no track record.
Every visitor received the VIP treatment with a black car pick up at the airport. The driver, Mel, who picked up and dropped off our visitors was our best salesperson.
When Mel first began I gave him the tour of my company and treated him like a VIP.
Think about it, Mel was the first and last person the visitor saw.
Mel was my 'warm up' act. There's nothing like a friendly and smiling face to greet you at the airport.
And you better believe that the visitors asked Mel questions.
Mel fielded questions like what do you know about this company? Are they nice people? How do they treat you?
And if there were a few visitors, Mel became my intel by sharing with me what he heard on the ride back to the airport.
My success was Mel's success and vice-versa.
Successful cockroach startups ensure that every staff member is in customer service. No exceptions.
Just ask bestselling author Shep Hyken who goes by the title of Chief Amazement Officer. Talk about a title!
Hyken writes a great article to support his point. Hyken shares that the people who make the greatest impact on the customer are often not trained.
Think warehouse staff. Don't forget janitors. And of course, your staff answering the phones.
Sounds crazy, you say?
Ask billion dollar companies and legends Disney and Zappos if this is important.
Hyken recommends that you:
And while you're at it, pick up Hyken's book here. You'll thank me later.
In this post, I talk about the online accounting services company Freshbooks.
At Freshbooks, every employee provides customer services. The founder, Mike McDerment, shares:
"if anyone phones us and they don’t get their call answered in four rings, every phone rings in the company until they get service."
It shouldn't be a surprise that cockroach startups like Freshbooks transform industries. Freshbooks is now a large and established company dominating its industry.
Cockroach startups have everyone in customer services. No exceptions.
And so should you. No exceptions.
If opportunity doesn't knock, build a door. - Milton Berle
Follow the lead of cockroach startups and bootstrap your company. Forever if possible.
But aren't investors in this love affair for backing companies that will be the next unicorn?
The love affair with unicorns is over.
Remember the 'dot com' bubble? You know, when founders cashed in on ideas that had anything to do with this new thing called the 'Internet.'
This was a time when the insane were running the asylum.
Like the dot com bubble, the unicorn fad is over. The insane are no longer running the asylum.
You can read all about it in this article.
Like their namesake, cockroach startups are crawling out of the cracks to dominate.
Once upon a time Google and Facebook were cockroach startups. And they became unicorns only after building a solid business cockroach style.
There's nothing wrong with the desire to become that mythical unicorn. I'll take it a step further.
The goal of cockroach startups should be to morph into something bigger. Much bigger.
Before morphing you need a solid foundation. Bootstrapping forces you to create this foundation.
Before I sold my first EdTech startup, Embanet, revenues were in the eight figures, and net profit was 53%.
You read that right. Not gross revenue. Not gross profit.
The talented team that purchased Embanet grew and later sold the company as a half unicorn.
Bootstrapping gives cockroach startups significant advantages right out of the gates.
MailChimp and Craigslist are two great examples.
According to this article, MailChimp is tracking towards half-a-billion in revenue. And profitable.
This article shares that Craigslist racked up $700 million in revenue and 80% profit. That $1.534 million of profits PER DAY.
Both companies are as untouchable as untouchable gets.
This article shares how Craiglist continues to demolish its VC funded competitors. All day. Every day.
And this is no coincidence.
Bootstrapping your company gives you advantages you'll never get from outside money.
Success requires failure. And failure isn't tolerated by outside money.
From the ashes of your failure rise an offering that works. Full stop.
You can read how to leverage your failure into success here.
Bootstrapping keeps the pressure on for you to figure this out. Fast.
What you lack in money your reap in being resourceful. (See Secret #2 of Cockroach Startups).
And while you try things out and fail, you're preparing yourself for your future success. This is why it's so important to enjoy the journey. This post here talks all about it.
Money, time pressure, and resourcefulness is the perfect storm for brilliance and innovation.
Growth at any cost is a recipe for failure. Shortcuts are taken, and sustainability doesn't happen.
Organic growth, while slower, builds a solid foundation of systems that work.
Organic growth also fuels a solid company mission that has you stand out fro the crowd. (See Secret #4 of Cockroach Startups).
With organic growth and bootstrapping comes the mastery of saying 'no.' If you say 'yes' to everything, you're doomed. The art of success is knowing when to say 'no' so you can focus on growth.
This post reveals why saying 'no' to opportunities really saying 'yes' to success.
For an entrepreneur, there's nothing more painful than watching the bank account dwindle.
When you bootstrap, there is no 'plan b.'
You either figure it out or you close your doors.
And you better figure it out fast.
Everything is under the microscope. Whatever doesn't work, gets tossed. You figure out what is working and make it even better.
For cockroach startups, there is no such thing as 'free.' You either charge for your services or you shut down.
You don't have the luxury of giving everything away for free on the off chance that one-day people will pay for it.
And you never should.
Fundraising is time consuming and draining. Every minute spent on fundraising is one less minute to find paying customers.
Selling a company is like fundraising. The only difference is the stage of the company.
When I entered the stage of selling Embanet, I had the best of intentions to keep focused on the business.
I played a fool's game.
You, your time, and your business suffer.
Cockroach startups avoid what I call 'amateur night.'
When raising money, most startups take on investors who aren't professional.
You know what I'm talking. Your friend's Uncle who has a cousin that knows this guy who has a friend that can sign the check.
You may be 'lucky' and only have one or two of these people. You may not be so lucky and have six, ten, or more of these people.
And this is where amateur night starts.
The phone calls, emails, and texts started pouring in. Your 'investors' want to meet with you and find out what's going on with your company, and their money.
But, you proclaim, we met last week over a two-hour lunch.
You're told that last week was last week and this week is a new week.
And if it's not amateur night, you're meeting with trained professionals. And these professionals are smarter than you and ruthless.
They say 'jump,' and you better say 'how high?'
Countless hours go into preparing financial reports that you never knew existed.
And let's not talk about those meeting when you're in the 'hot seat.'
Is it worth it?
Not a chance.
Bootstrapping your company gives you the luxury to do what you want to do when you need to do it.
Bootstrapping also gives you the luxury to fail. And fail miserably.
But successful cockroach startups know better.
MailChimp Co-Founder Ben Chestnut says it best in this article:
"Everybody we talked to said, ‘You’re sitting on a gold mine, and if you pivot to enterprise, you could be huge,’” Mr. Chestnut said. “But something in our gut always said that didn’t feel right."
Chestnut knows everyone else doesn't. A 'pivot' to enterprise will take MailChimp off its mission of serving small business.
What do you think would happen if you told your investors 'no' to something that could make you bigger?
Let's not find out.
And I remind you that Chestnut is laughing. Laughing all the way to the bank as he does what he wants to do when he wants to do it.
While not my preference, bootstrapping positions you for future funding.
In fact, you'll earn a doctorate from the 'School of Hard Knocks' in how to build a business that works. And is profitable. And decimates the competition.
Successful cockroach startups and former cockroach startups know this. And so should you.
Secret #11 of cockroach startups is a distant cousin to Secret #1.
Profitability, or the bottom line, is everything.
And it's worth repeating again in Secret #11.
Vision is nice.
The mission is important.
But neither vision nor mission pays the bills.
Unlike the mythical unicorn, cockroach startups must always focus on profits.
Every minute of every day.
What happens when you lose site of profits?
But just ask former unicorn Zenefits, as this article shares.
Or former unicorn Fab.com, according to this article.
Many so called 'experts' view not having access to infinite amounts of money as a negative.
As usual, the experts are wrong.
In the case of Zenefits and Fab.com, dead wrong.
Cockroach startups have no choice but to always focus on profits. And in so doing, ensure that the customer is number one. Always.
No customers, no business.
Cockroach startups know that their offering is everything and the only thing.
And you should too.
Google and Facebook morphed from cockroach startups to super unicorns. And they both did this from focusing on their offering.
For Google, it's all about experience and speed.
When you speed up service, people become more engaged - and when people become more engaged, they click and buy more.
For Facebook, it's also all about experience and speed.
Two former cockroach startups that morphed into super unicorns. And both companies knew that their offering is everything and the only thing.
Whatever you're offering is my dear reader, focus on it like it's everything and the only thing.
When you do this, you're also paying homage to Secrets #1 and #11.
Cockroach startups are in it for the long-haul. This is not about making a quick buck through an exit sale.
Ironically, these thirteen secrets of cockroach startups can position you for an exit. And a profitable one at that.
But this is not the intent.
The only exit on the minds of cockroach startups is the exit out of their office so they can go home after a long day.
Focusing on any other exit at this stage in your company development is a recipe for failure.
Just ask me.
I shared earlier how I was that kid who built an 8 figure company right out of school with no money, experience, or team. You can read about it here.
I'm also that entrepreneur who started his second company that turned into 7 figures. Seven figures of losses that is.
I started the second company for all the wrong reasons.
Ego. Greed. The desire to start a company for a quick exit.
I had a quick exit, alright. Only it wasn't the kind of exit I planned on. And I deserved it.
Follow the principles of cockroach startups to maximize your chance for massive success.
I knew better and didn't. The results speak for themselves.
In this post, I've shared thirteen secrets of cockroach startups.
There are no guarantees in life. And there are even fewer guarantees in business.
But know this.
When you follow what I've shared in this post, you position yourself for success.
Lots of it.
It won't be easy.
There is no magic bullet.
For each of these thirteen secrets of cockroach startups, I learned them the hard way.
Failure. Lots of it.
In the depths of my biggest failures, I promised myself that if I ever 'made it,' I would help other entrepreneurs.
Help you reach your success through proven principles. Help you unlock your sweet success faster together than you could on your own. And help by being your biggest raving fan on those dark days when you want to give up.
Today we call companies cockroach start-ups, unicorns, and donkeys. Tomorrow there will likely be other names.
I don't know what the future holds.
But I do know that what I revealed in this post works. And if it could work for me when I had no experience or money, it can work for you.
Wherever you are and whatever you're doing, know that your future success is waiting for you.
Are you ready for it?
I know you are.
Believe it or not, you already have everything you need. Right now. Exactly as you are.
Here's to you and your success!
Your Raving Fan,