Serial entrepreneur and venture capitalist Paul Graham popularized the term “Ramen Profitability”. When your startup makes just enough to pay your living expenses, you can declare that you have achieved “Ramen Profitability”! This is a great mile marker to aim for!
I would like to start by pointing out that I do not want you to take this term literally! Living on nothing but instant ramen noodles would be very unhealthy! Can I recommend rice and beans as a healthier yet thrifty option? If you don’t already have one, maybe your first investment could be in a rice cooker!
Do you have any other thrifty yet healthy meal recommendations?
Traditionally, startups aimed to show that that big bet is finally paying off. But as a first step for a startup, aiming to be able to feed yourself…. with one of the cheapest meals available... is a welcome concept. Ramen profitability indicates a degree of success. You can survive! This doesn’t guarantee long term success, but it does help you buy precious time to keep experimenting with what you’re doing.
So if you have attained ramen profitability, what does that say about you?
You can get someone to pay you!
You’re serious about building or providing what people want.
You have kept your expenses low / on budget.
You can now focus on further growing the startup rather than on initial fund raising. Becoming ramen profitable makes you more attractive to investors. You have already addressed their biggest concerns.
Becoming ramen profitable is also good for morale. The weight of running a startup is what makes it hard. Startups are still rare. Why?
Is it the financial risk? Plenty of people don’t save anything anyways.
Is it the long hours? Plenty of people work equally long hours on their regular jobs.
It is the fear of having so much responsibility. And this is no irrational fear: it really is hard to bear. So once you can see that you’re able to meet the minimum monthly expenses and keep yourself fed, you can take a deep breath and relax just a bit!
Many nowadays are not aiming for great wealth, but instead for discretionary time. If your living expenses are small, you could potentially declare Ramen Profitability even if you are only generating $3,000 per month. It all depends on how much you need to survive!
So if you are thinking about starting a business or have just begun, set a series of goals. Instead of aiming for the long distance goal, may I suggest that you consider aiming for first base first? Once you have figured out what it will take to be able to consider yourself Ramen Profitable, go for it! Tackle that goal!
I am rooting for you!