Have you eaten Ramen Noodles? Give it a try, it tastes good.
But why am I asking you to eat Ramen Noodles and what is the relation of Ramen Noodles with a startup ?
Doing a startup is hard especially in the beginning when you need money to sustain, to eat, to pay for your basic expenses like rent, telephone, electricity etc.
Founders often give up in the middle of their startup journey for several reasons some of which are lack of funds, lack of resources, basis sustenance and lack of living expenses.
Imagine yourself as a founder and in your initial days your worries are the most basic essentials like living & eating. If you eliminate these worries from your startup, you basically end up not dying in your startup journey and last long.
What is ramen profitability?
Paul Graham, founder of Ycombinator, wrote an essay on Ramen profitability and I am a big fan of his essays. I recommend everyone who is reading this to read PG essays.
Ycombinator is an American seed accelerator program that started in 2005. YC has Dropbox, Instacart, Quora, Reddit as some of its portfolio startups.
Getting back to the topic.
Ramen profitability means a startup makes just enough money or revenues from their startup so that the founders cover living expenses and can live on eating ramen noodles or nestle maggi if you are in India.
Its not like you have to eat ramen noodles only, its a metaphor to describe the situation.
Once your living expenses are covered then your focus shifts on other priorities like growth, product market fit.
Few other important things that happens after that are:
- Your desperation for seeking funds go away as you were seeking initial funding to cover up your living expenses.
- You have partially attained product market fit as people are now paying you for your product or service.
- You will be more confident with your product or service, as you have paying clients now.
- You can command your own terms when negotiating a deal with an investor, yes thats true.
When there is no desperation for raising money then its your game, you control it and you drive it the way you want.
Moreover, the moment you become ramen profitable, wherever you present your idea and you show that you are already profitable investors start getting attracting towards your business idea.
Who doesn't want a piece of startup thats already profitable?
Traditional profitability is different from ramen profitability. Traditional profitability comes at a scale and is a bigger payoff on your bets.
While ramen profitability is something that you achieve within a short span like 2–3 months after starting up.
If you are seeking investment then you should rather seek the state of being ramen profitable.
I started my first venture Sponsifyme and while working on it my only goal was to get funded so my day started with cold emailing angel investors and pitching at different events.
End result? I failed big time because my focus was never on my startup and customers.
I discovered Paul Graham essay on ramen profitability and decided to shift my focus on acquiring clients and pivoted my startup to EasyLeadz, which is a B2B sales intelligence platform.
Since then there is no looking back. I have paying clients (10 out of Fortune 500) and we are more than ramen profitable.
Interesting fact: One investor who rejected us last year gave us an acquisition offer few weeks back, we rejected off-course.
But the underlying part is that the moment you start focussing on becoming profitable the tables turn around in your favor, investors start to notice you and getting attracted towards what you do, your focus shifts on growth rather than chasing investors.
So make it big and focus on customers and try to be ramen profitable as early as possible and then raise funds at your own terms!!