Powerful words from Paul Graham on Ramen Profitability

A startup with a couple founders in their early twenties can have
expenses so low that they could be profitable on
as little as $2000 per month. That’s negligible as corporate
revenues go, but the effect on your morale and your bargaining
position is anything but. At YC we use the phrase “ramen profitable”
to describe the situation where you’re making just enough to pay
your living expenses. Once you cross into ramen profitable,
everything changes. You may still need investment to make it big,
but you don’t need it this month.

You can’t plan when you start a startup how long
it will take to become profitable. But if you find yourself in a
position where a little more effort expended on sales would carry
you over the threshold of ramen profitable, do it.

Investors like it when you’re ramen profitable. It shows you’ve
thought about making money, instead of just working on amusing
technical problems; it shows you have the discipline to keep your
expenses low; but above all, it means you don’t need them.

There is nothing investors like more than a startup that seems like
it’s going to succeed even without them. Investors like it when
they can help a startup, but they don’t like startups that would
die without that help.

At YC we spend a lot of time trying to predict how the startups we’ve
funded will do, because we’re trying to learn how to pick winners.
We’ve now watched the trajectories of so many startups that we’re
getting better at predicting them. And when we’re talking
about startups we think are likely to succeed, what we find ourselves
saying is things like “Oh, those guys can take care of themselves.
They’ll be fine.” Not “those guys are really smart” or
“those guys are working on a great idea.”
When we predict good outcomes for startups, the qualities
that come up in the supporting arguments are toughness, adaptability,
determination. Which means to the extent we’re correct, those are
the qualities you need to win.

Investors know this, at least unconsciously. The reason they like
it when you don’t need them is not simply that they like what they
can’t have, but because that quality is what makes founders succeed.

Sam Altman
has it. You could parachute him into an island full of
cannibals and come back in 5 years and he’d be the king. If you’re
Sam Altman, you don’t have to be profitable to convey to investors
that you’ll succeed with or without them. (He wasn’t, and he did.)
Not everyone has Sam’s deal-making ability. I myself don’t. But
if you don’t, you can let the numbers speak for you.

It’s more great advice from Paul Graham. He can always provide that little extra boost of motivation.

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