What does it mean that your startup is “Ramen Profitable”? It means you’ve passed an important milestone and you’re on the right track.
Ramen profitable means a startup makes just enough to pay the founders’ living expenses. This is a different form of profitability than startups have traditionally aimed for. Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time.
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Ramen profitability is an unfamiliar idea to most people because it only recently became feasible. It’s still not feasible for a lot of startups; it would not be for most biotech startups, for example; but it is for many software startups because they’re now so cheap. For many, the only real cost is the founders’ living expenses.
He goes on to note several highlights and advantages to being in this state, but closes with a note of caution. This is a step. An important step. But it’s just as important to get off this step.
Is there a downside to ramen profitability? Probably the biggest danger is that it might turn you into a consulting firm. Startups have to be product companies, in the sense of making a single thing that everyone uses. The defining quality of startups is that they grow fast, and consulting just can’t scale the way a product can. But it’s pretty easy to make $3000 a month consulting; in fact, that would be a low rate for contract programming. So there could be a temptation to slide into consulting, and telling yourselves you’re a ramen profitable startup, when in fact you’re not a startup at all.
It’s ok to do a little consulting-type work at first. Startups usually have to do something weird at first. But remember that ramen profitability is not the destination. A startup’s destination is to grow really big; ramen profitability is a trick for not dying en route.
Excerpts from Paul Graham