An essay by Paul Graham http://www.paulgraham.com/ramenprofitable.html
Ramen profitable means a startup makes just enough to pay the founders' living expenses.
The main importance of ramen profitability is that it buys you time.
They don't need to raise money to survive...
A vital asset to new companies who don't want to give away equity.
Ramen profitability is an unfamiliar idea to most people because it only recently became feasible.
Because of cost, time-to-market, and numerous other reasons that make starting startups hard and costly, ramen profitability is a novel phenomena.
Once you're ramen profitable this painful choice goes away. You can still raise money, but you don't have to do it now.
Not needing to raise money means you can:
- get better terms if you decide to raise, which...
- makes you more attractive to investors.
Being profitable shows that (a) you can get at least someone to pay you, (b) you're serious about building things people want, and (c) you're disciplined enough to keep expenses low.
Ramen profitablity shows that you avoid some common mistakes that kill startups.
Another advantage of ramen profitability is that it's good for morale.
When people pay you money, it the startup starts to feel real. Prior to that, it can feel silly calling yourselves a "company" (even thought this is an obvious part of doing business for 99.9% of startups).
A company tends to feel rather theoretical in begining. It's legally a company, but you feel like you're lying when you call it one.
And your own living expenses are the milestone you feel most, because at that point the future flips state. Now survival is the default, instead of dying.
Fear of failure is not an irrational fear: it really is hard to bear. Anything that takes some of that weight off you will greatly increase your chances of surviving.
A startup that reaches ramen profitability may be more likely to succeed than not. Which is pretty exciting, considering the bimodal distribution of outcomes in startups: you either fail or make a lot of money.