I normally agree with Jason but I don't think he should be so upset on this one. "ramen profitable" the amount of profits you have to plow back into the company are as much as the cost of a Ramen package. It is a way of saying you're not profitable to a significant degree, but you are covering your expenses and thus you're not in the process of dying. This is an important milestone, because it means the company is sustainable and the stress level on the founders is going to be a lot less than ones who are slowly depleting their life savings (or quickly depleting it.) And it also means that any additional money will be going into growth, rather than into keeping the startup alive. This is pretty important, or should be, to investors.
I think this is a much better metric to seek than the "we've grown our user base by 1 million percent!" from a company that isn't taking in any money from its users, and whose users would never pay money to use the service (perfect example: Facebook) but has also gotten $1M+ in investment and has spent significant money. How do you tell the difference between that and buying users? The latest thing these days is to say "we got X users and we didn't spend any money on marketing".
Really? So you don't know what your acquisition cost really is? You want me to think that your social network for accountants is going viral? When your user base is about the size I'd expect it to be when all the other "Social Network for X" founders from Angel.co show up to see what you're up to?
Back to the article-- I think he's spot on to point out the difference between ramen profitable and profitable enough to hire an employee who's getting a real salary. That is another milestone.
But I think "we're profitable from day one" is really not a bad thing, because many of the other companies out there have no path to profitability without a whole lot more funding (Eg: Facebook, which took a lot of money.) It did pay off for Facebook, but your social network for taxidermists is not another Facebook.
So, "we're profitable from day one, even though we're only covering operational expenses and not covering employee living expenses yet" is still a significant piece of information compared to the companies that will take another $5-$50M to get even to that point.
Also, FWIW, my startup, which will likely be "profitable from day one" (but not ramen profitable) will be requiring about $300 a month in hosting-- and that's getting a dirt cheap deal. Not all of us are just a website that can run on a single server... we're building a cluster of dedicated machines and we need to do that before we open the doors. Fortunately, $300 a month for ~5-6 dedicated machines is kinda amazing![1] This is also one way where "immediately profitable" is more achievable than it was a decade ago.
[1] Hetzner.de has dedicated machines for cheap. Our product is very amendable to a CDN, and our major partner is hosting a lot of the higher bandwidth stuff on their own global CDN anyway, so locating in germany is not nearly the issue it would be for us if we were doing a social network for philatelists.
I think this is a much better metric to seek than the "we've grown our user base by 1 million percent!" from a company that isn't taking in any money from its users, and whose users would never pay money to use the service (perfect example: Facebook) but has also gotten $1M+ in investment and has spent significant money. How do you tell the difference between that and buying users? The latest thing these days is to say "we got X users and we didn't spend any money on marketing".
Really? So you don't know what your acquisition cost really is? You want me to think that your social network for accountants is going viral? When your user base is about the size I'd expect it to be when all the other "Social Network for X" founders from Angel.co show up to see what you're up to?
Back to the article-- I think he's spot on to point out the difference between ramen profitable and profitable enough to hire an employee who's getting a real salary. That is another milestone.
But I think "we're profitable from day one" is really not a bad thing, because many of the other companies out there have no path to profitability without a whole lot more funding (Eg: Facebook, which took a lot of money.) It did pay off for Facebook, but your social network for taxidermists is not another Facebook.
So, "we're profitable from day one, even though we're only covering operational expenses and not covering employee living expenses yet" is still a significant piece of information compared to the companies that will take another $5-$50M to get even to that point.
Also, FWIW, my startup, which will likely be "profitable from day one" (but not ramen profitable) will be requiring about $300 a month in hosting-- and that's getting a dirt cheap deal. Not all of us are just a website that can run on a single server... we're building a cluster of dedicated machines and we need to do that before we open the doors. Fortunately, $300 a month for ~5-6 dedicated machines is kinda amazing![1] This is also one way where "immediately profitable" is more achievable than it was a decade ago.
[1] Hetzner.de has dedicated machines for cheap. Our product is very amendable to a CDN, and our major partner is hosting a lot of the higher bandwidth stuff on their own global CDN anyway, so locating in germany is not nearly the issue it would be for us if we were doing a social network for philatelists.