
You're Ramen Sustainable - jbyers
http://onstartups.com/tabid/3339/bid/70231/Startups-You-re-Not-Really-Ramen-Profitable-You-re-Ramen-Sustainable.aspx
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adamtmca
This article is just describing/ confusing the difference between accounting
profits and economic profits.

"That's a wonderful thing, but from an accounting perspective, just because
you're not properly calculating expenses, doesn't mean it's profit. To be fair
and more accurate, founders should look at their fair market value to
determine actual profitability."

No. From an accounting perspective you "calculate" things based on what you
actually paid or were paid.

"If you weren't charging yourself any rent for that space, nor paying yourself
anything, and the business made $100/day, would you really consider that
profitable? You could have rented the space out at fair market value for much
more money than that. I'd argue you're losing money -- and I'd be right."

No, you'd be wrong. They are making $100.00 a day. This is a very poor return
on equity but it is still a profitable endeavour.

Accounting profits = Revenues - expenses. Economic profits (what he is
unknowingly talking about) = Accounting profits - opportunity cost.

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dignan
A valid point, but I think you're getting stuck on the semantics of what he's
saying and missing the point he's trying to make: you shouldn't stay stuck on
one idea once it's clear it won't go anywhere, even if you're "ramen
sustainable". Of course, everyone has a different idea of when an endeavor
should be abandoned, don't they?

~~~
dshah
You're right, that was the point I was trying to make.

One of the hardest decisions an entrepreneur faces is deciding when it's no
longer optimal to keep pursuing an idea that just doesn't look like it's going
to take off. If the founder is super-passionate about the idea, fine. But,
there are likely founders that get to ramen sustainability, and find it even
harder to "let go" because there's no external impetus to do so.

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MicahWedemeyer
_But, that's also the problem with Ramen Sustainable startups. The
entrepreneur may keep going longer than would have been warranted, instead of
moving on to their next big idea._

The assumption here is that the next big idea will be anywhere near as
successful. I don't know about you guys, but I see way more businesses fail
before they reach ramen profitable/sustainable/whatever than after. I know
plenty of people who make $100 a month from their business. I know very few
who make $10,000 a month.

If you're at the ramen stage, it's probably time to reexamine your end goals.
If you're looking for a super-big exit, maybe your current path doesn't lead
there and you have to hit the reset button. But, if you're like me, and all
you want is a boss-free business of your own, tweaking your ramen into a
comfortable lifestyle might not be too far off.

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oniTony
It's easy to calculate dollar value opportunity cost of closing shop and
getting paid Big Corp Inc.'s salary. It's really hard to calculate utility
value of running a hipster gelato bar and hanging out with fellow developers
all day.

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bfe
The infinite runway is the key point of "ramen profitable", not comparison
with market wages. The latter differs enormously between a founder who just
dropped out of college versus one who's switching out of a highly successful
position in mid-career, but that doesn't make a difference to the startup's
likelihood of success.

And, even though the difference in lost market wages can be relatively giant,
it's still negligible relative to the potential of a startup to create
something new and incredibly valuable and to change the world.

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JoshTriplett
This seems like an interesting semantic distinction. Certainly it seems
worthwhile to consider how much you could make if you took a standard salary,
or otherwise got paid more for your time. On the other hand, "profit"
literally means "revenue minus costs", and "ramen profitable" thus seems
straightforward: "enough profit to keep the founders in ramen (and rent)".
Opportunity costs don't actually represent _costs_ in the "revenue minus
costs" equation, even though they seem worth considering.

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nroach
To me, the most important point is not the semantic difference between
"profitable" and "sustainable" but instead the author's invocation of
opportunity cost: "You could have rented the space out at fair market value
for much more money than that. I'd argue you're losing money."

While it's nice to have the security of an infinite runway, if the value
created by staying on that path is less than following a different path, then
overall it's a net loss.

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rflrob
It seems to me that Ramen Profitable is a narrow enough window that a given
startup isn't likely to stay there for long. Either it will continue on to
become Unqualified Profitable, or it will hover there for a few months (which
isn't that long in the grand scheme of things) before falling back to
unprofitable.

Extending the runway metaphor just a bit too far, when an airplane is within
about 1 wingspan of the ground, it gets benefits in lift and drag from ground
effect, but almost nobody flies there for very long because you're still
really close to the ground.

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jessriedel
If you're only calling it "Ramen profitable" if you're making profits after
paying yourself fare market wages, how is this different from regular
profitable?

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drewcrawford
I've always understood it to be "Ramen profitable" as opposed to, say, fancy-
steak-and-a-five-star-hotel profitable. e.g. _barely_ profitable (or in this
case, sustainable, argues the OP).

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rastafark
I think Paul's essay got the point across, and I'm not sure what was gained by
explaining it as 'Sustainable.'

In fact, one could argue that living on Ramen and the bare minimum is NOT
sustainable, but theoretically profitable, and gets you by in the meantime.

Of course, maybe I'm overthinking this and the author is just milking a
reference to paul graham for clicks.

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hugh3
Now that's just a silly example. A swank gelato bar for Python developers in
downtown San Francisco would be _hugely_ profitable!

~~~
dshah
For the record, if there _were_ a swank gelato bar for Python developers, I'd
totally go there.

~~~
hugh3
Would there need to be some sort of syntax test at the door?

