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Having gone down both the ramen-profitable and the traditional-VC roads, here are some pitfalls that deserve mention with the former. The two are not mutually e

Having gone down both the ramen-profitable and the traditional-VC roads, here are some pitfalls that deserve mention with the former. The two are not mutually exclusive, and the angel/VC road has its own well-known brambles, but anyway: - Your biggest fear should not be flaming out spectacularly, but rather creating a zombie that neither truly lives nor dies. The downside of ramen profitability is that (by definition) it's easier to waste years rather than months on an idea that won't ultimately succeed. - In fact, you may lose your window of opportunity to someone who figures out how to use cash to get further faster. - Outside investment forces you to get your head out of the day-to-day firefighting every month or so to 1) think big picture 2) set long term goals 3) be accountable for your progress. The key is "outside"; otherwise it's easy to meander along and procrastinate on hard questions. - The upside of ramen profitability is a culture of frugality. The downside is it's easy to waste time on things you could be paying others to do. For example, paying an accountant to do your company taxes might blow away the entire year's earnings -- does that mean you should learn the tax code and do it yourself? What about negotiating a contract, or even taking out the trash? (These are real examples of things we did ourselves at the ramen-profitable company.) Delegating is harder if it means losing your hard-earned badge of profitability. Joel has a good post on this topic (Amazon vs. Ben & Jerry's): http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html

joez 17y ago
"Your biggest fear should not be flaming out spectacularly, but rather creating a zombie that neither truly lives nor dies." I think the pitfall you are alluding to is hitting ramen profitability and then spending all day fire fighting rather than creating new features. But that is the point to seek funding with specific goals for the money and new plans of attack ($x will allow me to hire y who will write z feature). And since you are ramen profitable, you can do so on your own time schedule with better terms! This then allows you to flame out spectacularly :)
- webwright 17y ago
  "I think the pitfall you are alluding to is hitting ramen profitability and then spending all day fire fighting rather than creating new features." I don't think that's what he's alluding to at all. He's talking about business success, not how you spend your time. There are plenty of people who create products for small markets and can't make the growth jump past that early small market into a larger one. This isn't always (or even OFTEN) a feature-creation problem. Here's some cool math: If your acquisition is linear ("we sign up 3 paying customers every day") and your churn is percentage ("we lose 8% of our paying customers every month") you will eventually hit a point where your growth STOPS (unless you can fix one of those two stats). The zombie state Drew is talking about (I think) it where your revenue is largely not growing, you can feed yourself but no one is ever going to buy you, and you've run out of "move-the-needle" features/efforts that can improve acquisition or retention. "Walking Dead" is what investors call it.
  - joez 17y ago
    That is certainly a scenario but if your startup has stopped growing and you don't have plans for new features to change that then you are walking dead. Then, as you pointed out, you know you have entered a market too small.
- pageman 17y ago
  couldn't you theoretically attain ramen profitable with minimal fire fighting and NOT create new features - case in point - 37Signals - assuming they didn't have that big base to start with - they could just have been cruising at ramen profitable and not have added a new feature (which I think they've still refused to do so ...)
erlanger 17y ago
Excel shoutout in 5...4...3...
messel 17y ago
Great link to Joel Spolsky's post, thanks Drew. I haven't read his archived stuff (just got into dedicated blog reading late last year).

joez 17y ago

"Your biggest fear should not be flaming out spectacularly, but rather creating a zombie that neither truly lives nor dies." I think the pitfall you are alluding to is hitting ramen profitability and then spending all day fire fighting rather than creating new features. But that is the point to seek funding with specific goals for the money and new plans of attack ($x will allow me to hire y who will write z feature). And since you are ramen profitable, you can do so on your own time schedule with better terms! This then allows you to flame out spectacularly :)

webwright 17y ago
"I think the pitfall you are alluding to is hitting ramen profitability and then spending all day fire fighting rather than creating new features." I don't think that's what he's alluding to at all. He's talking about business success, not how you spend your time. There are plenty of people who create products for small markets and can't make the growth jump past that early small market into a larger one. This isn't always (or even OFTEN) a feature-creation problem. Here's some cool math: If your acquisition is linear ("we sign up 3 paying customers every day") and your churn is percentage ("we lose 8% of our paying customers every month") you will eventually hit a point where your growth STOPS (unless you can fix one of those two stats). The zombie state Drew is talking about (I think) it where your revenue is largely not growing, you can feed yourself but no one is ever going to buy you, and you've run out of "move-the-needle" features/efforts that can improve acquisition or retention. "Walking Dead" is what investors call it.
- joez 17y ago
  That is certainly a scenario but if your startup has stopped growing and you don't have plans for new features to change that then you are walking dead. Then, as you pointed out, you know you have entered a market too small.
pageman 17y ago
couldn't you theoretically attain ramen profitable with minimal fire fighting and NOT create new features - case in point - 37Signals - assuming they didn't have that big base to start with - they could just have been cruising at ramen profitable and not have added a new feature (which I think they've still refused to do so ...)

erlanger 17y ago

Excel shoutout in 5...4...3...

messel 17y ago

Great link to Joel Spolsky's post, thanks Drew. I haven't read his archived stuff (just got into dedicated blog reading late last year).