6 ms·

Is becoming ramen-profitable before you raise your first round a possible solution to this problem?

bcx 12y ago
I think the key lesson here, is you need to be in a position where failing to raise more money does not kill your company. So if you can convince your entire team to eat ramen for an indefinite period of time between your first raise, and your second raise, you would have "solved" this problem for some definition of solved.
lisper 12y ago
It can't hurt.
mikeg8 12y ago
yes. When you are "ramen profitable" you are making enough to remain operational which means you are avoiding death and the "fatal pinch" this article is all about.
danieltillett 12y ago
If you can become profitable without raising funds then why raise funds?
- frandroid 12y ago
  It's a question of speed. Do you take your 1) $100K annual profits and re-invest them in one new market every year, slowly growing every year? Or 2) you take $2M in funding and expand worldwide. The thing is, if you hit on a good idea, you want to do #2, because if you don't, someone else will take $2M in funding to copy your product and go to 20 markets in 2 years.
  - danieltillett 12y ago
    True if you choose a market that has such need for speed. Lots of markets are not like this and they have the added advantage that VC's won't put money into them.
- patio11 12y ago
  A very commonly heard refrain in the Valley is some variant of: "Would you rather own 100% of a company worth $1 million or 40% of a company worth $200 million?" Money is used to purchase acceleration. It's not totally crazy, although it implies very different trade offs as compared to running one's own business without investors.
  - danieltillett 12y ago
    The problem here is risk is ignored. If I were to rephrase the question as "Would you rather own 100% of a company with a 50% chance of success or 40% of $200 million company with a 1% of success?" then the answer we get is very different.
    - steveklabnik 12y ago
      This is true. One can draw their own conclusions about those who say such things, and why the risk element is elided when they say it...
kbutler 12y ago
Not really. If you're ramen-profitable and looking to raise money, that means you want to spend money to get on a path to greater profitability. On the path to greater profitability, depending on your burn rate and profit growth rate, you may still experience the "fatal pinch" even if you were previously ramen profitable. You may be able to revert to ramen profitability again, but it will be painful (cut your burn rate).
patio11 12y ago
So you can happily get to ramen profitable as a founding team, but when you raise your first round you are expected to grow the team size quite a bit, and the capable professionals you are hiring will not work for ramen (and should not be expected to). Ask somebody in the Valley who sees more of them, but N months after a Series A, I'd expect to see at least 8 people on the team and probably closer to 20. That implies a salary bill in the, hmm, $100k to $200k range. Every two weeks, due like clockwork. Obviously, if you've already hit ~$500k a month in revenue, you're golden (as long as you freeze hiring), but most similarly situated companies haven't hit that yet.
- applecore 12y ago
  The benchmark for a company raising its Series A is now $50k MRR. (This used to be closer to $100k.) You'd expect to be at $100–150k MRR six months after the Series A, assuming a 15–20% monthly growth rate. If you're already at $500k MRR, you're in Series B territory.
  - patio11 12y ago
    Egads.
    - kenrikm 12y ago
      dadgum.. 500k MRR seems low for a Series B.
      - applecore 12y ago
        While the bar for absolute revenue may be lower, the growth rates of the best SaaS companies are astonishingly higher. The markets are bigger now, so your growth from $1–2m ARR to $10m ARR and beyond has to be much faster these days.

bcx 12y ago

I think the key lesson here, is you need to be in a position where failing to raise more money does not kill your company. So if you can convince your entire team to eat ramen for an indefinite period of time between your first raise, and your second raise, you would have "solved" this problem for some definition of solved.

lisper 12y ago

It can't hurt.

mikeg8 12y ago

yes. When you are "ramen profitable" you are making enough to remain operational which means you are avoiding death and the "fatal pinch" this article is all about.

danieltillett 12y ago

If you can become profitable without raising funds then why raise funds?

frandroid 12y ago
It's a question of speed. Do you take your 1) $100K annual profits and re-invest them in one new market every year, slowly growing every year? Or 2) you take $2M in funding and expand worldwide. The thing is, if you hit on a good idea, you want to do #2, because if you don't, someone else will take $2M in funding to copy your product and go to 20 markets in 2 years.
- danieltillett 12y ago
  True if you choose a market that has such need for speed. Lots of markets are not like this and they have the added advantage that VC's won't put money into them.
patio11 12y ago
A very commonly heard refrain in the Valley is some variant of: "Would you rather own 100% of a company worth $1 million or 40% of a company worth $200 million?" Money is used to purchase acceleration. It's not totally crazy, although it implies very different trade offs as compared to running one's own business without investors.
- danieltillett 12y ago
  The problem here is risk is ignored. If I were to rephrase the question as "Would you rather own 100% of a company with a 50% chance of success or 40% of $200 million company with a 1% of success?" then the answer we get is very different.
  - steveklabnik 12y ago
    This is true. One can draw their own conclusions about those who say such things, and why the risk element is elided when they say it...

kbutler 12y ago

Not really. If you're ramen-profitable and looking to raise money, that means you want to spend money to get on a path to greater profitability. On the path to greater profitability, depending on your burn rate and profit growth rate, you may still experience the "fatal pinch" even if you were previously ramen profitable. You may be able to revert to ramen profitability again, but it will be painful (cut your burn rate).

patio11 12y ago

So you can happily get to ramen profitable as a founding team, but when you raise your first round you are expected to grow the team size quite a bit, and the capable professionals you are hiring will not work for ramen (and should not be expected to). Ask somebody in the Valley who sees more of them, but N months after a Series A, I'd expect to see at least 8 people on the team and probably closer to 20. That implies a salary bill in the, hmm, $100k to $200k range. Every two weeks, due like clockwork. Obviously, if you've already hit ~$500k a month in revenue, you're golden (as long as you freeze hiring), but most similarly situated companies haven't hit that yet.

applecore 12y ago
The benchmark for a company raising its Series A is now $50k MRR. (This used to be closer to $100k.) You'd expect to be at $100–150k MRR six months after the Series A, assuming a 15–20% monthly growth rate. If you're already at $500k MRR, you're in Series B territory.
- patio11 12y ago
  Egads.
  - kenrikm 12y ago
    dadgum.. 500k MRR seems low for a Series B.
    - applecore 12y ago
      While the bar for absolute revenue may be lower, the growth rates of the best SaaS companies are astonishingly higher. The markets are bigger now, so your growth from $1–2m ARR to $10m ARR and beyond has to be much faster these days.