TMFEditorsDesk (< 20)

Ramen Profitability -- yum!

July 01, 2009 – Comments (2)

Interesting article from Inc.com (which was initially shared over TMF's Yammer.)  The article's about Paul Graham, founder of Y Combinator, and his approach to start-ups. Y Combinator provides funding and advice to roughly 40 start-ups a year.  

Rather than see start-ups squander money during initial stages, Graham wants something simple -- a product. Startups that enter Y Combinator's bootcamp, spend 3 months and are given up to $25,000 (depending on the total number of people). At the end of the 3 months, they're expected to have a finished product.

$25,000 isn't an insignificant amount, but for some startups, they could probably blow past it without a second glance. The theme that Graham reinforces to the startups is one of frugality and discipline -- spend as little as you can in hopes of becoming cash-flow positive in the future. He calls this theory "ramen profitability" and believes that these restrained beginnings set the startup for success in the long-term because they can "say no to bad investment terms and forces them to think about long-term viability."  

Imagine if consumers, investors, shareholders, company executives, etc. all got a dose of ramen profitability: spend wisely, act with discpline, and think long-term. Would we be surrounded by people that traded things like savings and living within your means for shiny houses and a "I-gotta-have-it-now" mentality?

True, this is nothing ground-breaking -- we've been saying similar things on Fool.com for years. But it's interesting to see these core values deployed through a successful start-up generator. Plus everyone needs a reminder every now and again.

Deep Thoughts by Katrina 

Enjoy!

Photo credit: Wikimedia Commons