Dharmesh Shah

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Startups: You're Not Really Ramen Profitable, You're Ramen Sustainable

By Dharmesh Shah on October 21, 2011

A new phrase entered the startup vocabulary a little while ago: “Ramen Profitable”. The phrase is used to reference startups that are making enough money for the founders to live on the startup staple of Ramen noodles. [For our friends in India, Ramen noodles are similar to what you would know locally as “Maggie”, which is what I grew up on. I like the Masala flavored one].ramen

So, here's my issue with the term “Ramen Profitable” — in most cases where it's being applied, the company's not really profitable. Reason? Because the entrepreneurs/founders are paying themselves negligible (if any) salary. This distorts the actual value being created. Some of you might argue that founder's are simply making an investment of their time/energy, in lieu of salary. 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.  

For example: Lets say you happened to inherit some prime real-estate in downtown San Francisco. You got it for free. Now, you open a really swank gelato bar for Python developers. 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.

My point: It's awesome for startups to get to a point that they're not reliant on external funding sources to survive. Paul Graham describes this well in "Ramen Profitable".  Great article and I agree with his points -- particularly around the morale boost.  But, I'd call this stage of a startup “Ramen Sustainable”. This stage gets a startup “infinite runway”. This can be a very good thing, because the entrepreneur can than tweak, iterate, pivot to her heart's content. 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.  

Oh, and on a closing note (which came up in discussion as a result of an article by Scott Kirsner (of the Boston Globe), titled “Is Boston spawning too many startups, and starving growth companies for talent?” My thoughts on this:

You can never have too many startups, but you can have too few shutdowns.

Do you think I'm right about the Ramen Sustainable vs. Ramen Profitable characterization? Any thoughts on the pros and cons of reaching this stage in a startup?  How do you know when your Ramen Sustainble startup is better off being shutdown so you can move on to bigger things?

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Choosing A Minimally Viable Co-Founder

By Dharmesh Shah on October 5, 2011

If you're starting a company, one of the most important decisions you'll make early on is the selection of a co-founder. Some might advocate just “going it alone” because finding a great co-founder is hard and fraught with risk. It is hard and it is fraught with risk. But going it alone is harder — and riskier. Startups are very challenging and having someone to share the ups and downs with, to be a great sounding board for ideas and to just help get things done is immensely valuable.

One additional thought: I'm an introvert. I don't enjoy being around people very much. If you're like me, the notion of just doing something all by your lonesome might seem appealing. And, it is — but I think it's a mistake. Even for introverts, having someone on your side is useful and funsuperhero duo

Another consideration is speed, captured well by this African proverb: If you want to go quickly, go alone. If you want to go far, go together.

So, you might be wondering: “Hold on there! As a startup don't I want to go quickly? Isn't it all about speed? Why should I wait to get started…I should go NOW!”

These are reasonable sentiments.  Great entrepreneurs have a proclivity for action. I'm not suggesting that you stop everything and spend all of your time on the holy quest for the perfect (and mythical) co-founder. I'm suggesting that part of what you're doing should include being on a deliberate lookout for her. And, I'm saying that when you find someone that is awesome, resist the temptation to worry too much about things like dilution and control and what-not. If it's the perfect person, none of that will matter. Back to the African proverb. Yes, you want to go as quickly as you can, but what's more important is going far. You want to build a company that attracts amazing people and solves important problems. A company you can look back on and be proud of. There are very few experiences in life that can match that feeling.

So, I'm going to assume for a minute that I've convinced you (or you were already convinced) that a co-founder is a good idea.

Choosing A Minimally Viable Co-Founder

1. You trust them and they deserve to be trusted. Not just in the “he won't cheat me” sense, but in the “if I'm being a dolt, she'll call me on it” sense. And in the “even when I can't be there, he'll keep my interests in mind” sense. By the way, as it turns out, this need for trust is not an abstract thing. During the course of your startup there will be many occasions where you are vulnerable and dependent on the integrity of your co-founder. You want to find someone that is constitutionally incapable of screwing you.

2. They have to be brilliant at building or selling. They're exceptionally good at building something people want or they're exceptionally good at selling something people may not know they want yet. And by exceptionally good, I mean, they're one of the best you've ever met. Also, I mean they're good at of one those things not just good at convincing you they're good at hiring people that are good at those things. You don't want someone that can manage [X] but actually do [X]. Example: You don't want someone to manage product development or even the better sounding “own” product development. You want someone that can actually do product development. Same with selling.

Related note: In my opinion, marketing can be selling. If you find someone that can “sell” by simply writing exceptional content that pulls people in to your business, and then writing great copy on a landing page that converts them to customers — that's awesome, and it counts. Being brilliant at selling doesn't necessarily mean talking directly to humans and selling. It means getting customers to pay you money.

3. They’re committed to the company, not just the current idea. Anecdotal data suggests that as fantastic as you may think your idea is, your idea will likely change. A great book to read is “Founders at Work” by Jessica Livingston. It's a great collection of stories from some great entrepreneurs and you'll see a recurring pattern. Even spectacularly successful startups ended up changing their idea along the way. If your co-founder is married to a specific manifestation of an idea, trouble will brew when the company is no longer pursuing that exact idea in that exact way. You need a co-founder that's committed to the cause — and committed to you.

4. They are likable. You and others enjoy spending time with them. You’re probably going to be spending more waking hours with your co-founder than you are with your friends and family. (You might even spend some non-waking hours with them too — some founders I know sometimes dream about their startup. No, it's not weird at all.) So, it’s imperative that you like the person and enjoy spending time with them. If you dread having meetings with them. If you can't have a 4 hour dinner with them. If you can't see yourself locked in a room with them for a weekend. There's something wrong. Beware. Another reason that them being likable is important (outside of the “life is short and you want to maintain your sanity” argument) is that it's imperative for others to like them too. Future members of the team that you're trying to recruit. Maybe investors. Maybe customers. They don't need to be cruise-director level nice, but if you join forces with a jerk simply because they are dazzlingly brilliant at something, you will likely fail. And it won't be fun. Don't talk yourself into it.

5. They do stuff, not just think about stuff. They do a lot of stuff. They do whatever is needed to move the company forward. This includes unpleasant things. This includes banal things. This includes things they didn't go to MIT or Harvard undergrad for (like ordering pizza). Startups are not just about the fun stuff. Not just about the building and the selling and the late nights cranking. At some level, a startup is still a business. It exists in the physical world, and as such, it often requires doing boring things (like opening mail and paying bills and such). You should try to minimize that ugly stuff as much as you can, but any task should not be beneath any of you.

6. They crank and grind. They are not working under the delusion that there will be work-life-balance in the startup. There are two kinds of co-founders in the world. The kind that work maniacally, just like you do, and the kind that you're likely going to resent someday. I also don't think there's such a thing as a part-time co-founder. Sure, there are people that are willing to help you in the early days. Maybe they're just wrapping up their day job and figuring out how to exit and come on board full-time. That's fine. But they're not a real co-founder until they're fully committed and cranking.

7. They're reasonable, rational and realistic. A surprising number of startups die because one of the co-founders gets some weird notion in their head. Causes vary. Sometimes it's ego. Sometimes it's insecurity. Sometimes it's greed. Sometimes it's just pure schmuckiness. Whatever the cause, the situation becomes toxic creating much unhappiness. Remember, competition is much easier to contend with than co-founder conflict. One way to address this issue early on is to have some of the hard conversations up front. A good place to start is my article on the questions co-founders should ask each other. Have those discussions early. Even though you may not get to closure on all of them, it'll give you a sense for how you both deal with difficult situations. And, be prepared for some surprising reactions/responses to those hard questions.

That's all I've got. I know I've set a pretty high bar for what I labeled as a “minimallly viable” co-founder. There's a reason for this. If you get it wrong, you can get a bunch of other things right and you'll still likely fail. If there was ever a time to be selective and spend some calories — this is that time.

What do you think? Any other criteria you'd put in the “bare essentials” bucket? Any positive or negative experiences you've had with co-founders?

Topics: team
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