What Is Ramen Profitability And Why It Matters

Serial entrepreneur and venture capitalist Paul Graham popularized the term “Ramen Profitability.” As he pointed out, “Ramen profitable means, a startup makes just enough to pay the founders’ living expenses.”

Let’s dive into this concept to see what it means and why it matters.

What is Ramen Profitability?

Entrepreneur and venture capitalist Paul Graham popularized the term “Ramen Profitability” defining it as:

Ramen profitable means a startup makes just enough to pay the founders’ living expenses. This is a different form of profitability than startups have traditionally aimed for. Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time.

Paul Graham uses the word “ramen” in “ramen profitable,” referring to instant ramens, one of the cheapest foods available. Thus, a first step toward startup scalability. 

As Paul Graham points out, Ramen Profitability is a different concept compared to traditional startup profitability. Indeed, where startup profitability might indicate the viability of a startup business model.

Ramen’s profitability suggests the fact that the startup has finally crossed that wall that enables it to be called a real company.

That’s because it can finally pay off the founders’ living expenses, thus making it become at least a real business.

That also buys time for the startup to experiment with growth, product-market fit, and venture capital funding to finance further tweaks to its business model.

Ramen Profitability as a survival mechanism

A startup that becomes profitable after 2 months, even though its revenues are only $3000 a month, because the only employees are a couple 25 year old founders who can live on practically nothing. Revenues of $3000 a month do not mean the company has succeeded. But it does share something with the one that’s profitable in the traditional way: they don’t need to raise money to survive.

Paul Graham points out that ramen profitability makes it possible for a startup to survive.

That doesn’t guarantee success, but it does help the startup buy precious time to keep experimenting.

Why does Ramen Profitability matter?

Paul Graham highlights a few key points:

  • You can get at least someone to pay you,
  • You’re serious about building things people want,
  • You’re disciplined enough to keep expenses low.
  • You can focus on further growing the startup rather than focusing on raising money, which is distracting.

The bimodal way for startups

A startup that reaches ramen profitability may be more likely to succeed than not. Which is pretty exciting, considering the bimodal distribution of outcomes in startups: you either fail or make a lot of money.

Paul Graham makes a good point here. In a more and more competitive business environment, building up a successful, scalable startup becomes a winner-take-all game.

Whereas for many failed startups, a few make a lot of money. And if you’re on the way to ramen profitability that’s the crucial first step toward building a successful company.

Indeed, ramen profitability removes the dependency on investors’ money. Thus the paradox is that it makes it easier for founders’ to look for investments, by releasing the pressure.

That’s because as Paul Graham points out, looking for investors’ money is itself a job that takes away the focus from building the startup.

Bootstrapping vs. Ramen Profitability

The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.

It does not, for example, imply that you’re “bootstrapping” the startup—that you’re never going to take money from investors.

Ramen profitability doesn’t mean that a startup isn’t willing to take investors’ money, so to be in bootstrapping mode forever.

Instead, it means it has enough means to be at least sustainable.

The next stage is scalability. To go toward scalability, a startup must avoid a trap that is common to many.

The trap of becoming a consulting company

Is there a downside to ramen profitability? Probably the biggest danger is that it might turn you into a consulting firm. Startups have to be product companies, in the sense of making a single thing that everyone uses.

A startup becomes truly valuable when it builds a scalable product, service, or platform that can tap into network effects.

That is also why startups like Airbnb and tech companies like Amazon, Google, and Apple are valued many times over their revenues.

They have been able to build successful platforms able to match the interests of many stakeholders.

That enables a startup to become scalable over time. The level of scalability is critical to the long-term value of that startup over time.

You can read the whole essay here.

Airbnb is the classic example of ramen profitability for startups

The most interesting example of ramen profitability was when Brian Chesky, part of the Y Combinator accelerator, back in 2008 was followed by venture capitalist Paul Graham. 

Paul Graham invited Brian Chesky to reach, as a first target, ramen profitability. 

As Paul Graham pointed out in a piece “The Airbnbs:”

Ramen profitability is not, obviously, the end goal of any startup, but it’s the most important threshold on the way, because this is the point where you’re airborne. This is the point where you no longer need investors’ permission to continue existing. For the Airbnbs, ramen profitability was $4000 a month: $3500 for rent, and $500 for food. They taped this goal to the mirror in the bathroom of their apartment.

This made Airbnb’s co-founders focus on the hottest (most important) subset of the market for them, New York.

As they narrowed down their market, suddenly numbers started to grow quickly and in a few weeks, they reached ramen profitability. 


Source: Paul Graham Twitter

This was the initial journey of Airbnb. 

Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. For instance, on a $100 booking per night set by a host, Airbnb might make as much as $15, split between host and guest fees.
In 2021, Airbnb generated enabled $46.9 Billion in Gross Booking Value, and it generated $6 Billion in service fee revenues. In 2021, there were $300.6 Million Nights and Experiences Booked, ad an average service fee of 12.78%, at an Average Value per Booking, of $155.94.

Read Next: Airbnb Business Model

Connected Visual Business Concepts 


The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.


A leaner MVP is the evolution of the MPV approach. Where the market risk is validated before anything else. 

Product-Market Fit

Marc Andreessen defined Product/market fit as “being in a good market with a product that can satisfy that market.” According to Andreessen, that is a moment when a product or service has its place in the market, thus enabling traction for the company offering that product or service.

North Star Metric

A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

Blue Ocean Strategy

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Key resources:

Startup case studies: 

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