Ramen Noodle Soup Profitability
Many of you are familiar with Ramen Noodle Soup. The soup of choice for young people out of college struggling to survive. Recently a venture capital friend referred me to the concept of ramen noodle soup profitability. It’s the ability to operate a business on the lowest possible costs, so low that management pays themselves just enough to live on ramen noodle soup.
As a turnaround investor, I have recently witnessed some of the smartest and most successful turnaround ceos come face to face with having to implement ramen profitability. Some chose to do it and others not. Adopting a ramen strategy is the hardest implementation a company and its management team will have to confront. You may ask how is a ramen strategy different from previous turnaround efforts. The answer is that companies today now need to go through multiple cost cutting efforts as sales continue to slide month after month. Each cost cutting measure successfully brings a company to break even. However revenues then decline again and new efforts are needed to reach breakeven. By the third time management teams find themselves having to take unimaginable measures such as the CEO having to take on the additional roles of CFO and head of marketing. The company is also faced with having to dramatically change strategy with consequences that are not that easy to predict. It’s a war.
It’s so distasteful and risky that some of these super successful ceos and even the investors choose not to implement it. For those companies the assets are sold to a competitor or liquidated. The companies that choose to implement ramen profitability are still hanging on though their day to day existence is tough, but they may have a shot of turning around with the help of new equity and or a debt restructuring.
The lesson I want to impart is that all executives and investors need to know what is the companies plan for ramen noodle profitability and brutally ask themselves if they have ability to implement it. This is one of the most important questions for investors and ceos today.
