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How Profitable Should My Startup Be?

How Profitable Should My Startup Be?

Profitability. Burn rate. Runway. All these terms get floated around when building a company. Some may think there are two options for a company: either lose as little as possible or make as much as possible. But, like many things in life, there is more complexity to the issue.

There are companies like WeWork who lost nearly $2 billion of cash between 2018 and 2019. But there are others like Juul who have increased revenue from about $200 million to nearly $1 billion in just one year. They also attained about $12 million in profit during that run. 

For any startup, there is a balance between profitability and growth. This doesn’t mean, though, that the only two options are burning billions or making a few million. A third option is making just enough profit to cover the founder’s expenses. In doing so, your company sustainable. Many call this ramen profitability.

Ramen Profitability Defined

Ramen profitability is a term that was popularized by venture capitalist and serial entrepreneur Paul Graham and since he is the man responsible for bringing this term into the lexicon of the business world, he is undoubtedly best equipped to define it.

In his words, ramen profitability “means a startup makes just enough to pay the founders’ living expenses.” This is a different form of profitability than startups have typically pursued. For entrepreneurs, profitability typically means a big bet is paying off in big ways. The main importance of ramen profitability is that you make just enough and it buys you time.

Related: List of Coworking Spaces in Omaha

Ramen Profitable Startups vs Typical Startups

guy writing on white board

During the early days of a startup, striving to achieve ramen profitability is an excellent way to ensure that a company will survive without raising a lot of capital. In Nebraska, it can be difficult to find venture capital even with a growing network of angel investors. Often, when operating in Lincoln or Omaha, founders struggle to find meaningful investment at early stages like they in larger markets on the coast.  A company that has attained enough profit to survive without growth capital can assure it will stick around long enough to find the right investors.

Traditionally, startups have sought out investors in an effort to raise capital that is then spent on building the company. This approach might mean that a business does not see profits for many, many years to come but, when profitability is reached, millions of dollars may be generated. In and around Nebraska, investors are more attracted to stability, profitability, and control. Because of this, ramen profitability is a great approach in the early days of new ventures.

With ramen profitability, a startup can achieve profitability much earlier since investment debts aren’t draining the company. With this approach, the goals are simply to eschew raising capital while focusing on achieving a high enough level of profitability to at least pay for the salary of any founders. Once that benchmark has been reached, the company is profitable.

Related: Guide to Finding Angel Investors in Omaha

Ramen Profitability Is an Excellent Indicator of Viability

money and calculator

For startups looking to delay raising capital, the time spent working with a goal of ramen profitability in mind can bring about a few benefits.

One very big advantage is the fact that reaching this goal perfectly indicates the viability of a startup. That’s because, once profitability is achieved, three things can be inferred:

  • People are happy to pay for the product, which means that the market exists;
  • The founders solved a pain point in the market;
  • The startup’s founders were able to control spending and successfully manage cash flow to achieve profitability.

All of these indicators are important benchmarks to achieve when the time does come to start talking with investors.

Related: Opportunity Zone Investment for Startups

Advantages Inherent to Ramen Profitability

Choosing to govern a startup with the goal of ramen profitability in mind can have many advantages with some being more obvious than others. 

  • One key advantage that comes from following this model is the fact that, when founders do need to approach investors, they won’t be desperate for cash and can negotiate better terms.
  • A startup’s profitability will also work to the advantage of its founders when approaching investors because profit, no matter how small, will prove the viability of the business.
  • Finally, because ramen profitability allows founders to delay the process of raising capital, they are better able to focus their time on the business instead of dealing with endless meetings and negotiations with investors.

Related: 10 Best Time Management Apps for Startup Founders

Ramen Profitability Is Not a One-Size Fits All Approach

While ramen profitability certainly has its advantages, it isn’t the perfect fit for all entrepreneurs. That’s because, for some startups, such a large infusion of cash is needed right from the beginning that raising capital is virtually unavoidable. It really depends on your end goal. If you’re more concerned with blitz scaling and are okay with burning through money quickly, then ramen profitability isn’t for you. On the contrary, if you’re more interested in long-term growth and becoming a profitable company, ramen profitability is the route for you and your business to take.

Ramen Profitability is the Solution Your Business Needs

stacks of coins

Once all of the advantages and disadvantages inherent to ramen profitably are considered, it’s easy to see why it’s such an attractive option for founder on the Silicon Prairie. In places like Nebraska, capital is difficult to find and often takes a much longer time to secure than it might in larger metro areas. Most investors in the Omaha and Lincoln area are more risk-averse, especially in the early stages of new businesses. Ramen profitability assures founders they can stay afloat while they work to secure funding. 

Office space can really chew up startup cash fast. That’s why we built Populus to be flexible and cost-effective office space for teams of 2-20. Check out our coworking spaces in Omaha and let us support you with an amazing and affordable workspace.

Related: LLC or Inc: What’s Better for a Startup?

Disclaimer: This article is intended to help business owners make more informed decisions in regards to the topic; however, please contact an attorney for legal advice and an accountant for tax advice. Populus makes no representation as a legal advisor or tax advisor.

 

10 Best Slack Apps for Your Team in 2019

10 Best Slack Apps for Your Team in 2019

Do you remember the classic game “Telephone”? The game where one person says a sentence to the person next to them and they keep it going down the line. Often times, the phrase is completely different by the time the last person hears it. The whole point of the game was to show how easily information gets misconstrued. It’s okay if it’s just high school gossip, but when it comes to your office space, you can lose millions of dollars because of falsely spread information.

The last thing you want is miscommunication within your organization. With this in mind, you definitely should consider a mind-blowing app like “Slack”. This app has undoubtedly become a leading team collaboration tool. With its easy configuration and smooth learning curve, Slack is a favorite for 10 million+ users.

As a top productivity app for corporations and startups, Slack helps teams to communicate better. Whether you want to get your team’s feedback, be notified for each new task, or just keep the conversation going within your team, chances are there’s already a Slack app that can do that for you.

Here’s a list of the 10 best Slack apps for your team in 2019:

1. Donut – Team Building in Slack 

Donut

Investing in team building activities helps to bring a lot of positivity to the overall organizational culture. Donut is a social communication platform designed for building better team relationships. It does so by developing connections between the team members and reminding them to meet for collaborations.

The Donut app for Slack lets you send your new employees any information they may need to start their new job. Or you could connect them with a team member who can introduce them to the company, its policies, and a host of other things.

If you integrate Donut with Slack, you can:

  • Connect with new team members via direct 
  • Get reminders for meetings with team members 
  • Create Slack pairing channels for multiple teams 
  • Easy new employee on-boarding by connecting them to other team members

Related: Unique Benefits of Shared Office Space

2. Time Doctor – Productivity Tool

time doctor

Every team needs Time Doctor to improve overall team productivity. It is one of the best slack apps out there. 

Time Doctor is a real-time tracking tool that measures the time spent on a task, it takes screenshots of your employees screens to better monitor their overall time spending patterns.

Time Doctor allows you to:

  • Track the websites and applications being accessed by your team during a task
  • Track the time an employee spends on a task and receive reports in Slack channels
  • Receive updates when tasks are completed 
  • Receive notifications whenever a resource starts working on a task

3. Wonder – The Ultimate Reminder Tool

wonder

Wonder ensures that forgetting things is no longer a problem for your team. Wonder is a reminder tool that takes the form of a live chat, and by telling the app to remember something, you or your team members can retrieve that information anytime they want.

Here’s what Wonder does for your team:

  • Saves important team information through memories
  • Brings up the information that it was told to remember in between Slack conversations
  • Dashboard to store, update and categorize information

4. Tettra – Best Slack App for Knowledge Management

tettra

 

There’s a need to introduce a common knowledge hub when teams begin to grow in size. Tettra provides a central hub for teams to store and share collective knowledge. This helps the team to access the right information at the right time without it getting lost in a sea of information.

The tool provides an easy, efficient, and ideal means for storing team information in one place. Doing so minimizes the hassle of having information stored in multiple locations.

Related: Opportunity Zone Investment for Startups

5. Monday – Team and Project Management

monday

 

Monday offers a collaborative workspace for you to plan and manage teams and tasks. 

It allows you to sync conversations across the two platforms, get updates in your Slack channels based on a set of rules you establish, and monitor each change as soon as it happens in real time.

6. Paymo – Task Management and Time Tracking

paymo

 

Paymo is a work and project management solution that brings everyone in your team on the same page. Besides the clean and modern interface, the app also offers a strong set of features for planning, scheduling, and invoicing your work.

The Paymo for Slack app comes in handy when you want to track work time, create tasks, add files to your projects, or get notified about your Paymo tasks. 

7. Asana – Manage and Track Your Team’s Work

asana

 

The Asana-Slack integration lets you turn conversations into tasks, change the status of an activity, receive notifications to a channel of your choice, link a project to a channel, or just create a new task with a simple asana create command.

Related: Why People Hate Offices and Don’t Like Their Jobs 

8. nTask – Best Slack Project Management Integration

nTask

 

This is one of the best slack apps for your team. nTask is an intuitive tool that lets you manage your projects through its intelligently designed feature set.

nTask helps to create multiple workspaces for different teams, executing professional meetings, and facilitate project management from multiple dimensions, such as managing issues and risks.

nTask allows you to:

  • Post project updates to channels in Slack
  • Create a meeting in nTask and your team members can review all the details through Slack messages

Get this Slack add-on to make team collaboration even more effective while achieving streamlined project management.

9. MeisterTask

MeisterTask

Creating shared project plans can be difficult and managing them across teams can be downright challenging. MeisterTask helps to keep things hyper-organized by allowing teams to create streamlined, automated workflows and get more work done together.

The app lets users share work details with team members, upload files, set due dates and add checklist items in real time.

10. InVision

invision

Many creative individuals do some of their best work when they can have real-time feedback at hand. InVision provides this and more right within Slack.

InVision is dedicated to helping users deliver the best possible digital product experience. It provides intuitive tools for ideation, design, and prototyping all in one place. The platform gives you and your team everything that will be needed for digital product design.

InVision also allows multiple project files to be stored, viewed, reviewed, and commented on simultaneously. Designed prototypes can be connected to channels, making changes visible to team members, and individual screens can be shared for instant collaboration.

Conclusion

We’ve discussed the ten best slack apps that your organization needs in 2019. Whether your company is a startup or a large corporation, these integrations will make communication between you and your team efficient. Even if your team is in a shared office space, communication will be better enhanced with these great apps, so check them out! You won’t regret it.

Related: LLC or Inc: What’s Better for a Startup?

Disclaimer: This article is intended to help business owners make more informed decisions in regards to the topic; however, please contact an attorney for legal advice and an accountant for tax advice. Populus makes no representation as a legal advisor or tax advisor.

 

 

 

Opportunity Zone Investment for Startups

Opportunity Zone Investment for Startups

“This round of regulations removes some of the most significant impediments keeping capital on the sidelines, especially as it relates to operating businesses.”

John Lettieri, president of the Economic Innovation Group

Locating funding as a startup or small business can be a challenge. Investment capital for startups is at a premium, specifically venture capital in Nebraska. Small businesses of all kinds struggle in Nebraska to locate money that is active and ready for a risk. There is an exciting new opportunity, though, for organizations of all types seeking investment capital in Nebraska, or anywhere else in the United States. In April of 2017, the IRS released information on a new tax advantage for investors called Opportunity Zones. And in April of 2019, the IRS released new guidance, which makes it more attractive for investors to consider small businesses and startups in these opportunity zones.

What is an Opportunity Zone?

An Opportunity Zone is an economically-distressed community where investments may be eligible for preferential tax treatment. Opportunity Zones (often called OZ’s) are nominated by the state and approved by the federal government. They were added to the tax code in 2017 as a part of the Tax Cuts and Jobs Act.

It’s relatively easy to find out where Nebraska Opportunity Zones are located by visiting the Opportunity Nebraska website. They have a straight forward map showing the location of all zones. Nebraska was eligible to nominate 44 areas. To be nominated, an area poverty rate needed to be at least 20%, or:

  • If located in a metropolitan area, the median family income can not exceed 80% of the greater of (i) the median family income in the metropolitan area or (ii) the statewide median family income, or;
  • If located in a non-metropolitan area, the median family income can not exceed 80% of the statewide median family income.

How Do Startups Benefit From Opportunity Zones?

The new guidance as of April of 2019 from the IRS makes Opportunity Zones a lot more exciting for businesses of all types seeking funding in Nebraska. The short version of things: investors can place money into a qualified startup or small business and avoid some, or potentially all, capital gains taxes. But, to fully understand the opportunity for small businesses in Nebraska, we have to dig just a little deeper in the specifics. 

According to the Tax Policy Center, the benefits to investors more specifically look like this:

  • Deferral of taxes on previously earned capital gains
    Investors place existing assets with capital gains into Opportunity Funds. Those capital gains are not taxed until the end of 2026 or when the asset is disposed of.
  • Basis increase of previously earned capital gains 
    For gains placed for at least 5 years, investors’ basis increases by 10 percent. If invested for at least 7 years, the basis on the original investment increases by 15 percent.
  • Permanent exclusion of taxable income on new gains
    For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds (the investment vehicle that invests in Opportunity Zones).

Capital gains taxes are paid on the difference between the sale price of an asset and its original price. There are, of course, all kinds of nuances that may be applied to reducing a tax burden, but let’s keep our math simple for a moment. If an investor places $100,000 into a startup and then exits that startup with a solid return of $750,000 after a few years, again, keeping things simple, that investor may be looking at a capital gains tax of 20% on the $650,000 gain. That’s a healthy $130,000 in taxes! Ouch.

But there is good news for our investor called an Opportunity Zone. If that investor was to move all of that realized gain into a new startup located within an OZ, they may reduce the taxable amount of that gain by 15%. Further, all of the gains on the new investment in the OZ could be free of capital gains tax. To do this, they would need to stay invested for ten years. There are pro-rated tax incentives for shorter investments. This accomplishes two important things: it reduces the immediate tax burden and creates more attractive returns on Qualified Opportunity Zone Businesses. Our example investor could save hundreds of thousands in taxes by using an Opportunity Zone Fund.

Related: Guide to Finding Angel Investors in Omaha

How do I qualify for Opportunity Zone investments?

The recent tax guidance from the IRS helps. Over the past two years, most Opportunity Zone funding was heading straight into commercial real estate. This was because investors were unclear on the rules around investing in companies. What if that startup sells products outside of an OZ? What if that small business has employees located outside of an OZ? These issues could cost investors significant dollars. Most of these questions have now been addressed, thankfully, so Nebraska Investors can move with more confidence.

According to the Wall Street Journal, “Under Wednesday’s rules, Treasury says a business can qualify if 50% of its employees’ hours or wages are in the zone.” Further, a business may qualify if its property and/or managers needed to produce 50% of its revenue are in an Opportunity Zone or if it can otherwise show that 50% of the revenue is generated in the zone. We call these companies Qualified Opportunity Zone Businesses (QZOB). So, if your company headquarters in a Nebraska Opportunity Zone, you are likely to be a prime candidate for these attractive investment funds. 

Related: Omaha Startup Press for 2019

Where do I find Opportunity Zone Investors?

Any Accredited Investor may benefit from these Opportunity Zone tax incentives. We’ve written an extensive guide on how to find Angel Investors that you may want to check out. Many funds are forming with a focus on Opportunity Zones, and these Opportunity Zone Funds are the primary vehicle for investment in these areas. The new guidance gave these funds a grace period of about a year to invest in businesses, which has made them more attractive. This guidance is relatively new, though, and founders may find themselves having to explain the opportunity to potential investors. Sharing this article with them may be a great start.

Populus is located in an Opportunity Zone

And here’s a fun fact for you, Populus Coworking is situated within a Nebraska Opportunity Zone. This means that any business which moves at least 50% of its operations to Populus can be a Qualified Opportunity Zone Business and take advantage of these incentives. We will be encouraging Angel Investors in Omaha to take a look at Populus members for their next investment as it could save them thousands upon thousands of dollars. 

Related: Unique Benefits of Shared Office Space

Investing In Opportunity Zones Makes Nebraska Stronger

The tax incentives that Opportunity Zones provide investors are exciting for both founders and Angels. There is something deeper here, though, for Nebraska. Since the last recession around 2008, small businesses have been responsible for 100% of the net job growth in the United States. Put more simply; it is small businesses and startups that create jobs. Investing in companies within an Opportunity Zone will create significant job growth in those distressed areas. This is where the magic of this new plan could really drive meaningful impact beyond wealthy investors avoiding substantial tax burdens. This plan has the potential to create more meaningful returns for investors who help founders create jobs in distressed areas. According to CNN, the $2 trillion of unrealized gains that currently exist could benefit the rich and poor in a time when income inequality is rising. This is a new program and there will surely be much debate about its effectiveness in solving these income inequalities, but there is potential. That could be a massive win for Nebraska.  

Disclaimer: This article is intended to help business owners make more informed decisions in regards to the topic; however, please contact an attorney for legal advice and an accountant for tax advice. Populus makes no representation as a legal advisor or tax advisor.

Building the future of office space in Omaha

Populus Coworking
2566 Farnam Street
Omaha, NE 68131
info@populus.co


(402) 625- 7866