Money

Steve Pavlina has written another great bind twisting piece on changing the way you think about your time outside employment. He says we need stop focusing on our regular hourly rate, but instead focus our attention on those $10,000 hours.

It is really a great way of thinking and it really does make me think. Don’t worry about your time as such, but worry about pursuing those ideas that cause big payoff:

Almost always the $10,000 hour is the result of a great idea. And great ideas can strike at any time. When I get one of those $10,000 candidate ideas, I’ll normally drop everything and implement it right away. If it flops (and usually it does), I’ve lost an hour, but I still learned something. Most of the time it isn’t a total loss. I end up with a lot of $10, $50, and $250 ideas too. But I can afford to endure dozens of those relative flops for the chance to hit just one more $10,000 idea. And when it works, I must say it’s pretty darn nice. How to Earn $10,000 in One Hour

It just makes so much sense. The idea of putting a value on each hour of work is comes from the industrial age and does not make sense with creative types such as entrepreneurs.

John over at Daring Fireball has an interesting piece called The Life, where he talks about the economic realities of being a successfull one man ISV in the Mac world.

It is based around the NewsGator’s recent purchase of Ranchero Software, which apparently has caused a bit of frustration amongst Ranchero Software users.

He mentions many of the hard realities of being an ISV. Like support costs:

But selling software isn’t like selling books. When a book takes off and climbs the best-seller charts, that’s just money in the author’s pocket. Each software sale, on the other hand, comes with incremental support costs.

Read the full story. I think it’s still a worthy business to be in, besides the fact that it does include a lot of work. I also have to add that I think that most of the best software in the mac world comes from Solo ISV’s and I hope they keep coming up with all the great innovative software that we all know and love.

Focusing on a large long term abstract revenue goal makes you loose focus and morale. Instead focus on building the first $50K of revenue. Just saw this by Wil Schroter, The First 50 Plan via Ken.

The problem with trying to think in terms of “how do we get to $10 billion in revenue in 2050” is that you lose sight of the fact that your resources are very limited today. Staying focused on earning the first $50K of revenue allows you to concentrate your resources on a very well-defined short-term goal.

This is a brilliant little trick Wil came up with. Following the same logic I was also thinking that a better or maybe earlier goal of $2k pm in regular revenues might be better for a small bootstrapped web startup. For a frugal bootstrapper this may be sufficient to break even. Once you have proven to your self and others that you can make regular monthly cashflow and not just a burst of big sales. This could be an easy metric to yourself. Lets say your $2k revenue comes from 100 sales at $20. That is something you can understand and focus on. Our goal is to reach 100 monthly sales.

Updated, Thanks to Peter for noticing a slight math error.

Just read this cool article Pioneer of the Flat Tax about Mart Laar the first prime minister of an independent Estonia.

It reads almost like the story of a typical hard headed young entrepreneur who doesn’t yet know all the reasons why something can’t be done.

Imagine a place with no tax accountants, where the annual return takes a businessman an hour to complete. Think how you could lead a country and design an economy just as you liked. Consider the joy of creating a tax system with no loopholes and exemptions, where everyone is treated the same.

When he became the prime minister of Estonia at the tender age of 32, Mart Laar saw this opportunity as a beautiful thing. The Soviet regime that once ruled his country had been overthrown, and he was starting with a clean slate – and the confidence that came from reading only one book on economics.

This table shows how it compares to UK Tax.

“Most experts advised against it and said it was a very stupid idea,” he said. “My finance minister said don’t do it, the IMF said don’t do it. But it’s not very easy to convince a young person that he is wrong and I was that type of young person. So I did it.”

This is how Bezos started Amazon. Max and Peter PayPal. Classic hard headed entrepreneurial spirit.

Thanks to Scott at Baltic Blog
for bringing this article to my attention. He says:

As an American with a screwy tax system that confounds me, even that as an ex-pat, doesn’t owe any money but can’t figure out the proper filings forms because of the Byzantine nature of the U.S. tax system, Estonian tax filing is simplicity in itself. It is all Web-based, and generally take 10 minutes to file.

As all of us entrepreneurs know, tax is a pain in the *ss. While obviously paying a huge percentage like we do here in Denmark is bad enough, I think for many smaller entrepreneurs the reporting overhead is actually worse.

Also in places like Denmark you tend to worry more about your deductions than your income. Imagine a 0% tax on your business. What kind of clarity in your daily life would this give you? Focus on your business effect and not the tax effect. I have been considering Estonia for a while as it certainly is an attractive place for a startup.

Nowadays businesses are moving all over the world to be flexible and cut costs. I am guessing that many small startups don’t think about this step.

Chances are that you have had a fairly successfull career or a series of jobs, that have required that you live and work in a high cost area such as London, Boston, Bay area, Denmark etc. If you are Funding via a 9 to 5 you need to of course be where your cashflow requires you to be.

I have often heard.. if you want to get funded you need to be within an hours drive of your VC. Well if youre bootstrapping this is not really a problem.

Sometimes you can save money by just going to another part of the country. However for many of us it’s more practical and more fun going to another country.

Why be mobile?

However if you already are cashflow positive, living of savings or angel money or ar able to convert more and more of your work to offsite work you may be able to take advantage of cutting your burn rate and enjoy yourself seeing the world at the same time.

I’ll give an super simplified example. Lets say that all your monthly non business living expenses such as rent, food, phone, insurance, cable, adsl etc where you live right now are about $3000pm, your hosting costs $100pm and your super fancy web service backpocket.com sells for $10pm.

To break even you need to have (3000+100)/10=310 paying clients.

Lets say you could bring your monthly costs down to nearly a third say $1200pm. You still have your monthly hosting costs, but the break even calculation now says (1200+100)/10=130 paying clients.

You could also last a lot longer burning through savings. Imagine if you had saved $10000 up. You could keep going for 7 months without any revenue as opposed to roughly 3 months in your expensive city.

You might also be able to get away with working fewer hours on other peoples projects if you are doing outside consulting, thus being able to focus more time on yourself.

I know all of this is pretty basic maths, but I keep seeing people bootstrapping in expensive places where sometimes it’s actually better for your business to go elsewhere.

Is this for ever?

Maybe, but probably not. Maybe you will end up falling in love with someone there (I did) or you just really like where you have moved to. But really the core idea here is to just build your business up in a low cost area. Then you can always reevaluate later what you want to do.

Sometimes the legal hassle involved with immigration and red tape can be prohibitive for settling on a more permanent stage. For now just enjoy it and save the money.

Where?

There are many places in this world that are way cheaper than the places where many of us hightech types live. I myself have been bootstrapping most recently in Panama, where you as a single person can live comfortably for $1000pm, less if you are prepared to tighten your belt a bit.

Many North American go to Panama, Costa Rica, Chile or Argentina to startup due to low living costs and fun living.

If youre doing it solo or with a friend you can easily go to places like Panama during your startup phase. As an extra bonus you will get to work on your tan and salsa dancing skills as well.

For people from the European Union, there are loads of great cheap wired places that you might not have thought about. Due to the EU principal of free labor mobility you can move to any EU country with very little hassle. In northern Europe, Estonia is a good choice (Skype thinks so too). But I hear that Latvia and Lithuania are great as well. These countries have better infrastructure (think Wifi everywhere) than just about anywhere else in Europe and are incredibly cheap to boot. I am guessing you could get a long on $1000-1500 in Estonia monthly, but don’t have any real experience to back it up with.

Eastern Europe generally offers many cool cities to live/work in that are incredibly cheap.

I know that there are also many people who go hang out writing code and starting businesses in Thailand and other places in South East Asia.

Planning?

Pick your place and remember that you are doing it to save money. Neither Cayman Islands, London nor Bermuda will save you a dime. Questions you need to ask through google or expat mailing lists are:

• How long is a tourist visa good for?
• How much do expats need to live? People survive in Panama for $250pm, but expats generally need considerably more.
• Can you easily get highspeed internet as a foreigner?

If you are just starting up and keep a low profile you can in most parts of the world get away with just a tourist visa. If this needs to be renewed every month, it’s not worth it. Many places will give you a 3 or 6 month tourist visa on entry. You will then need to either extend (lots of red tape) or do a visa run (long weekend in a neighboring country) which may or may not be expensive.

With the example of Panama, if you buy purely US brands in the supermarket you will end up paying dearly. Local brands are available for most products and groceries at a fraction of the imported brands. For example in Panama a US brand yogurt will probably cost you $1.50 while a local one $0.50. Search for supermarket web sites for the country where you’re going such as this Rimith, that will give you a pretty good idea of grocery costs.

Assuming you are developing a great new web service you need an apartment with high speed internet. Some places like Estonia this is readily available, but more likely you need to be able to have it installed in your apartment. This may or may not be a painful experience. Check on mailing lists for peoples real experiences with companies. For example see my experiences with inter.net in Panama.

You will more than likely need a furnished apartment. Many expats with nice apartments often advertise for room mates on the expat mailing lists, these generally already have internet etc. If you prefer living solo you can often find cheap furnished apartments when you get there.

Doing it

If you are paying rent back home there is probably not much reason to do this, so give your notice to your apartment and throw as much of your junk out as you can. Store the rest in a self storage place or in a friends basement.

Buy your plane ticket. Try to get something flexible if possible. It is definitely worth while paying a bit more for a ticket that will allow you to change it. Some fare classes only allow you to be in your country of choice for 90 days, where others allow you to extend it to up to a year.

Book a hotel for a couple of days. It is often easier to find cheap hotels when you are on the ground. Then focus on finding an apartment. There are always agencies you can use, but they are often expensive. If you know the local lingo check the papers.

The Visa run

If you need to leave the country every 90 days for visa reasons, you normally take the bus or plane to the closest neighbor. From Panama most expats go to Costa Rica or Colombia (much more fun than you might think). Again ask on the expat mailing lists.

Staying in focus

Remember you are not on holiday. It is OK to go to the beach everynow and again, but you are there to work on your projects. Most roaming entrepreneurs don’t have problems doing this, but some do.

Don’t burn your bridges

I’m talking from experience here. If you are bootstrapping without a job in a place like London or Boston, you can likely get a job again quickly if things don’t quite go as planned. This might be more difficult if you are in the other part of the world. Specifically don’t think you can necessarily get a job as a foreigner in Panama, Estonia or elsewhere. There maybe work permit issues, the salary may be way to low.

Basically unless you can work remotely and maintain a good network back home, don’t wait until you have no more money in your bank account, keep that return ticket ready and whatever money you might need until you receive your first paycheck. You can always come back again, once you’ve built up funds back home.

Don’t be naive

Only plan on settling down in your chosen low cost destination when you know your way around. Expect that you will probably need to leave again in a while. If you need to grow and hire other people as well as have an actual office, that may only be possible in a place where it is easy to hire qualified staff.

Never underestimate red tape

Don’t bother becoming a local business until you really need to. The red tape involved can be painful and expensive. Many people just continue on their business using the same structures as at home. See my Legal structures for bootstrappers for more information. Basically make choices on what is best for growing your business. Some times it is cheaper and easier to have a US LLC than a Cool offshore company registered in Panama.

Do your banking back home (for now)

There is way to much red tape involved in opening up bank accounts for foreigners in most countries. It’s often easier to keep your accounts back home. Remember to tell them that you are going. Many US banks have a nasty habit of freezing clients credit and debit cards when used abroad. Let them know ahead of time and have a non 800 number for your bank handy in case it does happen.

If you decide to settle more permanently then you can start opening cool offshore bank accounts.

Don’t do this for tax reasons

Seriously do it to save money for your business and not for protecting some currently non existant future $20 million fortune.

If your costs are already low at home stay put

If you already have a nice low cost work environment at home, stay put. There is no need to even consider this.

If there is interest I will follow up with bootstrappers guides for Panama and a few other places. If you want to write one for your favorite place I’m happy to have you guest blog it or I will link to it from here.

For more about Panama have a look at my PanamaFAQ and the Panama category on Neubia.com.