Chronicles of a Wandering Mind

I don’t have any concrete data based on research but I think it is safe to assume that the US has the most “friendly” business environment for high-tech/software startups. The overhead of setting up a company is very low. Many developing countries on the other hand have very complicated regulations and procedures, and it is quite expensive to setup a company. This is quite frankly insane! The reverse correlation between the economic development of a country and how long it takes to setup a company is well researched, and high quality data is available, thanks to WorldBank.

I’ll use US and Turkey as examples, as I also had the first hand experience to start companies in both countries, hence have personal experience in addition to the available research data. In our case study, we have three computer science graduates who are high on talent and ideas that can change the world, but low in cash, trying to start up a software company. We’ll go through the motions of starting up a company for these young entrepreneurs both in Turkey and in US.
First, let’s look at the research data. According to doingbusiness.org, it takes $210 and 5 days to setup a legal entity in US vs $1,040 and 9 days in Turkey. So the cost of setting up a company is 5 times the cost of setting it up in US. Our entreprenuers in Turkey are in a disadvantage. This is bad for Turkey, in fact, it is much worse than it looks.

The income level of two countries are very different. Purchasing power parity adjusted gross national income per capita is $41,400 in US and $3,750 in Turkey. In simple terms, $1,040 is whole a lot of money for the Turkish entreprenuers. Just for reference, in Turkey, the net minimum wage is $394 per month. It’s not that easy for the Turkish entreprenuers to come up with the money. For their American counter parts however $210 is peanuts.
In US, the entire process can be completed via the Internet and over the phone. It takes very little time. In Turkey, physical presence is required in number of places, along with ridiciluous amounts of useless documents. The process is very complicated and it is hard to find explanation/help on how to proceed from websites or books.
As a result, our Turkish entrepreneurs either have to spend many days figuring out how they can set up the company and hope that they get it right, or hire an “agent” to do the work for them, which means more money! When we had tried to get an agent to do the work for us from abroad, we were quoted up to $5,500 for the setup costs. In our case, we eventually did find someone to do the work for less than $1,000 through our local contacts in Turkey. Note that although the agent route is not technically mandatory, in real life it pretty much is.
In the mean time, our American Entreprenuers were done after spending couple of hours on the web reading about different forms of business entities, have decided on LLC and used a service over the web to set up the legal entity in Delaware. Couple more hours to fill the necessary applications, and to make a phone calls etc. and they are done with the paperwork for a long time. Unfortunately for their Turkish counterparts, it is just the beginning. They are about to discover number of nasty “regulations” that will require them to spend significant amount of time and money. On the next post, we’ll continue with some of these regulations and the work environment.