25 years ago, this town was not connected to the phone network. It was possible to call someone by “registering a call” with the operator.  One would have had towait in front of the phone for hours for the operator to connect the two parties. It all changed with Ozal, starting 1983, opening up the country and the economy to the world. And now, I’m sitting here with a broadband connection, integrated with the rest of the world, as I would be back home in Switzerland or anywhere else in the developed world.

I sit in the terrace and looked around to the sea, to mountains, yet people insight often capture my attention. A remarkable transformation is happening and one does not have to look very hard to see it.  Couple of women are carrying down tea leaves down the hillside with huge baskets on their back. Tea farming is hard work.  Three harvests a year and the terrain here is mountainous. One of the women has a mobile phone in her hand, clearly texting (and quite fast), mobile penetration is very high. Houses here have all the amenities, from dishwasher to satellite TV. Tea factories still the biggest employers.

The coast is much better connected to the rest of the world. 40 years ago, taking the ferry was the best option  to travel to far away cities.  Once could have arrived to Istanbul in about a week!, IF there were no weather problems. Now there are numerous flights, and coastal highway connect the towns to each other.

There has been significant migration from these towns on the coast to large cities as my parent have done a long time ago. Migrating to larger cities has been the only viable option for many to move out of the agricultural lifestyle and join the industrial era. Now, people here are not only better connected physically but also technologically.

I’m curious to see how the information wave will alter this society once again. One thing is sure, people here are accustomed to change and adapt to new things with ease, and this is their strongest suit.

It’s been 4 years since my last visit here. This year, I’m able to stay over three weeks, because I can continue working here!

Football is dominating the agenda in Turkey these days, which would be fine, if only really important issues were not overshadowed. Never mind judicial coup attempt that threatens the country’s future, never mind military abandoning its principle to meddle into politics and risk damaging its credibility irreversibly.

I hope we win tonight, but there are other areas where we should compete.

(refers to the deaths in Tuzla dockyards)

The Turkish entrepreneurs now have a certified accountant to help them with the accounting. However, just when they thought that they were free to focus on software development, their accountant informs them that since they are working for themselves, they have to become member of a semi-governmental association that provides benefits (health care, etc.). Apparently, for self-employed people and this is mandatory! They are “touched” by the thoughtfullness of their government in ensuring that they have benefits. The fact that they have not made any money and will not make any for the next year or so is a minor detail. If they knew, their American counter parts would be saddened that unlike Turkish government, their government does not care enough about them to force them to pay benefits to secure their future! How inconsiderate of them.

The cost of this thoughtful burden on the Turkish entrepreneurs: $130 per month per owner. Since we have three founders, this is roughly another $400/month for our budding entrepreneurs! As stated in the earlier posts, this is a significant amount of money in Turkey (more than the minimum wage) and increases the burden on our entrepreneurs significantly. It may sound like a nobel idea, but it is not! Just like many other such regulations, the cost of these regulations prevent entrepreneurs from starting or succeeding in business.

As a reoccurring theme, Turkish system does not seem to understand the fact that the businesses have to first start and succeed (exist?), before they can be taxed. No new businesses means no new jobs, no profit, no “fees”, no tax revenue, nothing! Just three more young university graduates in need of employment (and benefits!), instead of a high value add company that can potentially employ other people, export products, pay taxes, etc.

It is important to reiterate that the government essentially starts taxing new businesses from day one, before the business gets any chance to actually make any money never mind profit. I’ve talked about several of these “fees” over the last posts, but here is a summary of the regulations/fees a new business faces in Turkey:

• Incorporation costs ( $1200 one time)
• Chamber of commerce registration ($130/year)
• “approval” (whatever that means) of the accounting books ($300/year)
• Mandatory certified accountant (~$4000/year)
• Mandatory social security for owners ($5000/year for 3 owners)
• VAT declaration ($120/year, done monthly even if there is no transaction)
• Corporation tax ($50/year even if there is no transaction)
• Opening an office “fee” by the local municipality ($250)
• …

As can be seen from above, the burden put on our small software startup by the regulations in Turkey is almost $11,000 for the first year. This is pure overhead for a company that has no commercial activity, and not an insignificant amount in Turkey.
It’s important to note that the costs do not include anything like rent, furniture, computer hardware/software, etc. just the overhead enforced by the regulations. It also does not include the administrative costs (someone has to do all this work). In our experience to handle all the associated paperwork requires someone to dedicate half of their time and it is constant source of distraction for the entrepreneurs, therefore it is safe to say that the negative impact of the regulations on new businesses go beyond the financial burden.

In such an unfriendly environment to business startups, it is not therefore surprising that there is hardly any software companies emerge out of Turkey despite the signicant amount of talent in the country. Instead of implementing utterly useless “subsidies”, Turkish government should consider just getting out of the way of the entrepreneurs. No more regulations please!

In the next post I’ll talk about yet another good idea gone wrong: Technology Development Parks, aka Technoparks!

The American entrepreneurs use one of their appartments as the business address, buy a domain name for their company and subscribe to a hosting provider. They now have a website (their virtual office), business email, and broadband internet. Their monthly cost is less than $100,an insignificant amount. They only need enough money to be able to live, nothing more (other than $100/month) is needed. The only paperwork they will have to do is to file for taxes (which they will not have any) at the end of the year. It will be a simple process if they don’t have any activity, and even if they did, they can do it easily using the resources over the web. They will not have to spend more than 2 days over the year for the paperwork.
The Turkish entrepreneurs however, just found out that by law they have to have a certified accountant, further more the “fee” for the certified accountants is regulated by some semi-governmental organization. They have to pay about $250/month to an accountant for bookkeeping. This is a big blow to them, since it is a lot of money for our budding entrepreneurs. They hear that it may be possible to find an accountant that provides the service for less (against the regulations), but doing illegal things (or working with an accountant that does) makes them nervous so they decide to do the things by the book and look for a proper accountant.

They also find out that it is mandatory to register with the chamber of commerce and surprise surprise! registration is not free. (about $110/year). They will also find out that they will make frequent visits to the chamber of commerce to get some documentation and pay them “fees” for number of things, such as opening up a bank account, etc. The affair is hardly different than the “protection money” vendors have to pay to various mafias (no personal experience with this, just what I heard), other than the fact that this one (payment to the chamber of commerce) is mandated by the government. Nice! Way to nurture budding companies. I’ll have to repeat the anectode I have used for the Media in a previous blog entry, about the terrible quality of drugs in the beginning of 1900’s: if all the drugs of the time were tossed in the sea, it would be better for mankind and worse for the fish. Chamber of commerce organizations add little value and suck the blood of companies, all sanctioned by the government.

In addition to the fees they have to pay to the chamber of commerce, our entrepreneurs are told that the chamber of commerce representatives will have to come and “inspect” their business premises to validate that it is a “legitimate” business! Needless to say, our entrepreneurs are panic a bit since they plan to use the living room of one of their appartments as the office and not sure what “legitimate” is (nor they can find information on what/how they will be inspecting. Their “agent” who helps them to set up the legal entity tells them that the issue can be “resolved” and he takes care of it with some “gifts”. I’m not even get into this subject any further than this, as it is a deep deep hole, needless to say, our entrepreneurs are quite uncomfortable but don’t want the hassle so accept the proposed solution.

They have not yet managed to “produce” anything so far, still fighting through the paperwork. They’ve also started to question whether they are doing the right thing by starting a company, instead of working for a “respectable” corporation.

I’ll continue with their saga in the next post. Stay tuned …

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.

In short, Turkey needs a strategy that will create massive numbers of new jobs every year. Where (in which sectors) will these jobs be created? What are the necessary infrastructural changes to faciliate such growth? What are the obstacles now? These are some of the questions that can help us to begin the analysis.

Lack of foreing direct investment has been identified by many as one of the major issues. It is clear that the level of foreign investment is very low, compared to the similar countries. The legal infrastructure and the somewhat negative sentiment in the society are the primary obstacles. Unfortunately, Turkish public do not yet understand the concept of foreign investment. They are skeptical and do not percieve foreign investment as a “good” thing, despite the fact that “finding a job” is probably the biggest problem in their lives. The connection between “jobs” and investment (foreign or otherwise) has not been made. It does not help of course that the Media is clueless. The level of “ignorance” in Turkish Media is stunning. Some stuck with ideological baggage, still repeating dogma from previous decades, others spewing populist garbage with no care to “think” about what they are saying. There is a great anecdote about the terrible quality of drugs in the beginning of 1900’s saying that if all the drugs of the time were tossed in the sea, it would be better for mankind and worse for the fish! I kind a feel the same way about the Media in Turkey. Too harsh? May be.

The other problem is that the commercial regulations are practically HOSTILE to new businesses. Try to start a new business in Turkey, and you’re hit with so many regulations, “fees”, etc. it is a remarkable feat for any company just to exist! The regulations choke new businesses in their infancy with regulations and taxesm denying many the change to even begin a life and provide much more to both the society and the country later on.

I’ll attempt to demonstrate this point with subsequent posts comparing the first year of a startup in Turkey and in US. I’ve come to realize that many people in Turkey did not realize the extend of this problem. When we live with something for a long time, we consider it “normal”. I believe a comparative look at the process will make it easier to grasp the extend of the problem and how it is one of the major obstacles of growth in Turkey. Stay tuned …