Startup Problems in Developing Countries

Organizing Startup

Most of the startups face problems when starting out, but those are far different from problems of those in developing countries. The main problems are mostly those considering the country laws and legal system, finances and mentality, school system, poverty.

We can take any country as an example, but for this particular post I’ll take my own country as an example, Serbia, since every country has almost similar problems with some variations. In truth, the differences are minor so you can put any country for same results.

Stepwise taxation
Higher tax effect

If we examine the law problems, the main problem that I see is that the legal system concerning the company law is good in theory, but not in practice. The legal system doesn’t have a strong hand to enforce it and most of the problems regarding the companies remain unsolved. Companies can exist in a limbo between working and bankruptcy, employing workers while not paying them for months on and on. The main reasons are political and the corruption which exists in nearly every field. With tech companies, there are some differences. Sure, you can start a tech company with just 1 euro, but you’ll be paying a lot more than that. While it is reasonable to have taxes for companies that have solid profit and that exist for more than 2 years, it is in my honest opinion stupid to have a tax for the new companies that are trying to develop and essentially help the struggling economy through innovation and active entrepreneurship spirit.

Let’s see: If you start out you need to essentially be able to: Organize, pay taxes, pay the social and health benefits for your employees, pay the bills regarding the electrical energy and services, pay the licenses if you want to use proprietary software, be ready for inspections that are usually there since the big players sponsor it through BSA – Business Software Alliance.

Now, some of those things differ from country to country, but in essence you can not avoid them and they are obligatory for everyone. Still, a lot of things can be improved. If the companies are freed from the tax for the first 2 years since founding or until they have yearly profit above some sum. (Case in Albania: Companies in Albania are tax free until they reach the certain profit amount when they get tax that is stepwise and grows with further profits.) The more companies you have that are financially viable, the better the number of tax payers. Also, the Business Registry Agency of every country needs to have modern website, along with the updated data, so that the things are easily available for easy checking. Number of papers that must be used needs to be reduced to the minimum, everything needs to be available online and being able to fill some things via online forms using E-signature.

Corruption is a problem too, but the corruption only hits tech companies indirectly more than directly. In case that you need to sell physical product there is a higher chance that the corruption will be direct, since some may ask you to bribe them since they want to emphasizes more good things about your product. When your product is software it’s a little harder.

Age of Founding Startup and Financial problems

Starting out is hard when you look out from objective perspective. Life is hard, and there is no free lunch. However, when you have a system that isn’t in shape the things get to be even harder. Who are startup founders? In well developed countries, they are mostly students, people in their twenties and thirties.

 

Age of Founders, problems
Startup Founders Age Groups

Some of them as we can see are people that have finished university and students on final year. However, in USA it isn’t rare that there are college and university dropouts that create successful companies. In other countries, that may or may not be the case. Getting everything done while you are in university is hard. You need to balance between your social life, your studies, and your startup. Also, it is in your best interest to finish everything on time so that you could move forward as soon as possible with your startup. But let’s not forget one important part. Everything needs to be payed, and finances can be tricky especially if you are in developing country. First, there is scholarship. Depending on your grades, you could be eligible for some kind of student grant that puts you on university or country budget. If you are not so lucky you need to pay for scholarship. Let’s analyze. If you are student, paying for scholarship (or not; don’t forget, there are lot of additional costs regarding the material, books, etc. that can have little impact in developed countries on personal finances, but can be of big impact of family budget in developing countries),  how are you going to finance your startup? What will be your time management? Those are the questions that you need to have answers to. The harsh conditions of finances in Eastern Europe can quickly turn you down from doing something. Most of the students and people that work in tech, work for other companies with than they go on creating their own. The life dictates what needs to be important and any risk must be calculated and must not put you in danger of losing your work or being without job. It’s hard to imagine that someone will work with you in garage while working for salary that is only source of income. Family can help, friends too, but in developing countries, that’s a little hard to imagine. If you want to start something, risk and leave your job for something uncertain, most of your family members will think that you’ve gone crazy.

Note: Most people still live in their parents homes, since they don’t have their own flat or can not afford one.

Poverty is one of the areas that most of these countries face. In some, the real number of unemployed people is a lot higher than what is being reported. You need to be efficient with resources you have and do it wisely. Some people have parents that are sick or left without a job and they must contribute to the costs from their salary. Then there is stress by love life, social life and other events. Stress is common in those situations and by being a startup founder it is even more evident to others. Political stability is usually a thing that can change from bad to worse in a blink of an eye. In all cases not only is there stress on yourself as living being, but there is also stress on your wallet.

The school system doesn’t promote entrepreneurship spirit. Most of the lessons in Elementary and High Schools focus on outdated information that aren’t reliable or nor longer applicable to the current situation. Teachers don’t have a proper reeducation on seminars regarding this, and this is important since it will help the nation to progress faster in IT age. Children are born with technology and mobile phones in the palm of their hand. You can hear that sentence from their parents, teachers etc. That’s half true. While they are certainly more interested in technology, they use it only for some tasks that are related to socializing and school work when needed. Figuring out how something work is not present. Most of them will learn basic functions and keep their knowledge at that level. The thing that must be avoided is poor quality of learned which is effect of “everyone knows everything” but the work itself is sloppy. People need to have proper education and be taught by others that have reputation and knowledge. Knowledge is power if it is right knowledge.

CONCLUSION:

Getting ready to start a new company is hard. You need to be prepared both financially and mentally. Organize, plan and focus on most important parts. Try to spread the work so that you can have better productivity by doing the things that you know best. Be sure to get a good lawyer to check your papers, If possible, try to register your company in “business paradises” like Delaware. Make sure to have enough money before starting something and that your family will not be in problem. Avoid debts at all costs, only consider them if you are able to pay them off easily and if they can ease your problems at the given moment.  Do some freelancing work and try to save enough money for starting everything, but organize your time if you are student. Try to finish everything as soon as possible because university needs to be your primary concern until you are sure that you are near the end of final year. Be ready for impossible and always calculate everything.

Nikola Stojic
Law student, entrepreneur, writing about startups and tech, StartupBlink Ambassador

Startup Problems in Developing Countries

by Nikola Stojic time to read: 6 min
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