We need a new type of limited liability company that provides startups with protection in the early stage. This would involve:
Unique to startups, however, is the aptly-named “Valley of Death,” the period from when a startup begins (usually with substantial debt) until it earns recurring revenue—a period when nine out of ten startups fail. The cause is often not the startups’ quality or product, rather the lack of access to the customers, funding, or skills needed to grow.
Given these limitations, during the Launch phase, Entrepreneurs would benefit from concentrating solely on product/market fit. We propose creating a specific “Startup, Inc.” status coupled with a set of exceptions to standard legal or tax conditions that decrease as profits increase. Once startups reach a certain level of business viability, they can be reclassified as regular SMEs and follow normal regulations.
The Startup, Inc. status confers a gradual number of advantages including:
Registering the name, the founders, and agreement between the founders, requires no in-depth business plan but confers the ability to exist legally and to issue and pay invoices on the startup’s behalf. Closing the startup could be performed online or via “recommandé.”
Startups require agile teams. Specific skills are deployed according to need, but usually spread across a number of co-founders, freelancers and mentors. Traditional payroll employment often proves too risky; the cumbersome and costly nature does not empower Startups during the fragile and volatile growth stage. Many founders avoid hiring altogether; they fear the financial consequences of a skill or personality mismatch in an ever-shifting business with fast targets. Startup teams would benefit from the ability to hire and fire fast. That way, Startups can adapt to the changing (globally) competitive conditions and the need for specific skills.
During the Startup, Inc. Launch stage, authorizing the following is necessary to ensure competitiveness:
Tax shelters reduce taxable income, which likewise reduce tax payments to the state and federal governments. Tax shelters proved effective for the Belgian film industry, and for the tech sector in the UK (see the UK’s SEIS/EIS model) and are now widely suggested as a measure to generate more funds for angel and early-stage investments in startups here.
With over € 250 billion in their saving accounts, Belgians–as individuals and as part of companies–can make tax-deductible investments in startups. Capital will flow back into the economy–specifically into innovation-driven business–solving the lack of funding critical to new and growing companies. Financial investment in startups and innovation can be readily stimulated with a +100% tax deduction.
Currently, startups pay taxes as soon as they launch, even though it can take 18 to 36 months (even–or especially–when performing very well) to earn recurring revenue. At a point when all capital resources (human and financial) are needed to focus on product-market fit to ensure growth, startups should not bear additional burdens, particularly when the revenue for the government is negligible. Paying taxes before entrepreneurs generate profit in the first years hinders growth and detracts. Startups should be taxed on the capital gains once there are sales or liquified assets.
Belgium is one of the few countries without a capital gains tax. Given the importance of the “Pay It Forward” ethos within the entrepreneurial community, startups are more than willing to pay taxes, once revenues appear or the company has sold.
If startups receive the necessary tax and social charge exemptions in the Launch phase, we propose aligning the exemptions with the implementation of a capital gains tax by assessing entrepreneurs when they make money. Losses, too, should be fiscally deductible.
It’s about aligning interests of the government with the interests of the startups. It should be in the government’s interest to make sure that the startups are as successful as possible.
Customers are startups’ best investors. Customers provide an ongoing source of revenue; they reduce the need for external investment while simultaneously proving the business model and market traction.
We invite government, corporations & organizations (and individuals!) to buy products & services from startups. And there's no need to spend an R&D budget internally, you can acquire startups to drive innovation, too.Tweet now
On top of the immediate economic benefits, the advantages for government, large corporations, SMEs, nonprofits, and individuals, include:
Enabling startups to easily sell to governments would require new procurement procedures. Extensive projects would have to be portioned into smaller, focused assignments. Cutting most–if not all–of the red tape that comes with procurement procedures is equally essential; the bureaucracy in multi-million government deals typical of large corporations should differ for startups with engagements that net €50K.
Government should embrace the risk as the gains outweigh the losses.Labyrinthian bureaucracy is toxic to a startup; that’s why startups refrain from participating in big research and innovation programs—programs that could bring efficiency, cost-savings and innovative breakthroughs.
Rather than funding numerous, overlapping mentoring programs or subsidizing individual startups–both are expensive options–we prefer that budgets switch to large-scale “Buy from Startups” directives instead.
There's a shortage of designers and developers with coding abilities. Low-barrier entry for learning computer programming and digital skills will lead to new job options. For marginalized or hard-to-employ groups it can lead to new opportunities altogether. Changing the entrepreneurial landscape starts with shifts in mindset. Instead of teaching students how to find jobs, how about teaching students how to find customers? Or wide-scale coaching on subjects like financial literacy or social networking?Tweet now
Startup entrepreneurs do not wait for invitations or permission or exceptions and loopholes to be closed. We focus on growth by implementation and experimentation, improving as we go. In short, we learn by doing.
Inevitably, sometimes we fail. We expect sharpened measures and criteria; that’s an integral part of innovation, too. Failure is statistically more likely with a fast-growth enterprise, however, gains from the successful startups–as well as the failures–outweigh the risk. Certain responsibilities remain with the entrepreneur, but there should not be permanent consequences to failure; founders already shoulder heavy personal and financial investments.
We invite everyone to open their doors to entrepreneurs. Wherever you work, you have a special expertise that can help startups improve their products and services. Share your successes (and failures). BE a mentor!Tweet now
Entrepreneurs in the startup community have developed a culture of mentoring. Strong believers in “Pay It Forward,” they are willing to share expertise and experience.
Startup entrepreneurs want to collaborate across sectors and allow ideas and skills to cross-pollinate. The Pay It Forward mentality goes to the very heart of what startups hope to accomplish, creating a tight network that can be leveraged to enable others.
Entrepreneurs need role models. Instead of waiting for people outside Belgium to discover our talent, our products, our ideas, we want to embolden Belgians to stand tall and inspire others.Tweet now
Recognize the impact and potential of our work; reflect on the courage and new knowledge (failures included) instead of being silent or modest.
Share stories. Step up. Take the stage and publicize your achievements (as well as the hardships and lessons learned)
Journalists–highlight startups in features and in-depth interviews. Entrepreneurs–mentor aspiring new students or startups. Friends, families and community members–ask us how we can help each other.
This is a work in progress. Contribute and share your ideas via this hashtag.