The influence “data protection” has had on doing business in Europe

In my previous post I spoke about how you must choose a jurisdiction when you start a business. One of the most important things was GDPR (General Data Protection Regulation). I believe it needs to be clarified.

Everything is made for big corporations

The story is as follows: My lawyer wrote to me: “Alex, we got a thing to be implemented within a year, we need to make all compliance”. We use some personal data like name, last name, and e-mail address. I’m not a lawyer but I think that all these standards are created for big corporations like Apple or Facebook. It’s not good for small companies. I pay a lot of money to meet the standards that are necessary for Apple to meet. Although the level is completely different. I need to hire a personal data specialist, prepare all the necessary documents, make a technical systems audit, etc. It’s alright, but it’s more about legal work than about technically protecting personal data. We need to write in the documents that the servers are protected in a particular way, that they are certified, etc.

But it’s already protected! When you use, for example, Amazon Web Services as a partner you know that you are totally protected, because Amazon has already met all the requirements. Still I have to do the same for my company.

It’s expensive to make even our pretty small database (although it may be quite complicated depending on a client) fit GDPR. That’s why most companies just make stuff up. I had to make everything in the way it was supposed to be, because my investor was a public company. The price was so high - we paid 10 thousand euro for in reality nothing. Nothing changed, I never got an advantage over the sources from outside the EU. I just wasted the money. As an investor of mine that I worked with before used to say: “All lawyers are criminals but sometimes you need them”. Saying criminals he didn’t mean to say they are the ones who have to go to jail, but he meant that you’re starting to believe you’re gonna be robbed once you see their pricing. Paying that amount of money was a real burden for me back then when we were a very small company.

So, we spent a lot of money. It’s the matter of what kind of business you do. For example, you start a car blog and you receive a demand to make a GDPR compliance, because your registered capital is 5 thousand Euros. You have to follow the GDPR requirements even if you start a project alone or with a friend of yours. At least you should prove that you don’t have to do that. But a startup’s main objective is in focusing on their product itself instead of thinking about the things around that. You struggle to survive in the early days, you don’t have the opportunity to waste a part of your time on the things which are insignificant for you.

Applying GDPR to all companies leads to a decrease in the number of startups. You must either scrape by and do all the necessary things at minimum level or you focus on legal things at the detriment to working over your product.

I wasted a lot of my own time on it, because I didn’t have a legal department back then. I was supposed to pay someone, learn it, deal with it somehow - I just wasted time instead of making a product. GDPR makes a launch harder for small companies. It’s a burden you receive when you start to work online and accept users.

No one makes startups

It is written in the book “From zero to one. How to build a startup of the future” that the United States has developed better because it is easier to start your own business there. I talked to my Swedish friends who had started their own company. They told me that the local society system is completely bad for making a startup.

When I lived in Austria I learnt that the one who wants to start a company there will benefit from many things. You need to live in a bunker to avoid having a state grant. You may trade trousers for raccoons - you will get the grant anyway. It’s all because no one wants to work in the innovation area. The taxes and risks are high, it’s very hard to fire an employee. If you are a smart person living in Austria, you’d better work for a corporation. You’ll be more stable and better financially within six years than doing your own business.

People who got some position and know the area from the inside tend to start their own business more often there. They leave a corporation and start doing the same things for the corporation that they used to do working there. As a result there are many agencies and contractors in Austria, but innovations are not developed.

The same applies for Sweden. There are big corporations and big taxes. Some people start something but it’s really not as often as in the US. The book I’m talking about speaks about just this - that there are places where innovations are supported and places where they are left to stagnate. They are more stagnant than supported in Europe. It doesn’t mean that there are no startups, but the situation is much better in the United States.

Israel has more loyal rules for startups. It’s some kind of Silicon Valley of Europe. Although it’s not a European country. I learnt about it talking to the Wall Street Journal reporter Ben Rooney. 

• Listen, Ben, what is the place where people make startups most often? (I asked him)

• Israel (He replied)

• Why?

• Because there are the biggest investment attraction rounds and the coolest technologies in Europe.

People launch AI, machine learning, computer simulation projects without fear.  Although it costs a lot really. The initial rounds in Israel are half a million - million instead 50-60 thousands. People launch big IT companies right away instead of starting with small ones. They have qualified staff and there’s no GDPR.

This is the common problem of the EU. They want startups but there’s no one to do it. There are many programs and funds that can help you move your business to the Republic of Ireland, Poland and so on. They say you can arrive and launch a company and get a grant. It’s OK, but the legal system fails it a little bit in terms of residence legalization. When you come and say that you’ve been making a startup, you’re asked about the income for the previous year. Then they say it’s negative and that’s the reason you can’t get a residence card. When you tell them you have investments and a business plan they only answer you that the negative income will not allow you to get a residence card.

To get the residence card you need to prove with the help of lawyers that your company is useful for the economy of Poland (in my case). Even if you have a business, attract investments, pay taxes, and do all the other necessary things properly. On the other hand the state has launched a campaign to attract Ukrainian startups to Polish business. I think that these two forms are not correlated with each other. It’s very simple in the USA. You can make a call and start a company. I recommend it. You only need to pay taxes -that’s the only hurdle!