Building a Business: Europe vs USA
I’m an American founder who was born and raised in Seattle, Washington. But in 2020, I accidentally built a 25-person company in Europe servicing customers in the US.
My takeaway from the experience is that Europe is better than America for the average person, at the expense of developing a business ecosystem that produces globally competitive technology companies.
Many of the policies that contribute to Europeans’ great safety net, also make building a company much, much harder.
Could Europe better balance their social and employee protections and enable new companies to start, fail, and some grow at the same time?
Thank you for asking, complete accidentally actually.
I couldn’t afford to make my first hire in America, so I turned to Europe. Via the path of least resistance, most of our team is in the former Yugoslavia region today.
That seemingly small decision has led to front row seats to a multi year collusion between American and European startup culture, business culture, workplace culture, and employer / employee dynamics.
I’m still deeply conflicted.
I’ve spent most of my founder career earning below minimum wage, and have gone multi-year periods without health insurance.
But this year I’ll pay more in taxes than my parent’s annual salary at the peak of their career, combined.
How do I balance my strong capitalist values with the strong belief that the hardships faced by the average American is a moral failure from the world’s richest country?
Us Americans, we know Europe has a better social safety net. The average citizen in Europe is better off than the average citizen in America.
But in America, top performers can earn limitless amounts of money.
And according to our rugged American individualism, this is a good system.
Even if healthcare costs are killer.
Every full time entry level team member in our organization receives better benefits than my Mom, after working for 15 years at the Paul Allen Brain Institute.
The Brain Institute for Science is a well funded, progressive non-profit organization, and their benefits for senior employees are table stakes for workers in Europe.
Here are the standard benefits employers in Balkans offer:
- 5 weeks of PTO + 7 bank holidays
- 10 additional sick days, 65% salary in perpetuity with a doctors note
- 12 months of maternity leave, up to 2 years if there are complications
These benefits are clearly positive for worker wellbeing and society in general.
But as a startup that is under resourced it feels impossible.
Employment law varies from one European country to the other, but in general European workers enjoy greater protections from termination.
As a founder, I’ve been directly responsible for hiring 7 people in the last 4 years.
Only 3 out of the 7 hires were good fits and went on to be successful.
4 of the 7 did not.
That’s not a super good track record.
The flexibility to fire fast is so important in the early days of building a new company.
Being unable to correct the bad hires I’ve made would have killed our organization before it got off the ground.
I also manage hold the opinion above, with the belief that the free market will optimize for profit at the detriment of its employees and society at large, quite frequently, all throughout history.
Pre 2020 I knew Europe taxed the rich more, and the average person more than the US.
This makes sense to my progressive / left idealism. More taxes are necessary to support increased social services, which is a good thing.
But through the lens of the progressive left in the US, European taxes are ultra regressive to the point of extreme hardship.
In the region my team is from, the US equivalent of a sole proprietorship is taxed at 55% of any income.
That’s not a top tax bracket, that’s the starting rate.
There is something else interesting about taxes in Europe. In America, taxes are inevitable. We have an old saying, “There’s nothing certain in life, except for death and taxes.”
This seems less true for citizens of European countries. Yes, taxes are higher, but they feel more optional.
At a 55% tax rate, I get it.
Interesting note. If the amount of tax evasion in Greece was scaled to the US GDP of $21 trillion, it would be equivalent to $1.2 – $1.9 trillion dollars per year.
Our organization is registered as a US company with no legal presence in Europe.
In practice, this means our organization is not obligated to comply with many of the things described in this article, but as our organization has become more resourced we’ve brought our benefits inline with European companies.
Not because we’re obligated, but because it’s the right thing to do.
And the flexibility to not comply with local European employment laws has allowed us to grow into the company we are today:
- Starting salary for entry level team members is 2x higher than the local minimum
- Mid level team members are earning 3-5x local minimum wage
- 32 days of PTO
- 3 month maternity leave
- Operating at Silicon Valley scale on opportunities and learning professional skills and best practice that are inaccessible to employees of local companies
I don’t believe our company would be here today if we had to comply with European business and employment law on day one.
But when I look at my founder peers with teams outside of the US, I don’t see these benefits being provided, so clearly the free market can’t be counted on to optimize for what’s right.
Even today, I believe full compliance with local European business law is not viable for us.
Two of the benefits European workers enjoy are paid for by the government through taxation of local European companies.
- 10 paid medical leave days on top of 32 days of PTO, with 65% of salary being paid in perpetuity with a doctors note
- 12 months of maternity leave, with extensions up to 24 months if there are complications, available on day one of joining a new company
Because we’re not a European company and we don’t have a relationship with European tax authorities, local governments don’t extend these benefits to our team.
When we calculated the cost for our organization to finance these benefits ourselves, we would have to reduce salaries by approximately 50% to fund these liabilities.
To create a legal presence in Europe would require a significant amount of administrative overhead to an organization that is still finding stability.
It involves terminating relationships with our existing accounting and legal relationships, and finding high quality representation knowledgeable in international business and tax law, in both Serbia and the US.
Not only do I have a poor track record for hiring, the stakes for mistakes are high.
The countries my team members live in have tax laws that don’t reflect the nature of a global workforce in 2021, and they’re forced into a legal grey area.
This creates significant amounts out of anxiety and stress for our team, and our organization.
Europeans contracting for US companies without a local presence have to make a conscious decision on whether to pay 55% on any income, or become a criminal.
This workforce is highly sensitive to any changes, or rumours of changes in tax law and collection.
This creates a significant amount of mental overhead in the form of stress, anxiety, and distraction, that is always with them, 24/7.
Once clarity on an upcoming change or rumour is achieved, stress and anxiety levels are reduced, only for another rumour to appear, and the cycle of stress and anxiety resumes.
This anxiety and stress is similar to chronic pain, in the sense that it’s always there, but on some days it’s manageable.
I’ve spent a lot of time talking about European employment law, because that’s where a majority of my team is based today.
What happens when we begin growing our team in South America, Africa and Asia?
Should our organization strive to operate as a local entity under local employment law for each country we have team members in?
Gitlab, the world’s largest 100% remote company doesn’t register a local presence until their staff reaches 30 – 50 people in a single country.
Gitlab, a public company with $150m+ ARR, $6 billion market cap, and an army of in-house lawyers and global compliance managers.
In fact, local compliance is so difficult, Gitlab is changing their global hiring strategy:
“In the past GitLab would hire in any country except those we had already determined were not feasible due to certain restrictions. At present we are focussing our hiring in countries where we have entities & PEO’s.”
What hope do organizations like ours have?
Up until recently, local compliance was only possible for the largest, most resourced global organizations.
As the world adapts to our new reality, entire companies are being built to enable smaller organizations to hire globally while meeting local compliance requirements with less administrative overhead.
The way these products work is they have partnerships with local organizations called Professional Employer Organizations (PEOs) around the world that can legally employee your team under local employment laws.
This arrangement reduces anxiety and stress, and provides your team members with the government funded benefits previously only provided by local entities.
And this new product category is just getting started. Some of these companies are building out the entire remote compliance stack from contracts written by local law firms, to payment processing.
Here are a couple we’re familiar with:
- Blue Marble
- Remote Pass
- ADP Global Payroll
- Cloud Pay
- Paypaya Global
Here are some final observations on European vs American work culture that didn’t fit in anywhere else.
- A senior software engineer in London with 20 years of experience earns $90,000 USD. About the same as a software engineering intern in Seattle fresh out of university.
- Multiple team members have addressed me as ‘Hey Boss’ instead of ‘Hey Nick’. This isn’t something I’ve experienced in America.
- Europeans discuss post-tax salary, Americans discuss pre-tax salary.
- Half of the people on my team have Masters degrees. There is a strong belief advanced degrees are critical for professional success. As a college dropout who hustled their way into tech, I like the American system better.
- The hardest imperial -> metric conversion to adopt has been the date format. Americans use Month / Day Year, the entire rest of the world uses Day / Month / Year. I’ve adopted kilos, meters, kilometers, and celsius, but I still use American dates.
- Europe’s lack of globally competitive technology companies has massive geopolitical implications. The entire European GDP is run on American software beholden to American interests, and American three letter agencies.
In 2020 our agency grew from 1 to 25 FTEs. In 2021 we might hit 75.
None of us have ever done this before.
And we’re figuring it out in public.