The number two reason why startups fail is running out of cash. How can you make sure your cash does not run out before you make money?
Recently, I visited Happy Farm, a startup incubator in a small Ukrainian village. Most people do not think about a village as the land of opportunity. So what are startup entrepreneurs doing in a village? Two things – actually working (as opposed to enjoying city life) and reducing their burn rate. And Happy Farm successfully attracts people even from outside Ukraine. But why go abroad to do a startup?
Why Go?
Arguably, if you know what you want to build, you could just take your laptop, sit down in your bedroom, shut the door, and build your product. Done. Seems straightforward. But there are good reasons to go somewhere else.
San Francisco – Sure, If You Already Have Your Product
The top place startup founders want to go is San Francisco. Three reasons: more access to capital, early adopter community, and the startup flow. Here is the problem: if you get here without your beta ready, you are will not benefit from the investors and the early adopters since you have nothing to pitch investors and nothing for early adopters to adopt yet. So the flow…again, even if you go to a lot of events and meet the best people – you still won’t be able to show them your beta. So why come to San Francisco? Perhaps, a different perspective? Inspiration? Fair enough. But it will cost you. San Francisco’s 1-bedroom apartments are around $2,000 per month. Monthly cost of living is at least $3,000. And while you are paying $3,000 you are still sitting in your apartment and, hopefully, building the beta. And if you are not, you really should be. That means to bootstrap even for 3 months you need roughly $10,000. Now maybe you want to look at other places to build your product?
Looking for the Perfect Place
The cheapest place may be your parents’ basement or your friend’s couch. These real rock-bottom deals will cost you freedom, though. What we are looking for here, then, is the best value for your money. A comfortable hassle-free life for less than $1000/month.
Recently, as I traveled from San Francisco to London, Dubai and then India, it became clear that seed-stage startups can have a lot more runway in some locations than others. As I finally settled into an Indian village to focus on my own project, I wanted to find out what other bootstrapping-friendly locations there are in the world.
How Cheap?
Here is a rough comparison of my burn rate in San Francisco vs. small town India:
| Expense | San Francisco | Rural India |
|---|---|---|
| Rent(1-bedroom) | $2000 (+$2,200 deposit, excluding utilities) | $275 (no security deposit, including utilities) |
| Food | $1000 | $350 |
| Transport | $90 MUNI pass + bike | $60/mo to rent a scooter +$20 for gas |
| Internet | $ 50/month (3G through contract) | $30 (12GB of 3G) |
| Phone | $30/month | $10 (prepaid) |
| TOTAL | $3,170 | $735 |
I also noticed from being in India that plenty of software-building teams have figured out the economics of starting up in countries like India and the neighboring Thailand.
Why travel when bootstrapping?
Scenario 1. The Savings Burner. You quit your job. You are burning through your savings account. Say, you have $6,000 in the bank. In San Francisco, you will burn through it in 2 months (even without renting office space). In India you can comfortably bootstrap for 6 months (eating out every meal, and even having a cleaner).
Scenario 2. The Get-Away Founder. You want to escape your “normal life” ( your routine, your family, etc.) There are two main benefits to moving. 1. The Immigrant Effect – as a newcomer you won’t know about limitations placed on members in that new society. You are going to act as if those limitations don’t exist. This is one of the reasons immigrants tend to be successful entrepreneurs. 2. The other reason is that your family and friends, neighbors and colleagues, and every other aspect of your “normal life” will not be there – so you can do the abnormal thing – work on your startup, without them constantly checking up on you.
Where to go?
There is a difference between business-friendly countries, and bootstrap-friendly countries. If you want to know which countries are in general more conducive to business, World Bank index does the job. But it includes a lot of things that a seed-stage startup does not need – like registering the entity, taxes, etc. Also, we are not talking about fund-raising here. For fundraising, the U.S. and the UK are by far the best, but before you get to the funding stage, you need to build something.
Here are the criteria that matter for choosing your bootstrapping location:
- Low burn rate (low rent, low food prices) under $1000/month
- Fast and cheap internet
- Developed local infrastructure – transportation, access to food and consumer services
- Generous visa policy (at least a 3-months visa initially)
In short, the place should be cheap, hassle-free, and comfortable. And it turns out some places can let you have your cake and eat it too.
Startup Bootstrap – Best Value Countries
While the cheapest destinations may be Congo and Iraq, the point is not dirt-cheap existence, but the most bang for your bootstrap buck. $1,700 a month for broadband in Cuba, anyone? Not a joke. Best value usually comes from 3 things: 1. The economy is still developing (or temporarily distressed, like in Portugal); 2. There is a lot of competition, so businesses want to serve you better; 3. There is a culture of good customer service.
Here is my list of the most startup bootstrap-friendly destinations. This is the first edition, and suggestions are welcome.
ASIA
- India (Bangalore) – the cheapest city out of the top 20 startup ecosystems in the world, ranked by Startup Genome. The visa is for 6 months. $1000 per month will buy you a very comfortable lifestyle.
- Malaysia – visa-free for 3 months for most countries, top-notch infrastructure in big cities. Singapore is just over the bridge.
- Thailand (Chiang Mai) – a known heaven for e-entrepreneurs. Affordable, cultural, and exotic.
EUROPE
- Bulgaria (Varna, Sofia ) – the best value for money in Europe. Varna is a resort town on the Black Sea, while Sofia has all the infrastructure and culture of any European capital.
- Portugal (especially Porto) – since 2008 Portugal’s market has not yet recovered. Rent is affordable, while services are still up to European standards. Porto, by the way, is home of the Port wine.
- Poland (Lublin) – competition is high among businesses, and the economy is up and coming. You will find quite a few developers here.
- Macedonia (Skopje, Ohrid) – an off the beaten track country that offers services and scenery on par with other modern cities. Ohrid offers beautiful lakeside scenery.
CENTRAL & LATIN AMERICA
- Nicaragua (outside Granada) – has become a trendy destination in the past 7 years, but most of the country outside the capital is a bargain.
- Ecuador (Cuenca) – cultural, but developed. Cuenca is remarkable, both the scenery and comfort.
- Mexico (interior) – while coastal Mexico is no longer cheap, there are plenty of cities in the interior that are.
MIDDLE EAST
- Egypt (outside Cairo) – especially, due to the political situation the accommodation prices are low now. As long as you stay out of Cairo, there is not a lot to worry about.
- Jordan (Amman) – modern, hassle-free, and rather Westernized. There are plenty of cafes and modern housing.
AFRICA
- Morocco (Casablanca) – this year rated the 3rd most welcoming country for outsiders in the world, Morocco is deeply cultural and modern at the same time.
Here is how some of these cities compare in cost:
Best Value Destinations Compared to New York City
For perspective, 100 is the Consumer Price Index for New York City:
Cost of living around the world from numbeo.com
Here is detailed cost of living for some of these destinations from numbeo.com:
Bangalore, India Porto, Portugal Cuenca, Ecuador Chiang Mai, Thailand Varna, Bulgaria Skopje, Macedonia Amman, Jordan
Which destinations do you recommend and why?
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