Continental Europe is not a friendly place for small businesses. While much has already been written about the stigma of bankruptcy and liquidation, the picture in other parts of EU legal structure is no better. The tax laws, hiring laws, financial institutions, in fact the entire business system is optimized for big businesses. I sometimes think this is due to the legacy of continental Europe with strong interventionist approach towards business where state formed and funded businesses at big scale to the detriment of small businesses. Also the high level of security provided to employees results in huge differences between take home pay and cost to company for employing a person. Typically, in order to give 2000 Eur of take home salary, the company needs to pay more than 4000 Euros per person. While this makes working with freelance agents a very attractive option, going freelance penalizes the individuals by imposing stiff social security costs, medicare costs etc. In a sense, all small businesses are caught in the scissors of employment and entrepreneurial laws. Because of very generous unemployment benefits, people prefer to remain on dole and have no incentive to look for legal work. We can see this impact directly on our business system:
We operate mostly on direct sales model where our associates go to prospect's home and market our products. However, most of these agents do not want to pay taxes on their earnings and this in turn creates a lot of pressure on our company to remain true to our values and ethics.
Since our products require a lot of explanation, we found direct selling to be the best approach; while TV is a good sales channel, because of consumer protection laws in Europe, it is not possible to market health products on this channel.
Now consider the mindset of an average employee in this context: he wants a safe, steady job that lasts from 8 in the morning to 4 in the evening. An average employee is has neither the ambition nor the fear (or call it paranoia of being outperformed) that helps him deliver strong performance day after day.
While things do appear black for small businesses, we can see some encouraging signs that governments are waking up to these structural problems in Euro zone economies. As usual, everyone is waiting to see what will happen with Germany's new labor laws (Hartz IV) that came into effect from January 1st. However, these problems are so deep rooted and so widely prevalent, that I expect it to take decades before we can see a renaissance of small businesses in EU.
In the meantime, what are we doing to deal with this?
- We are planning to offer pension/life insurance benefits only to those freelancers who work with us on legal and long term basis.
- We hold sales contests that are open only for associates who work on legal basis.
At this moment our network of freelancers is too imbalanced for us to wield any real power over the freelancers. But with our drive to attract new associates and the projects to improve the productivity of old, legal associates, I am sure that we will have a much better bargaining position with our network.
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