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Friday, 4 January 2008

Where to Start Your Lifestyle Company

Filed under: Life & The Universe — Jan @ 18:34

Do you have to move to a 3rd world country before you can start a lifestyle company? That’s what I was asked when describing my own business as a lifestyle company. In the first part of my answer, I explained that differences in people’s expenditures in different countries are much more a reflection of different living standards, rather than the same life costing less.

Today I’ll discuss whether or not only cheapskates can have lifestyle companies. Just Great Software began as my hobby in 1996 and my full-time business in January 2000, in my native Belgium. Belgium offers a high standard of living, high prices, and high taxes. In November 2002, I moved to Thailand, and took my business with it. Since it all ran on the Internet, it was simply a matter of packing my laptop (and more paperwork than I care to remember). Some things, like eating out at a restaurant, got cheaper. Other things, like buying a computer, got more expensive. We lived upcountry. Buying a high-end PC involved flying to Bangkok.

Having lived in two very different countries, I can tell you that you can have a lifestyle company anywhere. Which place is the best place to live all depends on your personal view of the ideal lifestyle. I have heard stories of college-educated westerners who moved to rural Thailand to take up farming, living just a notch above the subsistence level. If such a life makes you happy, it doesn’t get more lifestyle than that. Remember that “lifestyle company” means to run a business that allows you to enjoy life the way you want to, as opposed to running the rat race chasing money.

But at the same time, starting a lifestyle company doesn’t mean you have to be totally detached from money. I coined the name “Just Great Software” because I wanted to focus on building the best products I could, rather than obsessing with quarterly figures. But I don’t give them away for free. It’s only fair that I get paid if I do a good job.

I firmly believe that people who run an honest business that focuses on product/service quality and customer satisfaction, and that provides customers with a genuine benefit, money follows automatically. People just can’t keep a secret. If you bake the best pies in town, pie-lovers in your region will soon find their way. But you will need to have the courage, and money, to buy the best ingredients right from the start. And the dedication to bake them fresh every morning. You’ll never make it to Wal-Marts shelves with that strategy. You’re too expensive. But that’s exactly why the pie-lovers will find you.

So, should you move to a cheap place to open your bakery? I don’t think so. Places are cheap for a reason. People in expensive places are far more likely to have the disposable income for your pies. Poor people don’t value their time, and will haggle endlessly.

You definitely need to consider the state of the local economy where you consider to start your business. If you live in a cheap place, you will have more low-cost choices available for your own lifestyle. But you’ll likely need those. Bootstrapping in an expensive place may be more difficult/expensive, but the potential rewards are likely greater. In the end, the happiest choice is to simply live in a place that makes you comfortable and happy to be who you are. Then find something that you enjoy to do, and that somehow improves people’s lives, i.e. something people will eventually be willing to pay for. As your skill improves and word spreads, the laws of supply and demand will shift in your favor, and you’ll be forced to charge a fair price to make sure you don’t get more customers than you can handle.

So what about online businesses? Live in a cheap place, and sell all over the world, preferably into expensive places. It may sound like a get-rich-quick scheme, but it really isn’t. If your business really sells to the whole world, you’re also competing with the whole world. And some of your competitors are going to be based in an even cheaper place. And some will take the opportunity to undercut your prices. I don’t recommend that you make a business plan that requires you to live cheaply forever, unless living cheap (or should I say: simply) is what makes you happy.

Competing on price online doesn’t pay when your second-cheapest. The cheapest one is only a click away. You don’t want to know how low the competition will go. Can you imagine that workers from Burma and Laos migrate to Thailand because of it’s high wages? We’re talking $150 to $200/month for unskilled labor here. It’s quite normal, actually. Just like workers from Mexico come to the US.

I certainly didn’t move to Thailand in order to save money. And I didn’t. Both my expenses and my quality of life (given my personal preferences) are higher now. Our own lifestyle choices are the reason why I moved to Thailand instead of my wife moving to Belgium. Many other couples make the opposite choice, with the same result (given their personal preferences). Knowing what makes you happy, what keeps the wheels in your mind and body turning, that’s the key to a successful lifestyle company. If you get your priorities wrong, no amount of money or discount coupons will save you.

So how much do I make? While that’s a very normal question in Thailand, it’s a big no-no in Belgium. So I won’t say. But I will say I could live pretty much anywhere and afford my family the local standard of living. Getting a 9-to-5 programming job in Silicon Valley would likely be a pay cut for me. So yes, I truly believe that if you focus on your own quality of life and the contribution your job or business makes to others, money will follow. And you can do it wherever you live. Just don’t get greedy, or allow others to make you greedy. Then you end up running the rat race, or overseeing a big office full of treadmills.

Wednesday, 2 January 2008

Living Costs and Living Standards

Filed under: Life & The Universe — Jan @ 18:06

In a comment to my previous post “Lifestyle Company“, I was asked if I’d be able to live like this in a country with higher living costs than Thailand. This actually implies two questions. First, is there really a difference in cost of living between developed and developing countries? Second, do you need to live in a cheap place to be able to focus your small business on quality of life (for all involved) rather than making ever more money? Today I’ll tackle the first question.

I lived the first 24 years in Belgium, just because I happened to have been born there. Belgium is very much a first world country. A European welfare state with “high cost of living”.

Five years ago, I married and moved to Thailand, my wife’s native country. Though Thailand has made a lot of economic progress the last few decades, it is still very much a developing nation, with a reputation for “low cost of living”.

But exactly what is “cost of living”? To put things a bit in perspective, let’s consider the living situations of Joe and Somchai. Both have university degrees and work as 9 to 5 computer programmers. Joe makes $5,000 a month in the USA. Somchai braves the traffic in Bangkok for $1,000 a month. And that’s after the dollar’s dramatic decline the past two years.

If we determine cost of living by how much Joe and Somchai spend, we’d find the US to be five times as expensive as Bangkok. And before you say that’s no way to compare cost of living (of course people spend what they have), it is exactly how most cost of living comparisons are made. Except that they do it in a roundabout way.

Studies compare the average cost of all sorts of items that people buy in both locations, add it all up, and then declare the cheapest place. But they don’t compare the same products. You can’t compare “US food” with “Thai food”. What is “food”? Is it corn-fed beef and hydroponics vegetables? Or is it a pack of instant noodles? Do you buy fresh fish in an air-conditioned supermarket, or do you buy hopefully fresh fish from a stall in a sweaty roadside market? People will buy the food that they can afford. Joe will stick up his nose for some of the things that Somchai considers normal. Joe will spend more on food just because he can. Food prices in his area will be higher, not because the place is expensive, but the people who live there are expensive. People who can afford the best want the best. I certainly do. Too-cheap-to-be-true sellers go out of business. And on the flip side, Somchai can live much cheaper, because a lot of people have to make do with even less than he does. Did you know that the Thai variety of the giant dung beetle is threatened with extinction due to… overconsumption of its larvae?

To make a real price comparison, you not only need to compare oranges with oranges. You need to compare big, juicy, chemically-treated-to-make-them-more-orange oranges with the same. How much does Somchai pay for a Big Mac? Pretty much what Joe pays. How much for a grande latte with cream at the Starbucks near his office? Same outrageous price. The Starbucks in the mall near our house looks deserted most of the time.

In fact, luxury items are typically more expensive in Thailand than in the US. If Joe wants to a digital SLR, he’ll buy the E-510 with two lenses at Amazon.com for $650, with free shipping. Had Joe wanted to be first in line when the E-510 came out, it would have been $990 MSRP. If Somchai wants the same, the Olympus shop at Pantip plaza will laugh at the suggestion that there exists a two-lens kit. The one-lens kit is $850 MSRP and the extra lens is $250 MSRP, just as it was when the E-510 was released.

Because of low sales volumes, I presume, the Thai distributer only imports the kit with one lens. Shops don’t feel any pressure to discount on high-end items that most other shops don’t even carry. Amazon.com doesn’t ship cameras outside the US. Some US online retailers do, if you can convince them you’re not a thief, and if you don’t need a warranty that’s valid in your own country. So I paid full price for my E-510 with two lenses.

The short answer is that there’s really no difference in cost of living from one place to the next. The real differrence is in standard of living. People who earn less simply have to make do with less. But Somchai doesn’t complain (much). He’s glad he has enough so he can send some money back home to his parents in Isan every month, who only manage to survive on $100 a month because being farmers, they can eat their own food. They don’t get their protein from corn-fed beef though.

So before you complain that you lost your job because somebody else enjoys lower living costs, you may want to think for a minute about how they live. Would you be happy living like that? I know I didn’t reduce my living standards when I moved from Belgium to Thailand. As a result, my living costs stayed pretty much the same too. Some things are cheaper, while other things are more expensive. Whether Belgium or Thailand is the better place to live really depends on what you like and what kind of person you are.

Think about it. Suppose I found that I could buy certain stuff here at one fifth of the price that the exact same stuff costs in the US, just so Somchai could afford it? I’d buy a container full of the stuff, ship it two the US, sell it at 100% markup, and still be 2.5 times cheaper. Two months later, the guy next door takes notice, and does the same for a 50% markup. That’s what we call “globalization”.

The only thing where real price differences exist is time. Somchai’s plumber likely charges only a fraction of what Joe’s plumber charges, for the same hour of time. But for most people, that’s a double-edged sword. Somchai himself only gets a fraction of what Joe gets for the same hour of time. While the world has a WTO to ensure the free movement of stuff, there’s no free movement of people. And if Somchai did win the green card lottery, he’d only use it if he could get a well-paid job just like Joe, and enjoy the same standard of living.

There are many valid reasons why somebody might want to move from a developed country to a developing country. But cost of living is absolutely not one of them. Do not believe that you can live in Thailand like you live in the West for (significantly) less money. If you expect to live on a Thai budget, expect to live a Thai lifestyle. Depending on your personality and outlook on life, living with less can certainly be a happy choice. But that is not the choice that I made.

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