Economies are incentive driven, and the current incentives in America are driving more and more business owners to cut American workers in favor of cheaper hires in Asia, eastern Europe, and elsewhere.
I know this because I’m one of them: I own media business that’s content driven, and most of our tech operations are offshore.
This trend will continue until leaders and policy makers in US government adopt practical tax and employment laws that bring back strong incentives to hire Americans.
After serving as a US Navy SEAL, I started a business. In four years it failed incredibly, but I learned a lot about business, raising equity, and choosing partners.
Growing up in a family full of entrepreneurs — my own grandmother owned a collection agency named after yours truly — I was hungry for another go. Going through SEAL training taught me that it’s OK to fall down three times, as long as you get up four. This is a good philosophy for most things in life.
Shortly after losing with my first venture, I started to write. Then I started blogging, learning digital media along the way. Then I founded Force12 Media in 2012, a digital publishing business.
While we have over 20 US military veterans on payroll, most of our technology team is offshore. We are a virtual, distributed company, and we don’t have a traditional office — we all work from home.
After talking to investment bankers I learned two things: We have something valuable, and we don’t fit traditional models. However, I believe we are creating the model for how a lot of businesses will work in the future; they will be highly distributed and virtual. Moreso if current tax and employment laws favor industrial age thinking.
Force12 makes money as a business by creating original and engaging content on our digital platforms (websites, podcast, and online TV channels) and selling to premium advertising partners who want to connect with a smart, mostly male, demographic.
It’s a good business and our team (both US and offshore) enjoys the autonomy that come from creating their own schedules and working from home (or anywhere for that matter). They are free to spend more time with friends and family and have more freedom to pursue their passions in life.
Why hire offshore? US laws.
For example: A member of our sales team used to live in San Francisco until I was advised by my CPA firm that California’s franchise tax board, regardless of our businesses being located in Nevada, was leaning towards treating business revenue, generated by employees living in the state, as taxable revenue for the state.
So if this person flew from San Francisco to Nashville and sold a half million dollar advertising campaign to a major car company, then California could possibly make a claim on the whole amount as if we were running a half million dollar business in California.
The state’s aggressive and ambivalent tax laws create a massive incentive for out of state business owners like myself to avoid hiring Californians period. The San Francisco based salesperson? He ended up moving to Washington state and California lost a six figure income earner who used to spend and pay income taxes in the state.
As the Economist Milton Friedman would often say, “Incentives are everything.”
States like New York and California have some of the most aggressive and confusing tax and employment laws I’ve ever seen. When the $800-an-hour attorneys are confused, I know it doesn’t make sense.
The laws are outdated and need to change or business owners will continue to find ways to hack the system. Uber is an excellent example of this, and there are plenty more.
I hire offshore developers because I don’t want to get tangled up with confusing and aggressive state tax and employment laws (like Uber is now in California). I go to zero risk when I hire someone smart who can write code for our company from Ukraine or Poland. Would I rather hire someone from the US? Yes, of course, but there is no incentive to do so where I can avoid it.
Like a lot of business owners out there, I don’t desire to face the continual flogging from government regulators who push burdensome and confusing state tax and employment laws on the business. It creates an unnecessary risk when, as an owner, I can just take it offshore.
Not to mention avoiding the expense incurred of paying the expensive (and usually worth it) attorneys to provide their own ambiguous interpretation of the tax and employment law tea leaves.
Being a Navy SEAL and sniper taught me all about risk management. Take away all the risk variables under your control and reduce it to an acceptable level. The same fundamentals apply in business.
US Government leaders, from the top down, need to recognize that a global economy also comes with a global workforce.
They need to create more incentives for business owners to spend onshore and business owners need to pressure their state representatives to push for the elimination of murky and hard to navigate tax and employment laws. Elected officials need to develop simple tax rules that are easy to understand, follow and enforce.
It doesn’t take a degree in economics to realize that the tax and employment laws in this country our outdated in the 21st Century global economy. An overhaul is needed, I’ll even say it’s necessary, for a healthy US economy in the future.
Business owners don’t get a free pass either: We need to stand up and start pressing our elected officials into action because if we don’t, than we can all expect to see more rules that don’t make sense while we send more jobs and spending offshore.