Half the Donut: Why an entrepreneur earning $100k gets to keep over $99k in Singapore but under $57k in San Francisco

The donut of doom: Total earnings vs total tax in California

You’re about to quit your job and start living the life of a one-man entrepreneur. Living in your basement, you have no rent and no employees, and since you’re selling your skills you don’t need venture capita yet, but you’re still dreaming big. All things being equal, where should you base your business?

Tip: Probably not in the place where the taxman takes a red bite like this out of your income donut.

More specifically, in each of San Francisco, Helsinki, Sydney, Tokyo and Singapore, if your business earns $100,000 in net revenue and pays you a “ramen-profitable” $2000 monthly net salary:

  1. How much post-tax profit will your company make in a year?
  2. If all of this profit is paid out in dividends, how much does will you have left after taxes?

If you’re wondering why I picked those five cities, part of the reason is that it’s a nice geographical, cultural and political spread, but mostly it’s because I’ve either founded a company or worked for a company based in each of them.  The $100k net revenue/$2k net salary model, funding product development on the side, is basically what I modeled my one-man consulting company on back in 2006.

To jump straight to the answers, click here. If dividend imputation and municipal inhabitant taxes get you all tingly and excited, read on. Hardcore masochists who’d like to double-check my math are also invited to examine the gruesome innards of this Google Docs spreadsheet.

Disclaimers

This is a hypothetical exercise, so I’m going to simplify as much as I can, the accounting is still stupidly complicated and there’s a whole lot of cramming square pegs into round holes going on.  In particular:

  • I ignore all non-financial considerations. Visas, availability of talent, infrastructure, economic prospects, legal and political environment etc are all important real-world factors for locating a business, but out of scope for today.
  • $100,000 is net revenue, we ignore all expenses aside from salary and tax. In other words, $100,000 is what’s left over after business registration, accounting, stationery and whatnot, and we also assume that those costs are the same across all countries.
  • We assume sales tax does not apply.  This is not as unfair as it seems, since most countries exempt companies until they reach fairly high yearly sales thresholds and exclude online and/or international/interstate sales.
  • The business has no tax deductible expenses. This is particularly unrealistic for the United States, where 72,500 pages of federal tax code means creative deductions are a national pastime, but them’s the breaks.
  • Pensions are accounted for on a defined contribution (what-you-pay-is-what-you-get) basis, so $1 put in now is worth (at least) $1 later. This is true for Singapore, Australia, US 401(k)/IRAs and some Japanese corporate plans;  this is manifestly not true for US Social Security or the national plans in Finland and Japan, but for lack of a better measure we assume it is anyway.
  • Taxes are computed assuming that pension and health insurance contributions are tax-free, which allows me to ignore the distinction between employer and employee contributions.
  • The owner is a full-fledged local resident under 40 for the purpose of tax, pension, insurance etc brackets.
  • For the sole purpose of minimizing futzing about with exchange rates, for income tax thresholds etc I’m going to merrily assume that 1 USD = 1 SGD = 1 AUD = 1 EUR = 100 JPY. This is obviously not correct, but is not all that much worse than picking actual exchange rates that’ll be out of date in moments anyway.

Last but not least, this is a work in progress, a revision history is at the bottom of the article.   Now, let’s roll up our sleeves, channel the spirit of the late great Herbert Kornfeld, and balance this shit wit’ a quickness.

Round 1: Paying a salary

$2000 x 12 = $24,000, leaving $76,000, right? Not so fast. There are four main things to worry about here: income tax, pension fund contributions, payroll taxes and health insurance. Both pensions and health insurance are tricky since our countries’ systems vary so widely, so we’ll just attempt to standardize the legislative minimum. And since all these fees are usually percentages of salary, we have to work our way backwards starting from desired post-tax income to get to the employer’s cost.

Golden Gate BridgeIn San Francisco, I’m going to cheat a bit and outsource the otherwise horribly complex income tax computation to the MIT Living Wage Survey, which figures that for a single adult, it takes pre-tax earnings of $26,692 to have $1,929/mo left over after tax, an effective tax rate of 13.28%.  Optimistically assumes that rate stays the same at $2,000/mo, we now need $27,675.  Next, we add in a 6% employee pension contribution with 6% employer matching (+$3203) and boost medical from $149/mo to a post-Obamacare estimate of $368/mo (+$2628).  On top of this, employers have to pay 6.2% of wages for Social Security, which I’ll lump as a “pension” for the purposes of this article; 1.45% for Medicare; 3.4% for CA unemployment, plus 1.2% and 0.1% of the first $7,000 only for federal unemployment and employment training tax respectively. (Huge props to ZenPayroll.)  In a rare bit of good news, SF’s payroll tax (1.5%) only applies once total salaries exceed $150,000, so we can ignore this.  We thus arrive at $36,773.

Ice, HelsinkiIn Helsinki, personal income tax is so complicated the only sane way to compute the effective rate is to punch numbers into the official tax calculator.  A gross income of €29,000 and zeroes for everything else, including being a godless pagan who avoids church tax, nets income of €23,978, for an effective rate of 17.32%.

As a >30% shareholder of his own company, our hero can apply the lower “YEL” pension employer contribution of 17.55% for two years.  On top of this, we have the employee side pension contribution of 5.15%, 2.04% mandatory health insurance, and 0.80% employer/0.60% employee unemployment insurance.  We thus arrive at €36,615, which is, rather incredibly, a hundred bucks less than SF, and this gets you a cradle-to-grave Scandinavian welfare state!

Expressways in Shinjuku, TokyoIn Tokyo, national income tax (shotokuzei) is 5% for the first Y1.95 million and 10% above, plus a flat 4% prefectural and 6% municipal tax (which combine to form jūminzei, resident tax), which works out to 16.6%.  For pension, you can pick the national plan (kokumin nenkin) at a fixed Y14,980/month regardless of income, or a standardized company pension (kōsei nenkin) at 17.120% split evenly between employer and employee; being cheapskates, we pick the national plan.  National health insurance is 80% of municipal and prefectural tax paid, which in Tokyo equates to 9.97% split between employer and employee. Phew!  (Dōmo arigatō to Japan Consult.)   Final damage 33,448 hectoyen, and I’m delighted to find out that I’m apparently the fifth person in the history of the Internet to use that lovably awkward term.

Sydney Opera HouseIn Sydney, the Tax Office says the first $18,200 of income are tax-free and the next bracket until $37k is 19%, for an effective rate of 5.36%.  The minimum pension (superannuation) contribution is 9.25% and Medicare (public health insurance) levy is 1.5%, and since our total income is under $84k, we’re not required to pay the Medicare levy surcharge for not having private insurance.  Payroll taxes in Australia are administered at the state level, but New South Wales only applies its rate of 5.45% once payroll exceeds $750,000, so that particular bullet is dodged, and at $28,087, the end result is easily the lowest of the bunch.

Shophouses in Katong, SingaporeIn Singapore, income tax is easy: 0% for the first $20k, 1.4% for the next $10k (usually 2%, but they’re discounting 30% in 2013), for a scarcely believable effective rate of 0.24%.  Mandatory pension (CPF) contributions for employees under 50, which include a health insurance component, are 16% for the employer and the 20% for the employee, with a maximum contribution of $1800/mo (not applicable here). The only other obligatory cost is the Skills Development Levy at 0.25% of salary, capped at $11.25/mo.  This equates to $32,777.

We can now compare the total cost of employment, ie. how much it costs the company to pay the owner that $2000/mo salary:

Employer cost vs take-home pay

But while taxes disappear into the gaping jaw of Leviathan, pensions are retained by the owner in some form of another (see Disclaimer), so a more instructive comparison deducts salary and pension from total cost to arrive at what I’m calling “employment overhead”:

Employment overhead

At the end of Round 1, Singapore is the clear winner ($117!) and Sydney a close second, followed by Helsinki and, at the back of the bus, Tokyo and San Francisco, where nearly $8k disappear in a puff of smoke.

Round 2: Corporate tax and dividend taxation

In our idealized mini-company, everything that was not paid out to the employee is pure profit. If the company wants to dish them out to its sole shareholder, how much do they get after the taxman takes his share?

Cable car, San FranciscoIn California, a C corporation pays 8.84% corporate tax.  (A pity we’re not in Nevada, where it would be zero.)  Pile on federal taxes at 15% to $50k and 25% to 75k, noting that you can deduct your state corporate tax first, and we get 23.7%. Since California treats dividend income as ordinary taxable income, in the $36k-to-87k tax bracket you’re looking at 25% to Uncle Sam, 12.3% to California, 3.8% to Medicare and 1.2% for “deduction phaseouts” (wat?), totaling a whopping 42.30%. Tot these up, and our entrepreneur is left with 44% of what the company earned, or $27,828.  And if that sounds bad, here’s a calculation that arrives at 26% when you max out both tax brackets!

That said, if you’re going to do this in real life and do not have ambitions to grow to be the next Google, you should almost certainly opt for an S corporation or an LLC instead.  These don’t pay corporate taxes: instead, they pass their income (or loss) onto their shareholders, who then pay normal income taxes.  This is good if you’re keeping the money, but terrible if you were planning to reinvest it.  However, since all other corporation types in this little survey are “real” companies that can choose to reinvest or issue dividends, I felt that a C corporation is a fairer comparison point.

Geese in Hietaniemi Bay, HelsinkiIn Helsinki, both corporate tax and the tax treatment of dividends was revamped in 2013.  From January 2014 onwards, corporate tax is 20%, leaving €63,385 in post-tax profits.  The basic capital gains tax on dividends is 30% (but 32% above €40k), with a tax break of 75% on the first 8% of “free capital”, which for our newborn company equates to the total yearly profit.  This works out to an effective rate of 28.59%, leaving €36,211 in our hero’s bank account.

Cherry blossoms in Korakuen Garden, TokyoIn Tokyo, corporate taxation makes Japanese payroll and income taxes look simple.  Based on this handy summary from JETRO, for “a small company in Tokyo”, corporate tax is 15%, “restoration corporate surtax” (read: Fukushima surcharge) is 1.5%, prefectural and municipal “inhabitant taxes” in Tokyo are 0.75% and 1.85% respectively, “enterprise tax” is 2.70% (I presume this is meant to discourage entrepreneurship?) and as a cherry on top “special local corporate tax” is 2.19%, for a total of 23.99% but an effective rate of 22.86% for reasons I won’t even claim to understand. But wait! Once your earnings top Y4m, new rates apply and you now get socked for 24.56%.  In effect, the effectively effective rate is an ineffective 23.54%.

So that’s taxes, now dividends, which are even more like tentacle porn. To quote Japan Tax, “As so often seems the case with Japanese individual taxation, what would be expected to be a simple tax matter is made overly complicated by a range of expiring tax benefits (that are often revised or extended) and a range of alternative obscure reporting elections, deductions or exemptions.” The short of it is that the withholding tax rate for unlisted shares is 20%. The long of it is that you can then choose to report or not report it as ordinary income. If you do report, you have to pay income tax, but receive a dividend deduction of 12.8% for overall income of Y10m or less but 6.4% above which offsets the withholding tax and, you know what, fuggedaboudit. Pay 20%, end of story, and keep 40,709 hectoyen.

Sydney Monorail on Darling BridgeIn Sydney, company tax is a flat 30%, no if ands or buts, and the highest rate in our survey.  Dividend income is treated the same as ordinary income and taxed at same rate, except that thanks to dividend imputation you get “franking benefits” that are meant to offset the corporate tax already paid.  Acting on the optimistic assumption that they do, this means all that’s left is the difference between the corporate tax rate and the receiver’s marginal income tax rate, in our case 32.5% (for the $37k+ tax bracket) plus 1.5% levy, or 4%.  This leaves a rather juicy $48,326.

Singapore city at duskIn Singapore, corporate tax is usually 15%, but new companies in many sectors including IT pay zero (0%) tax for the first three years for their first $100k in profit, no special applications needed.  There’s also a whole slew of other tax incentives, including 4x deductions of IT gear and, most incredibly, cash transfers of up to $5,000/year from the tax man for companies that make a loss despite earning over $100,000 in revenue, but that’s another story and our rules exclude this kind of thing anyway.

Singapore has no capital gains tax, so Singapore company dividends are also tax-free. The company can thus pay out $67,223 in dividends, and the shareholder gets every last cent. This means our entrepreneur’s yearly earnings after tax are $91,223, and adding in the $8,640 sitting in their pension fund, they have managed to hold on to $99,883 of it.

Company profit vs dividends after tax

Dear reader, if you made it this far, I salute you. Now all that’s left is to sum up your salary, your pension and what’s left of your dividends to see how much of your $100,000 you still have left over.

Conclusion

Total left over from $100k

Singapore romps home as the undisputed winner, with the entrepreneur keeping a scarcely credible 99.9% of what they started with. It’s just a real shame that, for political reasons, the government has recently gutted the EntrePass scheme and thus made it close to impossible for a foreign one-man entrepreneur to set up shop.  (If you’re keen anyway, check out the Singapore Expats “Business in Singapore” forum or drop me a line.)

Somewhat to my own surprise, Sydney rocks up in second place with 74.6% left over.  Australia’s not what you’d call a low-tax (much less low-cost) country, but income tax is highly progressive and the dividend franking system means you only pay tax once on dividends, meaning that at low incomes you get to keep most of what you earn.  The calculus would change pretty rapidly if you earned $200k and found yourself in the 45% income tax bracket.

Helsinki and Tokyo show up neck and neck in 3rd and 4th place, with 66.8% and 66.5% respectively. Both have heavy taxation of income, payroll, corporate profit and dividends, but no total clangers. (Except Finland’s 24% value-added tax, the exclusion of which makes Helsinki unrealistically rosy, unless you can source all your income from outside the EU.)  The canny entrepreneur could nudge up both of those figures: in Tokyo, you’d actually want to pay yourself more salary since income tax is lower than corporate tax, while in Helsinki the reverse applies.

And trailing the pack with barely half left over is poor old San Francisco with 56.9%.  Now obviously there’s more to deciding where a company sets up than taxes, because otherwise Silicon Valley would be empty… but unless you really need to be there, from a financial point of view setting up pretty much anywhere else seems to make a whole lot more dollars and cents.

Acknowledgements

Thanks to corporate law ninja Joe & serial entrepreneur Juha for a sanity check of the US, Finland and Japan calculations, Tuomas Talola for corrections to Finnish calculations, and my Singaporean accountant, the infatigable Ms Tan, for clueing me onto this stuff back in the day.  If you spot any mistakes, drop me a line.

Incidentally, Joe says that a fairer version of this exercise would model the corporate and personal taxes of each country and then solve for the optimal combination of salary and dividends.  Any takers?

Revision history

31 Oct 2013

  • Recomputed Finnish income taxes with tax office calculator.
  • Adjusted Finnish employer pension to use YEL rate instead of TyEL rate.
  • Corrected Japanese pension to pay national pension (kokumin nenkin) only.
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Wikitravel Press: Seven lessons from a startup that failed

Before I joined Lonely Planet, I ran a little startup called Wikitravel Press, which packaged up Wikitravel articles and sold them as print-on-demand books.  Despite revolutionary tech, a great team and hard work, it didn’t pan out the way we’d hoped, and this is the story of the lessons I learned the hard way.

TL;DR: Lesson 1 | 2 | 3 | 4 | 5 | 6 | 7

Conception

Back in 2005, I was a vagabond telecoms consultant, flitting around the world setting up messaging systems for mobile network operators.  I loved the travel, to the extent of willingly giving up my apartment and living out of a rollaboard suitcase for a year and half, but endlessly hashing through the requirements-deploy-test-rinse-repeat cycle was starting to get old and I found myself spending more and more time on Wikitravel.

And at some point, I had an epiphany.  One of Wikitravel’s goals since its earliest days was to produce printable guides.  The volume and quality of content was starting to reach the point where the best destination guides were book-sized.  What if I could extract the content, automatically lay it out into PDF, and publish it as an actual book through a print-on-demand service like Lulu?  Compared to existing guidebooks, the advantages seemed vast:

  • The content would be as fresh as the website, unlike the 2-3 year research-to-print cycle of a typical guidebook.
  • The content would be continually updated for free by volunteers, instead of expensively and occasionally by paid authors.
  • Printing on demand would eliminate warehouses, inventory management, returns and many other banes of a publisher’s existence.
  • Printing on demand would allow creating customized, niche guides that would not be economical for a traditional publisher that needs print runs of at least several thousand copies.

But the seed of hubris had already been planted:

Lesson #1: Do not base your startup on more than two innovations. >>

Pulling off the company would have required 1) turning a free-for-all wiki into publishable content, 2) completely automating the transformation of that digital content into printed books, and 3) building a new way to distribute these fresh but very perishable books.  If any of these legs failed, the stool would topple over.

(The credit for that quote, by the way, belongs to someone else; I remember seeing it back in 2007, shortly after launch, and thinking, “Crap”.  But I’m unable to track it down, anybody know who said it first?)

Gestation

I hacked together enough of a prototype with LaTeX and a forked version of Deplate to convince myself that the primary technological challenge, turning Wiki pages into a book-like PDF, was solvable, and then got in touch with Wikitravel founders Evan and Michele to see if they were interested.  They were, very much so, but there was a major catch: they were right in the middle of selling the website to Internet Brands (IB), and I had to cool my heels until that was all sorted out.

Now Evan and Michele, being smart cookies, had already made a point of retaining print rights to the Wikitravel brand.  However, Internet Brands still had a say on who could use those rights and how, so we had to fly over from Singapore and Montreal to Los Angeles to meet IB, pitch the idea, draft agreements, get lawyers to look it all over etc, all an unnecessary cost and distraction compared to if had it been just the three of us.  The deal we came to was fair enough, and essentially boiled down to IB giving us free ad space on the site and reasonably free reign in print in exchange for a cut of any future profits.  But here, too, lay another seed of destruction.

Lesson #2: Do not rely on a third party that does not share your goals and interests. >>

For Wikitravel Press, the support of Internet Brands was critical: without it, there was no brand, and without the brand there was no company.  (The very name of the company relied on an Internet Brands trademark!)  But for Internet Brands, Wikitravel the site was just one brand in a stable of dozens, and a dinky little appendix to that site producing no revenue was at the absolute bottom of the priority list.  We were now stuck: they had negotiated the initial agreement because legally they had to, but once the ink on that was dry, we would have absolutely zero leverage with them until and unless we started raking in serious profits.

Birth

Nevertheless, we signed the agreement and the next year passed in a blur.  I quit my job and  started doing the million and one things needed to get this off the ground.  We set up Wikitravel Press, Inc in Montreal, Evan and Michele’s hometown.  (I would have preferred Singapore, a considerably more business-friendly locale, but for Internet Brands even Canada was rather exotic.)  Since the initial costs were low, we opted not to pursue venture capital, financing it ourselves.

On the technical side, I had to turn the engine from a crude prototype into something solid enough for production use, wrap it with a user interface that editors around the world could use, and integrate its output into Lulu.  Mark Jaroski whipped up an inspired piece of hackery that pulled street data from OpenStreetMap, mashed it together with Wikitravel listings and spat out printable guidebook maps.  We sourced a design for the books (hat tip to TheAgence), found one of the three people on the planet who understood the dark arts of LaTeX templating well enough to automate the layout (the brilliant Alistair Smith of Sunrise Setting), built pricing and royalty models, experimented with book formats, and more.

And, of course, we had to find some people to actually write the books.  Our ultimate goal was always to allow people to print anything they wanted whenever they wanted, but Wikitravel’s content quality was too uneven for that, and neither was our technology up to the challenge.  So we compromised: we selected popular, well-covered destinations, put editors in charge of maintaining them, published  manually-reviewed monthly updates to each title and paid the editors a royalty on sales for their troubles. Professional travel writers unsurprisingly steered well clear, but there were enough enthusiastic amateurs on Wikitravel that recruiting for the first few titles was not a problem.

On February 1, 2008, we launched Wikitravel Chicago (by Peter Fitzgerald and Marc “Gorilla Jones” Heiden) and Wikitravel Singapore (by myself) with a flurry of publicity, with coverage in Boing Boing, Gadling, and a good many more travel and tech sites.  Sales spiked nicely in the first few days, but very soon tapered off into pathetic volumes that were far less than even our most pessimistic estimates.  What had gone wrong?

Lesson #3: Validate your sales projections before you launch. >>

It seems inconceivable to me today, sufficiently so that I’m rather embarrassed to type this, but we hadn’t actually tested, at all, our conversion path with real, live customers.  We had simply blithely assumed that X% of visitors to Wikitravel pages with ads would click on to the Wikitravel Press site, and that Y% of those would go on to buy the book.  Guess what?  People browsing Wikitravel were, by and large, not interested in buying it as books; and of those that did make it to the Press and clicked on the “buy” links, another large percentage were turned off by having to create new accounts on Lulu, type in credit card details and addresses, and then pay hefty shipping fees, especially if outside the US. Doing a quiet public beta before launch would have alerted us to this at least half a year earlier.

Infancy

So there we were, with a gut-shot business plan bleeding all over the floor, and we had to do something fast to increase our distribution.  I dabbled a bit with Google AdWords and other forms of online advertising, but the brutal maths of the publishing industry made buying readers impossible: with sensible keywords costing at least $0.50 a click and an average profit margin of just $5-7 per book, we would have needed a conversion rate of nearly 10% just to break even, clearly an impossibility.

Distributing to conventional bookstores was also out of the question,  We did not have the money, warehouse space, sales network and more to start doing large print runs, hawking them to book stores, dealing with returns, etc, and even if we had, this would have obliterated our primary competitive advantage of speed.

The one avenue open to us was distributing to online bookstores, and the thousand-pound gorilla both then as now is Amazon.  Lulu had an embryonic Amazon distribution option, but not only would it have sliced our already meager profit margins in half, using it would have required new ISBNs for every edition.  And since every online book shop on the planet uses ISBNs to uniquely identify books, all reviews, sales ranking etc tied to Wikitravel Singapore, February 2008 would be lost the instant it was pulled off the virtual shelf and replaced by Wikitravel Singapore, March 2008, so this was simply not an option.  (Not to mention that, in low volumes, each ISBN costs $27.50 a pop.)  We looked briefly into selling Wikitravel as a magazine, with an ISSN instead, but the bureaucracy for getting those was even more fearsome and, again, for every bookseller on the planet, a magazine is a completely different beast to a book and would not show up in searches for the other. Was our revolution in the making about to be scuppered by a standard drafted in 1970?

Lesson #4: There are often practical workarounds for theoretical impossibilities. >>

But we found a way.  Amazon had recently launched its own consumer-facing print on demand site CreateSpace, which is tightly integrated to the Amazon bookstore, including key features like free shipping, same-day printing and, crucially for us, its own pool of pre-allocated ISBNs that could be retained through updates of the book.   In theory, you’re supposed to change the ISBN for every “substantial change of text“, but CreateSpace did not enforce this and we were more than happy to leap through the loophole.

So we shifted the entire operation to Amazon, which entitled, among other things, resizing the book’s layout, templates, covers etc to accommodate Amazon’s different page size.  And whereas Lulu had a fairly hands-off approach and a rudimentary API that could be automated to a fair extent, Amazon offered only two choices.  You could go with CreateSpace, designed for technically clueless wannabe writers and thus only drivable through an infuriatingly slow web interface, coupled with a manual validation process where every single page of every single edition was scrutinized by some half-starved third-world peon and, more often than not, summarily rejected for infractions like the cover saying “Singapore – Wikitravel” when the book title was “Wikitravel Singapore”.  Alas, the only other option was BookSurge, designed for “real” publishers bulk uploading PDFs of old books that already had previously assigned ISBNs, and hence entirely unamenable to our reuse-ISBN-for-next-edition dodge.

But we gritted our teeth and soldiered on with CreateSpace, and Wikitravel Press books went live on Amazon in November 2008.  Sales perked up immediately, and it was time to start expanding.

Stumbling forward

With the new foundation laid, there were two basic ways to expand: we could distribute to a larger audience, or we could produce more titles.

Once up on Amazon USA, the obvious next place to distribute was Amazon’s other markets: Canada, UK, Germany, Japan, etc.  However, publishing remains intricately tied up in geography, and endless rounds of discussion with Amazon Europe produced no results — at the time, the only print-on-demand service on offer in Europe was BookSurge, and that didn’t play nice with our titles.  (This has since changed.)  And while CreateSpace offers an “Expanded Distribution” program that, in theory, allows sales through Barnes & Noble and online retailers, library sales programs etc, there’s no real way to promote your books on those sites.  In practice, enabling it meant only that random online bookstores you’ve never heard of picked them up, algorithmically assigning insane prices in the vain hope that some lunatic would buy them.  (Case in point: this listing for our Paris guide,  which not only hawks a no-longer-existent product, but wants $216 for it.)

So we were stuck in our little Amazon bubble, and the only way forward was to produce more titles, which meant finding more editors to create and maintain them.  Alas, our process required a trifecta of uncommon traits: a mastery of Wiki markup, a willingness to work unpaid for a long period to initially prep the book for publication, and the tolerance to deal with unpredictable royalties once the book did hit the virtual shelves.  There were no realistic technical solutions to the first, with MediaWiki WYSIWYG remaining a pipe dream despite years of effort by the Foundation, and we were unable to pay advances because we could not accurately forecast book sales.  In the end, only nine titles made it all the way through, with quite a few left lying on the cutting table in varying states of completion.

Lesson #5:  Scaling technology is hard, but scaling people may be impossible. >>

Unable to scale people, we turned to scaling technology instead: instead of manual editing, why not automate the whole process instead?  The feeble jaws of our engine were not up to the task of digesting the whole of Wikitravel, but at Wikimania 2008 in Cairo I had been introduced to German brainiacs PediaPress, whose fearsome mwlib parser beat the pants off ours and could eat the entirety of Wikipedia for lunch.  They produced an awesome demo of a Wikitravel book, and next year I flew down to the Frankfurt Book Fair, where we shared a stand, drank beer and dreamed big.

But that dream stayed a dream, because there were two ways to make this happen, and both were blocked by limitations outside out control.

  1. We could have generated guides completely automatically and sold them via conventional channels like Amazon.  However, since CreateSpace could not be automated, there would have been an absolutely ludicrous amount of manual grunt work involved in creating and maintaining the guides; and since Wikitravel content was of uneven quality, selling books compiled with no human oversight at all would have risked a major backlash.
  2. Alternatively, we could have taken the approach that PediaPress does on Wikipedia and allowed users to build their own custom guides, but this would have required installing a custom extension onto Wikitravel.    Alas, the site was and remains fully under the control of Internet Brands, who were exceedingly reluctant to do even basic maintenance, much less install experimental extensions to help someone else’s bottom line.

Paralysis

So there we were, stuck in limbo: technically cashflow-positive thanks to our ultra-lean cost structure, but nowhere near profitable enough to pay me a living wage, much less pay dividends.

Lesson #6: A business that is not growing and not paying your rent is not a business. >>

It was surprisingly tempting to just leave it be and pretend that all was good, and in retrospect I wonder how many times I answered the usual “so how’s the business doing?” question with “Fine, it’ll make a profit this year!”.  But even through this haze of self-delusion it was starting to sink in that there was essentially no realistic prospect of growth in our current line of business, and that printed books were a dead end.

This left precisely one option: pivot away from printed books into a digital form.  Back when we started out, both e-books and apps were impractical boondoggles, with a limited range available on clunky devices if you were a member of the technological priest-elite capable of operating a Palm V or Sony Librie.  But in late 2007 both Apple’s iPhone and Amazon’s Kindle came out, bringing e-books and apps to the masses and setting off a gold rush of selling digital content.   Why not join them?

Because we could not.  Wikitravel Press’s contract with Internet Brands was only for printed products, not digital products.  We’d asked for digital rights originally, but had to give way, and our new attempts to add them to the contract were tersely rebuffed.  Since Wikitravel content is open to all, we could have tried our luck without the brand or the links from the website, but then there would have been little to differentiate us from anybody else repackaging it, and we’d probably be getting our books pulled from the Kindle Store on as just another “private label rights” publisher right about now.

Death

By 2009, the writing was on the wall and we started looking for a way out.  Evan already had a hit on his hands with identi.ca/StatusNet, and towards the end of the year I received an offer from Lonely Planet — not to acquire the company, but to bring me on board a revolutionary publishing project of their own.   I jumped at the chance, resigned my managerial positions (but hedged my bets by keeping a minority stake) and passed the poisoned chalice over to superstar editor/author Peter Fitzgerald of Chicago and Washington DC fame.  He knew full well that the company’s prospects were dim, but hadn’t had all enthusiasm and hope ground out of him quite so thoroughly yet.

Lesson #7: When it’s time to let go, let go.

In hindsight, we should have told him “no” and killed the company then and there.  The ensuing two years of slow decline were a slow but constant drain on time and money for all us, with little upside; sure, a few more editors got to see their books in print, but only see them fizzle and get pulled off the shelves shortly thereafter.  The issue was finally forced by the Internet Brands contract coming up for renewal, which we obviously elected not to do, and the company shuttered its virtual doors on December 31, 2011.

Epitaph

In retrospect, Wikitravel Press was the Minidisc of its time.  In the same way that Sony’s Minidisc was revolutionary compared to cassettes, it was a revolutionary way to do printed books, but both forms of physical media were swiftly obsoleted by the far greater revolution of digital technology: MP3 players for music, phones and tablets for books.

And the one thing that annoys me to this day is that, from day one, we knew this; we just assumed that we’d be able to get the business up and running through print books, and then expand the empire into digital once that market came into being.

On the upside, while we did not come up with the Travel Guide of the Future, neither has anybody else yet, and the trusty old printed guidebook still remains the format to beat.  Got a good idea?  Drop me a line, and maybe we can give it another shot together.