Strategy for EU Bootstrapping Hardware Startups: Don't Sell to Anyone in EU

Hey, I’m building a new type of personal computer! It’s called Flying Car. You can read the previous blog post where I talk shop about the nuts and bolts.

This is also the very first email to my new mailing list. It was sent to a grand total of seven people. You are now a part of history. Welcome!

“Here’s to the crazy ones”

During my adventures in California, I have embraced one of the holy mantras of Silicon Valley that urges entrepreneurs to “move fast and break things”. To my knowledge, this phrase was coined by one of The Dark Ones, deep in the shadows of Mordor Menlo Park. However, I never thought that it applied to hardware. I may have been mistaken.

Over the past two months, I have been desperately reaching out to labs in the EU to perform tests to pass CE certification. Only after passing the tests would I be legally able to sell the product in the EU. Having received no responses for months, finally a quote came in for 6000 EUR! I was shocked by both the delay and the price tag. While I was waiting to hear back from labs in Europe, I reached out to a lab in China. The email was sent on Friday evening and a reply came back on Saturday 03:00 Shanghai time. The price was 270 USD. The even offered to do the FCC SDoC for 250 USD. I started to wonder how it would ever make business sense not to get everything done in China. I was expecting the price difference to be 5x but not 20x! Also, in case the product fails the test in Europe, I would have to spend another 6000 EUR after doing a redesign and hope that the next test passes!

In addition, while reading up on EU law, it became clear that the ambiguities and complexities around taxation and regulations made things pretty much unworkable at this stage.

It even made me suspect that it is easier for a non-EU country to sell to customers in the EU than it is for an EU company to do the same. An advantage that Chinese businesses surely enjoy.

Things looked bleak indeed. However, I suddenly recalled a maneuver employed by a certain Roman dictator. Bonus points for the reader who can name the person in question and the battle upon which the following strategy is based.

If one were to incorporate in Estonia but not sell to anyone in Estonia, or any member of the European Union for that matter, that company would theoretically be exempt from a whole cluster of legal and tax headaches. As far as I can tell, they would not even be eligible to register for value added tax number (VAT) in Estonia. This would effectively serve as a bulwark around the EU, operating outward, with minimal exposure to the EU itself.

We could even put a warning label on the product saying that it cannot be sold or used in the EU.

As of July 2024, it costs 265 EUR to set up an Estonian company and roughly 120 EUR per year to have a legal address and a contact person in Estonia. The minimum share per capital was recently reduced from 2500 EUR to less than 1 EUR.

The point that drives this home is that there are bigger markets than the EU that are much easier to navigate for a startup. In addition, the marketing is currently only in English, which is not the primary language of any EU country.

Ultimately, each country’s customs will decide whether to let the product into their country. In the worst case scenario, the package is turned away at the border, and we refund the customer immediately or try to ship the package again.

This is obviously not workable at scale but may work during the market validation stage with ten1 units.

If a customer in the EU really wants to own the product, they could try what the Canadians had to do to get American products that could not be shipped directly to Canada: use third-party American shipping relay points close to the Canadian border.

We could also start shipping the hardware now to figure out delivery sooner rather than later, and then have the software catch up for Christmas release via software updates.

The alternative is manufacturing and shipping directly from China with minimal quality control. Es no bueno.

I am still running logic and sanity checks on this plan. Let’s hope that everything checks so my next post can be a product launch announcement!

Stay tuned and subscribe to the mailing list!

In my next post, I write about how to validate a market with development boards and SD cards.