Tuesday, December 20, 2011

All about taxes

One of the questions that was hounding me during my move back was how it would affect my taxes? Having income generated in the US (from my consulting business) and from India (from my Machine Vision solutions business) caused room for worry about double taxation, etc.

From the perspective of the U.S. tax system there are two scenarios

  • Investments or business undertaking of foreign persons present in the United States – known as taxation of foreign persons
  • Investments or business undertakings of U.S. persons abroad which are known as taxation of foreign income.
So I was moving from the first to the 2nd. 

The US taxes income of its citizens from all sources worldwide, whether they reside in United
States or abroad. Individual residents of the United States, regardless of nationality are exposed to U.S.
tax on their worldwide income. (There are some exceptions for which you will need to consult a CPA). As a consequence I report all my income (including capital gains/loss from stock transactions in the Indian market)  on my US tax returns.

But there's some good news. As a US resident you may qualify to exclude up to an amount of your foreign earnings ($92,900 for 2011, $95,100 for 2012). This is per the Foreign Earned Income Exclusion clause of the IRS. Keep in mind that this pertains to salaries and wage earnings and not capital gains (from sales of stock in the Indian market).

This blog only provides a brief overview of the residence aspect of international tax – there are many
exceptions, rules and regulations associated with the tax law – so please consult with a professional tax
expert before you act on any information. It saves you a tone of worry and headache which you don't want to deal with.

I've been working with Raj Prabhu in Bellevue, WA and will be happy to make an introduction.

From the Indian tax laws - the rules are more favorable for an NRI. You don't have to pay taxes on your foreign income in India.  However all your income earned in India is of course taxable in India. Due to a lot of tax evasion, the monetary system is remarkably tight. Any substantial transaction in India needs to be tied to your PAN (permanent account number), which is like a SSN in the US. More about my experiences with the Indian business regulations in an upcoming blog.

Sunday, December 18, 2011

You're hired - Part II

As mentioned in my earlier post my experience with hiring software developers in the silicon valley of India wasn't very positive.

However - I have had a reasonable degree of success with hiring a team for my Machine Vision Solutions business. Having had a shaky start early on with CS majors, I went in pursuit of Electronics engineers. In the first month of moving back, I did a round of campus recruitment from the engg college where I found that the large majority actually wanted to work in an industry that suited their line of study. Many also contacted us directly after having heard this from their juniors in college. As a start-up I couldn't compete with the MNC's offering hefty pay packages, which turned out to be a great filter to screen out folks who applied out of interest as opposed to money. We use a combination of a written aptitude and basic electronics test, followed by an on-site interview.

Also - I have never stopped hiring. I spend a quarter of my time looking through resumes and interviewing folks. You can never have enough of good talent in your team. This not only helps you be better prepared for growth, but it also makes it easier to transition non-performers out of your team. Given that we're a young company  we haven't been affected by  attrition, but it would be a matter of time. Having a steady hiring pipeline would make attrition less of an issue.

Monday, December 12, 2011

You're hired - Part I

Getting the right people is always the toughest challenge for a start-up to get off the ground. As a bootstrapped business you don't have the luxury of spending large sums on people with crazy salary expectations and inflated egos.

My hiring experience started a couple of years ago during a long vacation to India where I had decided along with another friend to  spring up a small team for our software consulting business.  My experience was from positive. It might be an outsourcing paradise, but it was definitely a hiring nightmare. Attrition is rampant, professionalism is almost non-existent and quality of candidates are terrible.

So how does the Indian service business still thrive? Redundancy is key. If you need 2 hire 4, if you need 10 – hire 15. That’s one bet . With all the redundancy, doesn’t the attractiveness with cost start to fade? Absolutely, but it’s still at attractive price points for most.

We used naukri.com as our advertising medium  and after much trial and error we hit upon a good equilibrium of being able to:
  • screen out resumes. 
  • assess candidates with a 15 min phone screen
  • screen basic technical abilities with a written test 
  • And finalize candidates with an on-site interview

The outcome – 350 resumes screened and 5 offers made (with a 20% hike in current pay). None of them accepted.

For those looking to hire a software team in India, don't underestimate the hiring effort. Especially as a bootstrapped start-up. For this kind of business to work well, you need at least  10 people to make this work, so unless your business justifies it, stay away. My interactions with a number of heads of software companies and start-up also echo this sentiment. Finding quality people is the toughest challenge. Many companies focus their marketing efforts to attract employees than to earn new business -- interesting.

Our lack of success turned out to be a blessing in disguise. What we focused on instead was finding good consultants with the right skill set. This was more expensive on the micro level, but  turned out to be extremely efficient over all. You have the flexibility of scaling up and down hours easily. Most consultants themselves are entrepreneurs and are more efficient and professional than salaried employees. Had we started this effort as a small team, we would have been caught with our pants down if they had decided to leave mid way for a 10% hike offered elsewhere.

For my machine vision solutions business  - we have had much better luck with hiring and finding the right people. To be covered in part II.

Sunday, December 4, 2011

Bad customer service - All's well that ends well

We've all had our experiences with bad customer service. Sometimes, you let go swearing off the product or the service, other times you speak to a manager or a supervisor and seek remediation. Specifically with retail  customer service in the US is just fantastic. Return policy is generous, people are helpful and knowledgeable, staff are polite and well trained.

Mansa  recently had this experience where she shopped at the the Arrow showroom in Commercial Street. After buying a pair of trousers she was offered the choice of having the length altered. She had it picked up in a little while as asked and when it came home she found to her surprise that they hadn't been altered. She called the showroom and the lady who talked to her not only was unapologetic but demanded that Mansa take a measuring tape and double check the length as she wouldn't accept her word for it. Even after doing so - the customer rep wasn't convinced that there was fault with the store and asked her to drive (an hour) to get it checked. When asked to speak to her manager (who happened to be out) - Mansa could hear the rep telling the asst manager that "there's a a difficult customer who's creating a fuss"! Mansa succeeded in getting the manger's number and expecting a similar callous attitude, was ready to wage war with him. To her pleasant surprise - the attitude was completely different. He was completely apologetic, and promised to handle the matter personally. A few hours later, he had the asst manager personally hand deliver a new pair of trousers altered to the right length to our house!

We've had many such experiences after our move back, that the front-list customer support is just shocking, but  have had much better success with the next tier up. This is a good sign that there are people in the ranks that get that good service = happy customers = good business. I think it's a matter of time before it trickles down in the ranks.

Our philosophy - don't let go, make sure you report a bad experience, as all's well that ends well.

Saturday, December 3, 2011

Matchmaking 3.0 has arrived

A friend of mine (Siddarth) proposed the idea that a bunch of us entrepreneurs/founders get together last evening. He's the CEO of a an upcoming startup called FLOH. Apart from being a great evening and meeting a bunch of cool people with similar DNA - the concept of FLOH intrigued me!

Now those of you who know me, know that I met my wife on Shaadi.com - oddly neither one of us imagined at one point, meeting our spouses on a website. But it worked... this was matchmaking 2.0 in action! Now for those who have given this a shot - know this can be like searching for a needle in a haystack. The experience can be far from enjoyable and can have you give up on this. What might have been cool was bringing in a touch of personalization (say through FB integration). Ex: See if and how you're socially connected to potential matches.

What intrigued me about FLOH, was the concept that this was a curated "singles in the city" event network.
  • Barrier to entry is a referral by another member. This filters members ensuring a high probability of gelling with the group.
  • The events are well organized and are not ordinary run of the mill events
  • Membership is limited and in high demand, making this more of a must-have.
With a sea of singles in a city as vast as Bangalore, FLOH fits in perfectly for those of you looking to find your next match.

Friday, December 2, 2011

Perfect your signature!

One amusing fact is the number of signatures are required to get anything done in India. I recently opened up a life insurance in my daughter's name (not even mine), and I had to sign 12 times. Opening up a brokerage account required close to 40 signatures! If you submit a copy of any document (like your passport), you have to 'self attest' before it is accepted. Nothing moves without your signature. I think a large part of this is due to the prevalent fraud present in the system - so I don't blame the obsession with signatures required for paperwork. In the US - I hardly signed anywhere. Opening a bank account required 2 signatures. Moreover if I was physically present -- you show your ID and you're authenticated. In India - your signature has to match or your screwed.

I recently had an interesting experience with my stock brokerage. I have a modest stock portfolio and abiding by my principle of 'avoiding the DIY syndrome', I decided to have this managed by a financial adviser. The process is simple. You have your shares sitting in your demat account. You have to transfer them over to another demat account accessible by your adviser. To do that you have a shared transfer slip you have to fill out and sign (just like a check).

After this was submitted by my accountant, I got the dreaded call that my signature didn't match. I asked if I could answer some secret question to prove it was indeed me that authorized this transfer - but she would have none of that. Resignedly I made the drive towards the city the next day with my proof of ID. The manager there refused to look at my ID or listen to any argument about proving my identify, but insisted that I had to sign exactly the same way that's in his system. I literally ended up signing (in different ways) 20 times on a piece of paper after which he went back inside, cross-checked with his system and came back to tell me which one matched. I carefully signed like the matching signature - and boom everything was golden!

You aren't who you say you are until your signature matches. So, a bit of advice ... perfect your signature!