A Valven, a Dream, and a Broken Foot
Strategically positioned where Lake Malaren gives up its fresh water to the Baltic Sea, Gamla Stan is just one of thousands of tiny islands in Sweden’s archipelago. But that’s where the commonality ends.
Gamla Stan, which means, “Old Town,” is where Sweden’s historic capital city, Stockholm, came to be in 1252. Today it holds many of the rich treasures and fascinating stories of this important Scandinavian country’s history, like the royal castle, the Nobel museum, and a square where a hundred-odd noblemen were assassinated by King Christian II of Denmark in the Stockholm Bloodbath of 1520.
The Valven
Our story is set in the basement of one of the beautiful multi-story buildings in the heart of Gamla Stan. Built in 1535, the property first rose to prominence as the home of Count von der Linden, in the 1630s.
To be more accurate, this “basement” is actually what the Swedes call a valven, which means, “vaulted space.” And the one in this building is the last remaining true medieval treasure wells in Gamla Stan.
This space has been many things over the centuries: from the important -- a wine cellar for nobility, including one of Sweden’s most famous monarchs, Queen Kristina; to the ignoble -- a damp storage space, and an early 20th century milk bar, which was a kind of corner store.
More recently this valven had fallen on hard times, until Petra broke her foot.
The Dream And The Foot
For over 10 years, Petra Karlsson waited tables at the finest restaurants in the city. During this tenure, Petra (yes, Petra is usually a guys name -- turns out her parents wanted a boy), dreamed of one day owning one of Stockholm’s finest restaurants. In time, two of her friends and sometimes co-workers, Mia Sundbert and Patrik Lange, joined Petra as dreaming partners.
One of the universal markers of entrepreneurialism is how often it begins as a result of adversity. In this case, Petra broke her foot when she walked into a piece of furniture. Out of work for several weeks, she had time to contemplate pulling this restaurant thing together.
If you’re going to have the finest eating establishment in a city known internationally for its eating establishments, you must have location, a little history doesn’t hurt, and of course, exquisite food and the best service. The last two Petra knew she and her partners could handle. The first two would take a little work.
So, first on the list of things to do was find a building. It had to be the right building, and it had to be in Gamla Stan. So when Petra and her pals saw the domed ceiling of the historic treasure well of Count von der Linden’s old home, they were hooked.
The Dream Comes True
Starting a small business in Sweden is much like other places on planet Earth -- once you’ve got a plan, you need some money. And for most of us, including Petra, Mia, and Patrik, this means going to the bank. The good news is the bank said yes, but -- and this will sound familiar -- only if they all endorsed the debt personally, plus put up as collateral Petra’s apartment, Mia’s summer home, and Patrik’s parent’s house.
Banks. If there were one word that meant both a curse and a blessing on you, it would be used most often in references to banks.
Our little partnership’s restaurant would have been ready to open in the spring of 2002, but that’s when the Swedish government got involved. It took 16 weeks to get the government paperwork approved. Sound familiar? So by the time the Van der Lindeska Valvet restaurant opened in August, they had missed the summer tourist season. (In Swedish, valven is plural and valvet is singular.)
Only a few hundred miles from the Arctic Circle, Stockholm winters are not friendly to small businesses. Fixed costs march on but customers diminish when daylight hours drop to only a handful a day. And just when business had started picking up in 2003, there was a war -- the one in Iraq -- which cut short a promising spring momentum.
Basking in the rush of Sweden’s midsummer, the happiest and most prosperous time of the year in Scandinavia, the Van der Lindeska Valvet restaurant was enjoying a thriving business as Petra shared their story. But her brow furrowed as she was asked to talk about the challenges of sustaining success in the country that is known as having the highest taxes on the planet.
Is Van der Lindeska Valvet profitable? Not yet. Petra says perhaps by the fifth year, which will coincide with when the partners plan to be known as one of the top restaurants in Stockholm.
Why the long road to profitability? Well, rent isn’t cheap in Gamla Stan. And the best service requires the best staff. Also, food at the Van der Lindeska Valvet is prepared only from the finest ingredients. These expenses are comparable to those in Manhattan in New York City, the French Quarter in New Orleans, or Georgetown in Washington, DC. But customers expect to pay more for goods and services in the place to be in a city. And a well-run business should be able to pass along high fixed costs in their pricing. So where’s the rub? Taxes.
Big Government vs. Entrepreneurs
Another Swedish small business owner, Thomas Stenberg, who reps for a U.S. technology company in Scandinavia, says in Sweden, if you make less than $3,000 a month, your personal income tax rate is 30%. Once you exceed that monthly income, the rate jumps to fifty-two percent!!
In the United States, payroll taxes, the ones that provide our social net like Social Security and Medicare, is 15.3%, which is split down the middle between employer and employee. Of course, if you’re self-employed, you pay it all. But in Sweden, that number is 32%, and the employer pays it all. And to add insult to injury, the amount contributed by the employer is not even allowed to be recognized on the employee’s pay stub.
It gets worse. Americans know about sales tax, which is usually in the single digits. In Sweden they have a Value Added Tax, or VAT, which Thomas says ranges from 12% to 25%, but most things are taxed at the high end. Petra says she pays 25% VAT for her food ingredients, and collects 21% from her customers.
When Petra’s legal entity becomes profitable, Thomas says those profits will be subject to a business income tax of 32%. And if you drive a company vehicle, there is a tax on that perquisite, and an additional one if it’s a luxury car, like the Mercedes Thomas drives.
Warning! Editorial Territory
This brief tax tour is by no means comprehensive. Admittedly, only the high spots were listed for dramatic effect. And it wouldn’t be fair to list the taxes without mentioning the return on this investment. The virtual cradle-to-grave social system in Sweden includes education for all through college, a single payer universal healthcare system, and the infrastructure is well-developed and maintained. Clearly, Sweden’s extreme socialistic policies require extreme funding.
But taxes and regulations are the enemy of entrepreneurs, and those I talked with were fed up with the high tax base. Universal healthcare in Sweden means waiting 8 hours in the emergency room to get a cut finger stitched, and three months to see a doctor for a check-up. Petra reported that crime went up recently in Stockholm when the government decided to quit funding an asylum, which resulted in the release of several thousand mentally ill patients into the streets.
International research has shown that there is a direct connection between the level of new-business start-ups and a country’s economic health. Both Petra and Thomas will testify that the high tax base in Sweden does not encourage their risk-taking. With this level of overbearing tax burden, how competitive can Sweden be in the entrepreneurial 21st century?
Back to The Dream
All three Van der Lindeska Valvet partners work a shift in the operation of the restaurant, including waiting tables. Plus Mia does paperwork and Petra is in charge of marketing. What was the biggest surprise? Having to do PR to get customers. What’s the most frightening part of ownership? Being open on long winter nights with no customers.
Petra was asked, if the government lowered her taxes, would she give herself a raise or invest the money in the business. Without even a moment’s hesitation she answered the way 99% of all entrepreneurs would answer, “I’d invest it in my business.”
After a year and a half, knowing what she knows now, would she do it again? Again, without hesitation, Petra said, “Absolutely. It’s better to work for yourself.”
Write this on a rock... Entrepreneurs are emerging around the world in the 21st century. Governments would do well to get out of their way and help them flourish.
Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
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