Thursday, April 27, 2017

Setting up the Business - The Challenges Thus Far

As I go through the process of starting my own online business I am discovering some interesting, odd, and frustrating things along the way. It seems there'a a lot of confusion as to how to fit all the pieces of the puzzle together in a way that is both economically realistic, and legally valid. In fact, those two are at such odds it almost feels at times like it's impossible to do both.

I'll provide a few examples.

1. COPPA. As some of you know I've run up against the COPPA laws earlier and paid a fortune to my lawyer to resolve the question. It was incredibly expensive to finally get an answer. So it was NOT cost effective at all to go through all of that. And even when all was said and done, I'm still potentially vulnerable to accusations of COPPA non-compliance, though at least now I have a reasonably well founded way of arguing my case in court, should it come up. The tricks involve not allowing anyone under 13 on my site (legally - ie - the terms of service prohibit it), and to also not collect any personally identifiable information (which may hobble my marketing efforts, but what the hell - I'd rather be a little hobbled than in jeapardy of the Government's $60,000 - $360,000 dollar fines ( The odd part about this one is that I notice many popular websites in the RPG community are completely ignoring this threat. Ok. Good luck. It may turn out that the Government is a gigantic paper tiger and just tries to scare everyone into giving them money but in fact never actually gets around to dealing with companies that scoff at their laws. Could well be. No idea. But apparently that is the gamble many of our RPG online services are gambling on. Ok. Best wishes.

2. DMCA. You need to have this protection if you have a website where people can upload or create content. It protects you from copyright infringement by your users. Another legal barrier, but at least with this one I was able to figure out a way to make it not-soul-crushingly expensive to deal with. In this case the standard procedure is that you get a DMCA Agent to handle DMCA requests and pass them along to you with a tad bit of advice. Typically however, DMCA Agents are lawyers who charge you their standard legal fee for handling incoming requests. That might run somewhere between $100 - 400 per DMCA request. The problem, actually, however comes from the fact that they will charge you that standard rate for processing anything that comes into their office via whatever means it has been sent. Since the law has it that you must put in your Terms of Service your valid DMCA Agent contact information, which includes an email address, phone number and physical address (PO Box not allowed - it must be a valid street address), what do you suppose happens when spammers get a hold of that information? They spam away, of course. And guess what? The DMCA Agent will very happily go on to charge you for their time in weeding out spam from legitimate DMCA correspondence. Funny that. The solution? Get a Street Address box from UPS for $350 / year (roughly) and handle the DMCA take down requests yourself. Yes it's a cost. But it sure as hell beats the $2500 setup fee that the DMCA Agent wants to charge, and then the ongoing fees for processing the copious amount of spam that is likely to start coming your way after the spammers get to your Terms of Service.

3. Subscription Service State Tax. It used to be that websites were exempt from sales tax, and no states charged a tax on services run via the internet. That was great for early startups. Now? Oh noooo. Now everyone has to pay the State Taxes wherever the individual States have determined that they charge for Internet Subscription Services (Software as an Service aka SaaS). A lot of States don't, but a lot do. And not only that, but they may charge different rates based on the exact street address of the customer. So two guys living next door to each other may wind up paying a different sales tax rate on your subscription service. And you have to account for it, and pay those States the correct tax per customer. Yay. Fun stuff. So how are you expected to do that? Well I'm trying to work that one out now, but it's a bear. So far I have it that if you sell PDFs through DriveThruRPG or IPR then you're covered because they are responsible for handling the tax.

But what if you are running a subscription service that does GMing functions, like Roll20, or CityOfBrass? Well, then you're pretty much SOL so far as State Tax requirements are concerned. You have to pay them, or you risk running up against the IRS. And who really wants that to happen? Well, apparently some of the existing companies running SaaS services for the RPG community don't actually give a fig about it, because it seems that they're not charging any taxes on their subscription services. Or at least if they are they are giving no indication of doing so - and I think that if they are, then they actually do need to be indicating that they are doing so on the subscription payment page. Maybe they are. But I see no indication of it so far. At any rate, what's the solution look like? It's hard. As far as I can tell what you can't do is use PayPal for subscription services because their method of maintaining the tax information is not only completely manual, but also limited to entering one tax percent per State, which isn't what is required. Too limited, and so you may still run up against the IRS if you take that route. So that's not an answer. An alternative is to use a service like ChargeBee, which does payment services, and integrate that with another service named Avalara, which handles State Tax rates. The two of them combined ought to provide you with a means by which you can handle State Taxes automatically, without having to get your hands dirty with a manual process. However, setting that up seems to be a bit complicated. At least I'm unclear as to the process at this point. Maybe it's easy in the end. But I'm doing a lot of research in advance to try to figure this out, and so that's chewing up a lot of my time. In the end, the solution may turn out to be really easy and not too expensive. But I'm not there yet. So I don't know. I can hope, though, right? And don't even get me started on the EU VAT. My solution to that is simple: I'm not offering my service outside of the USA.  Period.  Tooooooo complicated.

Anyway, these are some of the business-end issues that have been consuming my time and resources while I try to establish the Mythos Machine as a going concern. The fact is, though, I have zero indication that the product I'm trying to develop will be accepted in the Market. I do know I've put in a huge amount of work on it, and I also know that I personally happen to really enjoy what I created and find it very useful for my games. But that doesn't mean anyone else will, right? So time will tell. And in the meantime, I'm committing myself to an enormously time consuming and expensive effort to get it out there. It may be a huge mistake. Probably is, frankly. The market is fickle, and competition is fierce. And in fact, the expense of doing so is just high enough that it may turn out that I can't afford to run the operation unless a sufficient number of people decide it's worth contributing money to. Thus far, no one other than my mom and my girlfriend have contributed a dime. Which is fine. It's my gamble to make. The point of my mentioning it at all is just to record what the process has been, and where my decision making has come down. I want to try to give the Mythos Machine the best shot possible, to find out if there's a market for it or not.

There's a good chance that what I created over the past 20 years (I started working on project this in 1997) will find a niche market of fans who think it's great. And if I have enough support from them then I think I can keep the project afloat financially. I hope so.

Anyway, that's where it's at. It's been a vastly interesting amazing even, learning process. I'm expecting to have all the pieces in place reasonably soon. The last piece being the Subscription Tax issue, which I'm still working on. What's gnawing at me is that I see other sites comparable to mine appear to have completely ignored the question. I find that puzzling as can be. Can you really afford to just ignore this stuff? ... I guess in the view of those who are doing it the answer is "Sure. Ignore it." but I feel that somehow this is probably such a terrible choice in the long run that I'm pretty sure I won't go that way. After all, I'm not in this to grab everyone's money real-fast and then run off to my underground Luxury-Fortress. I'm in this to provide a long term solution that helps gamesmasters create their own wondrous worlds and support them for decades and eons to come. So I'm thinking I need to set this up right, and not risk the business just because setting it up the right way was, well, kinda hard, and pretty expensive and took a long time.

And that's it for my report. I will post again on the solution for the SaaS State Taxes when I've worked that piece out.

Best wishes fellow Entrepreneurs! It's a hell of a ride, but the rewards are great if you can work it all out!  And remember... it's always darkest before the dawn!

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