The Sharing Economy Approach to Regulation

In Farhad Manjoo’s and Mike Isaac’s weekly roundup, Farhad asks: “It would be nice if tech companies asked permission first, worked with regulators to cut through all the red tape, and only then started operating in an area. But does anyone really think that would work?”

I strongly believe this could work – but not for venture-backed tech firms the way they’re built now. First, companies aren’t built to have any kind of knowledge or assets in the public policy and regulatory space. And it’s obvious why – startups are focused on building products for customers, not navigating the regulatory environment. To work with regulators early on means not only hiring public policy/regulatory affairs staff to help gain trust across several markets, but also having them present in the feedback loop in product development. Second, venture-backed companies – particularly SaaS and sharing economy companies – simply must move faster than most other companies. They rely on rolling out products quickly, gaining insight through feedback, and iterating. In an environment where burn rates compound the value of time, any delay causes both the product and company to lose significant value. Add that to the pressure to meet aggressive quarterly revenue targets in order to raise that next round at a higher valuation, and the idea to build capacity to work with regulators (and then go through the process) is extremely unappealing.

Farhad argues that the issue is the regulators being beholden to incumbents, averse to bold new ideas, etc. The latter may be true for some regulators (though in cities, regulators typically report up to the Mayor/City Manager). But it’s not necessarily true for legislators, where much of the sharing economy work is done. Putting Congress and national politics aside, legislators are typically in search of new ideas where they can communicate value to residents, particularly when they see that their residents overwhelming support these ideas. But most companies don’t start communicating until they run afoul of the law, and someone more trusted than a new startup (perhaps a taxi coalition) starts complaining to legislators. The issue cuts both ways – it’s not just regulators, it’s startups. It’s why established industries such as financial institutions can get CISA passed so easily, and why startups struggle – they haven’t built up the capacity, the relationships, and the trust across dozens of distinct geographic markets.

So what can startups do? They can invest in public policy/regulatory affairs a little earlier – it’s not a huge investment, to help communicate with regulators and legislators. Or perhaps like-minded VCs and growth startups can take a page from the more established industries’ playbook. They could pool resources to start a sharing economy interest group, establishing relationships with city council members, regulatory bodies, and other stakeholders across geographic markets, so that the communication and education process for government stakeholders is continuous and proactive rather than a step-function and reactive. Many share common issues (employee classification, transportation rules, etc.), but even if they didn’t, they share similar values – it’s the trust, the sharing of knowledge, and the ability to quickly and effectively organize that would aid greatly. It would certainly cut down costs for each company, and would make the path forward for new emerging technology companies much, much easier.

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