Time was, when you were starting a business, the skillset of your founding executive team amounted to who could build your product and who could sell it.
Times have changed, and not necessarily for the better.
Uber's hiring of former Democrat political operative David Plouffe to run its lobbying and regulation operations emphasizes what many startups need to contend with nowadays: The conflict between innovation and regulation is only getting worse, and the way to deal with it is to understand you have to fight City Hall from your inception.
Spending money to hire a Plouffe-type is essential. As a CEO, you can steer the ship, and you likely get great advice from whomever manages marketing, technology and finance. But lobbyists are now a must-have from the dawn of your product's commercialization. It can save you time and trouble later, when you realize that the legal and regulatory structure always exacts its pound of flesh.
It's a change in mindset for most entrepreneurs, who have always thought that good ideas and a willing customer base can power through red tape. Hell, most are creating products and services designed to eliminate red tape. But history is full of examples where companies found that their tin ear to the government's priorities led to some hefty sanctions and billable hours.
The most obivous example is Microsoft, which didn't even have an office in Washington, D.C., when it found itself waist deep in an antitrust fight with federal regulators over its Internet Explorer browser in the late 1990s. That was among the largest monopoly cases in history, and Microsoft narrowly avoided being split into different companies as a result. In the end, the fight with the government led Microsoft to seeing its share of the browser market decimated.
More recently, the standard bearers of the sharing economy have found themselves in bruising battles on the federal, state and local levels. Uber seems to fight with taxi commissions in every city it enters. It isn't alone. Uber competitor Lyft had its launch in New York City marred by regulatory issues. Lyft, which has a peer-to-peer car-sharing model, found out after its New York launch was announced that laws there prohibit its service. So it had to comply by using only licensed taxi and limo drivers, turning its service into an also-ran to Uber and just another competitor to the massive yellow (and now lime green) taxi fleet of the Big Apple. It also meant that Lyft, with a scarcity of legal drivers, couldn't deliver on its service promises at the time of its launch.
Airbnb, the house-sharing company, has also faced regulatory battles. Even in an innovation cradle like San Francisco, Airbnb has been attacked for going around laws meant to regulate hotel and hospitality businesses. Policymakers on the state and local levels across the nation are fretting that Airbnb is flouting zoning laws and -- heaven forfend! -- not paying special taxes levied on leisure.
And larger businesses aren't alone. Earlier this year, 11-year-old Chloe Stirling had her homebased cupcake business shut down by regulators because she used her mother's kitchen. It took a change in Illinois law to get the young lady to be able to sell cupcakes again.
Regulations, of course, have always been on the books, and some are necessary for consumer protection. But the current trends are worrisome for those entrepreneurs who want to innovate and solve problems in people's lives. First, the number of regulations has risen during the Obama administration. In fact, the number of regulations issued by the executive branch is out of step with the number of laws passed by Congress. The Competitive Enterprise Institute points out there were 72 new laws but 3,659 new rules in 2013. That means there were 51 rules for every law.
The costs of regulation are staggering. The CEI estimates those costs at $1.9 trillion for last year. Naturally, that hurts smaller businesses most, when measured by employee count. Companies with fewer than 20 employees pay an average of $10,585 per worker, compared to $7,755 for those with 500 or more employees.
Then, there is the problem with the changing nature of regulations. Regulations were traditionally based on the safety and protection of consumers, against what was perceived to be the ill will of greedy corporations. But, look at what Uber, Lyft and Airbnb are facing: Regulators are acting to protect the interests of incumbent industries whose business models are threatened by these upstarts. Large businesses, like the hotel and taxi lobbies, are demanding that regulators help defend them against this free-market, competitive onslaught. It is the Goliaths pleading for help againsts the Davids, and it isn't kosher.
These industries are engaged in rent seeking at a scale unseen in recent times, spending heavily on lobbying so the government uses a public cudgel to protect a private enterprise's existing turf.
Of course, Uber hiring Plouffe is just a move that could lead to further rent-seeking. Having a high-powered lobbyist is great to beat back the regulators when they are acting to shut you out of business. But it isn't an intellectual leap to fret that Plouffe's work somehow morphs down the line to keep Uber's smaller rivals out of markets -- or even out of business. It is easy to forget the principles of what made us scrappy and innovative once we sit on top of the world.
Still, for other startups, navigating the regulatory swamp from the beginning is a necessary evil. That means moving beyond just your general counsel to get legal advice from people more skilled at slaying the minotaurs in the corners of the regulatory labyrinth. That means taking advantage of the revolving door between the public and private sectors by hiring politicians to campaign for your own interests instead of their own. (After all, as Reagan said: "The best minds are not in government. If any were, business would hire them away.")
So, sad as its sounds, a government sherpa has become the must-have accessory this season for any startup or emerging business trying to disrupt and innovate. That won't change without a significant change in laws. And, chances are, the regulations required to carry out the reform would be too burdensome anyway.
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