Newly launched companies - especially those with groundbreaking ideas - are always prone to facing regulatory challenges. Larger ones can usually afford to hire lobbyists, but how can startups deal with situations like these?
Our friends at the Urban Innovation Fund recently hosted an interesting webinar with two experts in the matter, Molly Turner and Samantha Roxas, where they covered a wide range of situations startups can face in the regulatory side of things.
Public affairs & regulatory approaches
Over the past decade we’ve witnessed the rise of startups that have the potential to disrupt entire industries. From Airbnb to Uber, many would argue that this disruption wouldn’t have occurred at all if the companies had requested and obtained government permission to operate in the first place. That being said, not all startups choose the same path, and some do prefer to work with experts in public policy and regulatory affairs from the start.
Public affairs teams usually handle government/community relations, as well as PR on some occasions, but they do not provide the legal advice in terms of government/city regulations that companies often need, which is exactly where the regulatory experts come in. These teams may consist of one or several people, depending on the size of the company.
One of the examples mentioned during the talk is that of Airbnb, which initially chose to form a team of mainly lobbyists and one regulations specialist. As the company grew, this team became larger and other similar teams started to form in the different geographies where the company operates nowadays.
Just as every company is different, so is the approach they use. Another interesting case in that regard is WeWork, which regionalized their regulatory team pretty much from the start due to the nature of their business being asset-based. One of the company’s missions was to create communities of passionate entrepreneurs, which also made it easier for them to sell their business model to city governments.
Offensive vs Defensive work
These teams often have to be on the defensive side of things, as it takes a lot of work to build a company’s reputation and as little as one mistake to destroy it. The goal is to try to be as proactive as possible, although sometimes the company’s own policy can prevent it from being proactive in the first place. Uber and Lyft, for example, chose which markets to launch in, whereas Airbnb’s hosts and renters could access the website before it was even available in their own local markets. This means they didn’t necessarily have the opportunity to decide if/when they were going to build their business in those locations, so in turn they didn’t have the option to ask for permission to start operating there either.
Early-stage startups don’t always have the resources to build a proper policy/government relations team that can handle all these issues specifically, but they should at least invest in specialized lawyers to obtain this much needed advice. At the very beginning they need to understand the regulatory issues of the places they want to start operating in, and define their strategy accordingly.
When does it make sense to talk to a lobbyist vs hiring an advisor?
It depends on the stage the company’s at, and whether they have the resources to proceed. When it comes to heavily regulated environments, and especially if regulations are a threat to your business or if you could count on the government as a potential client, it is always best to have an advisor that can help you navigate these inherent difficulties.
Lobbyists, on the other hand, are useful to tackle specific needs in specific jurisdictions. They’re an expensive resource, so someone within the company should always be available to walk them through and provide all the necessary resources they’ll need to do a successful job.
It’s also possible to hire full-time employees to do both but, again, this will depend on how mature and well-funded the company is. There is a big spectrum to choose from in terms of quality.
Common mistakes startups make
There are a variety of challenges startups can come across, but the biggest one is probably not doing enough research about the city they plan to operate in. It’s very important to understand the main issues the city cares about, and whether the company’s product/solution is doing anything - whether positive or negative - in that regard. It’s possible they’ll just fly under the radar, but things can get complicated very fast otherwise.
Penetrating the right levels of government is also of utmost importance as well. Perhaps a startup reached the top levels of government (eg: the mayor), but the people below, the ones that are actually doing the work, may not be acquainted with them and this can lead to difficulties along the way.
Overall, it can be very challenging to navigate regulatory issues but, if these aren't addressed from the start, they can eventually become a very difficult (and expensive) thing for a company to tackle. A lot of companies are born with a mission to change the world, but only the ones prepared to handle challenges on every level will succeed.