The four public policy questions every startup should ask–but isn’t

Eric Tanenblatt, leader of the Public Policy and Regulation practice, Dentons

Eric Tanenblatt

By Eric Tanenblatt

Ed. Note: This column originally ran in Tech Crunch.

Quietly incubating in dusty, ramen-scented apartments and college dormitories all across the country, the brainchild of some sleep-deprived twenty-something will revolutionize our lives in ways that today seem wholly unimaginable: how we hail on-demand services, how we communicate and interact with one another, how we work, how we play, and even how we sleep.

Almost everyone you encounter these days is nursing aspirations they might develop the “next Uber“–even my own college-aged son, who developed an app designed to take commuters off thoroughfares during peak hours and instead direct motorists to nearby businesses and volunteer opportunities.

Now, most of these apps will fail, but a select few will fundamentally reorder the way we live.

These inventors, whose focus is naturally consumed with the 1’s and 0’s and the dollars and cents of their applications, may not yet realize their eventual impact–or, for that matter, those entrenched businesses they’ll anger.

When Amazon.com launched in the summer of 1996 with a lifeline investment from the parents of founder Jeff Bezos, the then-longshot retailer sold only one thing (books)–from a garage, no less. Today, the company has grown into the world’s single largest online retailer with product offerings in everything from technology to groceries.

The company is ubiquitous now. But even the most grandiose of dreamers couldn’t have imagined that Amazon’s annual revenue would have exceeded more than half of the world’s gross domestic product by 2011.

When it launched, Amazon never anticipated that it would develop to pose such a transcendent threat to traditional brick-and-mortar retailers. But they did. And the threat they presented was so profound that big box retailers confederated en masse to lobby municipal, state, and federal governments to make digital retailers levy local and state sales taxes just the same as conventional merchants.

As a necessary function of a product launch, startups are myopic–they’re frenzied, they’re broke, and they’re not remotely cognizant of the serious public policy hurdles to which they’re racing. That’s the problem.

When the home-sharing platform Airbnb hit the on-demand economy in 2008, they failed to anticipate and divert the ferocious lobbying response of hoteliers, just as ride-sharer Uber did with taxi cab commissions across the country.

Of course, both companies got savvy fast and managed the reaction by incumbent interests and aligned lawmakers and regulators. But what might have happened had they developed policy mitigation strategies from the outset?

Here, the four public policy questions that every startup should ask from day one–but aren’t:

What are the existing statutes, licensure requirement, and taxes in my app’s industry?

In telemedicine, there are scope of practice laws; in ride-sharing, there’s driver security checks and liability coverage requirements; in home-sharing, there’s hotel taxes. In each case, these liabilities crept up late-term to stunt growth.

The disruption economy’s most successful actors often operate in highly regulated spaces that have seen little or no innovation in decades–health care and medicine, transportation, banking and lending. That’s precisely why these startups have become so successful  so quickly, but that’s also why it’s imperative that they recognize the threat of operating in regulatory darkness.

Whose bottom lines do you stand to threaten–short- and long-term?

No legacy business system or industry is immune to disruption in 2016: everyone and everything is in jeopardy of being supplanted.

It’s important that startups audit not only those businesses whose bottoms lines they will immediately threaten (pending market penetration), but also those they may grow to threaten. Why? These are entrenched organizations that have strategically cultivated tremendous political capital (read: they make steep political and charitable contributions) that have predisposed regulators and lawmakers. Favors will be called in–and that favor will be to smother the threat in red tape.

What’s the political environment–regulators, lawmakers,  third-party shareholders?

Does the nature of your business, or the personal reputations of those involved, dispose the political class and outside influencers to affect hostility or warmth? Are you disrupting an industry (optometrists, nurses, labor unions, trial attorneys) that’s explicitly protected by the political class? Which lawmakers and local political officials have regulatory oversight over your industry–and has the industry you’re disrupting been an active political contributor?

What’s the incumbent industry’s reputation in press–national, local, and niche?

Is the incumbent industry you mean to disrupt well-received in the press, like nurses, or something decidedly short of that, like cab drivers?

If you’re legitimately disrupting an industry, there’s a reason: they’re doing something poorly and you can do it better. But in many cases, the public doesn’t recognize that an incumbent industry could be serving them better. By strategically leveraging the press to influence public perception, you indirectly influence regulatory rule-making and legislative decisions.

Eric Tanenblatt leads the public policy practice at the global law firm Dentons. He previously served in the Administrations of President George H.W. Bush and President George W. Bush, as chief of staff to Governor Sonny Perdue (R-GA), and as a senior advisor to late U.S. Senator Paul Coverdell (R-GA). He has been actively involved in the tech community and is a strong proponent of initiatives that promote innovation.

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