January 24, 2019

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A panel on startups and regulations welcomed Bradley Tusk and John Burfield, among others.
A panel on startups and regulations welcomed Bradley Tusk and John Burfield, among others.
Startups need to do their homework regarding the power structures of their regulated markets.

 

That’s what entrepreneurs of all ages and levels of experience heard when they converged on Columbia University’s Italian Academy for a discussion of “Regulators, Rent Seekers, and Revolutionaries: What Every Startup Needs to Know About Regulated Markets.”

The January 10 event, sponsored by Columbia Entrepreneurship, Innovation, and Design, featured as panelists the entrepreneurs Evan Burfield, author of Regulatory Hacking, Bradley Tusk, author of The Fixer, alongside Steve Blank, Columbia Senior Fellow for Entrepreneurship. Eric Schurenberg, CEO of Manseuto Ventures, served as moderator; SIPA’s Sarah Holloway, who directs the School’s Management specialization and its Global Ed Tech Entrepreneurship Program, introduced the participants.

Braving a frigid evening, visitors made their way up a grand marble staircase to the building’s second floor, where the panelists assembled on an elevated stage under an elaborate carved ceiling.

Considering the challenges that startups face when they attempt to enter regulated markets, Burfield — who co-founded the Washington, D.C., startup incubator 1776 — observed that the  “low-hanging fruit has been plucked.”

As startups set their sights on more heavily regulated markets like health care and defense, he explained, they will encounter different and often more complicated terrain, where violating the rules will bring more than “a slap on the wrist.”

“It could mean getting debarred from market and possibly jail,” Burfield said.

To navigate these new challenges, startups will have to pay closer attention to politics and politicians.

“The process of customer development is understanding the whole view of how power impacts your customers, regulators, and people who may prevent you from entering the market,” Burfield added.

Tusk, a political strategist and investor whose firm, Tusk Holdings, deals specifically with political obstacles for startups, recommends that startups try to anticipate regulatory obstacles and bring on the right expertise to deal with it sooner rather than later.

Tusk, who also managed NYC Mayor Michael Bloomberg’s successful 2009 reelection campaign, cited Uber’s campaign to enter New York City as an example of how understanding the politics of different stakeholders is vital for success.

When New York’s city council considered an anti-ridesharing bill that was supported by taxi medallion owners, Uber focused on the taxi industry’s history of racism in the city in making its case.

All of our drivers were immigrants and low-income,” Tusk said. “We ran a campaign of real passengers and real drivers. It is racist and discriminatory to crack down on ridesharing.”

“Fighting entrenched interests like the taxi industry can get pretty ugly pretty fast,” he added.

Burfield observed that some entrepreneurs learned the wrong lesson from Uber’s success.

“Sometimes you have to fight, but an awful lot of problems can be solved by understanding how to have the right conversation in the right way,” he said. “Figure out how to not fight.”

Burfield suggested that startups often think they can throw money at political problems and depend on their customer base to rise up in their defense. But one of the issues that AirBnB faced in trying to establish itself in different regulated markets is that is that their guests are usually not registered voters in those areas.

Tusk agreed: “Customers rising up only really works if people are super motivated and local voters.”

Facebook’s original sin, Tusk added, was thinking it could control everything on its platform. Instead of dealing with regulators head on, they decided to try to self-regulate. That failed and Facebook scrambled to coverup its shortcomings.

“The coverup is always worse than the crime,” said Tusk.

One of Tusk’s final comments summed up the thrust of the discussion pretty well.

“Figure out who’s in charge, innovations, laws, regulations, penalties,” he said. “Look at all of it and decide—here’s where we fight, here’s where we go in the front door and ask permission.”

Claire Teitelman MPA ’19