Fighting regulation and winning

April 6, 2013 · 3 min read

Regulation is often the enemy of the entrepreneur. It can be used by incumbents as a weapon to protect themselves from new competitors, or it can prevent consumers from taking prudent risks on new products and services. Which is why I’m fascinated by stories of entrepreneurs fighting regulation and winning.

I’ve been collecting these stories. Here are a few just as instruction or inspiration for any entrepreneur faced with a regulatory battle:

Most recent was a WSJ profile of Travis Kalanick’s and Uber’s struggles against local transportation agencies. When Uber moves into a city, the local government and incumbent competitors often claim that Uber is violating rules—or try to get the rules changed to shut them out, in some cases explicitly on anti-competitive grounds. Uber responds by rallying public opinion and, most importantly, by not backing down:

Last year came the clash with regulators in the city where they order red tape by the truckload: Washington, D.C. A month after Uber launched there, the D.C. taxi commissioner asserted in a public forum that Uber was violating the law.

This time Uber was ready with what it called Operation Rolling Thunder. The company put out a news release, alerted Uber customers by email and created a Twitter hashtag #UberDCLove. The result: Supporters sent 50,000 emails and 37,000 tweets.… The taxi commission complained that the company was charging based on time and distance, Mr. Kalanick says. “It’s like saying a hotel can’t charge by the night. But there is a law on the books, black and white, that a sedan, a six-passenger-or-under, for-hire vehicle can charge based on time and distance.”

In July, the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”

What Uber is facing—incumbents trying to protect their business by wielding the club of regulation—is the same thing Nextel faced over 20 years ago. Chris Dixon tells the story:

In the late 80s and early 90s, the FCC’s rules banned more than two cellular operators per city. As Nextel’s cofounder said, “the FCC thought a wireless duopoly was the perfect market structure”. Nextel (called Fleet Call at the time) circumvented these rules by acquiring local (e.g. taxi, pizza truck) dispatch radio companies, which they then connected to create a nationwide (non-dispatch) cell phone service.… Predictably, the cellular incumbents tried to regulate Nextel out of existence.

In this case, the FCC had the power to kill Nextel, but decided not to. Nextel took a chance, and won.

Sometimes, though, striding forward and hoping the powers that be rule in your favor is too great a risk to take. In that case, there’s only one thing to do: Get the law changed first. That’s what Naval Ravikant did with the JOBS Act:

With an army of lobbyists and industry leaders at his side, Ravikant set out to convince lawmakers that the JOBS Act, which eases securities laws, would encourage more small business investment. Any one who’s seen a debate or political speech over the past four years knows that “building small businesses” is golden rhetoric for politicians on both sides of the aisle. But even amid this climate, it wasn’t easy.

“People told us that it was impossible – and it actually basically is impossible,” Ravikant said. “We just pulled out all the stops.”

By pulling out the stops, that means encouraging entrepreneurs and investors to call their Congressmen to communicate the importance of the legislation. “We basically showed (lawmakers) how in every state and in almost every major city, we had a bunch of investors and a bunch of startups that were willing to stand up for what we were doing.”

Any startup facing an existential threat from regulation should remember these stories. The laws of the land are not laws of physics: they can be changed. Deliver a clearly better product or service, rally public opinion, argue your case—and follow this advice from Kalanick:

“Stand by your principles and be comfortable with confrontation. So few people are, so when the people with the red tape come, it becomes a negotiation.”

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Thanks to David Crawford, Keith Schacht, and Blake Scholl for commenting on a draft of this post.