Break Rules, Not Laws
The other day, I was chatting about product development with the Vice Chairman of a large bank. At one point, after I had proposed a few semi-radical suggestions, he paused, sighed deeply, and said, “Gokul, these are great ideas and I wish we could implement them. We just have too many rules governing how we operate”.
These words took me back nearly ten years, when I started at Square. I didn’t know much about payments or financial technology back then, but what became clear very quickly to me was that Square, at its heart, was a rule breaking company. As Square cofounder Jim McKelvey says in his awesome book The Innovation Stack, “I … found .. seventeen rules .. that we would be violating with each transaction.” These rules ranged from banking and financial rules to Apple’s dock connector rules. Undeterred, Jack Dorsey, Jim, Keith Rabois and team found ways to circumvent the rules and built an iconic product and business.
What also became very clear was that Square was not a law breaking company. At many All-Hands, we made references to things that, if they happened (or did not happen), would lead to Jack or Sarah (Friar, then-CFO) “going to jail”. Though the tone was playful, the message was clear: we would never break laws.
What’s the difference between rules and laws? It’s simple. Laws are made by governments. If you break a law, you will likely go to jail. On the other hand, rules are created by industry bodies or individual companies. If you break rules, you might get fined or lose access to certain services, but you do not go to jail.
In order to succeed and build remarkable products in regulated industries such as financial services and health care, entrepreneurs need to be absolutely clear about the distinction between rules and laws. They need three things.
- Counsel: A General Counsel (and legal team) who understands the nuances between rules and laws in the industry, and importantly, supports problem solving and pushing boundaries. If the GC is not a problem solver, the entire legal apparatus of the company will hew “conservative” and stifle innovation. CEOs, when you interview candidates for a GC role, specifically ask questions to test if the candidate is a problem solver and will support rule breaking.
- Product and Business: Product and Business leaders who are first principles thinkers and question why something is the way it is, versus blindly accepting the status quo. It’s no surprise that many of the best innovations in regulated industries have come from outsiders, who are willing to take a fresh look at things. Great things happen when a first principles thinking product / business team meets a problem solving legal team.
- Culture: A culture that encourages risk taking and rule breaking, but at the same time draws the line at breaking laws. Celebrating rule breakers and rule breaking behaviors at All Hands and other forums is a great way to reinforce this culture.
Back to the original story that kicked off this post. I conveyed some of my thoughts on rules vs laws to the bank Vice Chairman, and was encouraged to see a spark in his eyes. He said he could see a path forward to implement some of this at his company. I’m keeping my fingers crossed that he succeeds.
If a giant bank can consider breaking the rules, it’s almost critical for startups and younger / smaller companies to do so. So: break rules, not laws. It’s likely a survival imperative in certain industries. Otherwise you risk waiting for an oligopolistic industry to change its ways; by the time they get around to doing so, it’s likely too late for you.
