Five steps to defending your startup from policy battles
A simple guide to getting started with government relations
“99% of startups die from suicide, not murder.”
— Sam Altman, President of Y Combinator
Y-Combinator President Sam Altman’s view is that most startups fail because of internal reasons — suicide. That may be true, but murder by regulatory action looms increasingly large on the startup landscape and early-stage companies are often unprepared to diagnose and respond to political risk.
Sharing economy disruptors Uber and Airbnb have waged public, and well-documented battles against regulatory authorities but they are just two of the many companies that face attacks from lawmakers at the city, state, and national level. Fantasy gaming sites FanDuel and Draftkings have provoked frequent and expensive challenges from attorneys general and lawmakers across the country on rules governing daily fantasy sports. Even early stage luxury bus service Leap (which you’ve probably never used) failed in large part because it didn’t get the necessary licenses in San Francisco and ran into multiple regulatory issues within its first few months.
Recognizing that these are big issues, this guide provides a playbook for new startups to use in government relations. Based on conversations we’ve had at FiscalNote in the past six months, we have seen a growing awareness of the importance of legislative and regulatory affairs, and increasing commitment to managing these issues.
This is a general guide, so various aspects of it may not fit your company’s unique challenges, but it should serve as a solid resource as you build out your government relations plan.
Make something people love
“First they ignore you…”
In your company’s early days, there may only be a few people on your team and you are probably operating in only one city or state. Don’t worry too much about government relations at this point. Rather, you should have your head down focusing on all the things you need to do to build a product and/or business: building, selling, talking to customers, recruiting, raising money, etc. However, there are two key things that you will be doing anyway that are absolutely vital to your future success when you start to run into policy roadblocks.
First, create something that people love. If people don’t love your product, you won’t be able to sell it, you won’t be able to recruit, and you won’t be able to raise money. Government won’t care about you because nobody will care about you. So get that done first. Making your customers love you will also pay dividends down the line when you can activate them to advocate on your behalf, like Uber did in New York when it came under attack from Mayor Bill de Blasio. This grassroots support will be key later on — politicians do still stop and listen when thousands of their constituents start telling them to do something.
Second, tell the world about it. You’ll be doing this anyway as you try to sell potential customers, investors, and employees on your company’s vision, but this is also the best way to generate some buzz and make your startup part of a larger conversation. Evangelizing is a key first step to educating (more on that in the next section) and will make it easier to gain support from the public and from key officials when you need it.
It’s also never too early to start building relationships with government officials: members of your city council, state legislators, members of key regulatory agencies, members of congress, and more. You’ll stand a much better chance of successfully arguing your case down the road if you shake some hands and make some friends before you need them.
Educating the public and yourself
“…Then they ridicule you…”
As your company’s growth starts to accelerate, you’ll need to start paying more attention to government relations. At this point, your company may have between 10–50 people and be operating in two or three cities, increasing the ground that you have to cover. There are four main things that you should do:
1. Educate
If your company is truly disruptive or involves groundbreaking technology, you’re going to have to explain it to customers and policymakers alike. You’ll want to help policymakers in particular to understand how your technology works and what its benefits are. Otherwise, there is a good chance that entrenched industry interests or hostile regulators will take control of the narrative and convince the decision-makers that your company is something that it’s not.
2. Build relationships
This is a continuation of what you (hopefully) already started doing in the first phase. Educational efforts will help, but don’t be afraid to get to know lawmakers on a personal basis — most of them don’t bite.
The exact outreach strategy that you use will depend on what kind of company you’re running. Autonomous car manufacturer? Invite lawmakers to your factory or for a drive in your prototype. App-maker? Stop by the lawmaker’s offices and show them what your app can do. Other ideas include hosting town halls, throwing parties, and holding in-person demonstrations.
3. Comply with existing laws
If there are laws already in the books that regulate your industry, make sure that you’re following them. Or at least, make sure you know about any and all laws, statutes, and regulations that affect different parts of your business. This may require your first in-house counsel, or it could be accomplished with an outside law-firm, depending on your company.
4. Start thinking about your 50-state government relations plan
What are the markets that you want to attack next? What do their regulatory environments look like? Who are the key people to know at the municipal, county, or state level? At this stage, you should also start to figure out how you’re going to stay on top of any new legislation or regulation that crops up. Will you hire somebody on the ground in every state/county/city to notify you if something comes up? Are you going to rely on a law firm or public affairs firm to handle this for you or would you rather handle it internally? What kind of stance are you going to take: aggressive (like Uber’s) or more conciliatory? These are all questions that you’ll want to start asking and answering now.
Advocating
“…then they fight you…”
This stage is one of the trickiest. At this point, you probably have an established product, a kick-ass team, and some money in the bank. What you don’t want to happen is for a law to be passed that hamstrings you in a key market.
Here, you’ll start to learn whether your customers truly love you, whether people understand your products and narrative, and whether you truly built strong relationships with the right people.
What the actual tactics of your advocacy efforts look like will depend on the shape of your 50-state plan. At this point, however, it may make sense to hire your first vice president of public policy or government relations, and give that person the power to hire necessary team members. Relying on public affairs firms, trade associations, or contract lobbyists may help lighten the load, but if you want to have complete control over your destiny, it’s best to bring some people in-house.
It doesn’t have to be a big team at first — other members of your executive team may have to get involved and you may also get some grassroots support from your customers — but having dedicated policy staff will ensure that nothing falls through the cracks.
Scaling
“…and then you win.”
At this point, your company has at least a couple hundred employees and you may be considering international expansion. Congratulations! Now get back to work. Your company can still fail, and regulation is one of the biggest threats. At this point, you will almost certainly be on the radar of more established incumbents in your industry, and they’re going to try to bury you.
So this is the part of your company’s lifecycle where you fight. Exactly what that means will depend on your company, but expect to call in favors, lean heavily on the relationships that you’ve built in the previous phases, and activate your loyal customer base to work for policies that help you. Companies like Uber, Airbnb, FanDuel, and DraftKings have pioneered this approach and more tech companies are likely to follow suit.
Building new relationships is important, too, but you’ll have to do it faster and at a larger scale than you’ve ever done before. This is the right time to start building out a larger GR team. You may choose to divide the team by regions within the United States, concentrate people in key cities, or look to establish footholds overseas.
Your international strategy will be driven by business needs, but because regulatory frameworks differ so much from country to country, you’ll probably want to take those into account when you decide which markets to target for expansion. The struggles of companies entering the Chinese market have been well documented, but rules in the EU and other regions can also be tricky. Be humble, assume that you don’t know everything, and adapt your approach to each new market.
Fighting off challengers
“What comes next?”
Now that you’re running an established company with a huge team, an international presence, and public recognition, it may be tempting to take your foot off the gas pedal. Don’t do that. Remember — you’re always somebody’s target. However, the way you play the game changes at this point.
Instead of fighting to be heard, you’re the one with access to the press — and people want to hear what you have to say. Instead of fighting to get a meeting, you’re the one with direct access to the people that count. Instead of handling all of this yourself, you probably have a crack team of policy professionals and lobbyists to oversee your efforts. You’ve got it all. Now, don’t mess it up.
In this phase, you’ll consolidate your advantages, try to mitigate your risk, and maintain the relationships that you’ve worked so hard to build. You’ll probably start a company PAC to make campaign contributions to representatives that favor your company and industry. You may also start an industry coalition or group with peer companies to advance your mutual interests collectively. Your GR team will spend time doing research, crafting bill language, killing bills, flying to state capitols and walking the halls of Congress, as well as working with industry partners.
You may also choose to expand to different types of products or services, exposing your company to new types of policy risk. In that case, you’ll have to start this whole process again, but with the advantage of many more resources and the benefit of hindsight and experience.
One last point: don’t stop looking over your shoulder. Insurance brokers were sitting pretty, only for Zenefits and other companies to start breathing down their necks. Taxi companies in major cities like New York thought that they had their cities well in hand until Uber came along with a revolutionary new service that consumers loved and an ultra-aggressive lobbying campaign. Hotel companies spent millions on lobbying, but Airbnb still galloped onto the scene and gobbled up a huge portion of the market domestically and internationally. The moral of these stories is to stay vigilant.
Is your product or service evolving quickly to take advantage of new technologies or market developments? Is your team building new relationships and strengthening old ones? Do you know who the young upstarts are that could upend your industry? If your answer to any of these questions is no, then you have a problem. Chances are, they read this guide, too.
To learn more about how FiscalNote is helping organizations address their government affairs needs, reach out at contact@fiscalnote.com or schedule a demo of our products.
