These are exciting times for innovators. Arguably never before have the right opportunities, circumstances, and technologies come together as they have today to create such a fertile ground for the creation of new products and services. Yet one of the biggest obstacles along the way is the increasing burden of regulations. And the ones who suffer the most are startups.
Take the case of Uber, a startup known for its hire-a-car smartphone app. The company spent much of the last few months battling for its very survival against restrictive regulations in multiple U.S. cities and states. Meanwhile, in the pharmaceutical industry, regulatory concerns have made venture capitalists wary of investing in biotech startups. Similarly, in the hospitality industry, small restaurants can take years to open, largely due to the complexity of permits and approvals.
As someone who has worked with multiple startups throughout my career, I have seen first-hand how over-regulation can slow growth, limit innovation, and sometimes, cause businesses to close shop.
Is Regulation the Problem?
The importance of regulation cannot be denied. Regulations level the playing field, protect stakeholders and consumers, and safeguard economic activities. In fact, 86 percent of small business owners agree that some regulation of business is necessary for a modern economy .
The problem arises, as it has, when there are too many regulations. But the good news is that this is changing. In 2012, the Jumpstart Our Business Startups (JOBS) Act was passed to ease regulatory barriers, and increase startups’ access to capital. Meanwhile, Startup Act 2.0 is poised to prompt a cost-benefit analysis of all proposed major rules to determine their effectiveness and impact on startups.
These are encouraging initiatives, and hopefully, only the start of new business reforms. In the meantime, here are a few steps that startups can take to address and comply with regulations in a way that doesn’t compromise innovation and growth.
Understand All the Regulations that Affect Your Business
Smart startups are those that spend sufficient time, effort, and resources understanding relevant regulations, and implementing appropriate policies and procedures.
There are many resources to help companies in this endeavor. For instance, the New York City government has an interactive NYC Business Express website that helps startups understand the licenses, taxes, and regulations that apply to their business.
In addition, it always makes sense to seek legal advice on how to interpret and comply with various laws. Many successful startups will tell you that the long-term benefits of hiring a good lawyer far outweigh the initial costs. Lawyers understand regulations and their impact, and can help startups protect themselves against potential non-compliance fines and legal issues.
What’s also important to remember is that compliance is not a one-time task. Regulations keep changing. So startups must stay updated, and alter company policies and procedures accordingly. One way to do this is to automatically feed in data from regulatory sites instead of manually tracking regulatory updates.
Actively Participate in Regulatory Planning Forums
In January, the House Committee on Small Business launched the Small Biz Reg Watch website, which enables startups and small businesses to view regulatory proposals, and express their concerns before a rule is finalized. This is a great initiative. But for it to be truly effective, all startups need to actively participate, and express their opinions on new regulations.
I work on the board of the Silicon Valley Leadership Group, where we strive to cooperate with government officials in planning legislation and promoting policies to improve the quality of life for companies. If more startups were to get involved in forums like these, they could make a huge difference to the quality and quantity of regulations out there.
Establish a Flexible and Sustainable Regulatory Compliance Program
The importance of a well-planned and well-implemented compliance program cannot be understated. This is especially critical in technology startups that create IP in the form of patents and trademarks (e.g., proprietary designs, software). If these startups don’t effectively comply with the rules and regulatory processes around filing and managing IP, they may not be able to protect their investments.
At MetricStream, we have over nine patents and several trademarks, and yet we almost lost one by not closely tracking when the fees had to be paid to keep the trademark registration “alive.”
Establishing a consistent culture of compliance across the business takes effort. It means getting leadership to set the tone at the top, designing and implementing a sustainable regulatory compliance strategy, drafting comprehensive policies, and implementing and monitoring compliance controls.
Technology can be a big help in this endeavor in terms of streamlining workflows or automating resource-intensive tasks. At MetricStream we’ve rolled out our own Governance, Risk, and Compliance (GRC) solutions which have greatly simplified and strengthened how we manage regulatory and industry compliance.
Get Involved
The tale of Uber ends well. After mounting public pressure, regulators in Washington D.C., New York, and California decided to approve the use of the company’s app. Sure, other startups may not always get so lucky. But things are beginning to look up.
As President Obama wrote in the Wall Street Journal, rules have sometimes “gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs… today I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses. Small firms drive growth and create most new jobs in this country. We need to make sure nothing stands in their way .”
Governments and regulatory authorities are taking significant steps towards improving the startup environment. It’s time for startups themselves to get more involved. The fact is that regulations are here to stay. What will make a difference is how startups collaborate with each other, as well as governments and regulatory authorities, on the pros and cons of proposed regulations, and the ways and means to maintain sustainable compliance. Perhaps then, we will be able to usher in a new era of innovative, breakthrough—and, yes, compliant startups.
