What do Tesla, Airbnb and Uber have in common beyond their stunning growth trajectories?  All three are “rule breakers.”  Breaking rules was a critical part of their success and the success of an increasing number of high-growth businesses.  Does that mean we advocate breaking laws to achieve success?  No, but we certainly believe that most, highly successful new companies challenge the status quo.  

 

In its simplest form, these companies simply find a different way of doing something we take for granted.  Too often, the incumbent players in some of our largest and oldest industries (transportation and housing being just two such examples, energy clearly being another) have “protected” their way of doing things with laws that entrench those incumbents.  Did the original dealership laws provide protections to automotive customers? Of course they did, but over time many of those laws have evolved to provide greater protections to dealers and fewer to customers.  Do Taxi laws protect their customers?  Yes, but they too have morphed over the years to now provide more protection to the industry they sought to protect the customer from than to the customer those laws were originally designed to protect.   The same can be said for some of the laws regulating the hotel industry and laws regulating our coal, oil and gas industries.  

 

So when an entrepreneurial newcomer comes along and asks: “does this have to actually function the way it does?” The answer is likely: “it doesn’t, we simply got lazy and let a regulated industry slowly turns laws that were supposed to keep it in check into laws that now protect that industry from its customers’ best interests.   That doesn’t mean that no customer protections remain, it just means that over time the balance tends to shift away from those in favor of whom the original regulation was written, toward the favor of those being regulated.

That premise is a huge part of conservatives’ belief in smaller is better in government.   We take that one step further to say that challenging the status quo is a healthy attitude and that the creative destruction of the old order is a very necessary part of remaining competitive in the modern world.  

 

But how do you run a major corporation in an organized fashion and at the same time tell your best and brightest managers to “break the rules?”

 

For the most part you cannot.  It is part of why entrepreneurial startups exist, the venture community funds them and at some point larger companies acquire those startups – often at about the time where they stop breaking rules and start getting some of the old rules changed in their favor – the new middle ground being much better for us as consumers.

 

But the next time a hot young startup starts breaking the rules that help your company succeed, very honestly ask yourself “just how much are these rules (a) protecting my customers versus (b) protecting doing things the way I’ve become accustomed to, know how to profit from and can more easily hold competitors at bay by?”   If the answer is (b) you better start thinking about how to partner with, acquire or effectively compete with those startups, even as you pay your lobbyists more to protect the status quo.   In the long run, if the startups are doing things that are better for your customers than you are, they, not you will survive.  Standing still is only a good idea in the short run, figuring out how to beat them under a revised set of rules that are better for the customer and still provide you profits is what will win in the long run.   Of course, in a short term oriented world, protectionism wins until, suddenly, it doesn’t – that’s when the newcomers truly do take over.