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What Does A Downturn Mean For Tech Regulation?

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Bradley Tusk

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Bradley Tusk is the founder and CEO of Tusk Ventures.

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All it takes is a quick look at the market to see that we are in for a bumpy ride — and a longer-term downturn may be imminent. Tech is not immune to that, which means we’ll see a hit to valuations, VC funding and fundraising.

Lots of experts have talked about what that might mean for activity in the tech sector broadly. But what does it mean for the intersection of regulation and technology? Will it change the way regulators view startups? Will it change the way entrenched interests will behave in political and regulatory fights? Will it change the positions elected officials take? The answer to all these questions is a resounding yes.

Politics is fueled by perception of strength, power, popularity and influence. Decisions (shocking as this may sound) are almost never made solely on merit, which is why the entire world of lobbying, advocacy and public relations exists.

If regulators or elected officials fear that a startup can generate strong public opinion against their decision or vote or policy, that has a major impact on what they’ll do. That’s in large part why Uber was able to defeat Mayor de Blasio’s efforts in New York last summer to cap their growth — the combination of the campaign Uber ran and the fear of the damage Uber could do was enough to bring the City Council on their side and cause City Hall to stand down.

It’s also why FanDuel and DraftKings are likely to win the vast majority of legislative fights they’ll face this coming session — not only do they have 5 million passionate customers being mobilized to weigh in, but it’s very hard for regulators and elected officials to assess to what lengths the companies will go.

But if the perception of the sector changes and regulators and electeds are suddenly a lot less concerned about the potential impact a fight with a well-funded, highly regarded startup will have, they’re far more likely to do the bidding of the people and companies they’ve always known.

So if the press is dominated by stories about shrinking valuations, dried-up funding, lower revenues, lower growth, missed targets and dimmer futures, regulators and electeds will react accordingly — they’ll be less receptive to arguments and policy interpretations from startups and far more susceptible to the entreaties of incumbents to maintain the status quo. That’s a problem.

It’s unlikely anyone reading this post has the power to change what the market will do. But a smart startup can take steps now to avoid losing political power, avoid facing tougher regulations and avoid being vulnerable to the companies and industries they’re upending.

Define the enemy

If the entrenched interests are more empowered by the perception of a weaker tech sector, it’s even more important to be able to define who they are and why their practices, habits and policies are bad for the public (less competition, higher prices, bad customer service, safety issues, ethical issues, etc.).

That means figuring out who they are, what they’re doing wrong, where they’re vulnerable (looking at everything from annual reports to arrest records to lawsuits to tweets and press releases), how you talk about it to different audiences (regulators, electeds, reporters) and how to protect yourself. But if you first start doing all of this when they attack, your chances of survival go way down.

Define yourself

Getting a feature on TechCrunch or Wired or Quartz is great (we’re always thrilled when that happens to us), and it’s certainly important for recruiting and fundraising. But you’re mainly talking to the one group of people who already believe in you. When it comes to political and regulatory fights, the more familiar you are to the people making decisions, the less likely they are to destroy your business without a second thought.

That means focusing heavily on consumer public relations, local media, community media and business media in the markets that pose real regulatory threats. The more you’re known and the more people understand who you are and the value you’re creating (to consumers, to the economy, to tax revenues), the better your chances of both avoiding a problem and winning the fight if it does get that far.

If a threat is truly imminent, it may make sense to consider some local advertising (mass transit, outdoor, digital) to help boost name recognition.

Define your customers

Stories about a weakened tech sector may embolden your opponents and make electeds less concerned about how you can hurt them. But that can all change if you can mobilize your customers to reach out directly to their elected officials (legislators and executive branch members who appoint the regulators) and speak their minds.

While members of Congress receive endless amounts of inbound email, tweets and even letters, it’s much less frequent in state and local government, where most regulation actually occurs. Generating 300 emails from constituents to a local assemblyman or state senator or councilwoman can completely change their position on an issue.

But just like being prepared for the fight or generating name ID and awareness, you can’t first start the process in the heat of the battle. You must know which of your customers to try to mobilize, how you’re going to frame the issue and what you’re asking them to do — and make it easy for them to actually do it (if they have to do more than push a button to be able to email or tweet at a politician, you don’t deserve their help).

That all takes time and effort. Like anything, when you scramble to do it at the last minute, it costs a lot more and results in a lot less.

Define your coalition

Partnerships matter in business, but they matter even more in politics. You cannot be the only entity willing to stand up for the thing for which you’re fighting. Any startup genuinely attacking a major problem is going to engender enemies and allies. Your enemies will find you, but you will need to find those who have a vested personal, political, moral or financial interest in your success. It is difficult work and requires all the things that most CEOs rightly hate — long meetings, compromise and spending money.

However, when the curtain drops and you’re scrambling to shape the narrative in the press and flex your muscle with those who wish to harm you, having the coalition in place and spokespeople willing to take a stand on your behalf will play a decisive role in the outcome of whatever battle you are in.

Maybe the markets will recover quickly, funding will flow, valuations will keep soaring and the perception of the strength of your startup will be better than ever. And maybe the industry you’re sending into extinction won’t even notice what’s happening until it’s too late. But just in case that doesn’t happen, taking the steps outlined above will make the downturn a lot less painful.

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