Portfolio/Penguin An imprint of Penguin Random House LLC 375 Hudson Street New York, New York 10014 Copyright © 2018 by Evan Burfield Penguin supports copyright Copyright fuels creativity, encourages diverse voices, promotes free speech, and creates a vibrant culture Thank you for buying an authorized edition of this book and for complying with copyright laws by not reproducing, scanning, or distributing any part of it in any form without permission You are supporting writers and allowing Penguin to continue to publish books for every reader Library of Congress Cataloging-in-Publication Data Names: Burfield, Evan, author Title: Regulatory hacking : a playbook for startups / Evan Burfield, J D Harrison Description: New York : Portfolio, 2018 Identifiers: LCCN 2018012895 | ISBN 9780525533207 (hardback) | ISBN 9780525533214 (epub) Subjects: LCSH: New business enterprises—United States | New business enterprises—Law and legislation—United States | BISAC: BUSINESS & ECONOMICS / Entrepreneurship | BUSINESS & ECONOMICS / Commercial Policy | BUSINESS & ECONOMICS / Government & Business Classification: LCC HD62.5 B8367 2018 | DDC 658.1/2—dc23 LC record available at https://lccn.loc.gov/2018012895 While the author has made every effort to provide accurate telephone numbers, internet addresses, and other contact information at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication Further, the publisher does not have any control over and does not assume any responsibility for author or third-party websites or their content Version_1 This book is dedicated to the founders you will meet in these pages It has been a privilege and joy to learn from them Contents Title Page Copyright Dedication Introduction THE REGULATORY ERA SECTION Hacking in the Public Interest Chapter REGULATORY HACKING Chapter POWER Chapter BUSINESS MODELS Chapter GROWTH Chapter ARBITRAGE SECTION The Foundations of Regulatory Hacking Chapter NARRATIVE Chapter DATA Chapter INFLUENCE SECTION Business Models Chapter SELLING TO GOVERNMENT Chapter 10 SELLING TO CITIZENS AND PRIVATE INSTITUTIONS Chapter 11 SELLING WITH SOCIAL IMPACT SECTION The Regulatory Hacker’s Toolkit Chapter 12 THE MEDIA Chapter 13 GRASSROOTS Chapter 14 THE GRASSTOPS Chapter 15 LOBBYING Conclusion ELON MUSK: THE ULTIMATE REGULATORY HACKER Acknowledgments Notes Index About the Authors Introduction THE REGULATORY ERA “Alexa, please play ‘Five Little Monkeys’ by the Kiboomers,” Endeavour, my two-year-old daughter, asks from the backseat Nothing happens, so she asks again more urgently, before I explain to her that Alexa isn’t in our car “Yet,” I think to myself Netscape went public the year I graduated from high school, twenty-three years ago I still remember the anticipation and frustration of watching web pages render line by line through my AOL dial-up connection Forget about asking an AI voice-enabled assistant to play me music—if I wanted a song I had to dig through my stack of CDs I met my wife standing in line for a bagel, long before you could swipe right for love Today, I have limitless information and entertainment available in my pocket, constant connection to my social and professional networks, and I’m never more than a tap on my iPhone away from dinner, diapers, or a driver arriving at my door Wherever I am traveling away from home, I sing Endeavour her good-night songs through FaceTime In the two decades since the digital revolution burst forth promising to change everything, our lives have in fact changed in unbelievable ways Except where they haven’t When I voted in my last election, I stood in line to fill in circles with a pen on a ballot If I walk into an emergency room tomorrow, I’ll fill out paper forms When I next go to the DMV, I’ll need a stack of papers to confirm my identity When Endeavour starts school in a few years, teachers will present material to her in much the same way that they did to me when I was her age In some of the most important parts of our lives, little has changed Every day, in our cities and neighborhoods, we step into not-so-hidden time machines They’re our city halls, our hospitals, our schools Like a bureaucratic dystopia, they’ve been lost to time, seemingly untouched by the digital revolution And what’s even scarier is how essential these tech vacuums are to life, liberty, and the pursuit of happiness Our lives as consumers have gone digital Our lives as citizens remain stubbornly analog The Regulatory Era This is a book about improving our lives as citizens—in America, and around the world— by building and growing startups in complex, regulated markets that are intertwined with government Why is this book needed now? We’re witnessing the collision of five trends that will cause the next twenty years of the digital revolution to look very different than the last twenty years—in good and important ways First, tech startups are diversifying beyond Silicon Valley, both in terms of geography and strengths Startup founders tend to solve the problems they know and understand For a twenty-five-year-old programmer in Silicon Valley, think about how much life has improved Goods and services, from toothbrushes to massages, flow to him almost automatically News and information are at his fingertips A car is always waiting just around the corner A hot date could be just a swipe or two away Now, think about a lower-middle-class single mom working multiple jobs to make ends meet Her daily struggles include how to affordably get across town from one worksite to the other, how to pick up her children from school on time, how to put healthy but affordable food on the table, and how to obtain new skills that will help her find a betterpaying job Those twenty-five-year-old programmers in Silicon Valley haven’t done nearly as much to help her tackle her problems The Valley has been the place to build digital startups for most of the past twentythree years, soaking up more than 25 percent of global venture capital in 2016.1 Given its dominance, the Valley has driven many of the assumptions about who should build startups, how they should build them, and what they should focus on The Valley can be a magical place, but it’s also far removed from the lives of the other 99.9 percent of the people in the world But the world of digital startups is rapidly diversifying Silicon Valley isn’t on the decline—far from it—but the rest of the world is catching up quickly, having systematically studied the Valley model and slowly learned to apply it to their own contexts This is true across America, and around the world Investment Growth by Country, 2010-2016 Tomasz Tunguz, a Silicon Valley venture capitalist with Redpoint, produced the chart above,2 showing the growth rate of venture investment in the ten fastest-growing venture markets, plus the United States, from 2010 to 2016 Venture capital in America is growing at 12 percent per year, but that growth is dwarfed by economies such as India, Ireland, and Korea And venture capital is a trailing indicator of the growth of startup ecosystems Communities are receiving increasingly sophisticated support from initiatives such as the Rise of the Rest and the Global Entrepreneurship Network, and the results are starting to show Over the past several years, I’ve worked with startups on the ground in more than fifty cities, across America and spanning six continents, every one of which now has a vibrant startup ecosystem Each of these ecosystems has its own culture, economic assets, and talent Boise and Lincoln aren’t going to produce the next Facebook, but their communities understand the gritty details of agricultural production a lot better than the Valley does Houston and Baltimore might not create the next Netflix, but they have world-class talent in healthcare This holds true for cities all around the world, most of which have historical strengths in industries that matter more to our lives as citizens than our lives as consumers As these startup ecosystems expand, they continue to learn from Silicon Valley in near real time, and in that sense Silicon Valley is more than a place, but a culture that has become pervasive globally In an even more important way, however, these ecosystems are learning to play to their own strengths, not the Valley’s This is creating healthy space for new ideas about what problems people should focus on, but also who can build those startups and how they should go about building them Second, the easy problems in tech have been solved Marc Andreessen said that “software is eating the world.” That’s true, but for the past twenty years, most startups have used their software to eat the low-hanging fruit first, gravitating toward problems they could solve through sheer force of technical or design wizardry If you can become a billionaire by giving consumers dating apps or subscription cat food services, why not? But today, most of that low-hanging fruit has been eaten If you want to figure out a better way than Instagram to share photographs, you’re going to have to go through Facebook If you want to build a service that connects people to their favorite music, get in the ring with Spotify, Tidal, Amazon, and Google As Steve Case explores in his 2016 book The Third Wave, founders who want to solve new problems are increasingly looking to industries that are still in the infancy of their digital transformations, and most of those industries are intertwined with government Third, we’re seeing a backlash against big tech As a twenty-five-year-old, Mark Zuckerberg famously declared that “privacy is no longer a social norm.” Eight years later, when issuing his “personal challenge” for 2018, he pledged to address sharp criticism of Facebook: “The world feels anxious and divided, and Facebook has a lot of work to do—whether it’s protecting our community from abuse and hate, defending against interference by nation-states, or making sure that time spent on Facebook is time well spent.” Those are the words of a leader trying to get out in front of calls to more strictly regulate his business Not only have our lives as citizens lagged behind our lives as consumers, but it feels like the digital revolution may actually be undermining our lives as citizens At a minimum, it’s increasingly hard to argue that Facebook, Amazon, Google, or Apple have made our lives better as citizens, in terms of our health, our privacy, our security, or our democracy As people come to this disturbing realization, they’re pushing back against the unchecked power of the big technology platforms, urging governments to increase their regulation of digital technologies, and forcing the world of startups to adapt to a new reality Even Marc Benioff, founder of Salesforce.com and an icon of Silicon Valley, compared Facebook to the cigarette industry in arguing that technology needs to become more regulated “We’re the same as any other industry,” Benioff said Like “financial services, consumer product goods, food—in technology, the government’s going to have to be involved There is some regulation but there probably will have to be more.”3 This process is already well under way in Europe and will continue to build in America and other parts of the world Fourth, startups are solving urgent problems that would previously have been left to government or nonprofits The United Nations Sustainable Development Goals provide a quick reference to the *You learned about Blake and ID.me in Chapter 3: Business Models *In fact, you’re about to read an entire chapter on the importance of data in Chapter 7: Data *This is a fictional example of a bad SeamlessDocs pitch rather than anything Jonathon would ever pitch *You’ll learn more about influencer hacks in Chapter 8: Influence *Including startups, as you’ll see in Chapter 15: Lobbying *You went through a comprehensive analysis of the types influencers in Chapter 2: Power *You’ll learn more about grassroots and grasstops campaigns in Section 4: The Regulatory Hacker’s Toolkit *Kidde, which you learned about in Chapter 2: Power, is a great example of this approach working with their child health coalition in support of mandates for carbon monoxide alarms *Name changed *You met OpenGov back in Chapter 5: Arbitrage *For more on early adopters, refer back to Chapter 5: Arbitrage *You learned about Ola and BitOasis in Chapter 4: Growth *You first met Ola and BitOasis back in Chapter 4: Growth *You met Pepe and Mamotest in Chapter 6: Narrative What’s next on your reading list? Discover your next great read! Get personalized book picks and up-to-date news about this author Sign up now ... the language and many of the examples relate to American forms of government, regulatory hacking is as applicable to startups in Dubai, Singapore, Nairobi, Bogota, or Tallinn as it is to startups. .. service at a reasonable price Before Uber, getting around the nation’s capital via taxi was at best an outmoded hassle and at worst a headache-inducing nightmare I can remember spending hours trapped... book, it’s that regulatory hacking is a process rather than an out-of-the-box game plan Regulatory hacking is not a rejection of the hacker culture of the Valley but rather an application and extension