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Airbnb’s Regulatory Hacking Moment

Donna Harris

Cofounder and Strategic Advisor, 1776

If you ask entrepreneurs — especially those working in tech — how to build a startup, they will likely reference the lean startup movement. A hypothesis-driven methodology to quickly discover a viable product while reducing risks and capital requirements, the lean startup has become a worldwide phenomenon since its first introduction nearly eight years ago.

Yesterday, we witnessed a very public celebration of an entirely new startup playbook: Airbnb’s victory lap following the defeat of Proposition F in San Francisco, CA. The ballot issue pitted housing shortages and rising urban rents against homeowners’ abilities to rent out their properties on sites like Airbnb. The startup’s triumph is much, much more than a simple local vote. How the vote came about and how Airbnb defeated it personifies a new era of how startups scale. We call it Regulatory Hacking.

First, let’s back up.

It’s All Regulated

The government touches nearly every aspect of your daily life: the groceries you buy, the restaurants you eat at, the roads you drive on, the houses you live in, and even the showers and toilets you use. If you feel like government is increasing, you’re not imagining it.

From 1789 to 1997, the federal government added about 4,000 new regulations each year, but after 2007, the number skyrocketed to nearly 13,000 new regulations per year. The Code of Federal Regulations includes over 1 million instances of “may not,” “must,” “prohibited,” “required,” and “shall.”

It Ain’t All About Washington

Despite all the talk about Washington, D.C.’s politics and gridlock, local governments actually affect our personal lives the most, and ideologies typically first clash at the local level. Between the mayors, city councils, school boards, zoning commissions, permitting offices, and more, local governments control everything from schooling to water usage and have the latitude to set or change the regulations for housing, building, schools, roads, infrastructure, parks, public spaces… the list goes on and on.

Capitol Hill dominates the news cycle, but the decidedly less sexy state and local governments are actually setting the rules of engagement for our global economy — whether we’re paying attention or not.

Tech Meets Main Street

Technology used to just be computers, laptops, smart phones, and apps to make our lives easier and more fun, engaging, and productive. Now, the proliferation of digital technology — social, mobile, data, and devices — is impacting every aspect of our lives, making the distinction between the traditional economy and the digital economy harder than ever to discern. The new trajectory means that digital economy startups (whether they want to or not) are going head-to-head with the rules governing the traditional economy.

So, what does this matchup against regulations mean for startups?

Startups & Regulatory Hacking

First, entrepreneurs need to wake up. Startups cannot simply ignore government as in decades past when they avoided or circumvented it by focusing on consumer-facing markets. The lion’s share of large-scale opportunities for entrepreneurs and investors lies in regulated industries where government plays some role. The question is not whether governments are the customers. The question is: how do you scale a company in these regulated industries when governments set the rules for just about every aspect of our global economy?

Local governments are waking up, too. Thanks to hard fought Uber battles, city leaders know they need to be at the table — not the tail wagging the dog — to more quickly jump on potential issues. Local governments are starting to go on the offensive rather than letting high-growth startups force them into defensive positions. The permit issues roadblock that startup Leap Transit faced is a fitting example.

Meanwhile, entrepreneurs and startups are running headlong against activists and stoking the fires around core economic issues. For instance, Airbnb’s business addresses housing shortages and rising urban rents. Uber and other sharing-economy companies are responding to the question of “employment” for the future. Startups are tackling civic arenas that determine the quality of life for many citizens because the need for innovation is so evident. Often, startups and governments want similar outcomes but disagree on who should bring about change and how. Then, a lack of understanding and collaboration can frame the startups as the obvious villains. Instead, startups need to prepare to engage governments for the intended (or unintended) social impacts.

We might know the players that are at odds here, but where is the battleground? For some startups, it’s obvious. For instance, Uber clearly runs up against taxi regulations. On the other hand, many startups don’t have such clarity.

For Airbnb’s purposes: Is renting a room in your own house the same as renting a hotel room? Is Airbnb breaking existing rules, or do new ones need to be created?

Plenty of startups are creating entirely new industries and challenging frameworks that are decades old, leading to plenty of gray areas.

Airbnb’s Significant Win

In attempts to understand government regulations in order to succeed, startups often employ modern versions of traditional public affairs and lobbying strategies — both offensively and defensively. Companies like Uber and Airbnb develop massive, loyal user bases that can deploy in an instant. Such loyal customers form modern day grassroots movements that are both highly distributed and localized.

To fight San Francisco’s city ballot issue, 138,000 members of the Airbnb community knocked on 285,000 doors and had conversations with over 105,000 voters. Airbnb spent over $8 million battling Proposition F alone and successfully blocked it as of yesterday’s news.

A tipping point forms when an issue, idea, or product crosses a certain threshold and gains significant enough momentum that regulatory battles threaten its overall growth but not its survival. Moments like the Airbnb victory show how critical driving to that tipping point is for companies. Airbnb invested millions in a single city campaign to show its power, to set the tone for the future. Airbnb’s message was clear — it’s here to stay.

Yesterday’s win for Airbnb is a win for startups everywhere and should boost their confidence. High-profile success stories of regulatory hacking and policy engagement such as Airbnb’s beckon startups to engage with governments and create real, lasting change.

Donna Harris

Cofounder and Strategic Advisor, 1776

Donna is cofounder of 1776 and Strategic Advisor to the 1776 Board of Directors. Under her leadership 1776 has grown from a theory to a globally recognized brand at the…