Uncharted Territory: Urban Innovation and the Role of Government
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We’ve all seen the headlines: Uber’s Taxi Services Shutting Down In NYC. Should Airbnb Be Regulated Out of Existence?
With the rise of urban impact entrepreneurs – early stage companies developing consumer products and services that make urban living better – there has also come an increase in tension between those entrepreneurs and existing regulations. Government policy, dating back decades, could not have anticipated the emergence of collaborative consumption, crowdsourcing, or alternative resource management. It’s tempting to hope that the conflicts between innovative urban companies and regulators are circumstantial and fleeting. But trends point us in a different direction.
The surge of urban impact entrepreneurs
If anything, we anticipate a surge of urban impact entrepreneurs. 81 percent of Americans now live in cities – and this urbanization is dramatically influencing the way most people live and work.[1] At the same time, we are experiencing reductions in municipal revenues nationwide. So there is a compelling market opportunity for entrepreneurs to step in and tackle some of the most pressing challenges facing the swelling ranks of city dwellers.
Furthermore, success begets success: the achievements of companies like Uber and Airbnb will encourage others to follow in their footsteps. Across the country, we are seeing bicycle sharing companies like Alta Bicycle Share, food truck networks like Off the Grid, and crowdsourced community investment platforms like Fundrise pop up. A new wave of entrepreneurs is rising to solve urban problems.
More urban innovators means more government interaction
Given this rise of urban impact entrepreneurs, we anticipate even more potential interaction with government. They may not be looking to get hired by government or embed themselves within government, but these entrepreneurs are working on issues about which government cares a great deal (think: mobility, waste management, housing, health, and education). Whether entrepreneurs look at these interactions as an opportunity or an annoyance will, in large part, determine their ability to succeed in the marketplace.
It’s not that entrepreneurs can’t fight regulators and win; it’s just a lot harder to be productive moving forward.Some have argued that these innovative entrepreneurs should not be subject to traditional government oversight, as their very models (peer-to-peer, digital, etc.) encourage self-policing. But, regardless of how you feel about regulation and public oversight, government isn’t likely to relinquish the role of consumer protector any time soon.
So it’s important for urban impact entrepreneurs to learn to work with government. This way, they can avoid antagonizing powerful interests who can stand in their way. It’s not that entrepreneurs can’t fight regulators and win; it’s just a lot harder to be productive moving forward. Consider the case of Uber, which has managed to clash with several municipalities in its expansion process. The popular app is currently facing a wave of competition from companies who are doing a better job collaborating with city leaders.
The value of entrepreneur/government alliances
Both government and urban impact entrepreneurs can take productive steps to minimize friction – the key is communication. Most entrepreneurs have no idea how to navigate the tricky political landscapes of cities. And most city officials have no idea how to communicate with entrepreneurs about their priorities and concerns.
Some municipalities are embracing entrepreneurs by creating new offices to accommodate and foster innovation. Examples include the San Francisco Mayor’s Office of Civic Innovation and the Boston Mayor’s Office of New Urban Mechanics. Hopefully, we will see this trend continue. After all, government officials have incentives to work with entrepreneurs to produce job growth and improve the lives of their constituents.
The harder question is: how will urban impact entrepreneurs approach their relationship with municipalities moving forward?
Most entrepreneurs don’t think about government. After all, early stage companies are busy worrying about product design, customer acquisition, and investors. However, for urban impact entrepreneurs, learning how to interact with government should be as important as learning how to pitch a venture capitalist.
We would like to see new urban impact companies develop legislative strategies so that they can more thoughtfully approach municipalities. For example, Luther Lowe, the Director of Government Affairs & Business Outreach at Yelp, has devised a playbook for expanding into new cities in a “less painful” way. In it, he outlines a strategy of cultivation – both of the general public and of regulators. Collaborating with government to develop mutually agreeable solutions isn’t always easy, but dealing with hostile regulators is worse.
Moving forward
Government isn’t going anywhere in the near term. So it’s important for urban impact entrepreneurs to embrace government as an important stakeholder during their growth. City officials have access to data, resources, and networks of individuals who can help entrepreneurs effectively address the needs of consumers. But they can also obstruct entrepreneurs and keep them from securing the resources they might need to succeed. Both government and urban impact entrepreneurs stand to benefit from innovation, leading to better solutions for all city dwellers. The question remains how (or if) they will rise to the challenge.
[1] “2010 Census Urban Area Facts,” US Census Bureau Website, 26 March 2012: http://www.census.gov/geo/www/ua/uafacts.html.
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It should not be a surprise to anyone that entrepreneurs and bureaucrats are different people with different perspectives and goals. It may help to try to build mutual understanding.
Entrepreneurs must understand that elected officials and regulators are accountable to the public and respond to an established risk management framework.
Officials must recognize that new products and services can represent more efficient ways of addressing complex policy objectives.
It might be worthwhile for entrepreneurs to document – themselves or in partnership with academic institutions – actual benefits derived from the use of their services: clearly demonstrated environmental, financial and social benefits.
One interesting area is that of economic development. Can someone demonstrate that openness to new products and services can help establish a cluster of innovation, that can then be exported to other cities? Or conversely, that shutting every new innovation down chases investment away, and means that you will inevitably end up buying these services from other jurisdictions?
Entrepreneurs should also be honest about issues encountered, and what was and is being done to address them. Yes, bad people will take advantage of these services, and that’s what we do about them.
Finally, they can proactively identify officials’ concerns and address them, together where it is possible. Unpacking concerns one by one may be more useful than launching accusations like “they are protecting incumbents” or “they just resist change”.
Thanks for the very thoughtful article. It presents a helpful structure for understanding and addressing the problem. One more point to consider: Politics.
In many cases current service providers have cozy government-sponsored monopolies. A good example is medallion taxis in big cities. Medallions are used to control the number and, to a lesser extent, the quality of cabs. (By the way, the cozy situation is for the medallion-owners, not the drivers, who also suffer under the system.)
At one time medallions were a reasonable technology serving a reasonable purpose, regulating shared ride service in cities. But today we have new control approaches (e.g. technologies) as well as new shared goals (e.g. environmental protection) – both of which should be included in new regulatory systems.
Uber type shared ride service is a good example. It’s good for the environment if people already going somewhere pick-up someone going in the same direction. Quality probably can be controlled through technology (e.g. user rating systems). These were not true when medallions were invented.
The biggest stumbling block to change is that the monopoly owners will do everything possible to defend their monopoly profits. The only way to deal with this problem is getting involved in local politics.