November 25, 2012. Several news items last week caught my attention and gave rise to this article.
According to the San Antonio Express-News, a man rushed into a Sears when it opened Thanksgiving night and “started arguing with people and tried cutting in front of them. One man who got punched pulled a gun and that scattered shoppers, including the impatient line-cutter who took cover behind a refrigerator.”
It’s a good thing Sears sells protective cover like refrigerators, even though for most of us that is not the primary use of that appliance. However, any of us developing products or services for the consuming public needs to be mindful of what can happen when we release our brainchildren “into the wild.”
An article in today’s (Sunday) New York Times talks about how cell phones are being used in India to displace the ancient brothels in the Red Light district by allowing prostitutes to connect directly with clients. The result is an increased risk of H.I.V. infections because brothels are sources of counseling, guidance, and rules on safe sex practices. Without this structure, prostitutes just take more chances.
Meanwhile KUT News in Austin reported on Wednesday that the city gave Heyride a cease-and-desist order. Heyride lets people use an app to pay for rides with strangers, and the city deems that service to fall under taxi regulations.
And on Friday the WSJ wrote about the brewing battles over short-term rentals of homes and vacation homes in neighborhoods primarily occupied by permanent residents. Those residents often aren’t happy with transients next door and are having some success getting governments to enact regulations, taxes, and limits on this practice. Carl Shepherd, co-founder of HomeAway, is involved in a new industry group with the likes of Airbnb to “push cities to enact ‘light’ regulations that steer clear of license and zoning changes but make it easier for municipalities to identify short-term rentals and collect occupancy taxes from them.” Here’s a clear situation where new technologies have made such rentals an easy alternative to hotel stays, but there is some backlash as a result, both from the neighbors and from incumbent room providers who bear the tax burden.
Our own startup MeetMeTix can be construed as operating in the “scalping” arena, although we are merely an intermediary financial transaction system. We have a thick file on all known state, local, and campus regulations on scalping, and we have been asked that question in most due diligence sessions. Our answers have always been satisfactory, and we hope never to be a news item on this topic. But, we are mindful that we plan to flourish in the broader ticketing ecosystem where we are challenging some existing players, even if they are street-corner individuals.
What’s the lesson to be drawn from these various tidbits of news, other than always be packing if you plan to defend yourself at Sears? It’s that in the startup world we are generally injecting new technologies, tools, and concepts into existing ecosystems and behavior patterns. Changing behavior is certainly possible, but it requires a pretty attractive proposition for the end user. What’s perhaps harder to anticipate is for whom this new invention will be an unattractive proposition and how those people will work against its adoption.
Your handy governmental entity is one possible ally in fighting a new idea. Let the taxpayers pick up the legal costs and make life difficult for the newcomer. That seems to the general method of attack against HeyRide (and Uber in some cities) and now against the short-term home/room rental services. Even in the case of the Indian prostitutes, the government there is probably going to bear the ultimate burden of increased disease rates and will be motivated to do something. The whole matter of government participation in our daily lives and businesses is probably going to come to the fore more than it has during the entire lives of the Baby Boom generation, if for no other reason than the untenable math of entitlements and deficits. All of us even at the startup level are going to be paying more attention to regulations and taxes after a few decades of being left pretty much unfettered. And, the more government entanglement in our lives, the more likely we will have to consider the consequences on any strategy we pursue.
To that end, the leading tech companies are exercising the law through civil actions in the patent courts. You’ve read enough about that to be aware of the titanic battles being waged among Apple, Google, Microsoft, Samsung, et al based purely on patent portfolios. Particularly in software or app-based startups, IP has its place but is seldom subjected to a patent process that is too expensive and too long in time to be practical. But, somewhere way down the road, when you are wildly successful, a problem could pop out of the woodwork. Just watch those rounded corners. Patents seem now to be used as much to stifle innovation as to protect it.
Absent your creating some level of public objection to your product, you may be challenging incumbent industry leaders who can choose to fight you in more traditional ways like just squeezing you on price. I remember the consequences when the NYT bought a suburban Atlanta newspaper, the Gwinnett Daily News, with the intention of serving the then very fast-growing Atlanta suburbs and taking advertising dollars and circulation away from the Atlanta Journal Constitution (AJC), owned by Cox Enterprises. All of a sudden the AJC had a special Gwinnett edition for something like 25 cents and all kinds of cut-rate ads. I knew the sellers, who made a fortune, and the NYT area manager, an exceptional man who watched the Cox family rather quickly shred his operations. The AJC did graciously buy the printing plant, which subsequently became the first Bass Pro Shop in Atlanta.
So, just keep in mind that you may be picking a fight you didn’t anticipate when you start taking customers and money away from an entrenched competitor. Don’t get caught with the proverbial knife in a gunfight – unless you’ve got the refrigerator to hide you.
<photo from Sears outlet blog>