"Elon did not take my advice," Bradley Tusk said flatly.
Back in 2015, Tusk said, Tesla contacted his New York City-based venture capital and political strategy firm Tusk Ventures. Tesla's direct-to-consumer sales approach had met legislative resistance from different states such as Texas, Connecticut, and Michigan. Tesla wanted Tusk Ventures, which has guided startups like Uber, Eaze, and FanDuel through tough regulatory issues, to help the electric car company mount a campaign against traditional car dealerships.
What Tesla didn't understand, Tusk said, was that car dealerships are solidly entrenched in communities, sponsoring Fourth of July parades and local baseball games. They also have deep lobbying power.
Tusk, who served as Michael Bloomberg's campaign manager and Uber's first political strategist, told Tesla its ads would need to be aggressive and highlight things like "pay-to-play" corruption and how dealerships impose unfair taxes on consumers. In other words, Tesla would need to sharply criticize a deeply incumbent player in the auto industry.
Tesla's response, according to Tusk: "Elon's reputation is too important, and we can't risk it." To this day, Tesla can only operate galleries and service centers in states such as Michigan and Connecticut, instead of sales centers.
And Musk's reputation?
"Now Elon has managed to totally fuck up his reputation on his own anyway," said Tusk, eliciting a roar of laughter from a crowd of more than 200 entrepreneurs and students on January 10 at Columbia University.
Tusk told the story as part of a panel on how to operate a company in a highly regulated industry. He spoke along with Evan Burfield, author of Regulatory Hacking, and Steve Blank, creator of the Lean Startup movement. Eric Schurenberg, CEO of Mansueto Ventures (the parent company of Inc. magazine), moderated the discussion.
In recent years, hot tech companies have tried following the playbook Tusk describes in which they make aggressive moves to grow fast and apologize later if they overstep local laws in the process. Lately, however, regulatory roadblocks are slowing them down and disrupting their plans. Airbnb faces ongoing challenges from City Hall over its New York City operations; the Food and Drug Administration is cracking down on trendy vaping startup Juul, which has become popular among teenagers, to curb sales to minors; and Congress is putting Facebook and its privacy practices under a microscope. In short, companies in a range of industries face a highly regulated climate. To navigate it successfully, founders looking to challenge the status quo need to be thinking about the possible regulatory consequences of their products and services as early as possible, the panelists said.
Not surprisingly, Tusk cited Uber as a classic example of a startup that managed to win some regulatory battles. In the on-demand economy, the "apologize later" approach works--until it doesn't. When Uber made it's New York City debut in 2011, the ridesharing startup faced opposition from the Taxi & Limousine Commission and City Hall.
Mayor Bill de Blasio is a champion of equality, said Tusk, and Uber's high valuation rubbed him the wrong way. It was Tusk's job to hammer home the point that many Uber drivers are immigrants and low-income residents who are just trying to make a living--and that there's a history of taxi drivers discriminating against people of color. Tusk helped orchestrate an ad campaign that positioned the taxi industry as being discriminative, featuring real drivers and passengers.
It worked--in 2015, the City Council dropped a bill capping the number of Uber drivers. (However, last August, the City Council passed a new bill capping the number of for-hire vehicles for a year while the city studies the industry.)
Meanwhile, Airbnb's aggressive push into New York City has been met with intense resistance from the city, which has accused the company of aggravating a housing shortage. (The City Council voted last summer to restrict online home rental services, but a Federal judge blocked the law from taking effect this month.) One difference between Uber and Airbnb, Tusk said, is that Uber's customers, who are local voters, were motivated to rise up in favor of the company. Airbnb's customers are tourists and therefore not likely to support the company's cause in New York City.
Electric scooter startup Bird, Inc.'s 2018 Company of the Year, also tried a variation of Uber's apologize-later strategy--spearheaded by Tusk--by rushing into cities that didn't have e-scooter laws and waiting to see what consequences, if any, it would face. The approach backfired in San Francisco; the city has permitted only Scoot and Skip to operate. While the strategy has worked in other locales, it has come at a high cost--racking up half a million dollars in fines and court fees, numerous cease-and-desist letters from government officials, and at least three lawsuits, as reported by Inc.
Now Bird, which is currently valued at $2 billion according to PitchBook, deploys different strategies: collaborating with cities when the company doesn't think there's any other way to enter the market, and waiting to see how certain policies play out in different cities before deploying its scooters in them. Tusk is lobbying in New York, Chicago, Philadelphia, and Seattle to legalize e-scooters this year.
Tusk pointed out that Bird has been thinking about regulation since its series A, having brought on a slew of policy strategists, lawyers, and lobbyists to combat local laws against e-scooters. Bird examined all 50 states and identified the laws of the land: what's allowed, who's in power, and the extent of their political power. If Bird couldn't operate legally somewhere, what would be the penalty? As a result, the company "hasn't lost [its] profit anywhere yet," Tusk argued.
While it's certainly useful to study the spectrum of approaches these companies have taken, the panelists emphasized that founders must develop a deep understanding of what's at play in their own industries.
Founders often take the wrong lesson, for instance, from Uber's success, Burfield said. You don't necessarily need to take incumbent players head-on, if you're thoughtful early on with the conversations and branding, he argued. "My approach is fight if you have to fight. But figure out how to not fight if you can," he said. You should be keeping a paper trail and getting permission for everything in case "shit hits the fan," added Blank.
The biggest blind spot for entrepreneurs, however, is "not knowing they're operating in regulated markets," said Burfield. "They don't understand how power moves." It's not just about understanding your customers but also about understanding who will permit you to enter the market. Just as crucial? Being honest with the press, Tusk added, nodding to the recent media reports slamming Facebook's COO Sheryl Sandberg for being secretive. "The best spin is no spin," he said.
Tusk left the audience with a quote from Pericles, an Athens general: "Just because you do not take an interest in politics doesn't mean politics won't take an interest in you."
"It's equally true today," Tusk said. "You gotta take this stuff equally seriously or otherwise you're not going to make it."