How Uber Took Manhattan

By their very nature, new technologies challenge existing policies. Given the friction between disruptive ideas and entrenched interests, entrepreneurs need to by hyperaware of the regulatory and political climates in which they operate.

In conversation with Kellogg’s Nicola Persico, professor of managerial economics and decision sciences, Tusk discusses how young companies pushing disruptive technologies can be proactive about regulatory challenges.

This interview has been edited for length and clarity.

PERSICO: Why was it so critical that Uber win the regulatory battle in New York City specifically?

TUSK: There are two reasons: First, New York City is one of the biggest, and undoubtedly most important, markets for the company both in the U.S. and worldwide. And second, because New York City is the global hub of both finance and media, what happens there is seen everywhere.

We understood that a good outcome would have a positive effect of chilling bad regulation everywhere else, and a bad outcome would encourage bad regulation in other markets. Consider the contrast with Airbnb: it really misplayed New York and ended up with legislation that effectively makes it impossible for Airbnb to operate in the city—and now there have been copycat bills all over the world.

PERSICO: So what do businesses do to navigate a regulatory challenge like this one?

TUSK: More than anything else, they have to take it seriously. What I often see with both startups and more established businesses is one of two things: either they underestimate the regulatory hurdle until it’s too late, or they go into full panic mode and overreact in a way that distracts and drags on the entire business.

The proper way to handle this is to maintain a continuous appreciation for the regulations and regulators around your industry, as well as for the politics that surround you and your competitors. Most new companies are in regulated industries, and most fail to understand or adequately prepare for the regulatory implications when they start the company. If there is one lesson to take away, it’s that no matter how great your idea—your platform, your application-program interface, or anything else—if you’re in a regulated industry, you need to understand what threats you face and be able to deal with them properly.

PERSICO: In talking to business leaders, I find that there is generally an insufficient appreciation for the power of government to regulate. Until the problem stares you in the face, business people—especially traditionally educated business people—tend to think that the government is slow moving, incapable of action, and ultimately irrelevant. They think politics is not really something that the CEO really should worry about, that it’s not part of the core competence and it will take care of itself if you have a good product. You know, that attitude. And as a result, a lot of business people are not adequately trained to appreciate the power of government.

From a leadership angle, what allows a company to most effectively interact with regulators?

TUSK: The first thing is the basic acceptance and understanding that politics is its own language, its own world. The normal inputs of business—profit and loss—just don’t apply. In politics the currencies are poll numbers, media coverage, votes. Companies must have people, whether internal or external, with the skillsets to speak this language and operate in this world.

Second, every decision must be contextualized. Sometimes it makes sense, as a company, to be cooperative, sometimes confrontational. I talk to companies who want a guiding principle: Should I beg for forgiveness or ask for permission? Well, it’s not that simple. Every jurisdiction and every decision poses a different question and should be understood in its own right. Leaders should strive to understand this context.

PERSICO: And all the while the company needs to make sure it adds value. Added value is the treasure from which new companies can create coalitions of people who benefit from their service. How each company builds those coalitions varies, but they can be critical when it comes to regulatory concerns. Uber, for instance, had a strong user base in New York City.

Were you worried when running this campaign about taking a public-relations hit? How did you thread that needle between keeping the public image positive and getting your way?

TUSK: You know, we were less worried about that than you might think. As long as we were able to continue to offer a really good product, then I felt we would be okay from a customer standpoint.

Companies can easily worry too much that being politically aggressive will negatively impact the brand. Impact on the brand matters, of course, but it is one of many inputs to consider when solving a particular political problem.

PERSICO: Beyond Uber, you’re engaged with larger regulatory issues, like how work is increasingly being done by contractors and how those workers are going to be protected. This is something that government has traditionally taken on in a variety of ways, but it seems government at all levels is struggling with the question of what protections are going to be applicable to this more fluid workforce. Do you see this as a big struggle facing businesses?

TUSK: The nature of work is changing dramatically. That is going to be one of the biggest issues for regulators to deal with over the next decade.

There are clearly a lot of people who want the flexibility of working for different companies. At the same time, they may want to receive things that traditional employees have. The big political question in the next couple of years is whether or not they’re going to be allowed to have that. Labor unions are concerned because they fear that if people both can have the flexibility of being an independent contractor and also get benefits, then they don’t really have much reason to join a union.

I’m working right now with a variety of companies to craft and push legislation to define a new worker classification that sits between a 1099 independent contractor and a W2 full-time employee. For instance, we’re looking at a way for people to receive benefits that both they and their various employers pay into that would apply across multiple platforms.

PERSICO: Do you see companies banding together—as an industry, for example—to think through these broader changes, like new worker classifications, or healthcare? Are there ways in which these issues can be approached collectively?

TUSK: I think this is starting to happen, but it’s going to take a while. Companies are cognizant of the regulatory challenges they face and, at times, they have to band together to find collective solutions, because none of them has the power to deal with these issues individually. There are times when companies recognize that they can each fill in one part of a complicated jigsaw.

PERSICO: The term that comes to mind is “trade association.” Trade associations have existed for a long time, traditionally in more stable sectors; we have very strong trade association in steel for example, or in pharma. When you get to entrepreneurial areas and startups, where the character is often intensely individualistic, it becomes harder to create that unity of perspective that gets governments to respond to industry needs. But I think we’re starting to see these develop around new industries.