John L. and Helen Kellogg Professor of Managerial Economics & Decision Sciences; Director of the Center for Mathematical Studies in Economics & Management; Professor of Weinberg Department of Economics (courtesy)
In mid-2014, entrepreneur Eric Meyer launched a new parking app, Haystack, that intended to do for parking what Airbnb has done for lodging or Lyft has done for catching a ride. The idea was to take people who were about to leave a parking spot on a city street (it was piloted in Boston and Baltimore) and, for a small fee, match them with people who were looking for parking in the area.
Almost immediately after the app launched, both regulators and other parking businesses moved to block Haystack from operating, claiming that selling access to a public space was not permitted. Haystack’s argument—that it was not selling the parking space per se, but the information that the space was about to become open—did not prove successful. Within three weeks, the City of Boston had passed a resolution against the buying and selling of public spaces, with the intention of effectively banning Haystack. Within months, the app had disappeared from stores, effectively ending its brief and controversial run.
Could Haystack have succeeded had it taken a different course? Meyer and Nicola Persico, a professor of managerial economics and decision sciences at the Kellogg School, dissect what went wrong, as well as what other startups can learn from the company’s experience.
This interview has been edited for length and clarity.
Nicola PERSICO: There are a lot of things that you have to get right when you start a business. Many of them are operational: Finding money is a big deal. Making the business work is a big deal.
What went right with Haystack and what didn’t go as planned?
Eric MEYER: We got a lot right at Haystack. Our general model proved to be in demand. Thousands of residents in Baltimore and Boston downloaded the app and hundreds exchanged parking in our initial two-month pilot in those cities.
And while at first glance, some may have questioned our public relations strategy, our high-profile battles with city governments bolstered our marketing efforts and adoption rates. We landed favorable editorials from The Boston Globe, The Wall Street Journal, CNN, and USA Today.
We also got some things wrong. We underestimated the willpower and speed at which city governments would take action against Haystack. While we reached out and tried to work with them [eventually], we could have done a more holistic job earlier on. We were concerned about the dissemination of our proprietary technology to competitors—many of whom had lucrative contracts with those city governments.
PERSICO: With everything else going on, entrepreneurs also have to be sensitive to how much regulation can impact their business model. And I think it’s hard because a business, especially a startup, is totally focused on the customer, while regulators are looking out for everyone else—or, those who are impacted by externalities that the business does not internalize monetarily. It’s almost a paradox: for an organization that has to be totally customer-focused, how do you focus also on the non-customer?
Did Haystack have an intentional “regulatory strategy”? If so, please describe it; if not, what should that strategy have looked like?
MEYER: We had a very simple regulatory strategy: we believed city governments had no authority or right to regulate our technology or the exchange of information between users on our platform. Individuals have a right to share information, and if a user finds that information to be useful, and even valuable, they have a right to pay to access it.
With that said, we did have a larger collaboration and revenue-sharing strategy, which we proposed to the City of Boston. Similarly to ZipCar renting on-street parking spaces from the city for their users (often for free in exchange for the intrinsic benefits ZipCar brings to a city), we were willing to share both revenue and data with the city that could assist them in better addressing their parking infrastructure, which clearly needs attention. When you boil it down to how it impacts a city’s parking-spot assets, Haystack is no different than ZipCar.
Our strategy took a defiant, hard-line legal argument, while extending an olive branch and significant benefits to the city to work with us. That strategy proved not to be fruitful.
“We underestimated the willpower and speed at which city governments would take action against Haystack. While we reached out and tried to work with them [eventually], we could have done a more holistic job earlier on.”
— Eric Meyer
PERSICO: Was there ever an opportunity for Haystack to shape perceptions in a favorable way? In hindsight, what would you have done differently to anticipate and get ahead of some of the complications that arose from the perception you were operating in a legal “gray area”?
MEYER: Our team did a fine job looking at the existing laws, codes, and regulations, but we could have done better at anticipating legislation that could hinder us—and anticipating how quickly it might be passed. We thought any legislation would have taken 6–12 months to materialize. Our objective during that time frame was to build a strong case for the benefits of Haystack, with real data to show its value for drivers and the city as a whole. Instead, the technology was banned 17 days after it launched in Boston, which meant we faced daily fines.
In our discussions with government officials, some council members were upset we didn’t involve them sooner. That lack of good will didn’t help make our case that Haystack was a positive benefit for the city.
But our largest miscalculation wasn’t with city governments, but with our competitors with alternative parking technologies, such as Zipcar, who stood to lose millions of dollars’ worth of government contracts if our model continued to be adopted by users. They quickly took up an aggressive lobbying effort that forced city councils to act fast.
In hindsight, I would have had our team conduct much better research on indirect alternative parking technologies. Understanding the threat they would pose, I would have perhaps tried to work with them from the beginning.
PERSICO: Did you factor questions about regulation into your business plan? Did investors push you to address regulations?
MEYER: We had many long and hard conversations about the impact of regulation and city code on our model. Our investors, our legal team, and I all came to the same conclusion: that many disruptive firms faced similar gray areas and we were comfortable with the risk. From the beginning, we retained a very large law firm that helped us craft our approach and prepare arguments for challenges we thought we might face. We concluded that while we would likely face roadblocks in some cities, we would be able to prove the value of the technology to the public and city and build a user base to help lobby against any new debilitating legislation.
PERSICO: I advise people that there’s nothing dirty about engaging a consultant or lobbyist to help navigate the regulatory environment. You have a meeting with them where you explain the idea and see what they recommend. Then you build your business plan around the facts and expenses that they outline.
Of course, you also bear in mind that these are consultants, and like every consultant they’re trying to make a buck off of you. So in addition to listening to them, you also have to bring your own judgment to the table and chase a strategy that works for you.
I know that many aspiring entrepreneurs seek your advice. What do you tell these entrepreneurs to be aware of when launching a business that hopes to either disrupt an established sector or operate in a regulatory gray area?
MEYER: That’s a very difficult question to answer because each case is so unique. In general, given my experience with Haystack and then with other startups like OrderUp, WeWork, and Bungalow, I would recommend entrepreneurs spend more time and exercise more caution on the realities of regulation and competitors.
I often hear arguments similar to ours at Haystack, like, “it’s technically legal,” or “they won’t be able to act quickly enough,” or “our customers will be so numerous they will hit the streets if this service is taken away.” Those arguments may make us feel a bit better, but they don’t hold water.
Specifically, I’d recommend entrepreneurs take a hard look at each potential actor who could be threatened. Direct competitors. Indirect competitors. Other industries whose revenue could somehow be reduced. And of course, regulatory groups. They should then craft a plan specific to each and every group, with a worst-case scenario for each group. Because if you are planning on disrupting a new industry, you should be prepared for a well-financed army to come at you. If your model catches on and anyone’s pocketbook is about to get a little lighter, they will act. And they’re probably better prepared and positioned for the battle than you are.