Innovation and Regulation at #SXSW

Scott Francis
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I attended a few inspirational sessions at SXSW this year, and I want to share some of what I heard and learned.

In one particularly interesting session, four Austinites spoke about “Innovation vs. Regulation” at the Austin Chamber of Commerce offices. There’s been a heated debate recently – stirred up by Uber and Lyft, and some investors and entrepreneurs – as to whether Austin’s new City Council is hostile to innovation.  This session happened in that context, thought the scope was broader than that single issue.

The Austin Chronicle has great coverage of the panel:

SXSWi panelist and councilmember, Ann Kitchen requested a change to the title of the panel Innovation vs. Regulation in Austin. “It’s not ‘versus’” she said. “We’re talking about innovation and regulation.” A graceful intro from someone at the center of Austin’s transportation/regulation debate.

I thought that comment set a good tone, as each of the panelists talked about having a more constructive approach to both regulation, and innovating in the context of regulations.

Will Wynn shared his perspective that there’s no way that regulations can keep pace with the innovations that are happening.  When asked if “public safety” was really the reason for being concerned with TNC’s, he had a pretty reasonable response, which is paraphrased as: Well of course public safety is our #1 priority in city government.  We spend about 70% of the budget on public safety – fire, police, EMS, and other public safety policies.  Only 30% of the budget is spent on all the other things the City is involved in. 

That really put the public safety investment angle into perspective for me.

A comment was made from the audience that government in some sense gets in the way, and we should just get out of the way and let companies solve these problems.  But quite rightly, the panelists pointed out that companies are quite good at solutions that people will pay for – but not so good at solutions for people who can’t afford them.  Good at providing rides to hipsters in downtown Austin. Not good at providing rides to minimum wage earners who need to get to work.  Good at providing jobs to people who already own their own cards – not good at providing jobs to people who don’t (as an example).

I can’t properly attribute the comments but one of the panelists pointed out that Austin has quite a bit of transportation innovation going on.  Austin was the first city in the Western Hemisphere for the launch of Car2Go, which worked with the City Council to make it happen.  Austin has a bike share program that has been successful with near-downtown transit.  Austin also has a variety of other programs including pedi-cabs and TNCs.  What has set Uber and Lyft apart from these other programs is that they aren’t really working with the City to address the public safety concerns that they could really improve upon – they took a more confrontational stance instead. The lack of sense of community on the part of these companies was very apparent in Austin.

I’ll quote from an interview given by AirBnB’s Brian Chesky to Reid Hoffman at Stanford, for a different kind of example on engaging with the community (emphasis added):

Brian Chesky: Our first instinct was to fight — in 2010, we staged a political rally in city hall. After thinking about it some more, we realized that this approach was not the right approach for us. We were a company about people living together — it’s not good to have a fighting approach.

Instead of fighting, we decided to kill them with kindness and partner with cities. I had always had this belief that if people didn’t like me — I wouldn’t talk to them. Instead, I learned to meet with everyone who hates me because you will hate me less if you get to know me.

Whurley pointed out that Uber and Lyft have, thanks to their applications, reviews, and iPhones, the ability to make using an their services dramatically more safe – perhaps only sending 5-star drivers to pick up a lone woman catching a ride home late at night; perhaps automatically texting a friend or safety contact upon pickup and drop-off to let them know the passenger is okay; perhaps using their knowledge of trip time and location to know when something is wrong – and to call the driver or contact authorities to make sure that passenger is getting home.  His point wasn’t about a single idea, it was that there are a wealth of ideas that an Uber or Lyft could bring to the table that enhance public safety with innovation and technology, rather than fighting regulation on the same issue – and that that is what innovation looks like, in his view. Whurley also pointed out that getting upset over the regulations TNCs have to deal with seems like child’s play compared to the regulations required of financial services companies (of which his startup is one).

And I think that’s the key thing to take away: if you’re an innovator, you have to be aware of the regulatory environment and context.  Don’t expect it to change to your benefit.  Understand that context and the objectives – and if you can, co-opt some of those priorities for your business and show how innovation can produce even better results than the bare minimum that regulations require.  If you believe that regulations are killing your business, The Chronicle captured this exchange with Will Wynn really well:

Wynn drew a comparison to the challenges we face today with ride-sharing app regulation to building regulations challenged during his tenure − further offering an anecdote from a 2009 real estate function. “Seemingly two-thirds of the lane miles Downtown were behind barricades because something was being built,” said Wynn. But industry leaders were “griping” − asking for “help getting through all the [building] regulation,” he said. People worried no one would build. The weird thing to him even today? If you look out any window, “there is nothing but tower cranes.” Suffice it to say, he thinks some might be exaggerating the problem.

I’ve made this precise point to people in Austin over the last 20 years.  Sure, regulations can be a pain in the neck.  But first, regulations clearly haven’t kept Austin from having the biggest building boom in history, which has overcome whatever drag was created by regulation. 

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And second, regulations are a big part of why we have the downtown we know and love today.  Why? Because regulations required developers to put retail on the first floor of their high rises if they wanted to get height limit exemptions in the central business district.  The idea first took off in the 2nd street district, but has now spread to every new building that is going into downtown Austin. Regulations do drive up costs, and increase friction – but they can also cause businesses to make trade-offs that help in the long run. Those first floor retail spaces were pretty under-utilized the first few years… but as the district grew in size and vitality, and as the evening population of downtown Austin grew, the momentum has built to the point that the downtown street level environment is better than ever. New developments probably never question that they want first floor retail and entertainment now, but they would never have considered it back in the 90’s. 

I guess the biggest takeaway from the panel is that innovation happens in the context of regulation. Innovators have choices besides playing victim – including further innovation. 

New buildings in the skyline

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