In any decent business plan (yes, I still believe in business plans, I will write about it in another post some day) there should be a section dedicated to PEEST factors. As an innovator, you should study the effect of the Political, Economical, Ecological, Social and Technological factors as external elements that may have an impact on the business model of the new company and its future financial results.
This is important, because in some cases, regulatory bodies may be the most important partners you should take into account. This is true even if they cannot be seen in the value chain or customer journey of your new business.
However, in practice it can be very tempting not to take into account how a regulatory framework may affect your new endeavor negatively. The ambition of «changing the world», which is a legitimate one, can put the innovation team in a state of negligence or denial about this issue.
However, reality bites, and the consequences of ignoring the legal framework can be tough. Take a look at Uber, the ride sharing company, which is facing a tide of regulatory setbacks, forcing the company – or its main service, Uber POP- out of several countries.
Another example is Aereo, a startup that based its business model on capturing TV signals without any agreement with broadcasters using proprietary antennas installed at the customer’s premises. The price customers had to pay for the service was as low as 8 USD a month. Of course, TV broadcasters reacted and sued Aereo for stealing their signals without paying any fees and in addition. Aereo lost, and today, the company doesn’t exist anymore.
In addition, regulatory bodies tend to react late, and only when the innovative company has created enough buzz and distortion among incumbents. This is important, because in most cases all investments in technology, infrastructure, marketing and growth are already «sunk cost». Again, look at Uber. It is suffering the present massive wave of regulatory attacks in EU and other regions just as the company is still losing over 600 bn USD every quarter and is going for IPO. Airbnb, the other star of the so called sharing economy, is starting to feel the heat, too. its breathtaking growth is slowing down in those markets where regulators are reacting, and the expected IPO in 2018 may be in jeopardy.
There is always the possibility of becoming regulated. However, that brings a new and most probably expensive element to the business case, usually linked to taxes or fees. One of the advantages that made the innovative product or service more attractive to customers, price, becomes then very difficult to maintain. The very business idea that attracted investors in the first place becomes, de facto, invalidated when massive investments are already done. In the case of Uber we are talking about 11,5 bn USD .
States and regulatory bodies are slow, may seem invisible, but they are powerful. When creating the Business Model Canvas of your new enterprise you should always include them in the box labeled «Partners». And never assume they won’t react. They will, specially if your business model is in principle illegal and avoids taxes states are used to.
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