Should Startups Ask For Permission or Beg For Forgiveness?

wowomnom/Shutterstock.com

Featured eBooks

The Government's Artificial Intelligence Reality
What’s Next for Federal Customer Experience
What's Next for Government Data

Hundreds of innovative businesses operate in legal grey areas.

Last week, California lawmakers unanimously passed a bill, AB 626, that would create a permitting system for people to sell meals they make at home. The bill is the result of more than three years of collaboration between state health regulators, food-justice organizations, and Josephine, a startup where I used to work that enables home cooks to sell food to their neighbors.

If governor Jerry Brown signs the bill into law, it will be the first of its kind in the United States and ostensibly legalize Josephine’s business. The problem is that Josephine’s business was forced to shut down six months ago.

When I joined Josephine in early 2016, the company was riding high. We had just raised our first substantial round of financing, been profiled in The Atlantic and National Geographic, and doubled the size of our full-time staff to 10. We finally felt we were starting to make good on our mission. In the Bay Area, we had built a community of a few dozen home cooks who were making real money feeding their neighbors each week. Our cooks were mostly stay-at-home parents and immigrant women, populations traditionally left out of the economic upside of food jobs. The business was working. It was also illegal.

Whether the problems would emerge in two months or two years, everybody agreed that Josephine would inevitably run into regulation trouble. In an early all-team email, written before Josephine even had a website, Josh Miller, Josephine’s first investor, said, “We’ll eventually have to lead a movement and campaign around food policy and why it is outdated and needs to change—much like Uber and Airbnb have done.”

Those of us who worked at Josephine also wanted to organize politically around food-policy issues, but we didn’t see Uber and Airbnb as our models. It may have been the result of naive idealism, but we thought we could empower marginalized communities, build a business, and change the law by collaborating with policymakers—all before raising series A funding.

The majority of our investors thought investing in public policy was a big mistake. Josephine’s investors were a mix of traditional tech investors like Kapor Capital, which also invested in companies like Twilio and Uber, and angel investors who we thought were aligned with our startup’s mission. To most of them, our legislative work was a distraction from the goal of finding “product-market fit,” the holy grail for early-stage tech companies. They advised us to keep our heads down, maintain a low profile, and continue to grow.

But we were proud to take on food laws that we believed had been written to support an industrial model. From your neighborhood tamale lady to the local firehouse’s pancake breakfast, many informal food operations were illegal in the eyes of the law. And we wanted the world to know. The problem was that our loud activism put us on the radar of local health regulators.

In April 2016, health regulators from Alameda County showed up on the doorsteps of a dozen of our cooks’ homes to serve them cease-and-desist letters. Renee McGhee, a 61-year-old retired baker, who used Josephine to support herself while she was looking after her grandson at home, told me, “I don’t understand why I can’t do what I love for people who love what I do.” The truth was that home cooks across the state had invested trust in Josephine’s ability to navigate a legal gray area, and we, the full-time team, had let them down.

Hundreds of innovative businesses operate in legal grey areas: scooters-for-rent, short-term accommodations, courier services. No company has typified the Silicon Valley approach to regulation more than Uber, which earned a reputation for growing first and complying later. The ride-sharing company went so far as to create a “Greyball” tool to deceive local law enforcement by showing them a dummy version of the app.

In Josephine’s early days, we realized that if we were going to continue with the business, we were either going to have to lean more strongly into the Uber approach to regulation or double down on trying to change the law. The two years leading up to last week’s vote were a result of us opting for the latter.

Venture capital vs. the Capitol

Instead of trying to outgrow or outrun regulation, Josephine worked through traditional bureaucratic channels to try to change the system. After that initial confrontation with the authorities, we got a lot more tactical about what it meant to work with regulators and government officials. In California, we began co-drafting legislation with the California Conference of Directors of Environmental Health, the group responsible for regulating all food facilities in the state. In Seattle and Portland, our first new markets outside of California, we built relationships with elected officials and local nonprofits.

In 2016, Portland was in the midst of a full-scale audit of Uber’s Greyball tool, which had been used to deceive local law enforcement. But Ted Wheeler, the mayor of Portland, went so far as to write a letter of support for Josephine, stating, “My request is for the State to work with the City of Portland to align public health protections in order to support this innovative food model, which will spur economic development and improve food access to highly vulnerable communities.”

But in February of this year, Josephine shut down. “At this point, our team has simply run out of the resources to continue to drive the legislative change, business innovation, and broader cultural shift needed to build this business,” a co-founder, Charley Wang, wrote in a blog post. After three years of asking investors to be patient and policymakers to hurry up, we burnt out.

Assumptions on both sides

The bill sitting on governor Brown’s desk is the result of more than three years of community organizing, town-hall meetings, and writing and rewriting legislation. But as an early Josephine employee, I saw how this approach also led to the company’s undoing. The time and resources required to work on a legislature’s schedule do not mix well with venture capitalists’ expectations for hockey-stick growth.

Governments often look backward—attempting to shoehorn Uber into an existing framework for regulating taxis or squeezing Airbnb into the framework already used to regulate hotels—without acknowledging that these new platforms are fundamentally different businesses. Startups, meanwhile, often look forward—proselytizing a future where everyone is a member of the sharing economy—without acknowledging that a world exists outside of their user base.

There’s a reason that the private and public sectors operate on different timelines. Former U.S. president Barack Obama, in a 2016 speech in Pittsburgh, addressed why government will never run the way Silicon Valley runs. “Sometimes I talk to CEOs, they come in, and they start telling me about leadership, and here’s how we do things. And I say, well, if all I was doing was making a widget or producing an app, and I didn’t have to worry about whether poor people could afford the widget, or I didn’t have to worry about whether the app had some unintended consequences, then I think those suggestions are terrific.”

Governments have to be accountable to everyone, whereas apps just have to be accountable to their users. In this way, regulation is a healthy counterbalance to the force of innovation.

This isn’t to say that “moving fast and breaking things” is inherently wrong either. Notwithstanding the inevitable friction caused by technologies that operate outside of existing legal frameworks, startups often launch anyway. After all, it’s better to have thousands of scooter riders or hundreds of home cooks in your corner before you have to make your case in a government office. It can cause friction, but it can also help cut through bureaucratic inertia. For example, in San Francisco, multiple scooter companies launched—seemingly overnight—without permission from the local government. Though the city initially ordered the scooters to be removed, an obvious public demand compelled transportation authorities to swiftly create a framework for legalization.

“A challenge with tech startups that want to solve urban problems is the venture model behind them is impatient and demands an insane amount of growth,” says Molly Turner, a professor of urban innovation at the Haas School of Business and a former director of Airbnb’s public-policy team. “That can be unhealthy and drive companies to make bad decisions about how they approach working with government, but can also be good in pushing governments to act more quickly on certain issues.”

The California home-cooks bill is the legacy of a failed startup. The C.O.O.K. Alliance, a volunteer-run coalition organized by Matt Jorgensen, one of Josephine’s co-founders, has taken over the organizing effort for AB 626. Jorgensen continues to work on the legislation without pay while also working part-time with the National Domestic Workers Alliance. In many ways, the C.O.O.K. Alliance is the truest embodiment of Josephine’s mission. Like the startup, the coalition’s goal is to create more inclusive opportunities in the food system. But without the need to produce investor returns, Jorgensen feels that the Alliance can focus on building a broad coalition in support of good policy in California and beyond.

Even without Josephine, if AB 626 passes, home cooks will still be able to apply for a permit to sell meals from their homes as early as January 2019. “Although it’s easy to see Josephine as a failure, it kicked off a movement,” Jorgensen told Quartz. “We hope that when tech founders decide to take on messy problems, they’ll have the humility to understand that they don’t have all the answers and the patience to collaborate toward lasting solutions.”