The lesson: break the rules and grow so fast that by the time regulators catch up, you can put on a show of reforming and still keep most of the value that you created.
Admirable disruption or horrible cheating? I don't know how to feel about it.
But you rightly recognize that there is a prisoners dilemma when it comes to moral behavior. Your stomach is tempting you to defect. Your heart is telling you not to. And your head is wondering how the game could be structured to favor your heart over your stomach.
I'd normally just up-vote and move on, but I've gotta ask: Is that original or did that come from somewhere? If the latter -- I'd appreciate a reference because I'd like to read more.
And then, thankfully, your brain chimes in, and reminds you that while short-term PD-like scenarios seem to reward defection, in iterative scenarios -- more comparable to PD-like situations we encounter in real life -- it is cooperation (or at least, not fucking your neighbor over for the sake of short-term gain) that is very strongly incentivized.
One just ruined all the goodwill they built up with me over the past year (which got them countless free hours, crunch time at short notice, etc.) by stiffing my company of about a grand - literally a few hours' work - on some badly structured justification, the real reason being he felt his colleague was not negotiating hard enough with me and he "showed him".
Now I'm going to stick to the contract hours and probably prioritise other work over theirs; I also changed the payment terms to be upfront to avoid stiffing, and if they want extra hours, guess what, their sticker price went up from their discounted price for longstanding cooperative clients to "market rate". I guess the thousand bucks is visible and the value they lost isn't, so he probably thinks he was very successful.
It bewilders me that someone can be in business for years and not understand that cooperation is a better strategy, but there are a lot out there. I've found the short term cost of cooperating with defectors worth it in the long run, though.
Nash equilibrium in a regular PD would be DD, but it assumes that the other side will defect. I think from experience that the payoff grid is different in business in that instead of CC resulting in a lower payoff for C than for D in CD, it's a much higher payoff; and the D in CD is not getting much more than in DD (maybe 20% more).
[1] http://www.nature.com/ncomms/2016/160412/ncomms11125/full/nc...
Let's also not forget that Conrad is not going to jail. It's a billion dollar company that's going to pay millions in fines.
> Zenefits might also survive for the one reason that made its product so appealing to business owners in the first place: Shopping for health insurance remains really frustrating. The company says it now has 20,000 accounts. “As long as their problems don’t affect our company, we’ll stay,” says Todd Harmond, vice president for finance and operations of the e-book service Scribd, which uses Zenefits to offer Kaiser Permanente and Anthem health insurance plans to its 85 employees.
> “Unless something else goes really wrong with Zenefits, we’ll stick with them for a while,” says BlogMutt’s Yates. “It’s too much of a hassle to switch.”
Take Tesla as an example -- a company who has tried to sell cars online. Since many states hadn't seen that before, they tried to rule that it was illegal due to dealer-sales regulation. Do you fault Musk for hacking this (bad) regulation by trying to work around it? Is he not proving its spuriousness by innovating in this manner?
In some cases its considered hero's work, and in other's villainous greed.
I don't see what being online has anything to do with it; the spirit of the rule - preventing the manufacturers from competing with dealerships - is valid anyway. I personally disagree with this rule, but the "online" part is just Tesla trying to get off on a technicality.
But if a manufacturer never setup a dealer program? Fair game to them, IMO.
The issue is that many states have laws preventing OEMs from selling directly.
There are similar laws for unions.
A law that forced OEMs who wanted to sell directly to have repair shops in the region would have that intention. In this case, it's pure window dressing.
States regulate auto manufacturers from competing with their dealerships; Tesla selling online would be a federal issue (interstate commerce).
Ergo, Tesla gets around bad regulatory capture by using a law that supersedes state law.
Or both simultaneously, sometimes even by the same people!
Since you explicitly mention "grey state," it appears you recognize the subjective nature of both law and morality.
For me, and presumably a bunch of other people, AirBnB and Uber provide really services far superior to their predecessors.
At least, this is what happened in Berlin (and AFAIR also some other large German cities), which is why Berlin is looking into banning AirBnB (by requiring special permits for vacation homes). Source e.g. http://www.spiegel.de/reise/aktuell/bussgelder-ab-mai-berlin...
So, it may not be AirBnB's fault primarily. They're just making bad situations even worse.
Why would you create a new home when you just can increase the rent?
But the idea that when you don't like a law, you're free to ignore it is not something acceptable in a civilized society. There are ways and means to affect the legal situation (and numerous companies in Europe managed to use them successfully when it comes to taxis - so much that on the old continent, Uber is not really an innovative service), but you have to play by the rules. Breaking them should - and usually does - result in you getting fined or imprisoned.
Uber is exploiting the high inertia of local government bodies; their strategy is to gain enough popularity fast enough that they can play the local population against lawmakers - not unlike a fast-spreading virus that overwhelms the host before their immune system can mount a defense.
What I don't want is to see this blatant, unilateral defiance against the law to spread. Today it's a taxi company with a silly app and a big marketing budget; tomorrow it will be the next hot e-commerce site that plays fast and loose with customer protection laws; the next week it will be a biotech startup that thinks biosafety regulations are optional and otherwise a nuisance.
The superiority of Uber's service over regular taxi is true (a bit smaller advantage over "people transport" companies we have in Europe, but Uber brought some "innovative" solutions to the continent too, like controlling taxi radio via Spotify...), but I absolutely disagree with the approach they take and even more I dislike the way this particular company behaves. There's also some blame to be put on the governments too, for not reacting quickly and decisively enough (kudos to Germany for doing it right) - there's little that can undermine the trust in the rule of law more than seeing people getting rich by ignoring the rules.
Civil disobedience is very much a part of civilized society, your premise is flawed.
As for civil disobedience itself - it may be necessary sometimes, but this should be something rare, not a business model.
Now I say to other people "don't worry, AirBnB hosts won't harvest your organs or anything" and they may begin trusting AirBnB hosts (or hosts in general) more.
Trust on a social level is something that keeps civilization together. It's what lets you do business and deal with people without constantly looking over your shoulder worrying that everyone is out there to fuck you over. AirBnB makes a lot of their money by eroding this trust.
I think the point the OP was making is that it might be better for you to do so, it's unclear whether it is better for everyone else.
Sounds like family christmas was a hoot :)
Heck, this isn't just a game plan for startups, it's standard operating procedure for big banks. The only real way to deter bad behavior is to send people to prison.
Unfortunately many of the laws created in the name of "consumer protection" do little to protect anything but the entrenched interests that lobbied for the laws.
EDIT: Grammar.
There is no need to have a perfect system for handling all situations with bad laws and which should be broken.
Humans have brains, we should use them to determine that question for ourselves.
It's very difficult to find the right balance between equity and flexibility.
If it was that easy, wouldn't we have made and edited the laws already to align to that?
Using Uber as an example, what they do is they just move into a new markets regardless of the current regulations.
Most of the time, the regulators are extremely slow to act, and by the time they get around to acting, Uber has already won the hearts and minds of consumers.
And then the regulators try to act against Uber, until there is massive push back from consumers. This massive push back ends up scaring the regulators into changing the law in Uber's favor, and Uber never ends up being regulated, even though they blatantly broke the law in the first place.
And BAM, Uber wins in the vast majority of situations.
This strategy only works though because the laws are bad in the first place, and Uber is making the industry a much better place for consumers.
With a mining company non-compliance could poison water supplies and sicken/kill people. With Uber (and a lot of the sharing companies) they can cheat workers out of the protections they would normally receive with a job.
On the other side with Tesla, selling directly to consumers doesn't hurt consumers at all, but it does create a slightly uneven playing field with incumbent manufacturers who have to sell through dealerships. With Uber, customers tend to get a better service but it creates an unfair playing field with taxi companies, who have to pay an enormous amount of money for medallions while adhering to tightly regulated fares.
From the government's standpoint, there's usually some amount of discretion in enforcement of the law. Laws that protect people from harm should be pursued more vigorously than laws that maybe protect old business models more than they protect actual consumers.
The reason this works in practice is because when a company becomes that big, it's impossible to place blame. Any repercussions against the company as a whole will mostly impact the honest and innocent folks.
From the company's wiki page:
> In July 2013, Zenefits announced the completion of a seed round led by Venrock and Maverick Capital, with investors including Andreessen Horowitz, Yuri Milner, General Catalyst Partners, Garry Tan, Justin Kan and Alexis Ohanian. The round also included angel investments from Box co-founder and CEO Aaron Levie, Quora co-founder Charlie Cheever, former Googler and Twitter VP of Corporate Strategy Elad Gil, Weebly co-founder David Rusenko, former Googler and Badoo COO Ben Ling, Google’s Head of Spam Slamming Matt Cutts, BuildZoom co-founder and CEO David Petersen, and Inkling co-founder and CEO, Matt MacInnis. (...) Including the company's initial US$372,000 raised from Y Combinator,
Sad to see people like Alexis Ohanian and Matt Cutts in there, people that I personally respect. It's also interesting that Y Combinator and their founders haven't said anything of interest regarding this whole mess since it started, or maybe they're all waiting for it to calm down and for business to proceed as usual.
So it seems advantageous to me that, as long as you're not directly putting someone into harm's way or trying to screw with the IRS, you should always break the law to get ahead.
I understand that it ends up having impacts on people that aren't necessarily involved in the misbehavior, but it provides officers and investors a significant incentive to avoid wrongdoing.
But the folks who had a few too many beers and missed the last Caltrain and would otherwise drive home drunk if Uber didn't exist? The innocent folks that would otherwise have been killed by a drunk driver if Uber didn't exist? The folks who drive for Uber to pick up some spare cash in their spare time, or the ones who do it because they can't find any other income and would otherwise be destitute? The folks who drive for Uber to meet interesting new people? The Uberpreneurs who pitch their wares to a captive market for the duration of a ride? They all benefit significantly from Uber's existence.
That's why this "get big fast and then hope you can avoid the consequences for your wrongdoing" strategy exists. The consequences will oftentimes not be known at the time an idea is conceived. Sometimes they will be much, much worse than is apparent at the time (look at the environmental pollution and global warming caused by heavy industry), while sometimes they will be a lot better (look at the liberalization and toppling of many totalitarian regimes since Facebook and Twitter came out). Oftentimes they will be both worse and better at the same time; someone killed in a revolution has clearly suffered, while someone who can open up a business that would previously have been shuttered by the government has benefitted.
This is quite a stretch. Uber is eliminating drunk driving fatalities now? Those same people couldn't have called a cab before Uber existed?
Speaking for myself, I take Uber/Lyft regularly but would have never even considered attempting to call a cab and dealing with the cost/uncertainty inherent to that. I'd much rather not spend an hour waiting outside for a cab that ultimately decides not to show up. Rather than deal with cabs, I would simply just not have had a drink if I didn't have a designated driver.
I can remember a specific example several years ago in Nashville (which is quickly becoming a big city) where after waiting for 15+ minutes downtown I had to start calling companies telling them to send a car to my corner.
Before Uber came to Chattanooga (a decent-sized city) calling a taxi wasn't even a viable option unless it was for a scheduled 4AM airport pickup.
Well you have to decide what is or isn't worth destroying a business entity. Let's say Startup X breaks a law that, while illegal, has little to no impact on the general public. Let's say Startup X isn't found out until 5 years in and they're doing $300 million in revenue but without breaking that law they would be at some unknown number less than $300 million. Is that worth putting them out of business? If so, why? If not then what is the appropriate punishment?
Seems like a really hard problem to be fair all the way around.
As far as if it's worth putting them out of business, I don't see why that should even be under consideration. You can't do the time, don't do the crime.
Illegal is somewhat subjective.
Wrong is entirely subjective.
Investors keep pouring gasoline on the fire; the message is "GROW GROW GROW" ... but if the fire burns out of control, it's somebody else's problem.
The fact that you understand this could bankrupt and destroy people's lives simply because they worked at the wrong company at the wrong time, but still seek to rationalize it, is more than a little disturbing.
Having draconian penalties for line employees is not going to do anything to dissuade a C-level executive who wants to commit fraud from committing fraud.
Holding them personally responsible for fraud would help. As in you were the person in charge when this happened, here is a fine of millions + 2 years in jail.
That's why they get the big money right? To be the ones responsible?
Well, shit, best stop Uber from putting taxi companies out of business and Amazon from bankrupting booksellers.
You can't really prevent people from breaking the law (why have the law if it's impossible for anyone to break it?), but predetermined consequences could be played out when the law is intentionally broken.
It seems that RICO would apply to this situation. Multiple individuals and companies/funds conspired to commit fraud.
We live in a free society and therefore we have the freedom to disregard any law that we consider "bad". But we must also face the consequences of our actions.
http://bastiat.org/en/the_law.html
and this quote:
* What, then, is law? It is the collective organization of the individual right to lawful defense.
Each of us has a natural right — from God — to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but an extension of our faculties? If every person has the right to defend even by force — his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right — its reason for existing, its lawfulness — is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force — for the same reason — cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.
It is a choice being made to prioritize the preservation of the company, though. Imagine a criminal justice system that prioritized the job of the criminal.
Why not? If enough stuff like this happens, then companies are going to realize that breaking the law does actually have consequences.
Not that Aereo or Napster were cheaters, or even doing anything wrong, but they were engaged in technological efforts to bypass the intent of the laws on the books, and it didn't pay off.
[1]: http://www.sec.gov/spotlight/enf-actions-fc.shtml
[2]: http://www.nbcnews.com/news/us-news/gm-justice-department-re...
[3]: http://www.nytimes.com/2014/03/20/business/toyota-reaches-1-...
In short, the law they broke was learning the material too rapidly.
I'd happily call this admirable disruption. The real failure lies with the California regulators who made it a crime to click through a powerpoint too fast - unfortunately, unlike the CEO of zenefits, they kept their job.
But just because I don't have particular instances of harm, doesn't mean this isn't an problem. If you let anybody sell health insurance, you end up with con artists selling sham insurance, and by the time you track down the conman, real people are hurt. Sure you can fine the shysters, or maybe even put them in jail (but probably not), but in the meantime, families savings are wiped out to pay the medical bills, or worse, people get sick and die because they can't get treatment.
And what's the reason for handing out these licenses based on butt-in-seat study time instead of a proctored exam and/or interview?
I was able to unlearn these less effective set of rules by studying different schools of ethics.
And we're a good bit worse than 11th there.
Occupational licensing has some overlap, but regulations are often very good for very big businesses since they impede competition from small challengers. Anyway, I'm mostly sympathetic to your points, but it's important to distinguish between being 'business friendly' and being 'friendly to status quo corporations'.
From the viewpoint of most countries in Europe it would be considered "very liberal".
(EDIT: Also the source you mention is clearly politically biased. https://en.wikipedia.org/wiki/The_Heritage_Foundation )
However, academic studies from two accredited institutions that don't have a particular ax to grind are probably equally credible.
Of course Heritage is biased. But their Index has a well defined methodology and provides the data that informs the final score for each country; it can stand on its own, and should be criticized as such.
Licensed hairdresser? Fuckoff. Licensed doctor? Sounds reasonable. Lawyer? yeah. Engineer? Probably. etc...
Insurance salesperson? maybe.
Really depends on what the license is intended to protect. if it's just a silly barrier to entry that's one thing. If it is to ensure that a person has a minimal level of competence so as to prevent real harm to their customers that's a different thing. A lot will claim to meet the latter standard, I'm skeptical how many do. Insurance sales licensing I would guess to be mostly the former.
That being said, you spend 2 weeks getting licenses sorted out when someone starts and you avoid this whole mess.
Morally speaking, the law should be honored while it is in force, and if it is not a good law, it should be altered through the means provided by the political system.
Pragmatically speaking, implementing that moral ideal is becoming increasingly difficult, as governments reach farther and farther into daily commerce, become increasingly impenetrable to anyone of ordinary means, and fail to cope with the rapid social changes driven by new technologies.
> Morally speaking, the law should be honored
Emphatically no; law and morality are two different things, that hopefully correlate, but law does not ever define morality. (If anything it should be the other way around, but far too often it isn't.)
> and if it is not a good law, it should be altered through the means provided by the political system.
I already explicitly observed one reason why that's not always feasible. Often it takes a fair bit of momentum to get a law changed; momentum needs interested people, and people get a lot more interested when you have a practical demonstration that the law prevents them from getting something they want.
Nobody is going to go fight to change regulations to enable a business that doesn't exist yet; sometimes they'll fight against it because the incumbent has a better media machine and told them to. Regulations can kill a new business before it ever forms.
> Pragmatically speaking, implementing that moral ideal is becoming increasingly difficult, as governments reach farther and farther into daily commerce, become increasingly impenetrable to anyone of ordinary means, and fail to cope with the rapid social changes driven by new technologies.
Exactly. So perhaps you should start by not giving it the benefit of the doubt, not thinking of it as a "moral ideal", and instead just treating it as something that happens to exist and has various consequences associated with it.
There's a good reason why most regulations don't have particularly severe consequences: half the reason we can deal with the ones we already have is that they aren't actually enforced. Selective enforcement is also a problem, but the solution isn't universal enforcement, it's repeal.
(Also a good lesson for prospective implementers of a system that happens to encode procedures and regulations: if your system doesn't have some means for a knowledgeable human to bypass it, it's broken, and people will need to find ways to work around it.)
That's obviously not what he was saying. The point is that there is a moral obligation to follow the law under most circumstances.
In exceptional cases, compliance is not required because it would violate a higher moral principle, but most of the time, the moral thing to do is to honor the law.
When you're just starting out, you hope you are small enough to fly under the radar. When you are big enough for government to care, you hopefully have enough money and lobbiest to influence (read: by) government officials.
It's a myth that is perpetuated by those in power, to keep power: If you play by the rules, you'll succeed. If you don't, your break your social contract, or worse, bad for society and must be punished.
In America they say "Crime doesn't pay."
What they really mean "The crimes that the poor and middle class commit don't pay."