The Startup Paradox - From Inc.

Call it the startup paradox.

Engineers, programmers, and a bevy of talented people are drawn to diverse, dynamic cities like Austin, Seattle, San Francisco and New York. That helps turn those those cities into tech hubs as startups beget other startups and the ecosystem (venture capital, legal, marketing, etc...) fills in around it.

But those same cities often turn around and enact policies that are hostile to startups.

On its face, this makes no sense. Why kill the golden goose? But like a lot of tech regulation, once you look under the hood, a single answer dominates - local politics.

All politics is local

Turnout in municipal elections across the nation is abysmally low.

According to the Atlantic, local election turnout hovers around 20%. The few who do bother to vote in municipal elections (especially in primaries, where most of the winners are chosen) are typically older, they pay close attention to local civic issues, they're typically not that wealthy, and they worry a great deal about their hometown becoming less and less affordable (and as costs go up, so do the value of their homes, which makes them richer on paper but raises their taxes commensurately, which makes them poorer in real life).

They're upset. They're angry. And the culprit - in their minds - for all the higher prices and their city changing in ways that feel unfamiliar and scary? Those arrogant, rude startup types who act entitled to whatever they want, whenever they want.

We saw it in Austin around ridesharing. The fingerprinting issue wasn't really about safety. Austin has, quite possibly, the worst taxi system in the nation. The local politicians didn't suddenly start caring about riders or safety or service. They cared about donations from the taxi industry (an analysis by the Austin American Statesman found that taxi drivers donated $54,000 to city council member campaigns compared to zero donations by Uber and Lyft).

And because Uber has become a symbol of startup arrogance and excess, giving the voters the chance to take out their frustrations by driving Uber and Lyft out of the city offered major political gain. And now, because the substance of the local mandate made so little sense, the Texas state legislature is currently in the process of overturning the Austin rule.

We saw it in San Francisco around Airbnb. While I've been a critic of Airbnb's regulatory instincts, efforts and execution, it's unquestionable that the startup has been used as an easy political target. In San Francisco, the city imposed a 14% hotel tax on all Airbnb guests and then imposed a daily $1,000 fine for Airbnb listings by residents not registered with the City. And the Airbnb fights are nothing compared to hysteria around the Google buses (which are used to help transport Google employees from San Francisco to Mountain View).

In New York, the state legislature - at the behest of the powerful Hotel Trades union, as well as the hotel industry itself and the affordable housing advocates - passed legislation banning most short-term rental stays of under 30-days, effectively outlawing Airbnb's core business.

The City of New York then began imposing $1,000 fines on Airbnb hosts who offered short-term rentals. And while he lost (and was badly humiliated in the process), New York City Mayor Bill de Blasio tried to cap Uber's growth at 1% in Manhattan. Seattle attempted to force Uber and Lyft drivers to unionize, going so far as to have the City itself pick the union (as with Austin, wiser heads prevailed here too, in this case, through a federal judge who found that the Seattle ordinance violated antitrust laws).

It's more than a trend - it's a reality that will only continue to grow worse until startups change their approach to local politics.

So how should startups respond? There are a few options:

  1. Stop putting your headquarters in cities that are hostile to tech. Plenty of other cities would kill to host more startups. In fact, some of them would pay you to move there. Take them up on it. You could even launch a competition where cities fight to host you. You're creating jobs, paying taxes, bringing talent into the city. Why should you have to endure animosity in return?

  2. Start getting involved politically. Register your employees to vote and make sure they know when and where to vote (give them time off that day so they can go vote). Invite elected officials to the office to meet your people and see what the company does (it's always easier to vilify someone you don't know so familiarity, in this case, breeds compassion). Make the people who can regulate you understand the tangible benefits you bring to their city.

  3. Get involved civically. Join the local chamber of commerce. Support good government groups who oppose the bad behavior your opponents engage in to screw you over (mainly by trading campaign donations for anti-competitive policies). Encourage your employees attend their local community board meetings. Demonstrate that you care about the city and it's more than just a playground for tech elites.

  4. Get involved publicly. Go meet with the editorial boards and editors of all of the local papers and blogs. Write about your impact on the city. Commission an economic development study to quantify your impact. Make it clear you're part of the community too.

The tension between startups and everyone else will probably always exist. One side's existential love of change compared with the other side's existential fear of change makes conflict inevitable. But that doesn't mean accepting it as a fact or life or a cost of doing business.

Cities need startups just as much as startups need to locate in any specific city. There should be a give and take. But it won't happen unless you demand it - and you take it.

In other words, political apathy costs a lot more than you think.

Published in Inc.

Bradley Tusk