Compliance made affordable
Here’s an idea I learned from Marc Andreessen (in this 2013 interview about The Future Of Enterprise). In the past, scale used to be a competitive advantage because it made it worthwhile to invest in customized products. But now, the abundance of a new generation of software products has turned things upside down: being small has become a competitive advantage, because it translates into faster adoption of cutting-edge technologies and more agility in general.
Andreessen uses logistics as an example. Let me quote him:
Walmart’s advantage in logistics and in pricing and in data analytics was just so great that they could kill small retailers at will.
Today all the consumerized enterprise stuff is as easily usable by the small business as it is by the large business. In fact, it’s probably more easily usable by the small business than it is by the large business, because with a small business it’s like you can just use it, like you don’t have to go through a long process, you don’t have to have a lot of meetings, you don’t have to have committees, you don’t have to have all this stuff, you can just start picking up and using it.
So the best technology for inventory management and for financial planning and for sales-force management and for online marketing can now be used just as easily or more easily by a small business. There is an opportunity here for a shift of the balance of power for big businesses to small businesses.
Recently my colleagues at The Family and I had a discussion about the same principle being true with compliance. There used to be a time when strict compliance was a luxury that only large companies could afford, because only they could build a large and competent legal department and pay the best law firms in exchange for swift, customized, and eventually effective services.
Meanwhile, small organizations were assumed to be a mess when it comes to labor law, taxation, industry regulations, and personal data protection. Everyone was turning a blind eye because it was assumed that as a company grows, it becomes more compliant over time. (And if it stays small, well, it remains a perennial mess—just have a look at the restaurant industry for instance, or for that matter any other industry where payments are predominantly in cash.)
There have been discussions about compliance effectively becoming a barrier to entry on certain markets. If large organizations are compliant while small ones are still messy, then markets where compliance is strictly enforced, such as financial services or healthcare, become inaccessible for new entrants. Case in point: GDPR reinforcing the position of data-collecting giants such as Facebook and Google rather than weakening it.
But we might be reaching a turning point. Some time ago, I made a trip to Switzerland and met inspiring entrepreneurs that proudly introduced themselves as founders in the ‘RegTech’ sector. Because it was Switzerland, it was mostly about banking—but imagine if startups come up with products that make it easier for any organization, large or small, to comply with complex rules and regulations in fields such as labor law, taxation, personal data protection, safety rules, and others?
Not only is it a great opportunity in itself for certain founders with a passion about compliance—it can also turn into a boon for all founders as startups these days are entering markets where regulatory demands are stricter.
We have several ‘RegTech’ startups in our current batch at The Family. If you’re interested in this very promising field, please don’t hesitate to reach out and join our next batch!
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