When disruption means breaking the law, how do brands respond?

Startups have disrupted global markets and big brands by spotting unregulated industries and gaps in enforcement, so established businesses have to fight back and exploit their own opportunities.

Weaving in and out of pedestrians and the law, a quick walk around many parts of Los Angeles and other cities around the world reveals a mass of people gliding silently along pavements; swiftly dodging lampposts; swerving to avoid benches, people and speeding cars. Welcome to the age of the eScooter, a marvellously impressive, totally deadly and almost always illegal addition to our chaotic, fast-changing, disruptive times.

At the time of writing the leading eScooter company, Bird, is now the world’s fastest company to reach a $1bn valuation and Lime, its main competitor, is the second fastest. We’ve seen nearly $1bn pumped into four startups in this space in the last few months. They offer a decent profit margin, insane growth potential and are an exhilarating addition to the world around us.

READ MORE: ‘Father of modern marketing’ Philip Kotler on avoiding brand decay and preparing for disruption

These valuations, however, seem deeply at odds with the reality that eScooters break several laws at the same time. They are commonly illegal to ride both on pavements and roads. They legally require riders to wear helmets, yet they are rarely worn. They are used illegally by kids and the manner that they’ve been deployed without agreement or any infrastructure to support them has created huge tensions wherever they’ve appeared, with many scooters strewn as tripping hazards around the urban world.

There is no better example of the contrast between regulation and disruption. Regulation is painfully slow, always reactive, often by old men in traditionally adorned rooms. Disruptive innovation is lightning fast, from young people, with no regard to the past, the law or morality. ‘Move fast and break things’ is the rallying cry, with little time to consider the moral and legal framework or obligations.

It’s this tension that shows the true dynamic at play. When we talk about disruption, we think of it as synonymous with radical innovation or agility, when in fact the commonality between all highly disruptive companies is the degree to which they go rogue and exploit the grey area between existing regulation and the lag that it takes for lawmakers to catch-up.

Lyft was one of the first. It was illegal for unlicensed drivers to take money for taxi journeys in San Francisco, so the first ‘hack’ it used was to call the price a ‘suggested donation’ and literally all problems of safety, of tax, of regulation were bypassed in a second, until regulators stepped in after a year.

The most annoying and profound question you can ask yourself of your business is what would it look like if you set it up today?

The sharing economy is full of such loopholes. Airbnb started as a way to share a spare room sofa for a bit of cash; now bed and breakfasts and apartment-based hotels use it to avoid fire regulations, local zoning and tax obligations. Mobile payment providers in China like Alipay or WeChat pay both allow payment transfers like Visa or Mastercard; allow money to be stored, loaned and interest paid like a bank; yet somehow bypass many of the massive and complex financial regulations that limit traditional finance players.

Technology isn’t kind to either lawmakers or incumbents; it asks complex questions that are near impossible to answer. What is fair use for copyright in the age of social media? Who owns the selfie a monkey takes? Who owns art that’s made by artificial intelligence? How big does a drone need to be before it goes from a toy to a weapon? The answer may have changed in the light of the apparent assassination attempt on Venezuelan president Nicolás Maduro.

These complexities are becoming more pervasive than ever. In June 2016, when Democrats in the US Congress were trying to force a vote on gun control legislation, Republican Paul Ryan forced TV cameras to turn off, assuming that would draw a veil over what was happening; but instead two protesting representatives turned on their phones and broadcast proceedings in near perfect quality over Facebook and Periscope, to ironically a potentially much larger audience. TV cameras are easy to ban but there are no such rules in place for streaming.

READ MORE: P&G’s Marc Pritchard on protecting brands against the threat of ‘mass disruption’

Blurred lines are everywhere because of technology. Is it OK for me to stream a live concert to a friend? What are the tax rules for working nomadically? What constitutes a signature in the digital age? You can’t vape on plane but can anyone say why and when exactly you can use a phone? The legal framework is complex, and meanwhile paper boarding passes still show no smoking icons.

In particular, strange things happen when new-age companies sit on top of others’ systems and supply chains. Is Facebook responsible for the content it hosts from others? Can Airbnb be sued for health and safety issues? Does Uber employ its drivers? For so long it has seemed thrusting startups want the best of both worlds; to take tweets or other people’s content and pull them through their frame, and both monetise it with ads and data capture, but take no responsibility for it.

The world of legislation was never constructed for this time: the uncertainly about how to collect sales tax on commerce in the US; the fact you still can’t access the LA Times in Europe because they’ve no idea how to respond to GDPR regulations. None of these issues will go away soon.

In the battle between large legacy companies and new disruptive startups things are rarely fair. The law allows ecommerce to avoid sales taxes in many instances, while physical retailers need to pay property tax and charge sales tax. It seems thrusting startups deliberately construct themselves to exploit weaknesses and quirks in the law – it could be Tesla avoiding the middle men of dealerships or Napster destroying the profit margin of music companies, or Uber taking no responsibility for employing staff, or Facebook effectively shrugging its shoulders when people use its platform for nefarious means.

Yet it goes deeper. Startups play by different rules in the financial markets too. Moviepass can boast of user growth with an insanely stupid business model, Allbirds can show off satisfaction scores, Casper can point to positive press. Meanwhile, a physical retailer is expected not only to show profit quarter on quarter, but profit growth and revenue growth. If it’s not making more money than ever before then share prices take a hit.

So what can business do about this?

Be more agile

In an age of faster changes in technology, faster changes in consumer behaviors, marketing that sweeps the world immediately and a culture of entrepreneurialism, if the first mover wins they can win even bigger by exploiting an unregulated or under-regulated marketplace.

Exploit the grey

We talk endlessly about disruption. What disruption really is is an attitude towards legacies. The power of disruption is forgetting all known wisdom, conventions, technologies and regulations in a marketplace and starting with a blank sheet of paper, inspired by unmet consumer needs and underutilised technologies.

Recreate your future

The most annoying and profound question you can ask yourself of your business is what would it look like if you set it up today? Would it own what it does, would it play by the rules it does, would it have the responsibilities it does? Next time you are jealous of how the market sees Monzo, Airbnb, or Brooklinen or Made.com, ask yourself this: ‘If they play by different rules, why can’t you?’

Why can’t you set up units that plan to take over the legacy you’ve created, by skirting modern rules, shunning legacy baggage and creating your own future, before someone else steals it?

Tom Goodwin is executive vice-president and head of innovation at Zenith USA. He is also the author of Digital Dawinism.