Unveiling the power of regulatory strategy

In the world of scale-ups, where growth and expansion are paramount, discussions about a company’s regulatory strategy may seem unusual. However, those who understand the potential impact of regulatory and political factors on their businesses know that thinking proactively about them can be a game-changer.

In the first episode of Season 2 of the xCollective, we had the pleasure of speaking with Spencer Hawes, an industry veteran with extensive experience working at major companies like Uber. Join us as we explore how early-stage companies can leverage their regulatory strategy to expand internationally and drive success.

Empowering early and mid-stage companies in regulatory strategy

Spencer Hawes brings a wealth of experience from his time on Uber's regulatory team, where he specialised in how regulatory and policy strategy impact market expansion, international growth, and overall business success. A few years ago, Spencer and his former Uber colleague noticed a lack of resources for early and mid-stage companies when it comes to regulatory and policy strategy.

Recognising the lack of resources available for early and mid-stage companies to understand and navigate the world of regulatory strategy and public affairs, Spencer, along with his co-founder and former Uber colleague, decided to bridge this gap and made the bold decision to establish a specialised firm centred around these issues, Runway Strategies. Runway’s mission is to guide companies in navigating regulatory challenges effectively.

“We are a full-suite public affairs firm specialising in regulatory, policy, and communication strategy for tech companies worldwide. Our expertise lies in supporting companies whose growth trajectory necessitates dealing with governments. Whether it involves changing regulations, shaping policy, or building political capital, we help companies understand the landscape, identify their unique needs and risks, and implement strategies to remove obstacles and drive growth”, Spencer explains.

Demystifying public affairs and regulatory strategy

To business teams, public affairs, regulatory strategy, public policy, communications, government relations, and government affairs can sound like meaningless jargon, especially given these terms have imprecise definitions and are often used interchangeably. The simplest rubric is to think of public affairs as an umbrella term under which all the rest fall. At its core, public affairs answers the question of what a company's strategy going to be for how government is going to impact its growth. “Understanding what your exposure points are in terms of legal, political, brand and public policy risks, and what you’re going to do about them. Whether that's being proactive or reactive, having a clearer sense of that situation, that's really what we're talking about.”

Regulatory strategy is a key element of public affairs focused on how the regulatory landscape is connected to a company’s stability and growth and how a company is going to navigate that landscape. It’s important to keep in mind that regulation is not just what the law says, but how regulators are likely to interpret and apply the law, and how lawmakers (and companies) may look to change it. 

This doesn’t necessarily mean that every company should invest heavily in this space. According to Spencer, there are plenty of businesses that are in ‘the middle’ and have few regulatory or government-related issues, or that would be better-served allocating resources elsewhere. What Spencer recommends is to “spend some time as a leadership team to think about possible regulatory and political risks to the business. Make sure you understand your exposure points to legal, political, and perception risk, how they are likely to evolve, and when would be the right time to address them. It may be now, it may be later, but the important thing is to have a clear roadmap.”

Emerging industries and politically sensitive spaces

This space can get pretty complicated, especially in Europe where each country has its own set of regulations, political expectations, and policy environment. And if you're looking beyond Europe, brace yourself for even more variations in regulatory frameworks across different markets. Trying to wrap your head around all of this can be quite overwhelming when you're aiming to enter specific markets.

When it comes to emerging and evolving industries, especially in areas where regulations are not yet fully defined, things can get pretty interesting. Take generative AI, for instance—it's a prime example of a space that has flourished without much direct regulation. However, we're starting to witness clear signs that the regulatory landscape is about to shift rapidly and significantly. Besides that Spencer ads, “Crypto is a fascinating field from a reg strategy perspective. Some might claim there's already plenty of regulation in this space, but many companies would argue otherwise. Crypto is a good example of businesses operating within a regulatory gray area, where the rules aren't crystal clear for various reasons with significant legal and political pressure from regulators.”

Similarly, look at cultivated meats. Even if many of these companies can as they assert claim meet the existing food safety approval processes, they have significant business exposure to regulatory questions like product labelling (e.g., can you call it “meat”?). What specific approvals and oversight is required, and burdensome (and outdated) requirements limiting scale and growth. These are the types of companies that must seriously consider the challenges at hand and devise concrete strategies to navigate them effectively. 

And, if we take a trip down memory lane, we can look at companies like Airbnb and Uber as perfect examples of the need for—and impact of—regulatory strategy. These companies entered well-established industries with a fresh perspective and a unique product. They argued that their operations were distinct and required different regulations or even fell into regulatory gaps. Often, legacy players and regulators disagreed. Fights ensued with massive consequences. While outliers in terms of size, these are the kinds of companies that illustrate the specific and immediate challenges in this domain.

An added point of strategic relevance is the increasing pace of regulatory change. As Spencer explains, “regulators have historically been very slow to adjust, but it's worth noting that in many areas regulators are moving faster than ever before, especially in areas like crypto and AI. For companies that have exposure, especially in hot-button topics, the regulatory environment may be relatively rapid. They could be taken by surprise as the operating landscape changes much faster than they anticipated. So, really it really is critical for companies to stay ahead of the game and be proactive in dealing with these changes as much as possible.”

A strategic approach for market expansion

Regulatory strategy is also directly relevant to market expansion and growth. When expanding into new markets, it's crucial to incorporate the favorability (or lack thereof) of the local regulatory framework into market selection. There are several steps involved in this process, and one of the seemingly simplest is mapping out the applicable regulations in each prospective market. At first glance, it may appear to be an easy question to answer, but it can be deceptively complex, as Spencer points out. “Let's say I have a list of 10 markets that I want to evaluate. If I simply reach out to a lawyer in each of those markets and ask them about the relevant laws for my business, I soon realise a significant problem: if I ask the same question to 10 different lawyers, I'm likely to receive 10 answers completely different in terms of structure, scope, and analysis.” This makes it very difficult to effectively compare risk and opportunity across markets.

According to Spencer, the key is to establish a detailed common framework for the analysis. This involves clearly defining the questions you need answers to and specifying the type of responses you are seeking. This will make the comparison a lot easier and “lets you compare apples to apples.”.

Not every company has the luxury of having an in-house counsel or a specialist in the field. However, it is essential to have someone internally who takes ownership of this responsibility. This person should be responsible for thinking strategically about the objectives of the exercise and collaborate closely with those doing the research throughout the process to ensure consistency in approach and level of detail. 

When it comes to finding the necessary resources, one approach is to consult a trusted lawyer and inquire about their experience with cross-border work. They may have existing partnerships with law firms specialising in this area. Alternatively, seeking external resources that have expertise in the specific field can also be beneficial. It's important to seek recommendations and identify professionals or law firms that have prior experience in similar projects. Simply choosing the top law firm in each country without considering their suitability for your specific project can result in significant expenses without achieving desired outcomes.

Political and cultural factors are relevant as well

Entering a new market by definition means venturing into some degree of uncharted territory. And from a regulatory strategy perspective, even if you thoroughly study the laws and regulations of another market, it's not just about the black and white text. It's about how those laws are perceived, interpreted, and how your approach is received in that specific market, all of which turn on political, legal, and cultural norms. While that may seem like an academic point, it is genuinely difficult to effectively understand and internalise into market entry strategy how these nuances will differently impact operations and growth across markets. And it's not just about acknowledging it, but actively incorporating that awareness into your business and launch strategies, as well as a company’s regulatory approach.

As an example, take the quick commerce sector. It experienced significant success in certain markets, like Turkey. However, it’s evident that the socio-economic structures, urban design, and overall societal operations differ considerably between Turkey and Western Europe. In the latter, quick commerce players have faced significantly greater scrutiny and pushback on their expansion and establishment of outlets across the region despite similar operations and narratives.

The importance of continuous monitoring

It is critical to keep in mind the regulatory environment is highly dynamic and constantly evolving. Ensuring your company’s regulatory strategy remains tailored and effective requires ongoing monitoring and adaptation.

One big thing Spencer often sees is the under-prioritising by companies of keeping abreast of pending regulatory and policy changes. “When operating in a market, it is essential to recognise that even small regulatory changes around the edges can have an impact. These changes may not pose an existential threat to your business but could restrict a specific product line or vertical,” Spencer explains. Therefore, it is crucial for companies to establish a process that keeps them informed about regulatory developments in markets where they are currently operating while those changes are prospective or pending—and thus when companies still have time to respond and shape them—not after they are already final and effective. 

By being aware of such developments, companies can strategically allocate resources and take action, such as lobbying or advocating for changes in bills or draft regulations that could directly affect their operations. This in turn enables companies to stay ahead of the curve and navigate the evolving landscape effectively.

Regulatory strategy as a competitive advantage

Finally, companies should keep in mind that effective regulatory strategy can provide a substantial advantage over competitors. By thinking strategically about regulatory risk and opportunity, companies can avoid costly mistakes, shape the regulatory environment to suit their model, and more effectively remove obstacles and protect their operations. Over time this can create regulatory moats around a business model and significantly benefit overall performance compared to competitors.

Want to learn more about Spencer’s journey and how early-stage companies can leverage their regulatory strategy to expand internationally and drive success? Listen to the full story on Spotify.