In industries being disrupted by new entrants with distinct business models, incumbents often have an important advantage: entrenched regulatory and legal barriers. These have forced AirBnB, Tesla, and Uber to make costly concessions to their operating practices or to exit certain markets altogether. How can new firms overcome the regulations that protect incumbents? Lobbying for policy reform isn’t much of an answer, because incumbents generally have the benefit of long-term relationships with government agencies built up over many years.
Our research finds that some insurgent firms have prevailed on the regulatory front by using a strategy straight out of the playbook of environmental activists – mobilizing stakeholders to become political advocates. Organized demonstrations of support by stakeholder groups can send a powerful signal to policymakers. We find that firms mobilize their customers – one important stakeholder group – in three primary ways:
Uber has used
to demonstrate consumer—and voter—support in at least 10 cities, mostly in North America and Europe, where it has met resistance from local taxi companies. In Toronto, to cite just one example, Uber amassed more than 90,000 signatures in support of ride-sharing. The petition was seen as instrumental in getting the city council to adopt new regulations which permitted Uber to operate legally. And after regulators in London announced they would rescind Uber’s license to operate, a petition that quickly gained more than 850,000 signatures supporting Uber led the mayor to backtrack on his opposition to the firm.
Similarly, in Ontario, Canada, where for 90 years beer was sold primarily by a government-licensed monopoly retail chain owned by a consortium of major global brewers, the grocery and convenience stores had long lobbied the government for alcohol retail deregulation. What helped persuade the government to concede – despite fierce resistance from the global brewers and the chain’s labor union – was a massive online petition and consumer campaign organized by the retail store sector. The “Free Our Beer” petition gained more than 400,000 signatures in 2014, equivalent to nearly 4% of the province’s adult population. In early 2015 the government announced its intention to auction 450 beer licenses to grocery stores, citing Ontarian’s demands as the motivating factor.
Small businesses and entrepreneurs have also effectively deployed online petitions. In Minnesota, a baker named Shelley Erickson mobilized customer support through two petitions on Change.org to challenge “cottage laws” that prohibited the sale of food made by independent bakers in their homes. State regulations – favored by grocery stores and restaurants – required baked goods to be made in separate, licensed commercial kitchens subject to inspection, a costly barrier for small entrepreneurs. Shelley Erickson’s petitions, which gained more than 2,300 signatures in 2015, encouraged state legislators to introduce and enact new legislation that lifted various restrictions on home bakers. And food truck owners in Philadelphia successfully defeated a council proposal to restrict their business around Drexel University through a petition that gained widespread local support and media visibility. The proposal, which would have benefited on-campus restaurants, stalled in council after the scale of consumer resistance became apparent.
But petitions can be risky and firms need to be confident in their level of customer support. Uber learned this lesson the hard way in its bid to enter Calgary in October 2015 when its petition reached 14,000 signatures – only 1.2% of Calgary’s population, and one of the lowest shares and amounts for an Uber campaign. This shouldn’t have been a surprise: Public polling had found exceptionally high levels of resident support for the existing taxi industry. As expected, Calgary’s city council voted overwhelmingly against Uber in February 2016, forcing the firm to leave the city temporarily. (Uber did ultimately overcome council’s skepticism in late 2016, but only after it conceded to costly terms, and its entry was permitted only for a trial period of 12 months.)
Another way for new entrants to turn customers into advocates is by seeking support from existing consumer organizations whose goals align with those of the firm. We’re seeing this phenomenon in the medical cannabis industry, where new firms are fighting state-by-state battles to gain regulatory approval for broad cannabis usage in the treatment of various diseases – against opposition from pharmaceutical companies whose sales of traditional pain-killers and opioid medications are threatened. In Illinois, where medical cannabis usage was highly restricted, small producers and dispensaries rallied support through the Cannabis Patient Advocacy Coalition (CPAC), which organized patient rallies in Chicago, letter writing campaigns to legislators, and a Change.org petition in support of expansion of medical cannabis programs. The petition gathered over 64,000 signatures. Within six months of the launch of CPAC’s campaign, the state legislature had approved a significant expansion to the medical cannabis program that made it less restrictive and allowed for many more conditions to be covered.
In other contexts, new entrants have developed partnerships with reputable charities with shared interests, leveraging their public legitimacy in advocacy efforts. In the U.S., Uber has partnered with Mothers Against Drunk Driving (MADD) to undertake studies on the impact of ride-sharing on the incidence of impaired driving. The positive impact of ride-sharing has been cited in Uber’s lobbying efforts in many markets, and in some cities official representatives of MADD have publicly supported ride-sharing companies during municipal hearings, helping to convince local governments to reform transportation regulations.
A powerful way for firms to build a foundation of enduring consumer support – particularly for firms with large customer bases – is to sponsor firm-specific clubs that connect a brand’s consumers with each other, and to encourage clubs to engage in advocacy activities. Airbnb has funded “home-sharing clubs” for Airbnb hosts in 100 cities around the world, employing local “mobilizers” to organize them. The benefits include collaborating on such needs as group laundry contracts. Clubs also provide an opportunity for AirBnb to educate hosts about regulatory and political challenges, and to facilitate meetings with politicians, letter-writing campaigns, media interviews, and public rallies.
There is some evidence that AirBnb’s investment in its clubs is paying off. In late 2015, a San Francisco ballot initative proposed new restrictions on short-term rentals. To counter the proposition, Airbnb spent $8 million mobilizing its home-sharing clubs, which orchestrated a campaign that engaged over 2,000 local businesses and knocked on 285,000 residents’ doors in the weeks leading up to the vote. Airbnb had 138,000 users and hosts in San Francisco, a sizeable block when compared to the city’s 447,000 registered voters. The proposition was defeated, with much credit going to Airbnb’s host club campaign.
Tesla has supported the creation of local clubs through the Tesla Owner’s Club Program, which builds on a long tradition of enthusiast clubs in the automobile sector. In return for providing access to Tesla stores for club events and discounted merchandise, Tesla requires owner clubs to support local legislative efforts and to assist with survey groups and new software tests. In 2014 the Tesla Owners Club in Washington state played a role in the passage of legislation that ultimately permitted Tesla to expand its direct consumer sales model in the state.
While the opportunity to mobilize consumers and gain political traction naturally varies among industries and firms, these examples illustrate that it can be an effective way for new entrants to overcome barriers that protect entrenched interests. In fact, surveys have found that politicians are much more likely to respond to stakeholder or grassroots actions than to corporate lobbying and PAC financial contributions. Executives often tend to focus on consumers as a source of financial sales value, but consumers can also have significant political value when collectively organized – which may be just as critical for firms when entering new markets.