Building a Startup in a Regulated Industry is Hard.
Here are 3 Ways to Succeed.
Entrepreneurs Are Supposed to Break Rules
Startups don’t like to follow the rules. From zoning rules (Airbnb) to licensing rules (Lyft) and employment rules (TaskRabbit), many of today’s most well-known startups seem to have achieved explosive growth by turning a blind eye to authority. On the subject of founders, Paul Graham (@paulg) writes:
Though the most successful founders are usually good people, they tend to have a piratical gleam in their eye. They’re not Goody Two-Shoes type good. Morally, they care about getting the big questions right, but not about observing proprieties. That’s why I’d use the word naughty rather than evil. They delight in breaking rules, but not rules that matter.
This makes sense. Breaking rules often creates huge advantages and drives incumbents crazy.
Just Don’t Break Rules That Matter
So when my brother Chris and I decided to build Covered, a new type of human-friendly insurance marketplace, we spent a lot of time thinking about how to switch things up — how to change the way insurance is sold and find ways to give consumers more transparency and choices.
But insurance is very different than renting rooms or providing rides to the airport.
It’s a serious pact between consumers and carriers that protects consumers from financial ruin and offers peace of mind. That’s why there are so many regulations and licenses involved in selling insurance — to make sure that consumers are protected.
If you’re a founder that wants to innovate in a highly-regulated industry, your path to growth needs to be very different from the Airbnbs and Lyfts of the world. In order to succeed (and avoid serious problems), you need to figure out how to work within the system, rather than against it.
Here are 3 strategies we’ve implemented to move quickly in a regulated environment:
1. Do lots of homework before you even think about the business.
Before we even began to work on a product, my brother and I became licensed insurance agents. We originally did this to fully understand the lifecycle and policy selling process, but this was also hugely beneficial for helping us realize the complexity of building a national insurance marketplace.
We also conducted extensive interviews with individuals complying with regulations relevant to our industry, such as loan officers, mortgage company branch managers, mortgage company Executives/CEOs, and bank presidents. This entire process took months, but it was a wise investment that’s helped us tremendously as we prepare our product for launch.
2. Find expert advisors and teammates.
As a founder, you don’t know everything. In fact, you probably know very little, and what’s even scarier is that you don’t know what you don’t know. You need to overcome this knowledge gap as quickly as possible, and the best way to do that is by bringing on expert advisors and employees.
We added an ex-Commissioner of Insurance as a key advisor to our company. We also had an attorney specialized in our industry conduct a thorough third-party evaluation of internal procedures and compliance. Finally, we most recently brought on insurance veteran Jennifer Munro as our VP of Insurance.
You’ll never know all the rules and regulations, so find and hire the people who do. Fast.
3. Build a culture that values compliance.
In addition to hiring industry experts, you’re going to hire people who’ve never built something like this before — developers, designers, marketers, etc. — and have experience working at small, fast-moving startups that bend (or break) the rules. Working on a product in a highly-regulated industry is an entirely different beast, so you need to ensure that every single employee understands that compliance is vital to the success of your company.
When we hire at Covered, we look for curious people who have excellent judgement. These are the people who will be able to successfully balance speed and compliance. Additionally, we’ve put processes in place to train new hires and existing team members on an ongoing basis.
At Covered, we’re committed to challenging the status quo and reimagining how insurance is sold and purchased. And we take our obligation to earn consumer trust just as seriously.
I hope our experiences are helpful to you as you think about regulatory compliance for your own business. I’d love to hear from you. You can reach me at rdiedrich(at)itscovered.com, @rossdiedrich on Twitter, or here on Linkedin.