Richard Branson on Starting Up Despite the Red Tape
Editor's Note: Entrepreneur Richard Branson regularly shares his business experience and advice with readers. Ask him a question and your query might be the inspiration for a future column.
Q: How can I develop an organizational structure without red tape? -- Cuthbert Tembo, Harare, Zimbabwe
Startups are trying to challenge the status quo in almost every industry and sector, from health care to finance. One of the main obstacles to their success is red tape. Rules, regulations and compliance requirements can bring a quick end to an entrepreneur’s dreams of creating something truly different.
While there is not always a lot you can do about red tape except to find creative ways to fight your way through and around the thicket, you can take action to make sure that your company isn’t creating its own internal obstacles as it grows. Often, the bigger a company gets, the less responsibility and autonomy employees are given; instead, the hierarchy and bureaucracy takes over. Left unchecked, this too can destroy an enterprise.
The secret to fighting both kinds of red tape is to maintain your company’s spirit of curiosity -- keep continuing to question the way people do business. Disruptive innovation is part of a startup’s culture, inherent to how it operates, so hang onto that. We at Virgin have prided ourselves on getting this right over the past four decades.
I have often talked about the need for a business’s founder to delegate day-to-day control of operations so that he or she can focus on the future of the business. You were the person who had the original vision for the enterprise, so you must be the person who takes on the mission of answering basic questions like “Can we do it better?” and “How can we improve?” -- this is what you need to know to move your idea forward.
Delegating also allows you to lead by example, when it comes to avoiding unnecessary internal bureaucracy and paperwork. Hire people you think are fit for the job, and then place your trust in them. Do not micromanage -- allow them to get on with things, without laborious sign-off processes. This will free up your time and is a good management strategy: More often than not, people flourish when they’re given the freedom they need to do their work well. When your people have the authority to solve problems creatively, you’ll be in better shape to tackle the external red tape.
One entrepreneur who is combatting bad regulations right now is Tesla’s CEO, Elon Musk. He is fighting battles in many American states so that his company can sell its electric cars directly to the consumer, instead of through auto retailers. There are laws on the books in many states requiring that vehicle manufacturers only sell through licensed dealers, in order to protect the businesses that the dealers have built. He and his team concluded that auto dealers were not a good venue for electric cars because they would continue to favor gasoline-powered vehicles, which require oil changes, tune-ups and other maintenance that is a source of revenue for them.
The latest battleground is the state of New Jersey, where a recent ruling has effectively ended Tesla’s ability to sell its pioneering cars to buyers directly. Musk countered with a direct appeal to the people of New Jersey, which he published on his blog. Accusing the auto dealer lobby of cutting a backroom deal with Gov. Chris Christie, he wrote that they had “circumvent(ed) the legislative process and pass(ed) a regulation that is fundamentally contrary to the intent of the law,” and he urged New Jersey residents to contact their local political representatives. His team has tried different tactics in other states, from giving politicians test drives to selling the cars online.
Musk and his team have been able to combat all the red tape and regulation thrown at them because of the power of their product. There is no substitute for this. If your idea benefits the consumer and you work with the necessary regulatory bodies to prove this, you will eventually prevail.
Another company that is seeing success at fighting existing regulations is Airbnb, a company that helps travelers connect with people who have living space to rent. The traditional hotel sector has fought Airbnb at every point in their development. To counter the critics, the company has gone out of its way to pay hotel taxes across the United States and comply with the rules of each state; in New York, it has requested permission to collect the $21 million in taxes that would be due. Such a tactic is a mark of success for a company that has opened up a new, adaptable and affordable way for people to travel.
When a new product or service turns an industry on its head, regulators are forced to play catch-up. If you are the disruptor, it’s important that you stand your ground. Play fair, but be prepared for others to play dirty -- and don’t let them drag you into the mud.