What Business and Government Should Do When Innovation Outpaces Regulation
For entrepreneurs and inventors, the beauty of an innovative new product or service seems obvious -- especially when consumers embrace it enthusiastically.
But the reality of bringing an exciting product or service to market in a regulated industry means navigating an obstacle course of rules. With many new or disruptive technologies, regulation lags innovation. Governments are inherently bureaucratic and slow to establish guidelines for products and services that break existing molds.
For my company’s category, electronic cigarettes and vaporizers -- which are essentially sophisticated, battery-powered delivery devices for nicotine -- the economic impact of the Food and Drug Administration's (FDA) pending regulations could be huge. The FDA’s rules for our industry are set to take effect any day now, and the ultimate result of overly stringent guidelines could be the death of the vaping industry as it exists now.
Rules are needed, of course. Regulatory bodies protect public health and safety, and guidelines ensure fair competition. So how can appropriate regulation preserve creativity and innovation -- and allow us to reap the benefits?
There’s no magic bullet, but there are five things industry and government can do to move past the hurdles that arise when innovation outpaces our ability to develop guidelines.
1. Industry should work aggressively to educate regulators on the societal benefits of their innovations.
Industry can smooth the path to regulation by communicating the benefits of their offering like the economic boon new and flourishing businesses bring to a city. For example, in the early days of Airbnb, the startup’s founders made a point to talk openly with city officials about the popularity of their service and the boost in tourism revenue Airbnb guests would bring.
Adoption and education can take time, however, and industry leaders should help regulators study and digest the new technology or system by providing ample access to it. In the meantime, regulation should remain reasonable, and development should continue apace while rule-makers review.
Like other leading e-cigarette companies, my company, which markets the V2 brand, has shared ample input with the FDA, using data points from publicly available studies and reports to demonstrate the significant value of our products, particularly for adults who use them as an alternative to deadly combustible cigarettes. Electronic cigarettes have been hailed as one of the biggest public health innovations of the last century, yet they are new products that threaten entrenched interests. Over-regulation of our industry would be so costly and onerous that it would deliver the entire category to the tobacco companies -- not a desirable outcome
2. Companies should be more proactive in self-regulating.
The pros and cons of self-regulation are up for debate, but it has its place in a thriving economy. Companies consistently regulate themselves, driven by market conditions and consumer demand.
For example, the fast-food industry has seen a change in how food is made -- mainly through self-imposed restrictions. Once-dominant chains like McDonald’s attracted consumers with low prices and mouth-watering flavors with questionable effects on America’s health. The consumer appetite for salty, sugary, fatty foods has apparently waned, perhaps influenced by films like Super Size Me (2004) and Food Inc. (2008).
Enter the growing popularity of slightly up-market “fast casual” outlets like Panera and Chipotle, which are responding to the consumer trend by voluntarily banning certain ingredients. Panera recently announced it would eliminate dozens of artificial flavors from its ingredients, along with meat from animals given antibiotics. And Chipotle’s self-imposed ban on meat from “conventionally raised” pigs is so strict it went months without carnitas on its menu, because no domestic supplier met its high standards.
These self-regulating moves are more than fads. The entire food industry is shifting, with large companies like Tyson, Kraft and PepsiCo making similar tweaks.
In the vaping industry, we’ve gone on record in support of age restrictions and child-resistant packaging for e-liquid bottles, as have many of our competitors. We’ve already enacted our own stringent standards for childproofing our products -- even before regulations are formed -- because responsible packaging and marketing is essential to the health of our category.
3. Ramp awareness campaigns to establish public consciousness.
Government regulatory bodies are notoriously slow, but consumers are quick to catch on to well-played awareness campaigns. A good public-relations effort often paves the way for public support that helps drive regulatory change.
Public awareness campaigns can also establish practical behavior in advance of regulation -- by the time rules take effect the practice is already set. Who can forget Smokey Bear’s exhortation that “only you can prevent forest fires?” And establishing sound safety habits, like instructing cyclists to wear a helmet when riding a bike, saved lives long before municipalities set up the right traffic signals or laws.
4. Take a collaborative approach when it comes to regulation.
Business and governments don’t need to be at odds with one another. Sometimes a collaborative approach helps both parties achieve their goals. Sharing resources, openly and frequently communicating and checking in with regulators in other regions can go a long way toward reaching a mutually beneficial outcome.
Drawing another example from Airbnb, the company took a collaborative rather than combative approach when New York Attorney General Eric Schneiderman targeted it with a series of subpoenas for data on its hosts. Rather than fight the subpoenas in court, the company established a constructive dialogue and cooperated with the investigation, allowing the attorney general to proceed and deliver a report on Airbnb while maintaining the privacy of its hosts and continuing to grow its business in New York. Today, Airbnb’s popularity soars, and New York remains its biggest market.
At V2, we’ve maintained a healthy dialogue with the FDA from the outset. We believe that our time has been well spent and that our input will play a role in informing the final proposed regulations.
5. Encourage public input in creative ways.
Public buy-in is key when regulations affect consumer habits, but the traditional public comment process for rule changes can be slow. And even though public commentary is done online, the bureaucratic nature of public hearings leads many to believe their comments are not considered, even if that’s not true.
Governments should embrace creative ways to incentivize people to weigh in on regulatory change. Educators and urban planners have adopted gamification to drive deeper engagement -- and regulators can, too. Contests, creative giveaways and enlisting well-loved third-party spokespeople are other proven ways to engage the public. The White House’s “We the People” petition campaign, which promises a White House response to any petition that reaches a certain signature threshold, has popularized online petitioning and is helping to drive engagement for numerous causes.
Adaptation of any kind comes with challenges, but through education, proactive self-regulation and collaboration with regulators, industry leaders can help speed the process. Through greater public-awareness efforts and creative tactics, government, too, can smooth the road toward rule-making. The best outcome would be an entirely new way of thinking about innovation and regulation.