When to Launch An Illegal Product Some business ideas are good enough to change the law. But you may never know unless you build it first.

Pat Kinsel was almost living in a convenient, digital future. It was 2013. He was selling his social search company to Twitter and managed to e-sign every document from the back of a taxicab in South Korea while traveling for business. Then he returned home to Boston and discovered that one document needed notarizing, which he had to do in person. "I waited in line for nearly an hour, and they forgot to sign it," Kinsel says. Right then, he decided his next startup would enable online notarization. The only problem was that 49 states (except Virginia) considered that illegal.

Kinsel built the product anyway.

"Illegal" is usually the cue for ditching your idea. Changing laws requires bulldozing through layers of bureaucracy, state by state and lawmaker by lawmaker. But for entrepreneurs who succeed, the payoff is leading a new category, which is why there's been a tectonic shift in investors' attitudes toward these kinds of projects. Many watched the massive success of regulation-­changing companies such as Uber, ­DraftKings, and Airbnb, and are now thinking, "Let's just underwrite this business in the hope and a prayer that regulators will act rationally," says Alexander Niehenke, a partner at Scale Venture Partners, who invests in regulated industries.

But here's the catch: As with the Ubers of the world (and Kinsel's company called Notarize), an entrepreneur generally has to build the illegal product first. "If you don't," says ­Niehenke, "regulators might tell you, "That sounds like something we could get our head around,' but they wouldn't approve it. They're not good at talking conceptually or in esoterics."

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Of course, it can be dispiriting to put time and money into a product that may never be legal. But entrepreneurs who have done it say there are often backdoors and loopholes that make the journey easier.

Josh Clemente has found one such backdoor. He's the cofounder of Levels, a wearable continuous glucose monitor (CGM) and app that give people insights on how food and lifestyle affect blood sugar. CGMs like his currently require a prescription and are only approved for patients with diabetes, but he anticipates helping to convince the FDA to allow them for general use. How? By starting with the opening he has: Levels is working with mail-­order pharmacies and doctors at independent telehealth networks, who can choose to prescribe the devices off-label. It's also involved in nine studies at academic institutions, all to prove the product can make people healthier. "If we can show the objective data, that's how we'll get there," Clemente says.

Joe Spector has a similar approach. In 2017 he cofounded Hims, which provides ­medication by mail to treat erectile dysfunction and hair loss. When the company started, its system was only allowed in 12 states, so Spector served those markets while gathering consumer data. Then he used that data to convince other states to change how their laws were interpreted or, in some cases, the laws themselves.

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After taking Hims public in 2021, he's repeating the trick with his new telehealth startup Dutch, which serves pets that have allergies and anxiety. This was only legal in eight states, but in less than a year, Dutch can operate in 30.

His biggest takeaway from all of this: If you have a good solution to a problem people care about, lawmakers are often ready to listen. "You're more likely to be sued by a competitor than a regulator," Spector says. "Where the law is clear you have to abide by it. But often it's murky and if you're on the right side of history, it's worth going for it."

That's what Kinsel is learning, too, with his notarizing platform. "When we traveled around the country to meet the secretaries of states, who regulate notaries," he says, "we showed it to them and said, "Use it!' " Immediately, they saw its potential. Kinsel also collaborated on writing a model bill with organizations like the Uniform Law Commission, which represents lawmakers across the country, so it earns more trust from state legislators. It doesn't always work, but he's made major progress: Five years in, Notarize is used by customers like Zillow and Dropbox. It brought in $25 million in revenue in 2020 and, most importantly, is now legal in 39 states.