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Considering Airbnb and Uber, two of the largest and considered most-successful startups are carefully dodging the law, the upside is worth the risk. I disagree

Considering Airbnb and Uber, two of the largest and considered most-successful startups are carefully dodging the law, the upside is worth the risk. I disagree with it, but I think VCs don't care much about following legal frameworks until it's too late.

phibit 11y ago
Does anyone have any more information about the "52 hour online training program" that "the Macro" allowed them to skip? If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be...
- rhizome 11y ago
  My impression is that it is, but that doesn't excuse them.
- 467568985476 11y ago
  It is perhaps a silly requirement, considering that the salespeople still passed the required exam. But I see it as symptomatic of a cultural contempt for regulations. It seems like a conflict of interest for a company to wantonly decide which regulations are worth following and which aren't. Especially when the salespeople could be personally liable, and the catastrophic outcome is somebody finding out that their $1m surgery isn't covered by their insurance despite promises it would be from the salesperson.
  - ubernostrum 11y ago
    It is perhaps a silly requirement, considering that the salespeople still passed the required exam. Supposing that the exam is supposed to test the candidate's actual knowledge -- i.e., their ability to correctly represent things and act in compliance with the law while engaged in conversation with potential customers -- I certainly can see a risk of someone just saying "eh, I'll skip the material, take the exam with a reference open on my desk, pass it and be fine" and then getting into major trouble later when it turns out they did actually need to know a lot of that stuff off the top of their head in order to do their job.
    - deleted 11y ago
      [deleted]
- pj_mukh 11y ago
  If everyone agrees it is a "silly" requirement (especially because it was circumvented so "easily"), why are we so mad at Zenefits? We certainly don't want giant companies influencing policy changes (though, that happens frequently). I think a good indicator of whether a policy can justifiably be circumvented is if it actually hurt anybody. Has the "macro" hurt anybody yet? The articles have been vague.
  - skewart 11y ago
    The problem is that they were getting the advantages of being licensed while not actually following proper procedure for licensing. They were effectively lying to everyone. Sure, it's a pretty harmless lie, but I can see how people in the industry would be pissed. Lyft and Uber skirt similar kinds of regulation but they're completely up front about it. They don't pretend that their drivers are licensed or claim any benefit for having licensed drivers in any way. They're simply offering a different product than what taxis offer - getting a ride with a random unlicensed stranger. They're not trying to get the best of both worlds - the legitimacy of being licensed and the cost saving of not bothering with it. Lyft and Uber, and Airbnb too, are simply offering a new product that doesn't come with any reassurance for consumers from regulatory compliance. They're betting that reputation systems (ratings, reviews, etc.) will provide assurance for consumers just as well if not better than government regulation. So far the market is showing they just might be right. I suspect that if Zenefits had offered a platform where anyone can sell insurance to anyone from the beginning then people would be less pissed about it. Of course offering an unlicensed insurance brokerage product would probably be a lot harder to pull off than offering an unlicensed taxi product.
    - pj_mukh 11y ago
      Hmm? I'm not sure I care if the "industry" is pissed if said industry accepts regulations that we all agree are silly P.S: I'm totally for sensible regulations. However, sensible regulations usually require wide amounts of nepotism, cronyism and backstabbing to break. If a regulation is important enough that people could be hurt by it, then it should not be circumventable by a web script.
  - 11y ago
- patio11 11y ago
  California requires 20 hours of training to get a license for health and accident insurance, 20 hours to get a license for life insurance, and an additional 12 hours on ethics training for people wanting to pass the exam for either. These are tick-box requirements that allow you to take the exam you need to pass to get the relevant license. Several providers have online courses you can take for $50 < N < $100 which fill up the required 52 hours and, importantly for the purpose of box ticking, generate documentation certifying that you put in your 52 hours. Here's the regulator's description of half of the requirements: http://www.insurance.ca.gov/0200-industry/0050-renew-license/0200-requirements/accident-health/ http://www.insurance.ca.gov/0200-industry/0050-renew-license... There exist many tick-box requirements in the vast, vast field that is compliance in regulated industries. There is a political valence to this observation. My personal favorite one is the time where I had to threaten to fire myself if I ever misused patient information. I threatened to fire myself if I ever misused patient information. I then documented the fact that I had threatened to fire myself if I ever misused patient information. If I am ever investigated on suspicion of failing to have threatened to fire myself if I ever misused patient information (a crime which is separate from misusing patient information), I will be able to produce adequate documentation attesting to the fact that I threatened to fire myself if I ever misused patient information.
  - yummyfajitas 11y ago
    As further detail, the way these things work is the following. The "training" consists of watching some powerpoints and listening to a voiceover reading the slide. You can't click "next slide" until the voiceover has finished. The voiceovers add up to 52 hours. Typically the voiceovers are short, e.g. 60 seconds, to ensure that you are actually at your computer clicking "next" rather than just letting the voiceover run while you do something productive. Once you've clicked "next" 52x60=3120 times you are then permitted to take the exam. Zenefits "Macro" automated the clicking, allowing their people to simply learn the material and then take the exam. tl;dr; The state of California says "you must learn this material very slowly" and Zenefits employees are fast learners.
    - loumf 11y ago
- throwaway28715 11y ago
  > If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be... One of my proudest hacker moments* a while back was taking online defensive driving school (to have a speeding ticket excused) and figuring out what to type into the Javascript console to make the 'next' button clickable before the timer on the page ran out. (This technique would have been subverted had there been any server-side checks whatsoever, but nope...they completely entrusted the client to keep the time. I suppose they don't have much of an incentive to make it any more difficult given that the government probably doesn't have a very rigorous accreditation process for these courses.) That cut whatever was left of the required 6 hours down to about 20 minutes. I guess I'm an unethical monster that should never be allowed to run a company. :\ *I know, it's pretty lame in comparison to, say, figuring out how to jailbreak an iPhone, but I'd be lying if I said I wasn't proud.
rhino369 11y ago
Dodging the law is risky but can have upsides. Maybe you get Aereo'd or maybe you can pull an Uber. Both airbnb and Uber exploited holes in current regulation. Just breaking the law is stupid.
- draw_down 11y ago
  In Portland, Uber acted directly in defiance of city hall. City hall told them not to operate their service in Portland, and they did. I'm not so sure they're as different as you say. Differences in degree, sure.
  - rhino369 11y ago
    I have no idea of the Portland specifics, but a lot of law, especially administrative law in an hoc process. City hall could say "we think you are operating a cab service in violation of our regulation don't operate." But the reality is nobody is sure whether Uber is actually violating the law. You either let city hall sue/make an admin finding or you preemptively sue them and wait for a court to decide. Plus sometimes you know how bad the worst case legal scenario is and it's the best option. With stuff like taxi regulations the fines probably aren't too bad.
- chejazi 11y ago
  Breaking the law is part of the "disruptive" entrepreneurship strategy for these companies. Incumbent companies tend to influence the law, not necessarily break it. For a disruptor to break the law, the company needs a lot of money to fight back. Airbnb and Uber are managing to fight the regulatory hurdles with ~5x is ~13x the valuation of Zenefits, respectively. While Zenefits is ~5x the valuation of Aereo, it seems they have some catching up (read: fundraising) to do.
tommynicholas 11y ago
I work building compliance software, and the Zenefits situation stood out to me immediately as very different from other stories. Ben Thompson nailed the reasons why - the comparison doesn't hold: https://stratechery.com/2016/zenefits-and-regulation/ https://stratechery.com/2016/zenefits-and-regulation/
lmm 11y ago
The limited-liability corporation is fundamentally flawed when it comes to massive negative externalities. Even if regulators take AirBnB and Uber for every cent they have (and I hope they do, both have shown themselves to be fundamentally inimical to the rule of law), the people and organizations that funded their criminality will get away with nothing worse than losing their investment.

phibit 11y ago

Does anyone have any more information about the "52 hour online training program" that "the Macro" allowed them to skip? If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be...

rhizome 11y ago
My impression is that it is, but that doesn't excuse them.
467568985476 11y ago
It is perhaps a silly requirement, considering that the salespeople still passed the required exam. But I see it as symptomatic of a cultural contempt for regulations. It seems like a conflict of interest for a company to wantonly decide which regulations are worth following and which aren't. Especially when the salespeople could be personally liable, and the catastrophic outcome is somebody finding out that their $1m surgery isn't covered by their insurance despite promises it would be from the salesperson.
- ubernostrum 11y ago
  It is perhaps a silly requirement, considering that the salespeople still passed the required exam. Supposing that the exam is supposed to test the candidate's actual knowledge -- i.e., their ability to correctly represent things and act in compliance with the law while engaged in conversation with potential customers -- I certainly can see a risk of someone just saying "eh, I'll skip the material, take the exam with a reference open on my desk, pass it and be fine" and then getting into major trouble later when it turns out they did actually need to know a lot of that stuff off the top of their head in order to do their job.
  - deleted 11y ago
    [deleted]
pj_mukh 11y ago
If everyone agrees it is a "silly" requirement (especially because it was circumvented so "easily"), why are we so mad at Zenefits? We certainly don't want giant companies influencing policy changes (though, that happens frequently). I think a good indicator of whether a policy can justifiably be circumvented is if it actually hurt anybody. Has the "macro" hurt anybody yet? The articles have been vague.
- skewart 11y ago
  The problem is that they were getting the advantages of being licensed while not actually following proper procedure for licensing. They were effectively lying to everyone. Sure, it's a pretty harmless lie, but I can see how people in the industry would be pissed. Lyft and Uber skirt similar kinds of regulation but they're completely up front about it. They don't pretend that their drivers are licensed or claim any benefit for having licensed drivers in any way. They're simply offering a different product than what taxis offer - getting a ride with a random unlicensed stranger. They're not trying to get the best of both worlds - the legitimacy of being licensed and the cost saving of not bothering with it. Lyft and Uber, and Airbnb too, are simply offering a new product that doesn't come with any reassurance for consumers from regulatory compliance. They're betting that reputation systems (ratings, reviews, etc.) will provide assurance for consumers just as well if not better than government regulation. So far the market is showing they just might be right. I suspect that if Zenefits had offered a platform where anyone can sell insurance to anyone from the beginning then people would be less pissed about it. Of course offering an unlicensed insurance brokerage product would probably be a lot harder to pull off than offering an unlicensed taxi product.
  - pj_mukh 11y ago
    Hmm? I'm not sure I care if the "industry" is pissed if said industry accepts regulations that we all agree are silly P.S: I'm totally for sensible regulations. However, sensible regulations usually require wide amounts of nepotism, cronyism and backstabbing to break. If a regulation is important enough that people could be hurt by it, then it should not be circumventable by a web script.
- 11y ago
patio11 11y ago
California requires 20 hours of training to get a license for health and accident insurance, 20 hours to get a license for life insurance, and an additional 12 hours on ethics training for people wanting to pass the exam for either. These are tick-box requirements that allow you to take the exam you need to pass to get the relevant license. Several providers have online courses you can take for $50 < N < $100 which fill up the required 52 hours and, importantly for the purpose of box ticking, generate documentation certifying that you put in your 52 hours. Here's the regulator's description of half of the requirements: http://www.insurance.ca.gov/0200-industry/0050-renew-license/0200-requirements/accident-health/ http://www.insurance.ca.gov/0200-industry/0050-renew-license... There exist many tick-box requirements in the vast, vast field that is compliance in regulated industries. There is a political valence to this observation. My personal favorite one is the time where I had to threaten to fire myself if I ever misused patient information. I threatened to fire myself if I ever misused patient information. I then documented the fact that I had threatened to fire myself if I ever misused patient information. If I am ever investigated on suspicion of failing to have threatened to fire myself if I ever misused patient information (a crime which is separate from misusing patient information), I will be able to produce adequate documentation attesting to the fact that I threatened to fire myself if I ever misused patient information.
- yummyfajitas 11y ago
  As further detail, the way these things work is the following. The "training" consists of watching some powerpoints and listening to a voiceover reading the slide. You can't click "next slide" until the voiceover has finished. The voiceovers add up to 52 hours. Typically the voiceovers are short, e.g. 60 seconds, to ensure that you are actually at your computer clicking "next" rather than just letting the voiceover run while you do something productive. Once you've clicked "next" 52x60=3120 times you are then permitted to take the exam. Zenefits "Macro" automated the clicking, allowing their people to simply learn the material and then take the exam. tl;dr; The state of California says "you must learn this material very slowly" and Zenefits employees are fast learners.
  - loumf 11y ago
throwaway28715 11y ago
> If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be... One of my proudest hacker moments* a while back was taking online defensive driving school (to have a speeding ticket excused) and figuring out what to type into the Javascript console to make the 'next' button clickable before the timer on the page ran out. (This technique would have been subverted had there been any server-side checks whatsoever, but nope...they completely entrusted the client to keep the time. I suppose they don't have much of an incentive to make it any more difficult given that the government probably doesn't have a very rigorous accreditation process for these courses.) That cut whatever was left of the required 6 hours down to about 20 minutes. I guess I'm an unethical monster that should never be allowed to run a company. :\ *I know, it's pretty lame in comparison to, say, figuring out how to jailbreak an iPhone, but I'd be lying if I said I wasn't proud.

rhino369 11y ago

Dodging the law is risky but can have upsides. Maybe you get Aereo'd or maybe you can pull an Uber. Both airbnb and Uber exploited holes in current regulation. Just breaking the law is stupid.

draw_down 11y ago
In Portland, Uber acted directly in defiance of city hall. City hall told them not to operate their service in Portland, and they did. I'm not so sure they're as different as you say. Differences in degree, sure.
- rhino369 11y ago
  I have no idea of the Portland specifics, but a lot of law, especially administrative law in an hoc process. City hall could say "we think you are operating a cab service in violation of our regulation don't operate." But the reality is nobody is sure whether Uber is actually violating the law. You either let city hall sue/make an admin finding or you preemptively sue them and wait for a court to decide. Plus sometimes you know how bad the worst case legal scenario is and it's the best option. With stuff like taxi regulations the fines probably aren't too bad.
chejazi 11y ago
Breaking the law is part of the "disruptive" entrepreneurship strategy for these companies. Incumbent companies tend to influence the law, not necessarily break it. For a disruptor to break the law, the company needs a lot of money to fight back. Airbnb and Uber are managing to fight the regulatory hurdles with ~5x is ~13x the valuation of Zenefits, respectively. While Zenefits is ~5x the valuation of Aereo, it seems they have some catching up (read: fundraising) to do.

tommynicholas 11y ago

I work building compliance software, and the Zenefits situation stood out to me immediately as very different from other stories. Ben Thompson nailed the reasons why - the comparison doesn't hold: https://stratechery.com/2016/zenefits-and-regulation/ https://stratechery.com/2016/zenefits-and-regulation/

lmm 11y ago

The limited-liability corporation is fundamentally flawed when it comes to massive negative externalities. Even if regulators take AirBnB and Uber for every cent they have (and I hope they do, both have shown themselves to be fundamentally inimical to the rule of law), the people and organizations that funded their criminality will get away with nothing worse than losing their investment.