a16z Podcast - a16z Podcast: The Case Study of Lyft and Local Governments

Episode Date: September 26, 2017

with David Mack, Joseph Okpaku, and Matt Spence How should startups engage with policymakers, build their own government relations (GR) function (whether in house or with consultants), and just begin to figure out their GR playbook? Let alone explain their moves -- not just externally, but internally too?  "We really viewed our first mission as education. Explaining what we were and, possibly more importantly, explaining what we weren't," shares Joseph Okpaku, vice president of government relations at Lyft. Think of it as a campaign, observes David Mack, senior director for public affairs at Lyft, and remember, "You can either let your impact on the community be defined, or you can work to define it yourself." Even though it isn't a zero-sum game (and don't make it one!), you only get once chance to really get it right... not just in terms of making a first impression, but in terms of setting regulatory precedent (as well as in drawing a line). So from where and who to begin with to how they did it, the guests on this episode of the a16z Podcast share some quick lessons learned for startups engaging with local governments, in conversation with policy and regulatory affairs team partner Matt Spence. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, welcome to the A16Z podcast. This is Matthew Colford from the Policy and Regulatory Affairs team. Today, as part of our ongoing series about how startups are engaging with policymakers and regulators, my colleague Matt Spence from the policy team dives into a case study with Joe Paku, VP of Government Relations at Lyft and David Mack, Senior Director for Public Affairs at Lyft,

about how the company has engaged with policymakers and regulators at a local level and how other companies can think about engaging with policymakers as they build out their GR or government relations function. And the first voice you'll hear in this podcast is Joe from Lyft followed by Matt Spence. When you're dealing with something like the ride-sharing industry, the first inclination from a mayor or from a regulator in a particular city was, well, how is this different than what we already regulate? How is this different than our current vehicle for higher industry? What was the answer to that? You're dealing with mayors and cities, and it's not one government, but it's hundreds of governments around the country. So what's the playbook?

We really viewed our first mission as education, explaining what we were, and possibly more importantly, explaining what we weren't. So, you know, we didn't have the historic relationships with mayors. We didn't have a history of contributing to campaigns. What we did have was a broad universe of people, both on the driver and the passenger side, who recognized that this new innovation is extremely important to me. We built it like a campaign, basically, folks that have worked on political campaigns in the past at the federal, state, and local level. The most important part has always been the community, folks that can get out there, engage with drivers, engage with other stakeholders, turn them out to hearings, get them to testify before the California

Public Utility Commission or anywhere else. In the political process, companies advocating for themselves have very little power, self-interested, not very sympathetic. You have to find a way to make that connection with the constituents, and unless you can do that in a meaningful way, you're not going to have much access. But just to push back on that, isn't that what every company says. Like, look, we're just doing this for the public good. Our product happens to make us a lot of money, but this is something that you actually want. How do you convince often cynical voters or policymakers that you actually were doing something different? It's a fair question. I think the difference, though, is so whereas, yes, a company might say, yes, we're helping all sorts of people

or do they really have the ability to mobilize that and to convey that the importance of what they're providing to the decision makers and to the elected officials. I mean, I'm thinking of a couple of instances where we've had email campaigns that have literally accidentally, but shut down a city's email server because there are so many citizens writing in so much. Let's like take a step back. So what do you do first? Who do you call first? How do you decide who to call? How do you decide which city to go into? And like when is the right time? So you find consultants in markets that you don't have any specific experience in so they can tell you what the lay of the land is. We relied on them to open the door and to point us in the right direction. We felt it was important that

We were the ones who were conveying the story. No one can really tell the story of what we're trying to build better than we can. So let's take a city like Nashville. We started engaging in Nashville in fall of 2013. The consultant put us in contact with the transportation department, put us in contact with the mayor, with council members to first off, explain what we are. What are we trying to do? Literally, we were getting the question every single day. So you expect me to get into a car with a stranger.

We have to be able to answer that question before we can do anything. We're talking about a mayor, a city council member, or all the city council members, maybe the city manager or the city attorney. If the agency that tends to regulate for higher transportation is, let's say, the department of transportation, more often than not, we're going to be engaging with the director of that department. And how did you think about of all those many players who to go to first? I mean, is the rule, let's go to the mayor because he or she's the boss? Or do you go to the actual person who's in the weeds and understands the transportation regulations? and how do you know when to take which approach? Some cities have a strong mayor system.

Some cities have a weak mayor system. Some cities don't have mayors at all. In addition to the stakeholders, Joe talked about, you've got attorneys general, you've got governors, you've got folks at the statehouse. So you go into a market and you build the team based on what the market looks like. The most important thing you remember, though, about the policy folks, God bless them all, is they have two clients. One client are the folks that are paying them and engaging with them.

So that would be us. The other client, and perhaps more valuable, always more valuable, are their relationships with the electives. And so there's always a tension between how hard you can have the consultants work on your behalf, sometimes in very uncomfortable situations, before they will go no further and not burn bridges. Because it's a repeated game for them. If they're just seen as hired guns, they can't actually convey that actually, I'm talking about this because it actually delivers benefits to the consumers. I'm not just going to deliver message for who gives me the highest paycheck. That's right. That's right. Their job is to both open doors and introduce you to decision makers, but also let you know how far you can go before you will erode goodwill in the community. And that can be a fraught relationship. That's really kind of where the art is. So you've hired a political consultant. They've introduced you to the mayor, the city attorney. What do you do next? You should have your policy team that owns the relationships with elected officials, negotiates the final details of what the law will be. And then you'd have a public affairs team, which is

building the campaign and the atmosphere around those negotiations in such a way that they can be as successful as possible. You fly to Nashville and then you fly to Nashville again, and then the next week you fly to Nashville again and again. We're engaging with the mayor, but also with the head of the Department of Transportation there. But in the meantime, we also are partnering with organizations who recognize the benefit of ride sharing. Our launch teams are already building out a driver community where they're signing up drivers. So we already have a broad base of people that we can mobilize when the time comes. So you're going into these cities and you want to deliver some benefit for the voters

and for the consumers. You know, the famous city planner Robert Moses talked about that highways would be the greatest single element in the cure of city ills. And of course, now we have traffic jams. You have changes in city dynamics. You have a lot of other things that might not have been good. You're a for private company, but also you're making money in a way that cities don't. So how do you think about either making that argument to regulators?

But also, how do you think yourselves about whether that actually is the right argument? Yeah. It's a great question. It's kind of an obvious thing to say, but you can either let your impact on the community be defined or you can work to define it yourself. So one of the things our team did, as we were building out the public affairs team, we incorporated a research function. So we have two full-time researchers on the team. They produce an annual economic impact study. And via that learning, we found out we add three quarters of a billion dollars in local spending to communities. We've cut 100 million hours off people's commutes, et cetera. So we have these demonstrations. Once we are in a community regulated, the transit departments come out of the woodwork. And they want to use us to help solve the last mile, first and last mile problem.

Our team built out an entire transit partnership, which we never envisioned when we first started. The point is build your case, understand your numbers, and then be prepared to adapt as you move forward and figure out what is the best case. And so how do you think about when you, to help address the problems that regulators and government? officials have. And there was a mayor who came in here not too long ago and said, look, I appreciate what one of our company is doing. But my job is to think about a whole slew of fire regulations and safety issues. I'm elected to do that. So how do you think about finding ways to sort of address the mayor's concerns without just stumbling into the standard bureaucratic way of doing things, which may stop you from going to market at all? You know, you try to take yourselves out of

your own myopic point of view from within the industry, right? take a look at it from the outside. If I'm that regulator, what am I concerned about? I'm concerned about the quality of the cars, the quality of the drivers. If there is an accident, are the passengers going to be taken care of? How do we make sure that people are getting into the correct car? These are all questions that we anticipated and we built in answers to those questions in the development. First of all, we created a new form of insurance that was basically higher than any insurance for taxi for taxi passengers across the country that was that a type of insurance that never existed before our industry was created. So we came out of the, we came out of the

box with that not having being ordered to or told that we had to do this. We did this of our own volition. We also recognize kind of the core aspects that of legitimate regulation, right? How do you make sure that the drivers are safe? Well, cities may have a particular process that they typically do. And often it's involved fingerprint background checks. That's been an issue that's been rather heated in the past while fingerprint background checks have their place. There are other ways to vet a driver that are more efficient, but also less intrusive. And has that worked making that argument to cities? It's taken a lot of time in education, but we're now at a point where we have 44 states plus the District of Columbia that have essentially adopted the background check

process that we came up with before we were regulated anywhere in the country. Same thing with the insurance. There is now a model insurance regulation that has been adopted pretty much all across the country that pretty much tracks what we initially came up with on our on our own so far you've been describing this great cooperative approach but this is politics right and there's often corruption and entrenched interests i think there are two different types of reasons why sort of bad laws or bad regulations often pass you know sometimes there's just some ignorance people don't understand but also there's a lot of just entrenched interests you know an existing lobbying group the current players don't want to let you in and those are two very different plays

If there's ignorance or lack of understanding, we are willing to spend the time and the energy and the effort to try to change your mind because we believe so strongly in what we're trying to do that we can change your mind if you are willing to keep an open mind. But if you are determined to protect an incumbent industry and that becomes clear, then that does change the nature of how we engage. And we have definitely encountered those situations. There's a difference here a little bit versus a lot of our peers or other folks in the tech industry. as a physical product that people engage with every day, when it goes away, it has major impacts. There have been times when we've had to make the choice, often talking with drivers about what's best for you to pause in markets. And that's a pretty crazy thing, right? You are removing a thing from the market generally because if we did not pause the through threat,

either penalties that drivers would face or other things, are not worth risking. Then how to you as the government relationship team deal with the rest of the company? What we've heard from a lot of companies are they don't. don't want to have either the government relations people or the lawyers living in the land of no. If you are saying no all the time, you're not going to grow and build the business. Withdrawing for market is one option. So what are the other things, strategies to address these concerns? In the more contentious markets where it becomes pretty clear that there is a fairly over effort to protect the incumbent industry, we'll have to raise the stakes a little bit to

turn out not only our passengers and our drivers, but strategic partnerships. As an example, the Urban League saw a commonality of purpose and of what we were trying to do. It unlocked areas and communities that were previously underserved by transit. People who ordinarily did not have good access to transportation and lower income neighborhoods now do. So in a particularly difficult city, we now, we don't only have our drivers speaking for themselves or passengers, but we now have the Urban League weighing in. Other organizations can help carry the message that this is bigger than the way the mayor or the city is looking at it. So we're able to make it bigger than just us.

So that's a really interesting point, especially because tech is different from a lot of other established industries in that, you know, you don't have plants like GM on the ground of Detroit. So most people learn about these issues through the media. And the media will find, you know, a driver on option A, a driver on option B. And then any number of stakeholders will come and purport to speak on behalf of drivers. Drivers are the best champions. Having those conversations right in front of elected officials is crucially important. And it's turning bodies out to stand in line, take time out of their day. That's hard.

Okay, you can catch more flies with honey rather than vinegar. But sometimes you just need a fly swatter. So do you have any lessons learned about when you've decided to take the harder we're going to fight against you option versus when the conciliatory option? And then when you do also decide that we do need to withdraw from market, how do you navigate that within the company with the product team or the marketing team or the revenue generating side? When you're dealing with a new industry like ride sharing that has not yet issued any sort of legislation or regulations, that that framework has not yet been created, you have, in my opinion, really one chance to get that right. If you have one law on the books, then the next place is going to look at that one law. And then you have two laws in the books and the next three places are going to look at those. Do you mean that is like a matter of precedent or if you go in and really tick everyone off, like that's your, you never get a second chance to make a first impression? Both, but in this case, as a matter of precedent, if you have, let's say, six places that have decided to legislate this area, three have come up with laws that work and three that have come up with laws that don't are operating in both, then the likelihood of the bad regulatory framework moving forward is that much more increased. So you have to draw the line. And that's the case ultimately that we had to make internally to the business that this may be a short term, you know, pain for us. But in the long term, as, you know, we only have one chance to really get this framework set up. you have to get it right. And that really drives. And then ultimately that drives the answer to your question, which is, well, how much honey or vinegar do you use in terms of trying to deal with elected officials? It's really all about that fundamental goal. What is going to lead to a framework that is going to work for this industry in this city or in this state? And ideally, we would like to do that cooperatively. But at the same time, if we're faced with framework that is not going to work, we have to take the gloves off.

And I think really important building on that is you've got to give policymakers a lot of credit here. 44 state bills in three years plus the district of Columbia. And a lot of that was policymakers taking us at our word that we are building an alternative to vehicle ownership, which deserves an entirely different regulatory existence than taxis do. And they did. But the other thing I would say is you always have to give people a path to success. It cannot be a zero-sum game where we win the elected... What does that mean giving someone a path to success? It means you have to allow people to win. And elected officials, their job is to advocate on behalf of their constituents, so you have to work with them to find a way so that you have a shared common goal. And so many

elected officials care a great deal about reducing congestion, or they care a great deal about reducing drunk driving, or they care a great deal about economic empowerment for certain communities. There is a win for everybody by finding that common ground and just going in and bulldozing. You may win one or two that way, but they talk. That's the other thing. You have to go to places where legislators and policymakers gather, that entire circuit of basically clubs in socializing events like the Republican Governors Association, the U.S. Conference of Mayors, where lawmakers and policymakers, attorneys general, meet. You have to go to those things and meet them on their ground. That's where your education campaign should really begin.

So this is a question that we get from a lot of startups is, when do you join those organizations, when does it make sense? When do you actually contribute to individual candidates? Do you form a pack? especially if you're a startup, these are very expensive organizations to join. And how do you know when the bang is worth the buck? You should invest in those things when you have people that can dedicate the time to them to make them worthwhile. So I would start first, depending on the level where you're regulated. If you're a single person, I would join a tech net, net choice. There's any number of great organizations that can be collators of information for you, probably on day one. If you're hiring a person to oversee government relations, that person

will do the best that they can for you, but you've got to give them the weapons and the opportunities to work. So as you scale a public policy team, you're scaling it internally, but you're also scaling it with a set of external relationships and memberships, which don't come free. That's right. If it is fundamental to your ability to sell your product, you can try and someone else will take care of it for me, but that's a really dangerous way to run a business. So, you know, another thing that a lot of companies encounter is you are not the only player in your market. So you're coming up against regulation, but other companies deal with other competitors. Sometimes we're trying to create a regulatory moat to stop competitors from getting in. Other

times, two companies are so similar. It's hard to think about how one company can win in the regulation front while the other loses. So how do you think about working with or alongside competitors? That's a great question because, you know, the reality is, is that, you know, though we may view ourselves extremely differently as companies in terms of what we're trying to accomplish and what we're about, we do play in the same sandbox and we're on the same side of the vast majority of core policy issues. So if you do tend to agree on what from a policy perspective needs to get done, however, there may be vast differences in opinion as to how best to accomplish that. One of the hardest decisions that we had to make as a team back in 2014,

which is our first decision to leave a major city. One of the first cities that was developing an ordinance was the city of Houston. And ultimately, the ordinance that they developed was not one that we felt worked. And we had to make the very difficult decision to pull out of that city. Our competitor did not make that decision. In the long term, I would dare say that the decision for our competitor to stay in that city actually led to more cities and more jurisdictions trying to follow the lead that Houston put out there because they believed, and rightfully so, that, hey, a company can clearly operate under this framework so there can't be anything wrong with it. There is a chance as an industry to draw a hard line there, and I do believe that that led to

more difficulty over the next couple of years than it would have if as an industry we had maintain a hard line, this type of regulation does not work for this industry. When can you work on your own as a company versus when do you rise and fall together as an industry? Would you talk to the other regulatory teams at your competitors? If you're a smaller company can you think about almost trailing behind when the other companies are like the lead bicycle on the pack so you don't have to take it all on yourself it's actually quite the opposite yes we had a broad roster of consultants way more consultants than we had internal members of the gr team but because it was so critical for us to make sure that we are out there really explaining not just coming in

and saying hey this is what we need we're not going to tell you why just this is what we demand but doing so in a way that explains that builds champions that builds you know elected officials who can see why it's in their interest. We have never and never have and never will just rely on another company to try to accomplish what is best for our industry. We strongly believe that it is critical that we are involved in every one of these conversations. And can you win at the expense of your competitors? It's extremely tricky to try to get a competitive advantage in an industry where operationally you are so similar to your competitor. And even if there are opportunities. I think they're very fraught with risk. You know, what you try to push for that

may advantage you today may be used against you to your disadvantage tomorrow. So ultimately, I don't think there's really any way to get a competitive advantage when you are in the same sandbox. Yeah. And anyone who's entertaining doing that in order to get an advantage has obviously got a bigger problem. And that is you should not be using GR as an assault weapon on your opponents unless it is necessary to be able to survive and sell your product, right? There's a difference there. So what are the other groups that you need to be aware of? And what are some of the things that you're hashing out right now? As we get into autonomous vehicle technology, as we're able to be more efficient with filling up the amount of cars that are on the road and combined with

the fact that we're seeing a clear decline in car ownership, well, if you're more efficient on how you're transporting people around, then all the parking spaces you see on the side of the streets, the parking lots. One of our co-founders, John Zimmer, noted that if you were to take all the parking spots in America, it would fill the entire state of Connecticut and more. That's an amazing amount of space that we can repurpose if we're able to crack this, the inherent inefficiency in ground transportation. We're on the verge. Just the very early steps of doing that is going to be a lot of fun over the next few years. Thanks very much for joining. Thanks for having us, Matt. Thanks for having us.