This is a continuing series called Apple Pie Economics about the deliberate forces and unhappy accidents that are getting in the way of us living up to our entrepreneurial potential. Right now, we’re talking about the problems. Later, we’ll talk about solutions. Earlier posts from this series can be found here.
Hidden Laws and Regulations. There are many hidden regulations, too complex to understand or too illogical to find – except by mistake, great expense or prosecution. These hidden laws and opaque regulations burden, stymie and sometimes crush entrepreneurs.
Laura. Recently, I wrote about the experiences of Laura, a successful entrepreneur, who shuttered her company to get health insurance from an employer. The lack of health insurance was not the only systemic feature that exhausted her patience for being the boss: the second thing that did her in was the confusion and inaccessibility of legal obligations for her business.
Laura had a hard time identifying the laws she needed to follow. When she looked for a lawyer, the fees she was quoted were so high, that she didn’t believe she could afford to hire a corporate lawyer. She told me that she often felt a nagging sense of doom because of what she didn’t know. Eventually, an advisor made a mistake that cost Laura many months and many dollars to sort out and she decided she was done. The unknowable risks associated with staying in business just became too high to bear. Anecdotally, I hear about this problem more than you may suspect. A new client with a seriously thriving business just told me that because of the remoteness of legal rights and remedies, she had her trade secrets ripped off and had to settle a breach of contract suit with a client who reneged.
Impenetrable rules. The law hides in crevices; the information entrepreneurs need about compliance is either locked away in a stilted 10-volume treatise or in a lawyer’s head for $500 per hour. Have you ever tried to figure out how to manufacture a kid’s crib? What about how to write a warranty for a table saw? Or, just get a plain old business license to operate an office in Chicago – with a fire alarm? The regulations for the kid’s crib will be governed by the Consumer Product Safety Commission with regulations that require legal, business, importation and engineering knowledge to understand the delicate mixture of materials, testing, certifications and shipping necessary to make it and sell it in the U.S. The table saw could be a lightly regulated commercial product, unless you intend to sell it in hardware stores – in that case, you have to follow federal warranty law under Magnuson-Moss and the FTC; worse, your ability to limit certain damages will depend on state law. And, state products liability law will probably obligate you to include warnings against using a thumb against the blade while it is moving. There will also probably be industry regulations and standard weight and measure guidelines. As for the city business license, there are several types of licenses you may need; which ones could vary depending on which bureaucrat you are talking to at the moment. One thing is certain (though unclear): you need a separate license for your fire alarm.
None of this information is available all in one place. In fact, there isn’t even a recognized way to organize the information even if it is assembled. That is actually why I wrote Birth to Buyout: to create a way of organizing the information and to compile – if nothing else – (1) the questions that need to be asked by a business and (2) a head start to get the answers.
Regulation Needed. I believe to my core in smart, fair regulation. Businesses unregulated by an impartial observer would be like football played without rules, sidelines and refs – a chaotic death match. You may hate the regulation that keeps you from exagerrating about your products, but it also keeps your competitor from lying about them. The rules that limit your ability to dump waste into the river also allow you and your kids to dive off the side of a boat. Mandatory meat packing inspections that make food more expensive also make it safe to eat steak. We know what industrial America looks like without regulation: brown, thick air hovering over burning rivers.
Clarity is Critical. But, there is a real problem with the regulations we have. Even the smart, fair regulations make little sense. Trouble sleeping? Go here and read the rules that tell you what you have to say to the world when you go public and how you have to say it.
If you don’t want a nap right now, here is a tiny sample from these rules:
I had this fantastic mentor named David Guin who taught me securities law (and just about everything else I know). David told me the only reason lawyers get paid so much is because we’re the only ones who will sit in a chair, wade through this molasses and interpret it for people. But, that means that your ability to grasp and follow these rules depends on your ability to afford a lawyer who will do the slog.
The opacity of laws and regulations poses a serious challenge to the emerging or struggling businessperson. The impentrability of the obligations suffocates commercial expression; worse, they stack the deck in favor of the companies that can afford lawyers. The laws and regs need to be rewritten, colorized, organized and/or visualized. I’ll offer some suggestions and some areas where that is happening in a few weeks. (The suspense is killing me.)
June 20, 2011
Funny. But, it’s not like the SEC can pose such bald, profane directions.
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