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When Entrepreneurs and Rules Collide

Vol. 25 Issue 7

Post Categories: Management

Entrepreneurs need freedom to grow—but existing rules and regulations don’t always agree.

You would have a hard time finding anyone who disagrees with the following:

Growing, healthy businesses are some of America’s greatest strengths. Entrepreneurs help power our economy. We need to cut out the unfair, unnecessary regulations that hold them back.

In practice, though, what constitutes “unfair” and “unnecessary” can get a little fuzzy. For every regulation called out as a job-killer, you can often find someone who would argue that rule is necessary to uphold property values, prevent nuisances or even protect human life.

It’s easy for business owners to blame “the government” for federal laws that micromanage labor relations or local ordinances that strictly govern signage. While elected leaders are responsible sometimes, regulations are put in place for other reasons, too—because average voters demanded it, for example, or because existing businesses were trying to keep out competitors.

Complying with regulation can be expensive. According to the National Association of Manufacturers, the average U.S. business spends $9,991 per employee to stay in line with federal rules. For manufacturers, the average cost per employee is $19,564. For small manufacturers with fewer than 50 workers? The cost is $34,671 per year.

Across the country, including here in Kansas City, there have been a string of cases where entrepreneurs have run up against existing rules. For business owners, elected officials and other citizens, the challenge is to find solutions that serve the community without undermining economic growth.

>> Kansas City, Mo., recently passed an ordinance that would change how liquor licenses are granted.

It was prompted in part by frustrated license applicants in the booming Crossroads Arts District. City rules require businesses seeking liquor licenses to seek consent from neighboring property owners. But if the properties surrounding a business are held by a single owner, applicants argued, that one person essentially holds a veto over the application.

The new ordinance is designed to limit how much input any one neighbor would have. But opponents—who say property owners have a right to protect the character and safety of a neighborhood, not to mention their own property values—are trying to block the change.

>> Young, innovative companies often find themselves at odds with city and state government because their business models are so different from the existing way of doing things. Last month, for example, New York legislators took aim at Airbnb with a piece of legislation.

Some of the biggest conflicts have involved ride-hailing services. Uber and Lyft put more cars-for-hire on the road. Thanks to them, many passengers can find a cheaper ride faster. Opponents, however, say there are big questions about whether drivers are being appropriately screened.

Last year, after initial disagreement, Kansas City, Mo., and Uber reached a deal that allows the company to operate in city limits, though it also gives them the chance to revisit the agreement this summer.

Uber briefly left the state of Kansas last year until the company reached a compromise with the legislature over insurance and driver screening.

In Missouri, Uber operates only in Kansas City, St. Louis and Columbia. Lyft doesn’t serve Kansas or Missouri at all. Both companies were interested in a ride-hailing bill under consideration this year in Jefferson City, saying it would standardize the rules for every community.

That bill failed. As a result, Uber says it won’t expand outside the Missouri cities where it is now.

>> Occupational licensing can be another hurdle for some businesses. According to research from the Kauffman Foundation, about 29 percent of U.S. jobs require some form of licensing, compared to 10 percent about 40 years ago.

Existing businesses argue that licensing is needed to protect the public. But opponents have found licensing requirements in fields that don’t really need them, like braiding someone’s hair or serving as a tour guide.

>> As craft brewing and distilling have grown in popularity, business owners have pushed for changes in the law.

“The last 30 years in general, and even more so the last 10, have seen a fundamental change in the beer industry,” said Steve Bradt, director of brewing operations at Free State Brewing Co. in Lawrence.

Bradt also serves on the boards of the Brewers Association, the national trade group for the small brewers, and the Kansas Craft Brewers Guild. Communities across the country have needed to update their rules
on beer production, he said.

“Where once virtually all of the beer produced in the U.S. came from literally a handful of big corporate breweries, now there are over 4,000 small, independent breweries out there bringing new products and a different set of business models to the market,” Bradt said.

»   Last year, Kansas City, Mo., updated its ordinances so nanobreweries—the very smallest brewing operations—could operate in properties zoned for retail. Before, they had to be based in manufacturing- class buildings, and that was a huge drawback because nanobreweries want  to attract individual consumers who crave easy access.

»   A few years ago, after lobbying by Waldo’s Bier Station, the city also agreed to update its tavern licenses to make it easier for consumers to  take home beer they bought from establishments like Bier Station.

»   This spring, Kansas legislators voted to double the production limit for the state’s microbreweries from 30,000 barrels per year to 60,000. The legislature also voted to allow microbreweries to produce hard cider, too. Before, they could only make beer.

Generally, legislators were open to the chan-ges, which will allow the state’s microbreweries to keep growing, Bradt said. But it still took time for the brewers to push for the change.

“It is certainly a cost of doing business, and not one that is necessarily very satisfying to pony up for,” Bradt said. “My personal view on it is that some rules are necessary to maintain order and fairness in our markets and to provide for reasonable regulation in the public interest. That said, rules have to change with circumstances, and we have seen a lot of changes in the last almost 30 years that I’ve been around this business.”

Transparency Matters

So, what should a business owner do to get on the same page as citizens and elected leaders?

Jim Ready is the manager of regulated industries for the City of Kansas City, Mo., a post he’s held for three years. Everything from liquor licenses to ride-sharing services to recycling comes under his office’s umbrella.

“If there’s an industry where there’s a public safety issue potential,” he said, “it ends up in my shop.”

Ready views his job as primarily one of customer service. On one hand, he and his team serve the larger community by enforcing ordinances that reduce crime, blight and other woes. But he also wants to help business owners, too, by showing them how to comply with the city’s rules.

“We deal a whole lot more with getting people into business correctly,” Ready said. “We’re trying to assist them to make their dream come true.”

His biggest piece of advice to businesses seeking licensing or any other form of government approval? Be transparent, especially when it comes to communicating with neighbors.

Ready described one of the most common types of conflict: A business owner lays out a plan for a basic bar and gets consent from the neighbors … but then comes back six or 12 months later with requests for a DJ and a dance floor, which the neighbors don’t want.

When Ready first joined the Regulated Industries Division back in 2003, business owners had to get neighbor consent for an initial license. But the business didn’t need neighbor support if the business sought other changes later, such as an early-morning closing time.

Today, Kansas City seeks neighbor input anytime a business wants a change to the terms of its liquor license. Being up-front about their intentions as early as possible could help business owners build the trust they need to get future exceptions.

“You’d better be sincere,” Ready said, “because if you go in promising one thing and do another thing, you’re going to be hated out of the gate.”

Don’t Be Afraid to Communicate

It’s also important for entrepreneurs and elected officials to communicate with each other, said Jason Wiens, policy director at the Kauffman Foundation.

That’s because some of the biggest business opportunities today lie in applying Internet-based technology to sectors such as health, education, transportation and food—all of which happen to be heavily regulated.

Open lines of communication prevent entrepreneurs and government officials from talking past each other. It enables them to work from a common set of facts instead of misunderstandings.

Wiens previously served as deputy legislative director for U.S. Sen. Jerry Moran.

When he worked in Washington, D.C., Wiens said, a new group of constituents would visit the senator’s office practically every 15 minutes to talk about an issue that affected them. That was a useful way for the senator and his staff to receive firsthand, expert information.

Lobbying can be trickier for the founders of young or growing businesses, who might not be part of a professional association with dedicated lobbying staff.

“For entrepreneurs, this is something that takes time, and time is always at a premium,” Wiens said.

Government leaders also have a responsibility to learn more about their community’s entrepreneurs.

For the past three years, the Kauffman Foundation has invited elected leaders from across the country to Kansas City for its annual Mayors Conference on Entrepreneurship.

That first year, while the attendees already appreciated how businesses contribute to their cities’ economic health, many didn’t understand the importance of entrepreneurship—that is, the process of creating a business as opposed to operating an established company.

“I think entrepreneurs should make an effort to know their elected officials, and elected officials should get to know the entrepreneurs in their community,” said Wiens.

Make It Harder to Say No

Through his work with the brewers association, Free State Brewing’s Bradt has picked up a lot of wisdom about seeking changes to existing rules. Here are some of the most important lessons.

»   Team up with others in your industry. “If you have an organization that you can work through, it provides a sense of a unified front and also gives a breadth of experience to learn from,” he said

»   Do your homework first. “Know what the rules are and why they were developed before you try to change them,” he said. “It is likely to give you valuable insights into the bridges that you’ll need to build to get where you want to go.”

»   Get professional help. “Our lobbyist, Phil Bradley, has been invaluable to us in helping to open those channels of communication so that everyone is on the same page,” Bradt said.

»   Remember relationships. “Cultivate a relationship with your legislators. It’s amazing how much harder it is to say no to somebody you know, when they come asking for help.”

Having good working relationships also allows business owners and elected officials to better understand others’ concerns, said Tracey Osborne, president of the Overland Park Chamber of Commerce.

“We’re more apt to have a more logical, professional conversation about whatever disagreement we might have.”