The greatest number of jobs is created when startups create a new market — one where the product or service never existed before or is radically more convenient. Yet this is where startups will run into anti-innovation opponents they may not expect. These opponents have their own name — “rent seekers” — the landlords of the status-quo.
Smart startups prepare to face off against rent seekers and map out creative strategies for doing so. First, however, they need to understand what a rent seeker is and how they operate.
Recently, the New York and North Carolina legislatures considered a new law written by auto dealer lobbyists that would make it illegal for Tesla (NASDAQ:TSLA) to sell cars directly to consumers. This got me thinking about the legal obstacles that face innovators with new business models.
Examples of startups challenging the status quo include: Lyft, Square, Uber, Airbnb, SpaceX, Zillow, Bitcoin, LegalZoom, food trucks, charter schools, and massively open online courses. Past examples of startups that succeeded in redefining current industries include Craigslist, Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), and PayPal.
While Tesla, Lyft, Uber, Airbnb, et al are in very different industries, they have two things in common: 1) they’re disruptive business models creating new markets and upsetting the status quo and 2) the legal obstacles confronting them weren’t from direct competitors, but from groups commonly referred to as “rent seekers.”
Rent seekers are individuals or organizations that have succeeded with existing business models and look to the government and regulators as their first line of defense against innovative competition. They use government regulation and lawsuits to keep out new entrants with more innovative business models. They use every argument from public safety to lack of quality or loss of jobs to lobby against the new entrants. Rent seekers spend money to increase their share of an existing market instead of creating new products or markets. The key idea is that rent seeking behavior creates nothing of value.