Jonathan Bush, founder and CEO of Zus Health, and Chris Severn, cofounder and CEO of Turquoise Health, joined Julie Yoo, general partner, and Colin Rom, head of public policy for a16z Bio + Health.
We’ve long believed that regulatory change can be a catalyst for company creation. In this episode, Jonathan and Chris detail how that was true for them. They also outline a few key takeaways for founders hoping to leverage regulatory change themselves.
Policy can be shaped—but that often requires relationship-building
As Chris and Jonathan both told us during the episode, policymakers often don’t get to hear from technologists and founders; instead, incumbents, like health systems and pharmaceutical companies, are often front and center. But that doesn’t mean policymakers aren’t open to hearing from entrepreneurs. When Chris and his cofounder Adam found an online notice for a public forum with key government agencies during the comment period for what became the Hospital Price Transparency Rule, they reached out to the agencies and asked if they’d be interested in speaking to founders. The agencies agreed, and Chris and Adam got to help shape the eventual rule. Jonathan also shared how he similarly contributed to the shaping of the 21st Century Cures Act.
Regulations change over time
Even once a law is passed, how that law is interpreted and implemented often evolves as the impacted parties gain more experience and provide feedback to regulators. As Colin points out during the episode, that feedback to policymakers most often stems from the most vocal constituents, which in healthcare are usually the biggest employers in a given district (typically health systems or other large corporations). But they don’t as often hear from founders about how a specific rule might affect innovation or patient care. Being able to explain clearly the downstream effects can make a big difference as the policy continues to be shaped (often a long process!).
And again, relationships matter. As Jonathan notes, “One of the things that is interesting about the way Washington works is that when a congressman says, we want to work with industry. A) they mean it, they genuinely do. But B) they mean people who have Washington offices. So basically, they don’t mean 99 percent of the new products and new companies in the world.” This doesn’t mean you have to have a Washington office. But it does mean that you have to build relationships like you do.
Policy can have unintended consequences for startups, both good and bad
Perhaps the opposite of regulation as a catalyst is regulatory capture. Regulatory capture can be used by incumbents to, as Jonathan puts it on the episode, “close the airlock” behind them. By enacting onerous regulations or requirements, policy can be used to keep smaller, more innovative companies out of the field. Companies should respond by building their relationships in DC, keeping an eye on potential changes that could affect them, and, as Chris says, continually earning their “right to win,” the x-factor that keeps the company ahead of the competition. Which brings us to the last point to highlight…
Regulation can be a catalyst…but creating durable businesses requires much more
While companies like Turquoise and Zus can take advantage of the opening in the market that is created by a new rule, regulation, or policy, it takes far more to create a differentiated, durable, and scalable business on top of that. Jonathan talks about how companies need to create enough value to fight past the “performative compliance” that incumbents often put on display, in which they do the minimal amount of work to check the box on regulatory compliance. Chris also weighed in on how he was able to turn his product into a competitive advantage for his customers, in addition to helping them comply with the transparency rules. Even though both founders admit that their companies probably wouldn’t exist if not for the relevant rules and regulations, they both recognize that those rules and regs were a necessary but not sufficient justification for them to decide that it was their time to build.
