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Startups: The Legal Case for Asking for Permission First

Making a deal for business, shaking hands over a deal
By Lisa M. Schaffer, Esq. on October 09, 2018 | Last updated on March 21, 2019

There are a handful of disruptive companies that have asked for forgiveness, rather than permission, when setting up a business. Classic examples are Airbnb, Uber, and Bird. Unsurprisingly, some particular lawyers have worked at all three! But is this really the best business model for success? That depends on your industry, investors, workers, and clients.

Here's the legal case for startups asking for permission first, rather than forgiveness later.

Josephine: The Revolutionary Home Cooks Business That Was Truly Before Its Time

Josephine, a company that hired home cooks to sell meals to neighborhood customers, ran into legal problems from the start. Its mission was to provide home cooks, mostly stay-at-home immigrant women, with a way to make a living wage feeding neighbors. The business was located in the San Francisco Bay Area, and according to local laws, it was illegal. Investors encouraged the founders to continue pushing their business forward, in a "Don't Ask for Permission" sort of way, because they believed Josephine had found that sweet spot between product and market.

But the founders saw things differently. They wanted to change the world by empowering marginalized communities, building a profitable business, and changing the law by collaborating with policy makers, all at the same time. Perhaps due to Josphine's workers and customers, they needed to stay "above the law," or risk endangering their immigration status. The founders never considered taking seed money over passing legislation. As they say, Josephine wanted to be leading-edge, but ended up bleeding-edge. Yes, you can have it all. But not at the same time.

Though the legislation they fought so bravely for was recently passed in AB 626, the company died six months ago from lack of funding. Soon, companies will be taking Josephine's business model and running quite successfully with it. But it will never be Josephine. It's time will never come.

For Small Businesses, Operating in the Gray Area May Be Too Risky

As the owner of a business operating in the gray areas of the law, such as Uber and Bird, you will come to a fork in the proverbial road when it will be necessary to decide if you will ask for forgiveness or permission with bureaucratic parties. And as a small business owner, it may actually be better to ask for permission. Just ask Scoot or Skip, the two small businesses that won the e-scooter market in San Francisco over the likes of Bird and Lime, because they were willing to ask for permission, and created a business application to the city based on sound legal advice.

Ultimately, city officials awarded San Francisco's e-scooter rights to these two companies because they believed the smaller companies' applications demonstrated not only a "commitment to meet the terms of the permit, but a high level of capability to operate a safe, equitable and accountable scooter share service." Bird and Lime were forced to flee the city.

As for Josephine, though it is too late for those founders, a new company will undoubtedly rise from its ashes, with the power of experience and the shield of AB 626. Perhaps some of Josphine's founders or cooks will start this new company and be first-to-market, using competitive advantages it honed earlier. The investment spent by Josephine will ultimately lead to profits.

If you have a great business idea, but are concerned that it requires operating in legally gray areas, contact a business and commercial attorney. A legal advisor may be able to offer minor tweaks to avoid gray areas while still holding true to your business mission. Garnering legal advise should be viewed as an investment, not a cost. And you may realize that the investment pays delightful dividends.

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