Tech Industry

The next threat to start-ups

William Blundon says "Do Not Call" and "Do Not E-mail" legislation efforts are likely to place disproportionate burdens on new businesses looking for ways to market themselves.

The rope-twirling humorist Will Rogers summed up the political thoughts of many of his fellow Americans with a memorable quote: "This country has come to feel the same when Congress is in session as it does when a baby gets hold of a hammer." Americans have become more than a bit tetchy about advertising in all its forms; and our legislators are understandably enamored with the vote-getting potential of various "Do Not" initiatives. First there were the state and national Do Not Call lists. Now, there is the real possibility of the passage of the Do Not E-mail bill sponsored by Sen. Charles Schumer of New York.

If present trends continue, marketing people will be forced to stand outside in the alley next to the smokers (although they won't be able to speak to them). Perhaps we can solve two problems at once, and only permit advertising on cigarette wrappers. Otherwise, the public seems to expect the government to act as a kind of giant TiVo, filtering out all advertising before it is recorded on the eardrum or eyeball.

Do Not lists are popular (Americans registered 30 million telephone numbers on the national Do Not Call registry in the first five weeks), but they come at a price. The laws may increase privacy, but they have the opposite effect on prosperity.

The laws raise the cost of doing business as marketing is forced to move to more expensive channels to acquire new customers. They reduce employment in telemarketing services firms. They are environmentally destructive. Yes, that's right, they will result in massive deforestation as direct mail replaces eco-friendly telemarketing and e-mail. Worst of all, these initiatives are creating a new endangered species: the golden goose. Where is People for the Ethical Treatment of Animals (PETA) when you need it?

The driving force in the American economy is small business, especially new companies. They account for large percentages of employment growth and increased economic output. New companies, whether bootstrapped or venture funded, face tremendous obstacles to success. Only half of start-ups last more than four years. Small firms already spend 60 percent more per employee to comply with federal regulations than large, more established firms. According to the Small Business Administration, small firms spend twice as much on tax compliance as their larger counterparts.

The public seems to expect the government to act as a kind of giant TiVo, filtering out all advertising before it is recorded on the eardrum or eyeball.
New companies currently face a perfect storm of obstacles beyond Do Not Call and Do Not Spam. They must now expense incentive stock options, amid a slow economy, with the venture capital industry in free fall.

Every society has to balance the virtues of freedom of speech with personal privacy. In the United States there has always been great leeway given to business speech, and this has had a major impact on the economy. New and pending legislation concerning the use of the telephone and e-mail as marketing channels, is a major threat to the principal driver of this economy. The new laws greatly restrict telephone and e-mail solicitations where there is not an existing business relationship with the consumer. But start-ups, by definition, have no such relationships.

Young companies typically advertise in their areas of geographic focus, rent telephone, mail, and e-mail lists and use them to build their initial customer base. Without easy access to such marketing channels, they will find it increasingly difficult to compete with established businesses. Existing businesses have long-term relationships with customers and should survive in the Do Not environment. Young businesses may have a great idea, and a hot product, but their ability to tell their story has been greatly reduced.

In its effort to do good, Congress has once again validated the law of unintended consequences.
Certainly, unsolicited commercial e-mail and telemarketing calls are annoying. However, the world is full of unpleasant things (Madonna, for example). Restricting access to marketing channels, especially for young companies, is a counterproductive restriction of free speech. Regulators should focus their efforts on companies that send unsolicited bulk e-mail, make fraudulent offers, or violate existing state and federal law. Otherwise, the time has come to back off just a bit.

In its effort to do good, Congress has once again validated the law of unintended consequences. Without a moratorium on such legislation, the next Do Not list may look a lot like the unemployment roll. As Will Rogers said, "I don't make jokes. I just watch the government and report the facts."