All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.
-Arthur Schopenhauer, German philosopher (1788-1860)
In the past 60 days, the popular on-demand rideservices Uber and Lyft have faced significant litigation challenges that go to the core of the shared business model. In San Francisco, a federal district court judge ruled in a class action that a jury will be deciding whether Lyft and Uber drivers are independent contractors or employees, dramatically increasing the risks: A finding that Uber and Lyft drivers are employees threatens not only the companies themselves, but also the shared economy business model, which heavily depends on independent contractors. If the contractors are employees, costs will dramatically and inevitably rise, lessening a key competitive advantage.
In Memphis, Uber and Lyft were hit with a class action suit brought by taxi cab drivers and others alleging that the rideshare companies were in reality engaged in the taxi limo business and subject to all laws and regulations pertaining to such businesses. Again, this poses a different, but still fundamental threat that goes to the core of the business model. The end result, however, will be the same: should the plaintiffs prevail, the cost of the ridesharing services will rise, while adding numerous regulatory challenges to an unprecedented amount of recent bad publicity and media scrutiny.
Yet all this comes when the use of Uber and Lyft is at an all-time high and the popularity of their services is soaring. (See article in U.S. News and World Report.) The advantage and superiority of the rideshare services over existing business models are clear to most users, and they obviously make our lives better. So why the attacks?
Given the apparent paradox between a popular product and aggressive litigation attacks and media scorn, it is tempting to ask whether innovations that make our lives better are stifled because we have become overburdened with laws, regulations, legal concepts and litigation. In a similar legal landscape, could Henry Ford – perhaps the most significant transportation innovator and disrupter in modern times – have succeeded with what was then a revolutionary concept (using an assembly line to make cars)? Ford’s ideas made car ownership possible for the masses and changed our entire way of life. Could he have been successful facing today’s legal climate?
The use of the legal and litigation system to attack products that do just what ridesharing does – make our lives better – is not, however, new. Much like in the Uber and Lyft attacks, plaintiff lawyers have used litigation, the media and regulators to successfully mount coordinated and wide-ranging challenges to numerous products and services. Some have succeeded, bringing down entire industries, products and processes, as in the example of big tobacco, Vioxx and even the original Napster. Other attacks – such as those against fertilizer companies for making “explosive fertilizer,” polyurethane foam makers, vinyl providers, and manufacturers of certain pharmaceuticals and even breast implants – have not been as effective.
Lessons can be learned from studying cases where products and services were successfully defended and vindicated after facing global litigation and legal challenge. In determining how an innovative product can beat challenges to its overall business model, certain patterns emerge.
First, it helps to have a good product, a product that does indeed make people’s lives better. It was certainly the case in the examples above, however, a good product alone does not guarantee success.
Industries can survive with advance thought and planning. So what are the other harbingers of success? What did those who successfully met the challenge do? What worked?
Based on our experience, successful companies caught up in a legal maelstrom all shared certain common approaches. The first applies to what NOT to do: Those who responded in a traditional manner, treating the litigation in a vacuum, failed. In today’s legal environment where hysteria and misperception can quickly overwhelm, it’s clear that this approach will fail.
Instead, the successful companies applied a different model:
- They realized the fundamental need to consistently avoid or minimize an emotionally charged atmosphere. A charged atmosphere will excite litigation, impair corporate images, influence the court process negatively and produce hugely expensive resolutions. A proactive, energized and focused theme, taken both to the public to diffuse the hysteria, and to the courthouse to eradicate the litigation, leveled the playing field and created better odds for successful resolution.
- This kind of overall proactive, energized and focused theme was developed from the outset, and promulgated consistently to the public and employees. The successful companies knew that their position had to be carried forward into the litigation and that it had to succeed before the media, employees, customers and juries. They recognized that a media/regulatory inquiry, and more importantly, a teaching opportunity could come at any time.
- The successful attacked the legal problems in the same manner they would develop a business: by creating a sound strategic plan against which all decisions – legal and otherwise – would be measured.
- As one of my partners used to say: “See the end result and the defense will appear.” The companies that understood this concept had a better chance to succeed. They anticipated legal and regulatory challenges, thought through the potential issues on the front end, and proactively determined how to approach them.
- Successful companies created a good team early on, including every discipline needed to implement the plan: public relations/crisis management folks, lawyers and experts. They made sure the team was composed of people they could trust and who could trust each other, knowing they would be in the foxhole together for a very long time. Even though it cost money, it was better and much more effective to spend some money early on, in order to save huge sums later.
- They were prepared for and expected the onslaught. Haters goin hate; disrupting and challenging the existing order is not for the faint of heart. Successful companies in the legal arena don’t assume litigation will not come; in our society it is inevitable, and the way we resolve disputes.
- They were persistent and recognized that not every battle would be won. When they lost one, they determined why, stayed the course, adjusted the sails and weathered the storms. And they looked for opportunities to go on the legal offensive.
- Last but not least: Successful companies knew when and under what circumstances to close and resolve – they had an exit strategy.
The beauty of our system, even with all its warts, is that it incentivizes entrepreneurs and innovators to find solutions. The Ubers and Lyfts of the world will prevail, solutions will be found and, in the end, the legal challenges overcome. The war will be won.