Are Restrictions a Crisis for Startups or an Opportunity?

Are Restrictions a Crisis for Startups or an Opportunity?

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There are a lot of things to think about when managing a startup company. Managing a startup company involves figuring out service development, personnel management, investment attraction, and advertising. In all aspects of business, there is one feature that ultimately comes up and becomes a problem.

‘Legal Restrictions’

Since our society revolves around an order called the law, no matter how innovative or useful a service may be, it still must follow the law. However, sometimes such restrictions may be obstacles to startups trying to be innovative. The mobile used-car dealing service ‘Hey Dealer’ announced a tentative termination of their services on January 5th due to the sudden law reform.

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Because of the law, Hey Dealer shutdown service.

Legal restrictions are a terrifying factor for startup companies. Since startup companies lack the capital and time to spare, there are limits to the ways in which they can cope with the restrictions.

* Related article: The 3 things that Hey Dealer could do ‘right before they go out of business’

While it is true that sudden restrictions can become obstacles for startups, it is also true that new opportunities could arise.
In January, 2016, the late-night bus share service ‘Call Bus’ also got caught up in an illegal controversy along with Hey Dealer in the startup market.

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Call Bus tests their service in Gangnam Gu(source=Call Bus)

Taxi companies, afraid of job losses, brought up the issue of ‘charter bus transportation business’ to Call Bus. More voices joined in the illegal controversy and there was criticism that arose online claiming a ‘violation against youth establishment and sharing economy’. Various media reported about the Call Bus issue. For example, KBS ran an online survey of agreeing or disagreeing about the Call Bus introduction.

For Call Bus, it meant having to worry about the company’s maintenance or abolition, but at the same time, it also meant a great opportunity to advertise the company’s name. Call Bus did not need to distribute any press release since major media were all reporting about the pending issue. The main topic of the reports was ‘services that shouldn’t disappear due to restrictions’. It was an opportunity for Call Bus to advertise about their services to the public without any extra fees. It is nearly impossible for startup companies with low brand awareness to appear on mass communication.

The results turned out to be good as well. On the 12th, The Ministry of Land, Infrastructure, and Transport announced they will positively re-consider the introduction of Call Bus. The illegal controversy ended up proving the need and usefulness of Call Bus.

In February, 2015, the online P2P loan crowd funding service ‘8 Percent’ also faced legal restrictions and were deemed as a harmful website, causing the company to temporarily terminate its homepage. This occurred only 2 months after the first release of its service. The government at the time had announced they will foster FinTech business. As the first online P2P personal loan service in Korea, 8 Percent, clashed with the government, the issue caught many people’s attention. P2P later on gained awareness as a representative key word for FinTech.

* Related article: “Rejection even for the first domestic P2P loan company… restrictions with no legal evidence are still present”(Seoul Economy)

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The P2P market grew rapidly afterwards. More than about 20 companies were formed in 2015 and on December 20th, the top 5 companies’ loan size exceeded 20 billion KRW. About 50% of them were achieved through 8 Percent. Moreover, as the market grew, the legal restrictions were eased. This was because they gained position as a front-runner market.

* Related article: P2P loan companies detatched from lending business wearing a ‘huge smile’ (Digital Times)

This is not to say that all restrictions are bad. We should abandon the binary attitude of ‘restrictions are bad and startups are good’. It should be remembered that restrictions were placed due to the idea that an appropriate legal boundary to follow was necessary for certain businesses in their quickening period. Of course, restrictions solely created for stakeholders should be terminated.
For startups, restrictions have a different meaning. They are a risk. Looking at the example of Hey Dealer and Call Bus from early this year, restrictions can be as serious as being the deciding factor for a company’s maintenance or abolition.

However, restrictions can also provide an opportunity to raise awareness of the company’s name at the same time.

Jack Ma, the founder of the Alibaba group, had once made a rather contradictory comment of “discouragement and trouble can bring opportunities”. This may also be true for startup companies and restrictions may end up bringing opportunities.

“If any of you sitting here today wish to establish a startling company, you must remember this one thing. In today’s new economy, discouragement and trouble can bring you the best opportunities.” -Jack Ma

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