Regulation and Innovation

There are lots of opinions about why the economic recovery has been so tepid.  A Stimulus that did not stimulate, growing regulations that stifle business, and concern about the future.  So when I came across an announcement that a startup had ceased development of their product because of regulation, it got my attention – no macro level news articles, here was a real example of regulations impacting business and innovation!

A startup funded by Andreessen Horowitz, Comma, announced on October 28 that it was ceasing development of its core product, Comma One, a driver assist kit that is retrofitted to existing vehicles; “lane keep assist” and “adaptive cruise control.”  CEO of Comma, George Hotz, Tweeted that he had received a letter and Special Order from the National Highway Traffic Safety Administration (NHTSA) that informed him that material changes to a vehicle are subject to safety regulations that cover the vehicle.  If Comma One is installed in a car to provide driver assistance, it must meet Federal laws and prove that it is safe based on NHTSA regulations.  The letter states there are civil penalties of up to $25,000 per day for not complying with the Special Order – yikes!!!

Standing on my desk chair I yelled “Regulations kill innovation!”  But then I paused and thought about the other side of the equation, do we actually want untested products fitted to our cars only to find out they don’t work, perhaps in a disastrous way?  I remembered when Sears used to sell a retrofit cruise control in the 1970s.  There were three ways to disable or turn off cruise control: step on the brake, press the “Cancel” button, or switch the cruise control off altogether.  Triple redundancy to stop the car from speeding out of control!  Was that a design goal by Sears, or did it come about from regulations?  Regardless, the end product was safe at release, as opposed to after crashes.  Contrast to the Tesla crash(es) while on “auto-pilot” over the last few months, proof that introduction of technology needs some regulation to limit danger to users.

So why were regulations for Comma so devastating?  After all, Comma raised $3.1M, normally a great start to develop a product and prove traction.  But $3.1M is not near enough to go through Federal regulatory testing and approvals.  No approvals means no product, and no revenue.  For consumers, the delay in availability of a retrofit driver assistance kit is the safety premium society pays.

Closing thought, there is a midpoint where public safety is balanced against the cost of regulation, this midpoint should always be under consideration to promote innovation while providing safety; the issue is that government is good at creating regulations but slow at adjusting or deleting them.  So the next retrofit driver assistance startup should include regulation costs (dollars and time) in their business plan to have a chance of releasing a product.  One benefit for them is that Comma has made their research available.