Building policy capability at a startup is no longer optional

Here's how to build the muscle

Every category-defining company built out of Europe in the next decade will need to navigate public policy. When you listen to the Collisons, the Zennstroms or the Hinrikus’ of the world speak about their journey, the maturity and influence of their thinking here is clear. Whatever industry you’re building in, but especially in frontier and regulated markets, it’s a requirement once you’re big and have that kind of platform. But it’s also part of the reason these founders succeeded in the first place.

Greg Jackson, founder & CEO of Octopus Energy, put this well in our recent interview: as a startup, you’re a condition taker, and need to know how to prove your business and maximise your opportunity within those early constraints. But then, in time, you might want to start working with regulators to help them understand how you’re innovating in support of their objectives and to influence policy to enable that further. At Form, we help startups with all of this from the cap table, as an investor.

But there also comes a point when this needs to exist as a muscle within the business. A company’s ability to self-direct through the risks and opportunities that policy presents correlates to their long-term potential for greatness. But how do you move up this “policy capability curve” from a standing start? Let’s break it down into phases.

Phase 1: Founder-led hustle

In the early days, like with anything, policy will be founder-led. We run a short sharp exercise with portfolio companies to map out the policy landscape and identify the areas where it really matters for the business – whether that be product development, go-to-market, investor comms, operations, etc. In doing so we pare back the issues to the core drivers of business value that are worth the precious time of the founding team. And we park the rest.

Often this is entirely internal and about informing how the business takes those early steps. It’s likely to be about how to call a GTM decision, or whether to prioritise a certain feature within the product roadmap.

As a company grows, the policy issues start to either become more critical (depth) or the number of issues that are relevant starts to expand (breadth). At that point, we take a view with founders about the value of scaling up their capability.

Phase 2: Beginning more formal support

When we decide that more support would deliver a strong ROI, there are usually two main options: hire external advisers or recruit the first in-house policy person. This can be a tricky call, although the economics may be similar since retained external consultancy for a year might ballpark match the cost of an employee.

One way to decide is to ask: what is the nature of the need we now have? If policy is becoming a widespread driver of business value (breadth), popping up more and more often, then an employee may be the answer. Someone who can co-ordinate and strategise, as well as do a degree of execution. We help companies flesh out job descriptions, work out internal reporting structures and shortlist high quality candidates from our network.

At the other extreme, if policy is biting hard on a certain bit of the business and needs particular focus or expertise, bringing in external support might be the best bet. Particularly when the issue is urgent or time-bound.

But external advisers need managing: to get good advice you need to be a good client. This means knowing what you want, finding the advisers who can actually deliver it, and keeping on top of them to produce results. Again, we help our portfolio with this, but if there isn’t someone in the business who can do this then external support is probably not a good idea.

Phase 3: Building out a mature policy capability

There is a point when a business begins to have its head above the “policy parapet”. Perhaps you are being cited in media coverage of policy developments, or are on the receiving end of support or criticism from a parliamentarian. Or you’re just well-embedded in policymaking discussions and there is clear value in having thoughtful perspectives.

At this point it will be clear that the risks and opportunities stemming from policy outweigh the startup's internal capability, and that's the signal to muscle-up. Adding to a policy team under a VP Policy or similar is what we see most often.

There is good advice for companies thinking about the build-out from here (e.g. from our friends at GR_blog), but there are a couple of ways to ensure a policy team continues to drive value in a startup rather than becoming a detached cost centre:

• Policy must retain senior sponsorship and oversight, ideally from the CEO. They will be the policy face of the business and expected to be policy literate. They are also best able to judge where and how policy is a strategic issue for the company. Brian Armstrong at Coinbase has led its policy efforts on Capitol Hill - anyone else would have lacked the legitimacy to meet and challenge policymakers. It also reflects the fact that regulation is probably the single biggest determinant of the future value of his business, something made acutely clear by the FTX scandal.

• Adopt an organisational structure that supports, rather than dilutes, the impact of your policy team. Policy's relationship with other functions quickly becomes pressing. Quite often policy will report into comms or legal, which has a major influence on how the policy team thinks and is perceived. We'd argue for direct reporting into whoever sits above legal and comms, but the point is to ensure that policy is able to deliver - and is accountable for - its own distinct value.

• Beware chasing false metrics — both internally and externally. While policy teams will frequently be external-facing, engaging with policymakers and regulators, the outcomes of this work are often hard to quantify. Conversely, often the most tangible impacts come from more internal-facing policy work, such as playing a core role in product development or new market entry strategy. Cups of tea with ministers are nice, but only if they shift the dial.

Horses for courses

This is just a sketch of the journey and every company is different, just as product or commercial teams come in a variety of shapes and sizes. Most category-defining startups are in many ways creating their own markets, and pushing at the policy frontier in the process, so we help companies apply this playbook to their specific context. But there is also value in sharing the high level approach and extracting the core, repeatable lessons. We'd love to hear from startups large and small about their experience — do get in touch.