Regulations in AT, an entrepreneurial challenge [Part of our new blog series: AT, Entrepreneurship & Finance - with GDI Hub's Assistive Tech Impact Fund]
When you speak to people in entrepreneurial ecosystems, regulations are rarely at the top of peoples lists of favourite things to think about. However, regulations, standards and certifications do however play an important role in any tech sector. They ensure that the products and services are safe, of acceptable quality, and provide ways for governments to keep companies accountable. In a sector like assistive technology, given the incredible potential to impact peoples lives in profound ways, regulations, standards and certifications are a good thing. That being said, they often are one of the most difficult aspects of entrepreneurship to crack, especially in LMICs. When it comes to regulations, there’s no avoiding that they can act as a barrier to growing startups, and when we spoke to AT entrepreneurs and investors that are active in Africa, regs came up in almost every interview we conducted. Therefore, in this blog, we explore why regulations can cause headaches for AT entrepreneurs, the different types of regulatory landscapes that people come across, and what founders can do in the face of regulations.
In an overregulated landscape, AT entrepreneurs will find the regulatory process extremely challenging, as complex laws, bureaucracy and conflicting guidance are hallmarks of this type of environment. If you are a small company, it may be nigh-on impossible to navigate regulation without expert guidance and financial resources. Every step in the regulation process will take time in overregulated environments, and often incur costs when navigating the process, as well as ongoing costs to continue meeting regulatory approval and to maintain certifications. Companies that operate in overregulated markets are often unattractive to investors, as company growth will often be dependent on regulatory approval, and investors will rarely be able to provide support for the regulatory process unless they have relevant contacts. Overregulated sectors can change, but change usually requires lobbying and take a long time, meaning that startups and small companies are rarely suited to do this. Therefore, AT companies that operate within overregulated AT spaces and country contexts need to plan how they will achieve regulation, often making use of grant funding to ensure their product meets the relevant regulations.
In many LMICs, entrepreneurs will find themselves operating within an ‘under-regulated’ environment. This means that there are some regulations in place, however, they may be out of date, irrelevant, or exclude important and emerging technologies. For AT entrepreneurs operating in under-regulated markets, it’s not uncommon to see companies taking advantage of ‘grey spaces’, loopholes, or bending rules so that they can continue operating. Companies are rarely intentionally avoiding regulations, however, the regulatory landscape in that country, or for that type of product or service cannot keep up and adapt to the needs of companies and consumers fast enough. In countries with a volatile regulatory environment, the landscape can change instantaneously, meaning that companies can become unviable or at least continue operating with a significant risk looming over them. One entrepreneur-turned-investor we spoke with had experienced first-hand the challenges of creating a company in an under-regulated market. In their experience, they were able to grow their company to a reasonable size but were totally disrupted by a change in regulations, leading to the shutdown of the company. Therefore, AT companies that are knowingly operating in under-regulated markets should be aware that investors may see this as a risk that can block fundraising efforts.
Without regulations, product development and sales can often be much faster, reducing the time from idea to market. However, there can be unique challenges to growing your AT company without regulations to contend with. Without regulations and standards trust and confidence in the AT that customers can access may be low, as many low-quality products may have been sold in the past, or still be on the market. B2B customers may have purchased these low-quality products in the past, and now be reluctant to make the same mistake again. A bad experience of AT for direct-to-consumer (DTC) customers may put them off purchasing AT for life. One AT entrepreneur who produces an unregulated AT found that without a regulatory framework to assess their AT, customers were extremely sceptical of innovative AT. Customers requested extensive amounts of evidence to prove that the AT was safe and effective, with a growing laundry list of testing reports, journal papers, and product demos. The burden of proof and highly tailored sales process made sales and growth nearly impossible until their company built up an extensive library of product testing evidence that could be used to establish trust with new customers. When customers have a duty of care to end-users of AT, it is unsurprising that they are sceptical of exposing their patients or clients to new AT that in their eyes may be unproven or harmful.
One AT entrepreneur of a large established company instead found that lack of regulations as an opportunity. Specifically, when comparing their experience dealing with EU and USA regulations, in LMICs they have been able to work with governments to shape the regulatory landscape to create progressive regulations. In established and overregulated countries, changing the existing AT regulation frameworks is nearly impossible, as it involves replacing entrenched systems, practices and mindsets. Developing fresh regulatory infrastructure may have a steeper barrier to convincing others that it is needed, but it can be forward-looking and progressive.
Regulation as a growth limiter
In the assistive technology sector, and especially when serving the needs of rarer types of disabilities, many companies plan to adopt a pan-African growth strategy. This is sensible as it unlocks the benefits of scaling such as mass manufacture and becoming more attractive to commercial investors. However, AT companies need to understand the complexities linked to scaling from one country to the next. Even when looking at neighbouring countries, there can be differences in imports and tax, and cultural differences when it comes to disability and assistive technologies. When regulations are considered, even if an AT company complies with the regulation in one country, different regulatory requirements and processes may need to be satisfied in another. Therefore, selling from one country to another can become extremely challenging due to fractionalised regulatory conditions across the African continent, ultimately acting to limit the growth of AT companies. Different regulatory conditions are not unique to AT, however, given the complexity of AT and associated health services, they can be challenging to overcome.
What can help?
The most important way for any AT company to navigate regulations is to be realistic on timescales and the resources you need to meet regulations. Therefore, it is on the founders of AT companies to ensure they know and understand how regulations work in detail, whilst also knowing that regulations can vary substantially between countries. In our sector, many companies talk about growth in terms of pan-African expansion. Whilst this is possible, the fractional and changeable nature of regulations on the continent means that expanding into new countries is not ‘copy-paste’ and will require a clear plan and groundwork to begin selling in new locations.
Even before companies begin the regulatory approval process, early-stage companies can be proactive by developing their AT with an ‘evidence-based’ mindset. That means, testing and iterating your product whilst building up data that shows how your product works, that it is robust, safe, effective and impactful to make the regulatory process smoother and to build up confidence in your AT in lieu of regulatory approval.
Finally, as a sector, one of the most useful resources our community could produce would be to map regulations across countries and specific types of AT and share how to manage the process in the context of that country. Providing AT entrepreneurs with easy to access information makes regulations easier to navigate, and ultimately makes our sector more accessible to ecosystem stakeholders that want to become involved.