Regulation needs to be part of business planning

Unlike many people in the compliance business, I have actually lost business due to regulation.

Many years ago, I decided to start a business making sausages, but it wasn't a sudden idea. For years, my family had been making kielbasa for the holidays, so one time I made kielbasa for a bar owner I knew, and her response was, “I wish I had something like that on my menu.”

I thought it was interesting, so I took it to a store owner I know and asked him to try it out. The owner said, “I think this will sell.”

What any business needs is customers, and I already had two.

At the time, I was a banking reporter and knew a thing or two about the importance of complying with regulations: I had written about banks and other financial services companies that had gotten themselves into trouble because they had not paid attention to regulations and wanted to avoid the same fate.

I thought I had enough research skills to understand the rules myself and started looking into what I needed to do. I discovered I couldn't run a home-based food business, I'd need to work in a commercial kitchen and I'd need to get certified in safe food handling.

Along the way, I also took entrepreneurship classes through SCORE, a Small Business Administration program that connects entrepreneurs with retired executives to leverage their experience running companies. I met some nice people, but none of them had expertise in food production.

These were all good steps, but they led to a common trap that even smart entrepreneurs fall into: a good idea, relevant experience, and basic knowledge, along with research, don't amount to specific expertise. Without industry-specific experience, you won't know what questions to ask.

Without any prior knowledge, I took classes on safe food handling, found a commercial kitchen incubator to rent by the hour, and bought a ton of meat (and business insurance). Then I realized entrepreneurship was all about hard work, so I started going out to other bars and restaurants with samples to find customers. More managers and owners showed interest.

With our business opening soon, we thought it would be a good time to celebrate, and what better way to do so than with a sausage dinner?

I brought my first customer a gorgeous sample pack with nicely designed labels on commercial grade foam trays, and she said “it looks good,” but then asked about the USDA stamp.

“USDA stamp? I'll get back to you later.”

As it turned out, making food, especially meat-based food, comes with multiple levels of regulation. I was concerned about local regulations, but there were also state and federal laws and regulations to consider. For example, at the time, sausage manufacturers who sold to other companies had to have government inspectors on-site and pay for those inspectors in order to get USDA certification.

The funny thing is, if I were to open a storefront sausage shop, these rules wouldn't apply to me. If I sell directly to the public, I'm regulated as a restaurant, but if I sell to other restaurants, I'm treated as a meat processor.

At the Innovative Payments Association, we hear about regulatory issues all the time. Fintech founders with great ideas start developing their products, but as they start looking for banking partners, processors, etc., they realize they need to comply with a lot of regulations. Their ability to understand the rules for handling people's money can make or break their business.

For me, not having a USDA stamp meant my business would never get off the starting line.

The lesson here is not that regulation is bad — we all want safe food — but that no matter what business you're in, food or finance, understanding the categories and rules before you get started will save you time, money, and energy.

Luckily, I had a conscientious friend who knew that I needed a USDA stamp, and I think she saved me a lot of trouble because she realized that before I had many customers.

Technology gives entrepreneurs capabilities that were unthinkable until recently, and the Internet makes it possible to research any question, but even with these tools at hand, subject matter expertise is still essential to success.

Part of a founder's investment includes spending time with lawyers and consultants who have experience in the industry they're trying to enter. That investment could pay off in the future and even save the business.