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Elon Musk’s Next Target

In the battle between disrupters and incumbent companies, the incumbents struggle mightily and often futilely against inertia. History, culture, and employee incentives propel them toward doom, try as they might to follow a new path. But their long history and great size do give them one great advantage: clout with legislators, regulators, and other government leaders. Highly successful disrupters must eventually fight on that turf, deploying a skill that isn’t taught in computer engineering class, and it isn’t easy. But they can prevail. For example:

-Tesla yesterday sued the state of Michigan for the right to open a Tesla store. Co-founder Elon Musk’s disruption of the auto industry isn’t just technological. By selling cars directly to consumers at its own stores or online, he’s also disrupting the industry’s sales model based on independently owned dealerships. The only problem with that model is that it threatens the incumbent dealers, who have been major donors to state politicians for a century. At the dealers’ instigation, the Michigan legislature two years ago passed an “anti-Tesla” amendment forbidding direct-to-consumer sales by automakers. Tesla applied for a dealership license under the law, knowing its application would be rejected, which it was last week. The company lacks the clout to win in the legislature, so it’s trying to win in court.

The outcome is impossible to predict. In its suit, Tesla says that at a June negotiating session with carmakers, dealers, and legislators, one legislator said, “The Michigan dealers do not want you here. The local manufacturers do not want you here. So you’re not going to be here.” We shall see. The company is prohibited from direct sales in Connecticut, Texas, and Utah as well as Michigan, but it operates stores in 23 states and the District of Columbia. Hundreds of thousands of consumers have bought or ordered Teslas. Long-term, does anyone really doubt where this is going?

-Incumbent taxi operators continue to fight Uber in the U.S. and worldwide. A company manager visited Anchorage this week to try negotiating Uber’s return to the city, from which it was exiled last year after the state said its drivers are employees, not contractors. A Finnish court this week confiscated the earnings of two Uber drivers for operating without taxi licenses. Temporary authorizations for Uber in Pennsylvania and separately in Philadelphia will expire soon, and if they’re not renewed, the service will cease operating there.

Panicked taxi drivers and operators believe they can’t beat the Uber model, so they’re trying desperately to stave it off. But the company’s experience in Montreal is probably more representative of its long-term future. The provincial government introduced a bill requiring all Uber drivers, many of whom drive in their spare time, to have a taxi license costing some $150,000 But many of the governing party’s own members opposed the Uber-killing bill, as did the Chamber of Commerce and an environmental group. An amended bill delaying application of the law for 90 days passed in June, and in that time Uber negotiated a deal with the government dropping the bill’s key feature, the license requirement. The law imposes other restrictions on Uber, but the service is now legal and viable in Montreal, which is what the bill was trying to prevent.

Fighting big, desperate incumbents is brutal. Disrupters can’t win playing the big guys’ game. They win only by winning with customers, as Tesla and Uber are doing. When they can do that, even as the incumbents fight rearguard actions, the eventual outcome isn’t in doubt.


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What We’re Reading Today

Could Verizon pull the Yahoo deal?
News that 500 million Yahoo accounts were breached in a massive hack could complicate or even break Marissa Mayer‘s deal to sell the company to Verizon for $4.8 billion. If Yahoo knew about the breach before the deal, language in the contract could give Verizon’s Lowell McAdam an out. Verizon hasn’t signaled its intentions. Fortune

Hacked emails track top Dems’ movements 
Leaked emails from a young Democratic operative detail the itineraries of Hillary Clinton, Michelle Obama, and Joe Biden for recent fundraisers. The emails even specify where the leaders should walk as they enter the events. None of the emails describe plans for future events. New York Magazine

Advertisers are mad at Facebook 
Facebook says it overestimated the average time viewers watch videos on the site by 60% to 80% because it excluded views of less than three seconds. The error could have affected the sums advertisers spent with Mark Zuckerberg‘s company.  WSJ

McDonald’s to test breakfast kids’ meals 
Steve Easterbrook‘s company is testing the kids’ meals in 73 Tulsa, Oklahoma, restaurants. It’s the first potential major addition to last year’s highly successful all-day breakfast roll-out and would be the most significant addition to Happy Meals in 30 years. If successful, breakfast kids’ meals could launch nationally next year. USA Today

Building a Better Leader

Your team’s performance is boosted by…
…your most skilled employees. But a study of waiters’ performance finds that too many skilled employees on a single shift cause poorer employees’ performance to drag more than usual. Insead Knowledge

When explaining gaps in your résumé
…show how the experience will benefit you, turning a possible negative into a positive. Fortune

Liberal-leaning boards pay CEOs less…
…than conservative ones. Researchers evaluated company board members’ political contributions to determine their ideological leanings. WSJ

Worth Considering

Senators ask Labor Department to review Wells Fargo
Eight Democratic senators, including banking committee member Elizabeth Warren, asked the Labor Department to review whether Wells Fargo properly paid employees overtime for long hours worked to reach sales goals. The move adds to the pressure facing John Stumpf‘s company as regulators question the sales practices that led employees to open millions of fake accounts. Reuters

Backlash against Google’s Allo
Reviews of the chat app and virtual assistant that Sundar Pichai‘s business released Wednesday have been tepid, and security researchers have come out strongly against the app because it doesn’t use end-to-end encryption, leaving it vulnerable to hackers or the federal government. Fortune

Grab partners with nuTonomy
Grab, an Uber rival in Southeast Asia, will participate in the test of self-driving vehicles in Singapore by Karl Iagnemma‘s NuTonomy, which last month beat Uber to the road in testing self-driving vehicles in a real setting. The partnership with Anthony Tan‘s Grab is initially set for two months and will allow riders to travel (with the help of a human driver) outside the area designated for self-driving car use. TechCrunch

Up or Out

Linda Zecher has resigned as CEO of Houghton Mifflin Harcourt. The board has named L. Gordon Crovitz interim CEO until a permanent replacement is found.  Street Insider

Paula Schneider will reportedly step down as CEO of American Apparel next month, to be succeeded by Chelsea Grayson Los Angeles Business Journal

Fortune Reads and Videos

Amazon stock passes another milestone
Shares in Jeff Bezos‘s company passed $800 for the first time.  Fortune

Wells Fargo CEO resigns as Fed adviser
John Stumpf resigned from the Federal Advisory Council after senators called for his removal in the wake of the scandal over customer accounts. Fortune

PepsiCo opens its first restaurant
Located in Manhattan’s Chelsea district, it’s a farm-to-table celebration of the kola nut. That’s probably not what you expected. Fortune

The U.S. ranks 28th in national health
Iceland and Sweden topped the U.N.’s 2015 Global Burden of Disease ranking. Fortune

Happy Birthday

Salesforce founder and CEO Marc Benioff turns 52 on Sunday.  Business Insider

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Produced by Ryan Derousseau