Regulation Creates Opportunities

Jeremy Giffon shares insights about regulatory compliance businesses, emphasizing that regulation only moves in one direction - up and to the right. This creates perpetual opportunities for businesses that help others navigate compliance requirements.

Key Points:

• Regulatory Compliance as a Business Opportunity:

  • Government rules are arcane and non-compliance can result in jail time
  • Creates ultimate motivation for customers to buy
  • Regulation only increases, never decreases
  • Compliance requirements don't get rolled back

• Characteristics of Good Regulatory Businesses:

  • Mission critical but relatively cheap
  • Customers won't easily remove the software once implemented
  • High downside risk creates sticky customers
  • AI resistant due to high consequences of errors
  • Different versions needed for different countries/regions

• Strategic Advantages:

  • Can front-run new regulations
  • Being first provider gives huge advantage
  • Potential to be only option for several years
  • Geographic expansion opportunities (each country needs its own version)

• Examples:

  • Banking regulation software in Italy
  • House buying compliance
  • Tenant vetting
  • KYC and AML requirements
  • Driver's license verification for car rentals

• Business Model Benefits:

  • Strong customer retention
  • Geographic moats
  • Predictable growth with regulation increases
  • High switching costs once implemented