Small Business Pays the Price for Patchwork of “Privacy” Laws

By SBE Council at 7 April, 2023, 9:37 am

SMALL BUSINESS INSIDER

Will the Sunshine State Go “Digitally Dark” and Harm Small Businesses?

By Karen Kerrigan–

We warned this would happen. That is, if Congress was not proactive in enacting a national governing framework for consumer privacy in the digital era, a patchwork of state laws would emerge and generate complexity, uncertainty and high costs for small businesses. Alas, a March 2023 study by Engine reports that small business startups are paying a hefty price to comply with the disparate array of state rules governing consumer privacy.

Currently, five states have enacted comprehensive privacy laws. About a dozen more have a mix of legislative initiatives in the pipeline. Again, SBE Council has long supported one-set of national privacy rules. Unfortunately, we are now seeing that the cost of federal inaction is harming small businesses and startups. The very businesses that support local communities, create jobs, and add vibrancy and dynamism to our national economy.

Unsustainable Add-On Costs for Startups and Small Businesses

The Engine report, “Privacy Patchwork Problem: Costs, Burdens and Barriers Encountered by Startups,” estimated that the per-state costs of complying with each law amounts to $15,000-$60,000. Already, startups invest between $100,000-$300,000+ in their data privacy infrastructure, which includes compliance with existing state laws, according to Engine’s report. As the patchwork grows, so will the costs. As noted by a startup founder in the report, vast sums of money would be needed to keep up with compliance:

“As a high-growth and early-stage startup trying to grow fast, you’re at a major competitive disadvantage…I would have to raise an entire second Series A to navigate many of these frameworks.” Sam Caucci, Founder & CEO, 1Huddle, Newark, N.J.

Now, Sales Generated Via Online Advertising Could Take a Massive Hit

So, this emerging web of state approaches is not only hitting small businesses with burdensome costs, but some proposals would also place unreasonable restrictions on online “targeted” advertising, thus banning this effective method of customer acquisition. Proposed legislation in Florida – titled “Technology Transfer” (HB 1547 and SB 262) – and whether intended or not, would digitally sever Florida’s small businesses from customers and potential customers. That means cutting off sales and revenue opportunities. In essence, small businesses in Florida would be denied the type of efficient, effective and low-cost advertising that other businesses throughout the nation – and world – utilize.

(See the Computer & Communications Industry of America – CCIA – comments on SB262 here, which bottom-lines the problem with the legislation.)

Online advertising creates sales growth and costs savings for small businesses. The efficacy and lower costs associated with online advertising have been cited as key factors in influencing individuals to start new businesses. The benefits have been documented by SBE Council in research and surveys of entrepreneurs and small businesses over the years. In a 2019 SBE Council report and survey, “The Digital Boost to Startups and Small Businesses: Online Advertising Delivers BIG Benefits,” we found:

Affordability of Online Advertising Critical to Growth and Survival: Online advertising was identified by entrepreneurs as a key factor in launching their enterprises, with 80% agreeing that: “The ability to reach customers and potential customers [via online ads] was an important factor in starting my business” and 73% of small businesses stated that without online advertising “it would impact my ability to effectively market my products and services and to grow my business.” In fact, 90% of startups said online advertising provided their business with an affordable option to launch and/or grow their business, and 86% felt online advertising is important to business survival and growth.

Big Savings in Time and Labor: According to the report, the savings for small businesses associated with online advertising – generated through lower ad costs and human capital efficiencies – amounted to nearly $163 billion annually ($3 billion each week). Regarding ad costs, 74% of small business owners reported advertising cost savings as a result of online options.

Online Advertising is Effective: 89% of small business owners expressed confidence (44% very confident) that their dollars produced results for their business when they used online advertising.

Other benefits include: finding new customers leading to new sales (89%), the ability to target their intended customer base more effectively (88%), identifying new customers and prospects (87%), saving time on labor with regard to research, targeting, and other aspects of selecting appropriate methods for advertising my products/services (84%), they can more effectively compete with other businesses including larger businesses (82%), and increased value and higher return on investment on ad dollars spent (81%).

The Digitally-Dark Sunshine State? Cutting Off a Sales Lifeline for Small Businesses

Small business growth and the boost of entrepreneurship have been driven by technology platforms and tools, and especially online advertising. But, in the name of privacy, state laws such as Florida’s HB 1547 and SB262 would take regulations governing privacy and data collection to a financially devastating level for small businesses. Here is what Florida small businesses and analysts are saying:

“If this bill becomes law, I am worried that digital ads will become like billboards or television ads — expensive because they reach many people but highly inefficient if a small business wants to reach only a small, niche audience.

“Data privacy is important, but these bills go beyond privacy and overregulate data and e-commerce in ways that will hurt small businesses and risk the livelihood of their owners and employees, like my 18 local workers.”

Alexander Fedorowicz, co-founder and CEO of QRxLabs in Miami. Read more of what Mr. Fedorowicz has to say here.

“As written, SB 262 will effectively take targeted advertising out of the small business owner’s toolbox, and replace it with the same technology that few small business owners could afford just 20 years ago. Medium and large-sized businesses with bigger ad budgets will still be able to shovel cash into the mysterious black hole of untargeted ads, just like they’ve always done. And the consumers who opted out of targeted ads thanks to SB 262 won’t even be able to tell the difference, except that the ads will be more annoying – they’ll have to be in order to gain the consumer’s attention since the consumer won’t care at all about the product in the ad.

“Meanwhile, small business owners will pay the real price. Without the ability to effectively advertise and connect with their natural target audiences, small businesses sales will languish, unable to compete with the brand recognition and market dominance of larger corporations who can pump ads at anyone and everyone.”

Capitolist Analysis, Read more here.

SBE Council agrees with the assessment delivered by CCIA in their comments to Florida legislators. That is, “these bills require study, as they may raise constitutional concerns, conflict with federal law, and risk impeding digital services companies in their efforts to appropriately manage content online and provide consumers with optimized online experiences.”

Florida gets many, many things right when it comes to attracting people and businesses. (Yes, the warm weather is a plus.) Very low taxes and sensible regulation. That is why people and businesses are flocking to the state. The proposed “Technology Transfer” bills stand in direct contrast to Florida’s pro-business policy approach. It makes no sense to cut Florida’s small businesses off from cost-effective, digitally-based ways of reaching potential customers via focused online advertising. Florida legislators must take a second look at these bills. The consequences will be costly for small businesses, and by extension, Florida’s economy.

Related content:

Elimination of Targeted Advertising Would Decimate Small Business Revenue, Damage New Business Creation, Small Business Insider, February 24, 2023.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.