Let’s get rid of employee non compete agreements once and for all

This morning Governor Deval Patrick will make it clear he is seeking an end to employee non compete agreements in our state

Employee non compete agreements are not enforceable and are deemed illegal in California. Yet the opposite is true in MA. They are used and enforced. And because of this they stifle innovation and terribly problematic. 

Here are the issues:

1. The opposition likes the status quo because it’s a often a tool for wage suppression

2. These agreements encourage new grads to leave the state. Bright minds come and get educated at MIT. They specialize in things like speech recognitoin or robotics. There is a high probability their first job out of school won’t be their last. Knowing this, do they take a job locally where they will be locked up in a broad non compete that follows them or do they take a job in the bay area and have freedom if things don’t work out with their first employer. 

3. Non competes stifle innovation because the companies can’t hire the best talent. Silicon Valley companies hire the best people without limitation. It’s a big problem if you can’t hire the best and brightest.

4. Non competes are not the same thing as non solicitation and confidentiality agreements. I’m amazed at how often the opposition will try to bundle these altogether. That is nonsense. I’m an advocate for confidentiality and non solicitation agreements. They are enforced in California and yet allow for innovation and mobility. 

5. The opposition will shout that this will hurt their business but they have been unable to suggest why silicon valley tech companies can thrive without non competes. Why do east coast VCs fund west coast startups if non competes are so harmful. The answer: non competes aren’t harmful….in fact that leads to a new point — banning non competes hurt company culture.

6. Non compete agreements hurt company culture. Imagine running a company where your employees are only at the company because they signed a non compete agreement. Every day those employees wish they were someplace else. And their employer doesn’t have to inspire them because they know the burden to leave is too high. Also managers will treat employees better if they know they can leave

7. Non competes are often vague and broad. If challenged maybe a judge will throw it out but VCs aren’t interested in dealing with litigation. We want to support new ideas not deal with courts. Boston VCs have tremendous capital under management. Much more than NYC VCs. Yet we invest mostly out of this state. We see founders all the time that want funding but we aren’t prepared to deal with legal risk so we pass on those opportunities.

8. Chilling effect. It is well known that companies like EMC will go after former employees for violating their non compete agreement. It creates a chilling effect where people are less likely to challenge it even if they want to pursue a market that EMC is weaker in or doesn’t participate in. 

With respect, we need to do less to protect companies like EMC and figure out ways to create 100 new EMCs in our state. 

After living in California for 10 years and investing for nearly the same amount of time from across the country, it is clear to me and many others that employee non compete agreements are stifling innovation in the state of Massachusetts. 

I’ve been passionate about this issue for a long time and shared my thoughts on this blog several years back. I’m proud of our Governor and members of the state legislature that were brave enough to take a stand on this issue. Thank you. 

I’m also proud of our portfolio company RunKeeper. As of this week they are no longer requiring employees to sign these agreements and past agreements are essentially being thrown out. My heartfelt respect and gratitude to the founder and CEO Jason Jacobs. I hope we see others follow Jason’s lead.

And last but certainly not least, a big shout out to Jeff Bussgang who is a partner at Flybridge. Jeff has been tirelessly advocate for open innovation and bringing an end to employee non compete agreements. Well done sir. 

So now we need you to act and do your part. If you live in the state of MA, call your local rep and let them know you stand with the Governor and on the side of open innovation.

Hallway Chat #18 with Nabeel Hyatt (@nabeel) and Bijan Sabet (@bijan)

Today’s show: “What does Sony’s entry to VR mean for Oculus? Plus Calendars, Secret, and Reed Hastings latest moves.”

We recorded this show Friday afternoon but finally had a chance to post it today. Please send us your feedback and suggestions on topics  you would like us to cover on our next episode!

Don’t break the bronco

Folks that join an early stage company or invest in early stage companies are both drawn to the same thing: an idea that is so compelling along with a founder/founders that are equally or even more compelling. 

But here’s the thing: the very best founders aren’t normal, not by a country mile. They are creative, ambitious, and likely crazy. It’s not that they have a high tolerance for risk, it’s just that they can’t imagine the alternative.

At the same time we are drawn to these folks we (employees and investors) expect these very same founders to become or act in a way that isn’t who they are. And in most cases, thankfully so. 

Board members can fall prey to this trap. They see a successful CEO in another portfolio company and they want (expect) the other CEO to replicate that behavior almost exactly. But forcing the founder to do things they aren’t is a recipe for a very unhappy/frustrated leader which does more damage than previously anticipated. 

Life isn’t perfect and no human is perfect either. The question is does the founder’s greatness exceed some of the human flaws. You can’t have it all. 

It is true, if you are going to scale as a founder/CEO you need to grow and improve your leadership skills. But at the same time, it’s our responsibility (team and boards) to avoid breaking the bronco.

We need to provide feedback and help supplement/support the CEO but not dilute or nuke the natural gifts that helped create the company in the first place. 

Getting through the muck

It’s amazing how much a small team can get done. 

(Consider David and Marco during the earliest days of Tumblr)

The team is small, the balance sheet is tiny but productivity soars. Any and all decisions are solvable by getting everyone together in a room. That is because it’s literally easy to get everyone in a room as the team is small.

Small teams are durable, flexible and productive. Decisions by consensus works. 

But the company has ambition and needs more people for the mission. So the company starts to hire.

As the company starts hiring productivity slows down (or worse). All of a sudden the founder says, “Holy hell, how did we get here. We have more talented people than ever but we are moving so slowly.”

image

And while it’s painful for the founder(s), it can be beyond frustrating to the team. They left their previous job to work at a hot growing company only to find that the team is completely disorganized and people are now complaining.

So here is some good news and bad news:

The good news: you aren’t alone. The majority of growing startups go through this stage.

The bad news: it’s not fun and it highlights a number of things you need to watch out for. And if you don’t, companies can get stuck in this phase for far too long.

Things to consider:

-how good is your vp of engineering. he or she may have been an amazing developer when the team was small but can do great people want to work for them?

-how good are other members of the management team? 

-is the team organized properly. are the right people working on the right things. i love this interview with chris fry who runs engineering at twitter. 

-is the team bought into the plan. if not, why? are deadlines arbitrary? did the team have input? is it ambitious enough or too ambitious?

-on boarding process. it’s a tragedy to go overcome so many challenges to hire a new person only to have them join and not know what they are supposed to do. 

It’s seductive to convince yourself in the early days that all we need to do is keep our culture and hire more people and assume productivity goes up. Hiring without great management can be a full blown nightmare. 

But if you can build the right foundation with the best managers, you will have the opportunity to build something truly great. 

On Friday, 12/13, @nabeel and I recorded our latest edition of Hallway Chat.

Show notes:

  • Review of the new Nest Protect, Xmas drones & our surveillance state
  • Fred Wilson’s post & the future of capitalism
  • Twitter’s #1 ranking on Glassdoor & the nature of building a world class company culture
  • And a question for everyone on a company communication tools we should try

As always, thanks for listening and feedback welcome!

That Snapchat offer

There seems to be a lot of folks paying attention to Snapchat rejecting Facebook’s $3B offer.

Loosely speaking I’ve seen negative sentiments like

“This means Facebook is in trouble”

“I knew it, we are in a bubble”

“The Snapchat founders are nuts”

I don’t think it’s any of those things.

Consider Facebook’s stock is pretty high right now. They are flush with cash, profitable and can easily afford $3B for a leader in this new emerging market. And kudos to Zuck and co for taking bold moves. Their purchase of Instagram was extremely smart. This was a sensible offer, not one from desperation.

It is reasonable to assume that the Snapchat founders have already taken out millions of dollars in secondary sales of their stock. They are not risking losing it all, instead they are going for it.

I like this tweet by Aaron Levie. In less than 140 characters he summed it all up nicely.

Snapchat’s future is up to them. They have to do a lot of things right. But they have an opportunity to build a big, important company.

In defense of selling out

(Update: to be clear, I’m not referring to any Spark Capital portfolio companies, past or present)

“If he’s so smart, why did he sell his company?”

That was the line a very well regarded venture capitalist said to me over breakfast earlier this year.

At the time it struck a chord. He was referencing an entrepreneur in the Bay Area that sold his successful company way too early. It’s now worth likely 10x as much. Maybe more.

That conversation reminded me of the email @ev sent to the board back on 2008. A larger company wanted to buy Twitter at the time and made a generous offer at the time. We didn’t want to sell but @ev was the largest shareholder and his opinion was critical. I went to bed and woke up to a thoughtful email about why we shouldn’t sell. I was more than grateful to ev for that day and others to come.

Last week I read Bill Gates will have sold all of his Microsoft stock by the year 2018 through a series of planned transactions that began many moons ago.

I was dismayed by this. Why would he sell all of his stock? How can he expect investors, employees and customers to believe if he doesn’t. Doesn’t he care about his company? His legacy? Again that line, “if he’s so smart, why did he sell” seemed to apply to yet another founder.

Then yesterday I went for a long run in the rain with Lauren. About 5 miles in I mentioned the Bill Gates story and his plan to fully divest his ownership in the company he founded and led.

Lauren disagreed with my frustration and disbelief. “Look at his passion now. Look at all of the incredible work he’s doing. Could he do all that if he was focused on the past? Would there be a Melinda Gates Foundation?”

She’s absolutely right.

Consider Elon Musk. He sold PayPal which is worth much more today than when they sold the business to eBay. But since then he was able to use that success to start Tesla and SpaceX. Would those companies have happened if he remained at PayPal ? What else is Elon going to create. Something tells me he’s not done.

It’s easy for us as investors and outsiders to want founders to go all the way. It’s in our interest and we hold on to the romantic notion of not selling out.

But there are sometimes good reasons for selling of successful companies even if we don’t see them at the time.

(Excuse the typos. Wrote this on my mobile)

Discovering your passion & work in connected communities

I continue to be in awe of our online connected communities that where we discover our passions and then allow us to act on it in ways we previously didn’t consider possible for ourselves.

Just a few examples:

There are folks getting book deals from their contributions on Tumblr. Here is one of my favorites

I know people that join creative marketplaces like Storenvy and Etsy and are able to quit their day job and focus 100% on building their craft and business.

You see it in places like Uber as well. Drivers starting out doing odd jobs on Uber and then developing enough business to work for themselves.

Over the past year, I’ve met extraordinary photographers that found their talents with the arrival of the iPhone 4 & Instagram a few years back. Through their beautiful imagery, they gained a massive following which led to a professional career in photography. It wasn’t pro photographers going to Instagram. It was the other way around. 

Absolutely wonderful. 

We have invested in Storenvy, Skillshare, Kitchensurfing and some even newer communities (we haven’t announced yet) —— I hope they all can help people work for themselves and focus on their true love. 

The state of the connected home

For the better part of this year, I’ve been looking at ways to make our home smarter, more efficient and as a result connected.

Our home devices are cumbersome and clunky for the most part. 

It’s no wonder Nest is so compelling. It took a dumb, ignored device and made it great. Reminds me of the state of the MP3 market before the iPod came along and blew us all away.

Besides the thermostat there are so many other devices in our homes that are equally hard to use and disconnected. 

Your remote control, cable box, electrical system, lighting system, heating system, appliances, phone systems etc haven’t changed in decades. Either you spend a lot of money on an expensive, closed home automation system or you live with the status quo.

We have an ADT alarm system in our house. I heard they have a feature called Pulse so you can control and manage the system from a mobile device. 

I called ADT about it a few ago. I got transferred a few times. The customer service person was confusing. Here is what I learned: I have to get a box that will be professionally installed (truck roll). My monthly bill goes up by $10 or $15 per month (not clear). The box costs $399 but I’m told I called at a “good time” and I can get it for $99. I also have to agree to a 3 year contract — no exceptions. Can I pay more for the box so I don’t have to sign a 3 year contract? No.

Ok, I’ll try it anyway.

So came to my house last week and the nice fellow said he couldn’t install it because the Pulse system was down.

Another appointment, another truck roll. 

I am rooting so damn hard for startups like August, Nest, SmartThings, and others, to come into our homes and shake up this market.