Revised Non-Compete legislation doesn’t go far enough

bijan:

My partners and I have been pushing to end the use of employee non-compete agreements for some time now.

We passionately believe in this issue and back in late 2007 I wrote that we should end these non-compete agreements. We planned on starting with our firm and then encourage our portfolio companies, entrepreneurs and other VCs to end this practice as well.

A few months later I wrote a guest post on GigaOm and also we started the Alliance For Open Competition. The idea was to start a grass roots effort to get rid of these things (n.b. we believe in protecting employers through the use of non-disclosure agreements, non-solicitation agreements and intellectual property governed by patent law). We were pleased that in a relatively short period of time prominent investors and entrepreneurs joined the cause and started speaking up.

Recently the Boston Globe Sunday Editorial took on this issue in their column - Clause For Concern.

I was pleased earlier this year when I was contacted by Rep Brownsberger who was leading an effort for reform on this issue. Rep Brownsberger and a team created House Bill 1794 which as orginally drafted would give employees and employers the same protections that exists in California.  I participated in a few sessions and was thrilled with the leadership of this bill. As a result our firm, Spark Capital formally endorsed this bill. I have huge respect and admiration for Representative Brownsberger.

Sometime over the last week or so that bill was modified significantly. The revised draft is on Rep Brownsberger’s website. In our view, the revised changes won’t solve the problem in our humble opinion because they simply don’t go far enough to reform and create real change.

Here’s the principle changes they made last week:

1. Employees who make under $50k are free of non-competes. If you make more than that you are subject to a non-compete

2. The revised draft requires that employers give advance notice that they will require non-competes in their offer letter.

3. Punish overreaching by employers by awarding attorney fees to the employee whenever an agreement is reformed or found unenforceable.

* * *

My reaction:

1. I don’t understand or agree with this new threshold of $50k/year. It will leave out plenty of entpreneurs and employees.

2. The advanced notice doesn’t help if every MA company requires non-competes.

3. Point #3 puts a huge risk on the entrepreneur/employee on the expense front. Who wants to fund a lawsuit? Even if it’s frivolous. Legal fees are expensive and they create a chilling effect. Why? History shows the MA companies pursue these lawsuits and MA courts enforce non-competes more than more than other states according to a UCLA study.

4. Ultimately we believe (especially in this market) it is simply unfair that employees are getting laid off and still subject to a non-compete agreement. That is a double whammy. If employees are that important to the company then you should keep them or at least pay them to sit out of the market.  (again you are still bound by NDAs, NSAs, etc).

5. Opponents for change say that their business will be hurt by ending non-competes in this state. I respectfully disagree. Our company, Spark Capital, doesn’t have non-competes. It doesn’t hurt us. I dont’ see CEOs of Apple, Google, Facebook, eBay, Intel, Broadcom lobbying to implement non-competes in California. Companies in CA are able to hire the best people they can under the law. That level of open competition is a good thing.

CA companies know that innovation doesn’t happen in a vacuum. Innovation occurs in an open market where competition & interaction exists.  I also believe that EMC & Akamai would be just fine if for some reason they one day picked up and moved to California. They wouldn’t be harmed by this issue. EMC just bought CA-based Data Domain for billions. Data Domain was able to be successful because of their technology and because they were able to hire the best people they could. That’s how this works.

6. This state needs bigger and more successful companies. We are limiting our potential by restricting the labor market. Bigger companies will help small and large companies as well in the long run.

7. Opponents for this change also suggest that the lack of non-competes is hurting California. California is certainly having their economic challenges but it’s not because of this issue. Otherwise, CA CEOs would be screaming from the rafters. California has a meaningful revenue shortfall and their expenses are beyond their ability to meet them. But keep in mind, they are creating valuable and growing companies of all sizes.

We will continue pushing for signficant reform on this issue. We hope that this bill continues to evolve and returns to the idea of ending non-compete agreements and at the same time protecting companies with other current legal agreements & laws.

We will continue pushing on the grass roots efforts. If you would like to show your sign of support please blog about this, tweet about it, tell your local elected officials, tell your VC, tell your colleagues and let us know by joining our list of supporters.

Thanks.

Posted by robgo

Don’t paint with a broad brush in this downturn

bijan:

We are still in an marco economic mess.

I’m not going to pretend to predict when we will get out of it.

But there is something very familiar about this down turn as the last downturn.

There are some folks (VCs, press, bloggers, entrepreneurs, bystanders, critics) that have decided to paint with a broad brush.

That happened in the Web 1.0 crash.

In those days, some people said generically:

1. Too much money chasing too few deals. And they got out of this startup ecosystem business. Thankfully many stayed in the game or jumped in.

2. Startups can’t succeed in the consumer electronics space. Thankfully Sling & Flip didn’t listen.

3. Ecommerce is dead. Thankfully, Netflix, Amazon, Zappos and others didn’t mind those naysayers.

4. Free is dead. Thankfully TripAdvisor, Skype, MySpace, Facebook, Google and many many many others ignored them.

5. Open source is dead. Thankfully MySql, RedHat, jboss and many others ignored them.

And now in downturn 2.0 we are hearing many people make grand statements about big markets, like:

1. Online video is dead

2. Social networks can’t make money

3. Where is the business model in open source

4. Venture is dead

5. I’m only investing in things with “proven” business models.

6. Free doesn’t work.

7. There isn’t a business model with online music.

Sound familiar?

Look, here’s the thing. There are plenty of bad ideas out there and mistakes are being made. And there are good ideas with poor execution or other challenges.

At the same time there are people inventing stuff and executing like crazy. There are people innovating in almost every category and inventing new ones along the way.

I’m an optimist. I believe you can’t be an optimist only in good times.

Build a great company in any category you want.

Posted by robgo

What’s most important: features, schedule or vision?

bijan:

I learned a lot of valuable lessons working with Steve Perlman at WebTV Networks and Moxi Digital.

If you worked or met with Steve you would easily agree with me that his passion is nothing but extraordinary. He is positively obsessed about building amazing products.

I learned other things from Steve as well. One of my favorites is V.S.C.F. VSCF is how he would keep priorities in order.

Those letters stand for: Vision. Schedule. Cost. Features. And in that order.

This is how how Steve explained it to me:

1. Vision. Without a doubt, the founder’s vision of the product is the most important thing. Everything flows from that vision. I couldn’t agree more.

2. Schedule. Steve would often say, “Market windows don’t move”. Shipping the product on time is a big deal. If you slip late the market may no longer be there. Schedule trumps cost & features. Especially in a world of software or connected devices you can always add software improvements later (e.g. iTunes App Store is a beautiful example).

3. Cost. Cost is a bit tricky to think about when it comes to consumer internet applications vs consumer electronics like WebTV or iPhone. Cost is important. But you have to get the vision & schedule right. Cost will improve over time if the product is great along with engineering innovation & volume. We subsidized WebTV in the early days. One could argue that was a derivative of freemium.

4. Features. There is no question that features are important but vision, schedule and cost are more important. I think that’s right. Consider Twitter as an example. They shipped early, with less features and with a powerful vision that drives the company’s every move.

I keep VSCF in my mind all the the time.

Posted by robgo