It’s Time to Get Rid of Non-Competes in Massachusetts
The Boston Globe is reporting that Massachusetts House Speaker Robert DeLeo is putting non-compete reform back on the table after stifling its passage last year.
I am writing to my friends and representatives in support of putting an end to all non-competes in this state. There are both economic and moral imperatives for doing so.
The economic imperative
Six and a half years ago I co-founded Inkling, a technology startup in San Francisco that makes enterprise content platform for companies like McDonald’s, Salesforce.com, KPMG, McGraw-Hill, and many others. Inkling today employs almost 200 people, earns tens of millions of dollars in revenue, and is supported by some of the best investors in the world.
We were free to innovate because of California’s state-wide ban on most non-compete clauses in employment contracts. Our founder & CEO Matt MacInnis left Apple just months before starting the company. It is reasonable to conclude that he wouldn’t have been free to do so had he been bound by a non-compete, as Apple has invested heavily in related areas—including educational publishing where Inkling has its roots. Even if Matt had been able to escape his contractual shackles we, like all startups, rely heavily on attracting top-tier talent from other companies in order to be competitive ourselves. That talent usually yearned for a greater impact than they were making in roles that did not suit their ambitions.
Unsurprisingly it is the large companies unsuccessfully navigating the Innovator’s Dilemma that are most opposed to non-compete reform. Losing their edge in the marketplace and their ability to innovate, they seek artificial means of binding their top talent. As a result, employees who would have far greater economic impact elsewhere are forced to stay in companies that are slowly winding down into irrelevance.
Non-competes erect an artificial barrier that keeps high-impact individuals in low-impact roles, reducing systemic innovation and economic growth. The best talent at EMC should be free to move to Google, Amazon, a competitive startup, or any other high-impact company.
It bears acknowledging that once the tide turns on a company, some of the forces at play will go beyond fair competition. Here again, EMC is a pertinent example, as the brain drain may be taking valuable trade secrets along with it that are difficult to enforce through litigation of non-disclosure agreements. But the net effect of having a new player on the public stage is unmistakably positive both for individual employees and the economy as a whole, and I would rather force one company into difficult litigation than restrict the employment of thousands of people (all or almost all of whom are good actors). A free market for employment, like a free market for products and services, is essential to spur innovation and economic growth.
The moral imperative
Inkling is now almost seven years old. In Silicon Valley time, that’s an eternity. While we’ve hired over two hundred employees since our inception, we’ve also lost some to new opportunities, many of which are competitive.
An example is Ivan Zhao, a young, star designer at Inkling who felt the itch to start his own company Notion. Notion is a digital publishing company — not directly competitive with Inkling, but in the same general space (Notion is productivity software whereas Inkling is enterprise software). Its existence lowers the expected value of my Inkling shares by a small but non-zero amount, as he’s raised money from the most impressive set of early-stage investors I’ve seen in a long time.
If Notion were to pivot tomorrow and enter directly into Inkling’s space, I would feel mostly pride. Pride that a person I had some small part in training was making an impact on the economy and society in general. Like most entrepreneurs, my higher calling is not wealth but societal impact. And besides, if Inkling can’t compete with Notion given our advantages in money, talent, and market position, then I would have lost fair and square.
Of course, ensuring that my family (at Inkling and at home in Winchester) is taken care of is still important. That’s why reasonable, contractually agreed-to limits on competition still have a place in an innovation-positive economic system. There are plenty of them that will remain: intellectual property will still belong to the company that sponsored its invention; non-solicitation clauses will prevent employees from raiding a company’s rolodex; non-disclosure agreements will keep trade secrets secret; and many more.
The notion that beyond trade secrets and intellectual property I own an employee’s free right to employment and their general know-how, however, is morally repugnant to me. A contract is not a panacea to all economic ills. Employees and their families need to eat, and waiting 12–24 months between jobs is unacceptable to all but the most fortunate of us, making the decision to accept a new job with a non-compete one that is clearly not taken at arm’s length.
I recently left my employment at MIT to pursue a new, as yet unannounced, venture. Unlike when I founded a company in San Francisco, this time in Massachusetts I will be confronted with a moral dilemma with every new employee: obey my fiduciary duty to my company, or do what I think is in the best interests of employees and the economy as a whole. I implore you to remove that moral burden by banning non-competes for all employees—both low-wage and high-impact—as half-measures floated by DeLeo will chill the debate without solving the problem.
If they remain, I hope that I am able to attract the talent necessary to make this new venture a success despite the barriers to free movement of employment. I like my new home in Winchester, and I would hate to have to take myself and my new company back to Silicon Valley where local governments have created a more innovation-friendly ecosystem.
If you feel strongly about non-competes in Massachusetts I encourage you to reach out to your local legislators, the legislative leadership, and Governor Baker. And be sure to share this post via email or social media.
Thanks to several friends who offered their comments on this letter, particularly Steven Sinofsky.