Sunday's Globe column: How non-competes make states less competitive
Yesterday's Globe column attempts to explain how non-competes can make states less competitive by limiting the cross-pollinating effects of people moving from one company to another, or forming new start-ups.
Here's some video of HBS researcher Matt Marx explaining how non-competes work -- and how they worked on him (Matt began his career as a speech recognition engineer in Boston, before moving out to Silicon Valley and then back):
Very simply, big companies like to use non-competes as flypaper, so they don't have to worry about their best employees zipping away when a better opportunity presents itself. (At Future Forward back in November, Art Coviello of RSA/EMC and Paul Sagan of Akamai said as much... Sagan even suggested that a good solution to the problem would be to have California *start* enforcing non-competes.)
Two interesting data points about local companies...
- EMC Corp. had 8900 employees in Massachusetts, and 4900 in California (these numbers include VMware) at the end of Q3 2007. The California numbers were growing *much* faster -- California had added 1400 people since Q3 2006, and Massachusetts only 270.
- Biogen Idec has 1750 employees in Cambridge, Massachusetts, and 400 in San Diego, California.
Why (let me ask rhetorically) do these companies even bother having operations in California if it is so hard to retain top talent without non-compete agreements?
I have to confess that I did not take copious notes during Future Forward yesterday, a conference I help organize, but I did shoot some video, which I'll post here soon. (Update: video is below.)
But there were some great questions raised, some really insightful comments, and lots of interchange between the speakers and the tightly-packed audience.
The big question in the opening panel, which featured CIOs and CEOs, was whether it makes sense to be the "first one in the pool" when it comes to deploying new technology, or to be a fast follower. Bill Wray from Citizens Bank said his budget doesn't allow him to experiment in too many places, so he tries the latter strategy. George Orlov from Forrester Research said he's creating a sort of sandbox, so that his employees (technology analysts) can play with new technologies they are writing about. Ken Chaisson from Legal Seafoods talked about how some of the company's servers gravitate to new technologies, and that others follow when they see that the first group of servers is turning tables faster and earning more tips.
CEOs Paul Sagan (Akamai) and Art Coviello (former CEO of RSA Security, now a division president within EMC) were up next. Sagan talked about Akamai's near-death experience after the dot-com bubble burst, which required letting go hundreds of employees and getting out of high-priced leases. He also talked about how the company had to focus - quickly - on what he called "permanent economy" customers. I asked whether the start-ups in the room represented the "transient economy." "Too soon to tell," Sagan quipped.
The question of whether the enforcement of non-compete agreements hampers entrepreneurship in Massachusetts came up. Sagan said cheekily that we should lobby California to institute non-competes, rather than eradicating them here. Attorney Gabor Garai from Foley and Lardner, in the audience, seemed to think that they're a real problem. When Art Coviello got on stage, the first thing I asked him was his position. EMC/RSA, of course, likes to hold on to its best employees, and Coviello said non-competes help them do that.
Next, Dan Primack ran a very high-energy panel about VCs, IPOs, and M&A. He started by exploring corporate venture investing ... and particularly the fickle nature of it. Corporations open and close venture groups as the economy changes, and one of the VCs on the panel, Maria Cirino, said that in her previous life as an entrepreneur, one corporate venture arm replaced the person who sat on Maria's board three times in four years. The panel also touched on the problem of big funds (Battery was named) trying to do everything from early-stage deals to buy-outs. There was quite a lot of skepticism about that, but no one from Battery or General Catalyst was present to defend the big boys.
Giles McNamee brought up a very salient piece of data - only one or two percent of companies ever make it to an IPO, so it's quite natural that entrepreneurs consider and explore the M&A route.
After a nice long lunch, we came back to hear from the delightful and insightful artist John Maeda, who works at the Media Lab. I've long been a fan of John's work, but this was the first chance I'd had to see him speak. (TED has a video of a shorter talk he gave about his book 'The Laws of Simplicity,' but yesterday John got a full hour.)
Next, George Colony and Fidelity exec Charlie Brenner sparred on stage about the future of IT. Colony is trying to change the term to BT (business technology), since he says IT people should no longer be talking about information-related metrics (how many records are in a database, or how many queries they handle every day), but rather business metrics, like how much they've increased the average order size on the Web site.
Colony blasted the news media, mentioning the NY Times in particular, for "pumping up Google like they pumped up Amazon in 1997." The degree of hype, he said, is "very irresponsible." Colony was very skeptical that Google can revolutionize the cell phone business, since its new Android strategy will require carriers to work against their natural interests.
The last session, as tradition dictates, is a murderer's row of entrepreneurs, showing new products they're working on. Mark Thirman of AirPrint Networks had a pretty nifty demo, of a small printer that can spool out lottery tickets, movie tickets, or little maps; it communicates via Bluetooth with your cell phone. And Mike Phillips showed off Vlingo's speech recognition technology, which speeds up data entry on cell phones.
One VC in the audience made a telling comment. He asked a question of Vertica CEO Ralph Breslauer, dismissing the rest of the panel as "not real companies" (I'm paraphrasing). Everyone else was a consumer-oriented play, and some have slightly hazy business models. Are Boston area VCs just a wee bit prejudiced toward heavy-duty enterprise tech? Hmmm....
One thing we've started doing is allowing the audience to "invest" play money into the start-up company that they like the best.... as a joke, we put General Georges Doriot on the face of the bills (Doriot was the founder of the first venture capital firm, ARD, and a prof at Harvard Business School.) During the cocktail hour, one of the FF attendees, Tom Hagan, told me that he'd actually been in a pitch meeting with Doriot, early in his entrepreneurial career. Pretty cool ending to the day...
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