When I moved back to Boston from San Francisco nine summers ago, I wanted to try to solve a riddle.
Both places have great universities, smart people, and investors who put money into startups. But the pace of spotting new opportunities, forming companies around them, and growing those companies into industry leaders — witness Uber, Netflix, Tesla, Fitbit — just seemed to be happening much faster in the Bay Area.
Is the East just too dominated by the establishment? Is the West more of a clean sheet of paper? Could it be something in the fog?
There are lots of cultural differences, and things that you can’t change. But the one thing I heard people talking about in my interviews back in Boston was how hard it was to hire people, even after your business idea seemed to be clicking and you had money in the bank.
It wasn’t that employees in Massachusetts were reluctant to leave their current jobs, or anxious about joining a younger company. It was that they had signed a contract that prohibited them from hopping over to another company in their same field, without a year or two of a “cooling off’’ period between jobs. They could go and sell khakis at The Gap, but they couldn’t work as an app designer.
These contracts have a dull name: employee noncompete agreements. But they also have a chokehold on company creation and growth in Massachusetts. If you have a great idea for a more efficient approach to data storage, for example, you can start it and raise money here. But you can’t easily hire people from Hopkinton-based EMC, one of the industry leaders, because they are all bound by these contracts. It also isn’t easy to leave EMC to launch your own company, unless you’ve saved enough money to cover a year of sitting on the sofa before you incorporate. Oh, and you also need to cross your fingers that no one in California has the same idea, and is hiring people and building their product during the year you aren’t allowed to work in your field of expertise.
What happens when EMC starts cutting thousands of jobs, as it did in 2014 and 2015, and then gets acquired by Dell, the Texas-based tech giant? Incredibly, any of those laid-off workers can still be hauled into court if they violate their noncompete and start a new data storage company, or if they join someone else’s startup.
Yet EMC, and many of the state’s other larger employers, have helped ensure that nothing has changed about how noncompete contracts are used. Noncompetes are wonderful from their perspective: They create artificial employee “loyalty.’’ In California, where these contracts are not enforced by the courts, you have less “loyal’’ workers but a much faster pace of innovation and company growth.
And it’s not just nerds who get tangled up in noncompetes. I’ve interviewed hairdressers who have been successfully sued for leaving one salon to work at another, and parents of summer camp counselors who have been threatened when they tried to take their talents elsewhere.
Beacon Hill is aware of the issue. Governor Deval Patrick suggested in 2014 that we should simply ban the use of noncompete agreements, but legislators didn’t agree. This year, the House unanimously passed a bill that would have made some small tweaks to how noncompetes are used, and the Senate OK’d a more radical redo. But a compromise fizzled on the last day of July, and again nothing happened.
Last Monday, Matthew Ocko, a California venture capitalist, tweeted, “Hey, Mass. legislature, thanks for giving CA a huge advantage in VC, job creation, & tax base for another year! ;-/’’ Ouch.
On Tuesday, I spoke with Jay Ash, the Massachusetts secretary of housing and economic development, on the air on WBUR. He didn’t seem to think this is a burning issue for the state’s economy, mentioning two recent rankings of the state’s workforce, research activity, and startup support. “Massachusetts is number one, according to Bloomberg, in the innovation economy. Massachusetts is number one, according to Milken, in tech and science. It’s hard to say that it’s limiting our economy. There are good arguments both for and against noncompetes.’’ Rather than doing radical surgery on the laws, Ash said, we just need to pop an aspirin or two.
I don’t love the medical metaphor. We’re not sick. But if all we do is brag “we’re number one,’’ without continually going to the gym and building up our muscles, that’s a problem. And, by the way, we’re far from number one in some crucial areas, like the number of fast-growing, trend-setting public companies we have in the Nasdaq 100 index.
We have two problems we need to address. One is the sandwich-maker problem, the other is the software developer problem. How do we make sure that noncompetes aren’t being used to prevent sandwich-makers from switching from one shop to another to make more money? And how do we make sure that they’re not being used to prevent a software developer from leaving one Massachusetts company to create another? Trust me, in California, where workers can move freely, sandwich shops don’t go bankrupt because the best steak-and-cheese guy left, and Google doesn’t lose value because an employee leaves to create Twitter. Growing an entrepreneurial ecosystem is not a zero-sum game, despite what business groups like Associated Industries of Massachusetts would like our elected officials to believe.
But to change minds, and solve those two problems, we need more worker bees and more entrepreneurs to actually have conversations with these elected officials, not just send out an indignant tweet once in a while.
Ric Fulop, a serial entrepreneur and CEO of a 3-D printing startup in Lexington, Desktop Metal, is an example of how disconnected these groups are from important policy discussions. He sent me a message in late July, with one week left in Beacon Hill’s legislative session, asking how he could get more engaged. Fulop’s company was founded just last year. Already, it has 40 employees, and more than $50 million in funding, but it is not a member of any of the established business groups that fought against any change to noncompetes. Does Desktop Metal require its employees to sign noncompetes? It does, because nearly every other company does, too — and who wants to be at a disadvantage?
But Fulop said we would be better off without them: “We have been losing ground to California for two decades. It’s time to choose if we want to innovate — or become a place like Detroit.’’
Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.