Entrepreneur’s Perspective on Non-Competes

(Note: I just found this post in the “drafts” folder and realize I never put it up! It was written months ago, although I just updated it a bit.)

Bijan Sabet kicked off the discussion about non-competes by asserting that they are a barrier to innovation and that they are unenforceable in California anyway, so why bother?

Fred continued the discussion and made some good assertions about the value of non-competes, summarizing his points as:

Non-competes are very much in the interests of our portfolio companies. But the non-competes need to be tightly defined and the term of the non-compete needs to be paid for by the portfolio company if the employee was forced out of the company. The non-competes should certainly apply to all senior management team members and all key employees (like star engineers and such). It takes a lot of work to build a company. You should not risk all that knowledge and talent being able to walk out the door and set up shop across the street.

Brad and Jason/Ask the VC are generally on board with Fred’s view.

We’ve had non-competes since the beginning at Return Path.  I am generally in agreement with Fred’s parameters, but to spell out ours:

1. Our non-competes are very narrowly defined.  I had a very bad taste in my mouth when AOL acquired my former company, MovieFone, back in 1999 and stuck a 3-year non-compete in front of me that would have prohibited me from working anywhere else in the Internet.  I think the language was something like “can’t work in any business that competes with AOL or AOL’s partners in the businesses they are in today or may enter in the future.”  It was just silly.  Our non-competes apply very narrowly to existing direct competitors of the part of Return Path in which the given employee works.

2. We do not pay for non-competes.  Because our non-competes are very narrowly defined, we don’t expect to pay for someone to sit on the sidelines.  If people leave, or even if people are fired, they have 99.99% of the companies in the world as potential employers. 

3. We are willing to excuse people from non-competes if they are laid off.  Fair is fair.  However, we still expect our confidentiality and non-solicit agreements to remain in full force.

4. Everyone signs the same non-compete.  100% of the people, 100% of the time.  Same language.  No exceptions.  Again, this comes back to how narrowly defined the non-compete is.  It shouldn’t just be limited to senior executives.  Obviously you have to respect local laws of places like California or   Europ which have different views of non-competes.  If these cause in equalities in your employee base by geography, we make an effort to “re-equalize” in other ways.

5. We enforce non-competes in all situations.  I don’t believe in selective enforcement.  That sends the wrong message to employees.  We have had a couple instances where junior people have left and brazenly gone to a competitor.  While we have never blocked someone from starting a new job, we would if there wasn’t another resolution.  Fortunately, in those cases for us, we have contacted the employee and the hiring company and been able to work out a deal — the employee went to work in a non-competitive part of the new company, we struck a commercial relationship between us and the hiring company, etc.

6. We try to play by the rules when hiring people who have non-competes.  I think consistency is important here show to employees.  If we expect people to respect our non-compete, we should respect other companies’ non-competes.  This doesn’t mean we don’t try hard to lure competitors’ people to us when the situation warrants — it just means that if a non-compete is relevant and in effect, we will either make a deal with the other company, or in special circumstances, we will pay the employee to sit on the sidelines and ride out the non-compete.  This is a tricky process, but we’ve had it work before, and we’d do it again for the right person.

Our people and intellectual capital are a huge source of competitive advantage.  They are also the product of massive investment that we make in developing our people.  A good, narrow, non-compete is important for the company and can be done in ways that are fair to employees who are the beneficiaries of the training and development as well as their employment.  I think that’s part of the social contract of a great workplace.  Non-competes don’t stifle innovation — they protect investments that lead to innovation.  I suppose the same argument could be made of patents, some of which make more sense than others, but that’s the subject of another rant sometime.

But at the end of the day, it’s up to us to retain our people by providing a great place to work and advance careers so this whole thing is a non-issue!

Spooky

Note: Jonathan is a colleague of mine in our Authentic Response research business.

[Me] Hey, I heard you moved back to New York (from Boston)

[Jonathan] Yeah, the travel was getting to be too much. Plus, a buddy of mine was looking for a roommate

[Me] Where’s the place?

[Jonathan] Murray Hill

[Me] Oh – I lived there years ago. Where?

[Jonathan] Near 2nd and 34th

[Me] What building?

[Jonathan] It’s a small walk-up – you wouldn’t know it – 633 Second Avenue

[Me] NO WAY. I used to live there. Which floor?

[Jonathan] Third

[Me] Yup – that was my old apartment – from 15 years ago!

What a weird, weird, weird, thing.

7 Years On

My last September 11 as a New York City resident. I walked down to the World Trade Center site this morning as I have each of the last six 9/11s and rang The Bell of the Unforgotten, which is the New York City Fire Department’s port-a-memorial that they bring out for the day. As a long-time member of the lower Manhattan community, the day always bring out a lot of reflection for me. Seeing the memorial flood lights on tonight will do the same and bookend the day.

The main thing I was thinking about this morning was why there’s been nothing really built yet on the site. World Trade Center 7 (which is actually adjacent to the main site) went up in a hurry a few years ago (pictured here under construction four years ago), but nothing else.

My general understanding of the situation is that the holdup has not been around clean-up or pre-construction the last several years, but all about legal, political, and insurance issues. And that smacks to me of a leadership problem. I realize there are a lot of parties involved, and a lot at stake, but it’s just embarrassing to America that we haven’t rebuilt the site — and fast. Set an example to the rest of the world that we react swiftly and don’t let the bad guys knock us down…and keep us down.

It feels to me like a President who actually understood leadership would have gotten all the parties in a room together and not let them out until there was agreement on a plan. Don’t just let “the system” play things out laissez faire, but actually play them out in a hurry so the country and city can move forward. It feels like the kind of thing Reagan or Clinton would have done.

As I reflect on this today, the one thing I’m happy about is that no matter who wins the White House, America will be getting a leadership upgrade.

I Can’t Tell If I Like This Or Not

I am blogging at 35,000 feet, using American Airlines’ new GoGo in-flight Wi-Fi service. I am definitely having mixed feelings about it. On one hand, it’s nice to download the 47 emails I just wrote before two-hours after landing (sorry, team!). It’s also nice to be able to clean out my Inbox so it’s not overflowing when I get to our California office.

On the other hand, it has the potential to destroy one of the last few places in my life that’s completely free of connectivity. That kind of makes me sad.

I think I’m going to turn it off once I do a single pass at the Inbox. I guess I can turn it back on for the same $12.95 fee if I need it again. This service is a great convenience but a bit of a luxury. At least the guy next to me isn’t using Skype!

Hands in the Cookie Jar

It feels like I’m closing a lot of transactions lately. Today is another one – we are closing on a house. Somehow, no matter how much of an owner you are of your business, wiring money out of your own personal bank account is a bit harder than wiring from the corporate account.

I’ve observed something over the years with transaction closings – both personal and business. I call it the Hands in the Cookie Jar phenomenon. When a lot of money is on the table and trading hands, and when there are a lot of parties involved (not just the principles, but various agents and lawyers as well), the closer you get to the transaction closing, the more hands appear outstretched ready to grab a small piece of the money.

Today, it was about agents, lawyers, banks, mortgage brokers. And as we found out on yesterday’s walk-through of the house, it is also about the “guys,” as our real estate agent referred to them. You know, the tree guy, the termite guy, the plumbing and heating guy, on and on. Everyone is swarming to collect checks for all the work they’re doing or think they’re doing, some of which is valuable, and some of which just feels like highway robbery.

With corporate transactions, it’s usually more about the principles or people closer in. Sure, you have to pay bankers and lawyers, but corporate transactions are the time when others in the company — board members, execs, employees — all want to try to cut their own new deal at the last minute. We’ve had some bad experiences with this in the past, including a senior employee who threatened to quit if he didn’t get what he thought he should get out of a deal. And those situations are probably the most difficult to deal with.

Some of this is inevitable. Things come up that you didn’t anticipate in advance. Circumstances change. But in general, my approach to these things is that the best way to avoid the Hands in the Cookie Jar phenomenon is to document everything earlier on in the process and be unyielding as you get closer in. Just because money is changing hands doesn’t mean more hands get to be in the mix!

Sometimes You Just Need a 2×4 Between the Eyes

Freshman year in college, fall semester, my friend Peggy and I were in a small seminar class together on Dante. We thought we were pretty smart before the class started. And that we were great writers. Lots of As in high school. Then we wrote our first paper. Professor Bob Hollander gave me a C-. I think Peggy got a D. We were devastated. And pissed. Sure, the ensuing cocktail took the edge off (this was college, after all), but we both scheduled time with the professor during his office hours to figure out where our carefully honed academic trains had gone off the tracks.

Essentially what he said to each of us was this (you have to picture the 60-something professor in a turtleneck smoking a pipe with gravely voice for full effect): “Matthew, your writing wasn’t the worst I’ve ever seen. But I feel like you can do better, and sometimes you just need a 2×4 between the eyes.” End of meeting. Thank you, sir, may I please have another?

I couldn’t have been more irritated. But I will tell you one thing. I worked four times as hard on my next paper, got an A-, and elevated my game permanently. Not just for this one class, but for all of them. Bob was right. His 2×4 between my eyes worked.

Sometimes when we deliver performance feedback in business, this approach makes sense. There are times when someone is really doing poorly and needs harsh (fair, but honest) feedback. There are also times when someone is doing so-so but generally just not living up to his or her promise and should be doing better. And in those cases, you have to just make a judgment call about whether to give feedback on the margin or go for the full 2×4 to drive the point home and get someone to really elevate his or her game for good.

Back to…

I’m not in school any more, and as far as I can tell now, schools start before Labor Day for the most part, but it still feels like tomorrow is “back to school” for the working world. Business still hums along in August, and we’ve certainly had our hands full with one of the busiest months ever at Return Path, but somehow, the traditional end of the summer season still manages to have the trappings of a European August, with lots of people on vacation or doing more “work from home” days than usual.

As all that draws to a close today, at least for me personally, it’s Back to…lots of things:

– Back to New York! After a few weeks out of the city at our house in the mountains, it’s great to be back in Metropolis

– Back to shorter and more varied workouts! Training for my recent half marathon meant a lot of long runs and not much else. Now back to weights, pilates, elliptical, and swimming

– Back to more serious reading! I’ve read a bunch of trash over the summer. I was way overdue. My brain was starting to hurt. So I tuned out of almost all news, business books, and non-fiction for a month, and I plowed through enough murder mysteries to wallpaper a library (no doubt one populated by Colonel Mustard and Mrs. Peacock)

– Back to business! A few days and half days off and some working from home behind me, it’s time to gear up for a very busy September and October. Always busy months with industry events and pre-holiday retail client frenzy, this year will be even busier as we work to integrate our recent acquisition of Habeas as well as complete a number of other big initiatives

So happy Labor Day, which Wikipedia notes was created in 1882 and federalized in 1894 as “a day off for its working citizens.”

Half as Long, One Third as Hard

(Post written on Saturday, August 23.) I ran the Mesa Falls Marathon & Half Marathon near our house in Teton Valley, Idaho today.  I ran the 1/2 and Brad ran the full marathon as part of his quest to run 50 marathons, one in each state, by the time he turns 50.  Return Path is a proud sponsor of Brad’s running, donating $1,000 for each race he completes to the Accelerated Cure project for Multiple Sclerosis.

Brad chronicled the race here.

The run was set up well for us.  I wasn’t up for training for a full marathon, and this race had a half marathon that started at the halfway point of the full race, 2 hours after the start of the race.  So I waited a few minutes with Amy at that point until Brad came cruising by us, and then he and I ran it in together.  I was in charge of keeping him fresh and focused during a big hill and when he hit the proverbial wall.

As usual, the 26.2 mile run is an awe-inspiring distance.  Even more so running the second half of it with Brad today when I had fresh legs at the beginning and he had already done 13.1 miles.  My conclusion, based on my training, my strength at the finish, and the way my legs feel at the moment (pre-Advil and pre-cocktail), is that a half marathon is a nice accomplishment, but it’s not 1/2 as hard as a full marathon.  It’s probably about 1/3 as hard.  I’m sure there’s some great CEO metaphor about doing something halfway with a third of the effort, but I can’t conjure it up at the moment. 

So hats off to Brad on completing #12 in his amazing series. I was delighted to have my favorite people in the world meet me at the finish line, shown here  with Amy taking our picture.  (Yes, for those who are wondering, we are expecting #3 in January.) 

Also, Happy Birthday to my colleague Brian Westnedge, who was born in Ashton, Idaho (right near Mesa Falls) a bunch of years ago on the race day of all days.

Opportunity Knocks

When our friends at Habeas announced that they were exploring a sale of the company a few months back, we were intrigued.  While fiercely competing in the marketplace does create some degree of tension or even mistrust between two companies, that activity also creates a lot of common ground for discussion about the market and the future.

So we are very excited today to announce that we are acquiring Habeas in a deal that is signed and should close within a couple weeks.  Cutting through all the PR platitudes, here’s what this deal really means for our stakeholders:

For everyone we work with, this deal means we have even more scale.  More scale is a good thing.  It means we can invest more in our future in everything from technical infrastructure, to product innovation, to globalization, to employee development.  It’s easy to be great when you’re a 25 person company.  It’s actually quite challenging when you’re a 50-100 person company.  It becomes easier again, though in different ways, when you are a 200 person company with more resources.

For ISPs and filters, more scale means more and better data products to help fine tune filtering algorithms and improve member experience.  It also means an even more streamlined way to reach masses of marketers and publishers. 

For sender clients, we can now offer expanded service levels and access to a broader “footprint” of ISPs and filters who subscribe to our services.  The consolidated company will be one step closer to providing a universal set of standards for measuring sender-focused email quality and reputation.  Some of the details still need to be worked out here, so look for more specific communication from your account representative in the coming weeks.  The one thing we do know at this point is that we will be maintaining both Sender Score Certified and the Habeas SafeList as separate and distinct whitelist programs indefinitely.  So for now, it’s business as usual.

For employees, combining the resources of the two companies means we will be in a better position to wow our clients.  A bigger employee base and a larger company also means more career opportunities for all. 

We have always been mindful that, even as the market leader, we have to earn “every dollar, every day” from our clients, and we have to constantly demonstrate to ISPs and filters that we are not just advocating for our sender clients but for them and their subscribers as well.  None of that changes with this deal.  We still have plenty of competition and are redoubling our efforts to lead the market with innovation and service levels, not just with size and scale.

Our friend Ken Magill wrote some unkind remarks about Habeas a while back.  At the time, as fierce competitors with Habeas, we probably agreed with him.  But as we’ve gotten to know Habeas better over the past few weeks, we realized what a great business the Habeas team has built in the last five years  — including: a strong customer base and partner network, innovative reputation technologies, complementary receiver and data partnerships and most importantly, an incredible team of people as fanatical about saving email as Return Path. For Return Path employees and clients, we get access to these new assets that now makes us an even stronger leader in this space.  And Habeas employees and clients now have expanded access to great resources and talent from Return Path.  But the big winners are the ISPs, filters, and email senders – they will l now have access to a more universal solution to deliverability and filtering accuracy.

So, to  Habeas’ employees, we say “Welcome to the Return Path family!”  We are delighted to have you and look forward to many years of success together.  As I said to my wife when we were in the middle of all the due diligence on the deal, “learning more about Habeas is a little bit like looking in one of those Fun House mirrors at a carnival – you see yourself, just looking slightly different.”  We will all have to work together to move to the common ground from the prior world of competing against each other, but the exciting future of the business and the industry will propel us there. 

Onward!

Book Short:  Catchiest Title in a Long Time

You have to admit, a book called The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich has a pretty enticing title.  The email geek in me thinks that if it were a subject line, it would have a good open rate.  Anyway, the book, by Timothy Ferriss, is a breezy read that  blends self help with entrepreneurship, has a lot of good resource lists in it, and is worth reading  if you don’t take it too  seriously.

There are some good central points to the book.  First, life has changed, and people don’t want to slave away until they’re 65 any more so they can do all the fun stuff in their old age — they want to change directions, unplug more regularly, and enjoy life with their families when they’re younger.  I buy that.
Second, good companies are increasingly allowing employees more degrees of freedom in the where and when and even how of getting things done, just as long as they get things done — and people should take advantage of that.  I buy that as well — we practice that at Return Path, generally speaking.  Third, startups that are mainly virtual organizations and internet-based are easier, cheaper, and potentially more profitable than most businesses have been, historically speaking.  Ok, fair enough.

Fourth, anyone can be just like the author and do all of this stuff, too, right?  Start a business that turns into a cash machine that requires little to no maintenance while becoming one of the best tango dancers in the world in South America, etc. etc. etc.  Well, maybe not.  I guess the point of self-help books is to show an extreme example and inspire people to achieve it, and I do think there’s a lot to what Ferriss says about how people can live richly without being rich, but the fact is that the world would fall apart if everyone did what he does.  And the other fact is that Ferriss is well above average in intellect and drive, and probably some physical talents as well from his descriptions of tango dancing and kick boxing, which must contribute to his success in life far more than his operating philosophy does.

But as I said, it’s a fun read, and if you don’t take it too seriously, or at least take the feedback directionally as opposed to whole hog, it’s well worth it.

Curbing My Enthusiasm

For the first time since I started blogging over four years ago, I have recently run into several examples in a short period of time where I’d love to blog about something happening in the business, and I think it would make for a great blog posting, but I can’t do it.  Why can’t I?  Lots of different reasons:

– Don’t want to telegraph strategy to the competition

– Don’t want to compromise an employee (current or former)

– Worried about downstream legal ramifications

There are other reasons as well, but these are the main three.  I love transparency as much as the next person (and more than most), but these scenarios have to trump transparency in my position as a CEO.  Hopefully the passage of time and the release of news will mean that I can still do the blog postings, but as more of a post mortem than something in the moment. 

But I hate curbing my own enthusiasm.  It’s a definite frustration in this case, and a new one.