The lessons founders should learn from the OpenAI saga go beyond following the yellow brick road

It’s hard to imagine there is anything left to say on OpenAI, that hasn’t already been said in any one of the millions of hot takes over the last few weeks.

But never fear. In startup land, there is always room for one more hot take that absolutely no-one asked for.

Today I was asked to help some entrepreneurs with employment contract non-compete clauses for staff.

After a little discussion, it became clear that the OpenAI events of this week — that is the risk of an employee walk out, the potential movement of a CEO to a strategic partner — had caused them to worry about how they could prevent something similar happening to them.

Exclusive: Footage of Sam Altman returning to OpenAI as CEO pic.twitter.com/jwD6rEZEMY

— Daniel ∞ (@danielmerja) November 18, 2023

(This contains some language, don’t listen to it if you have sensitive ears)

Its perhaps not surprising that the first inclination of most people is h̵o̵w̵ ̵t̵o̵ ̵c̵o̵e̵r̵c̵e̵ ̵b̵e̵h̵a̵v̵i̵o̵u̵r̵ ̵u̵n̵d̵e̵r̵ ̵l̵e̵g̵a̵l̵ ̵t̵h̵r̵e̵a̵t̵ how to introduce structural guardrails into things like legal contracts.

And of course companies can and will continue to put non-compete clauses which range from restricting an individual from working for a competitor through to preventing people from poaching clients and staff for a time period.

Putting aside the arguments about enforceability of these types of clauses (depending on your jurisdiction) or the cost and effort involved in pursuing enforceability, the real issue is whether they would have made any difference in how the matters of this week played out.

Non-compete clauses that restrain a person from their trade are not enforceable in California, so I doubt that the employees of OpenAI had a traditional non-compete, but I imagine there was some version of contractual carrot or stick that should have otherwise disincentivised a mass staff walk out or potential move to a competitor like Microsoft or others.

I would be surprised if there wasn’t something similar in the shareholders agreement that should have prevented Microsoft from attempting to poach the executives and team. Like every other punter commenting on OpenAI, I don’t really know the details nor will I let that stop me waxing critical like every other noob from the cheap seats who t̵h̵i̵n̵k̵s̵ ̵t̵h̵e̵y̵ ̵h̵a̵v̵e̵ ̵a̵ ̵s̵m̵a̵r̵t̵ ̵h̵o̵t̵ ̵t̵a̵k̵e̵ doesn’t want to be left out of the conversation.

The point I’m trying to make, is it made absolutely no difference.

Staff still threatened a mass walk out.

The CEO still said he was moving to work with a major shareholder and that shareholder said they would take the team.

And the Board, who prior to this past 7 days probably thought they held the ultimate power over this business, realised how little power they actually wield when the people actually doing the work said “not today S̵a̵t̵a̵n̵ ” (a side note: this is your periodic reminder that organised mass worker actions can be effective, which is why Unions can be useful — join your Union).

What we have seen play out this week is actually a tragically beautiful Silicon Valley example of the Wizard of Oz — the power a group or an individual holds is only as strong as the belief in, or consent to subordination by, those around them.

*Oooohhh scary, until everyone saw what was behind the curtain*

The shareholders lost faith that the Board were making good decisions, the team didn’t want to work under a different vision or regime, the general public was flummoxed at why, and now the Board are gone.

Now, I acknowledge this is an extreme example, and not necessarily reflective of what would happen if Jane Startup wanted to leave her job and work for a competitor and take her high performing team with her.

My point is, notwithstanding the occasional bad actor (and there are legal recourse for stealing confidential information etc), rather than agonising over legal agreements to ensure your key executives and employees don’t move to a competitor, a more strategic use of time and energy is to hire the best people, to make good decisions, to ensure all parties (board, shareholders team) are aligned in direction and vision.

That’s how you minimise the risk of the events of this week from happening, not non-compete clauses.