A while back, I got word from a customer that one of our key employees planned to leave us to start his own firm. Worse, he was seeding his new venture by taking some of our key customers with him
Sadly this wasn’t my first experience with this. During my first few months running the company, there were many departures as I made some hiring mistakes while moving aggressively to reset the culture. Those departures seeded several new companies in our primary market, a few of which are still in existence today.
The strength of non-competes vary based on several factors including legal precedence in a jurisdiction, employee seniority and so on. One that is less talked about is the nature of the business itself.
Our business is “asset-light.” Traditionally, this means a lack of physical assets like equipment and property. But I’d like to extend the definition to include intangible assets such as intellectual property (software, patents), and brand identity. The quality/mobility of these intangible assets contribute to a company’s ability to enforce non-competes effectively.
Here’s a scenario: In a trucking business, if a driver leaves to start his own company, He would first need to acquire/rent/lease a truck (assuming we owned the trucks) to begin offering his service. In a business where intangible assets make up the bulk of how you generate sales, non-compete agreement are a must especially when those assets are highly mobile (customer relationships for instance.)
A big part of what I worry about daily is making us “heavier” (vs asset light) by institutionalizing process, technology, and culture in a way that our customers appreciate to stave off the threat of competition from within or without.
There is a certain exhilaration that comes with going after someone that you feel has taken something of value away from you and your company. But as I’ve thought about it within the context of our long term objectives, does it really make sense to fight every single non-compete violation?
Our long term goal is to grow this business from 7-figures to 9-figures over multiple years. Within that context some of these individual non-compete violations are a momentary blip in the overall story. We’ve seen competitors try to succeed on a large scale and fail. It’s harder than it looks.
My recommendation is selective pursuits of violators to protect strategic turf and to serve as a deterrent to future potential violators.
What are your thoughts?
Rookie top reads
New to the idea of non-competes and not sure where to start? This is an excellent and straightforward overview.
Key insight: Non-competes are vital because they not only prevent employees from starting with competitors immediately, but they also protect against the theft of trade secrets learned on the job with others.
Summary: Non-competes are a way to protect yourself as an employer from employees that jump ship and join competitors while also protecting valuable assets – both physical and intellectual property related. There are several parts that make up a non-compete, so it’s important to get the wording correct to reduce any chances of loopholes that could be exploited.
Employee resignations will be a natural part of the business, but here’s a practical guide on dealing with it when it catches you off-guard.
Key insight: Once it’s all done and dusted, take some time out to reflect on why employees have quit and how to move forward to reduce surprise resignations…and consider creating preemptive hiring plans so that you’re prepared.
Summary: Usually, when employees plan to leave, it’s something that’s been in the works for a while. You might not have predicted it, but it’s likely been in motion for a while. Try to understand the rationale for them leaving and probe to get to the right answer, as most employees will try not to say much. After they’ve left, reflect on what could improve based on their experience.