You’d probably like to stay on good terms with your former employer. You may have signed a non-compete agreement. And it wouldn’t hurt to take some customers with you. Here’s what you need to know to navigate the transition from working for someone else to being your own boss.
After working at the same salon for eight years, Seattle aestheticians Stephanie Carroll and Heather Allison decided to open a skincare studio of their own. It’s not uncommon for beauty professionals to retain their clientele when they jump ship, but Carroll and Allison were intent on doing so without burning bridges.
Six months before their departure from the salon, the pair began quietly collecting contact information from nearly 300 clients. After securing a lease on a storefront in which to operate their own business, they gave notice, offering to stay three weeks but settling with their boss on two.
Only then did Carroll and Allison share the news of their new business, Deity Skin Care, with clients who came in for appointments.
“We weren’t really loud about it,” Carroll says. “We just let them know this was the last time we’d be seeing them at [the salon] and that we’d be opening our own space.” At the end of their tenure, the duo sent “Opening soon!” notices to the client list they’d assembled.
When they were ready to open their doors in June 2012, they followed up with a coupon offering clients 30% off their first Deity appointment.
Not only did Carroll and Allison retain about 65% of their customers, they also managed to stay on good terms with their ex-boss. “It took a couple of months for the transition, and then everyone was friendly,” Carroll says, adding that she has seen her former boss socially and that Allison still patronises the old salon.
But making the leap from trusted employee to friendly competitor isn’t always as harmonious. You may have a non-compete clause, a boss who doesn’t take the news of your resignation well or former clients wondering where the heck you went. Here’s how to keep your professional relationships intact when navigating the rocky path from direct report to top dog.
When it comes to leaving a company that will soon be a competitor, a little honesty goes a long way. “There’s a mistaken feeling that somehow this needs to be done covertly,” says Andrew Flake, a partner at Atlanta law firm Arnall Golden Gregory.
Related: Which Business Should I Start?
Play It Safe
You’re more likely to get an employer’s blessing if you play by the rules. Legal experts recommend these guidelines.
- Don’t compete with an employer while still on the payroll. Wait until you’re a former employee, even if you didn’t sign a non-compete agreement.
- Don’t use company resources to develop your new business. This includes office space, computers, phones, tablets, e-mail accounts or anything else the company owns or rents. Plan your business on your own time and equipment.
- Don’t phone it in during your last couple of weeks. Give your final projects the same level of dedication you did during your first week on the job.
- Don’t walk away with anything. Leave behind company hard drives, mobile devices, e-mail lists, trade secrets and anything else that isn’t yours.
Of course, Flake adds, you don’t want the news that you’re leaving to get out prematurely, but you also don’t want to drop an 11th-hour resignation bomb in your boss’s lap and sneer, “By the way, I’m taking these clients with me.” Instead, give as much notice as possible and remain cooperative during the transition. Most important, if you signed a non-compete agreement, tell your employer you intend to honour it, says Lynne Curry, CEO of management consulting firm The Growth Company in Anchorage, Alaska. “Let that person know that you want to maintain good relationships and good standing,” she says.
That’s what co-workers Peter Selber and Nick Altman did when they left their jobs in 2011 to open Infinity Power Partners, a Houston-based energy-management and consulting firm.
“We didn’t want to trick anyone,” Selber says. The duo thanked their managers, told them they’d enjoyed working at the company and said that although they planned to open a similar business in the same market, they would honour their three-month non-compete. “They understood the opportunity we had, and they didn’t stand in the way,” Selber says. “They were very supportive – as much as a competitor can be.”
Read the fine print
Many professional service companies – creative agencies, technology providers and financial planning firms – require staff to sign contracts that restrict them from becoming a competitor for a period of time after leaving.
“Always look at what the non-compete agreement says,” advises A. Kevin Troutman, a Houston-based partner at law firm Fisher & Phillips. “If it defines what you can and can’t do, that’s going to be your guiding point.”
Contrary to popular belief, many businesses take legal action when an employee violates a non-compete agreement, and the courts do enforce them, Troutman adds.
Flake suggests revisiting your employee handbook, too. Pay particular attention to policies that prohibit you from sharing company secrets and prevent you from conducting personal business on company equipment and time. Also check the relevant state employment laws.
You may need to hire an attorney to help you navigate what’s kosher, particularly if you have questions about the meaning or validity of your contract.
That’s what Mario Ochoa did when he and a co-worker quit their public relations jobs in 2010 to open Sammis & Ochoa, a PR firm in San Antonio.
“I think we dropped $800 to consult with the lawyer and have a couple of letters drafted,” says Ochoa, who received a cease-and-desist letter from his former employer after several clients said they wanted to move with him to the new shop. “That $800 probably saved us a lot of court costs.”
Renegotiate if you can
If your non-compete agreement overreaches, try negotiating a shorter time frame or smaller geographic region. Although exceptions may apply, in most jurisdictions the courts may consider a contract overly broad and not enforceable as written if it restricts you from competing with a past employer on a national level or for more than two years, Troutman says.
With any luck, your employer will see the wisdom in striking a compromise. After all, Troutman points out, “litigation is expensive.”
You also may have some leverage if you’re starting a business that’s related but doesn’t directly compete with the services your employer offers.
“There may be some cooperative work and referrals that can happen,” says James Grove, who chairs the employment-law practice of Cleveland law firm Nicola, Gudbranson & Cooper. “So it may be in the employer’s best interest to trim down that non-compete.”
Noah Rosenfarb can attest to that. He left his position as partner at a CPA firm in 2007 to open Freedom Advisors, a wealth-management company in Boca Raton, Florida. Because Rosenfarb’s former employer didn’t offer the same type of service, he convinced the company to prune his non-compete agreement considerably.
“What I negotiated was, ‘Let me go to my existing client base and say that this is what I’m doing,'” he says.
In exchange, he agreed to refer clients needing CPA services to his former firm and avoid marketing himself to any of the firm’s clients with whom he didn’t already have a relationship.
Wait to compete
Sometimes the only option is to wait out your non-compete. But that doesn’t mean you have to sit idle. “You can prepare to compete,” Troutman says, noting that your employment contract and state laws will usually dictate how and when you can do so.
In many states, for example, you can form a corporation during the non-compete period so long as active competition is not commenced during employment, according to Grove of Nicola, Gudbranson & Cooper. You also can work on your business plan, as long as you don’t tell customers what you’re up to.
Infinity Power Partners’ Selber and Altman played this waiting game for 90 days until the non-compete they had with their former employer expired.
“There was no website, because you’re competing if you’ve got a website up,” Selber says. “There were no marketing materials. There were no business cards.” Former clients and suppliers had no idea where they’d gone; they just knew that the two had resigned.
Only when their non-compete ended did the pair reach out to their more than 150 former clients, painstakingly reassembling their contact lists from memory, their smartphones, the internet and business cards. “We didn’t walk away with anything when we resigned,” Selber says. “All we took were personal belongings.”
The risk paid off: When three months later Selber and Altman flipped the switch on their new business, former customers were thrilled to hear from them. “We estimate that we were successful in retaining about 90% of our old clients,” Selber says. The company quickly hit its year-one revenue goals, contracting more than seven figures worth of business in its first year.
As for how he handled the transition, including those three months in solitary, Selber has no regrets. “We negotiated that, and we were going to honour our word,” he says. “Making money’s great, but there’s a right way and a wrong way to do business. Being honest was key. I think it helped us in the long run.”
What scares you most about quitting your day job?
3 Actionable Insights To Make Your Investment Pitch Perfect
The best pitches aren’t just short and to the point, they deliver on investor expectations and needs.
The best pitches aren’t just short and to the point, they deliver on investor expectations and needs.
1. Confront your product and market flaws from the start
Investors come from business and investment backgrounds. They will recognise the potential dangers in your business model. If you ignore these elements, you’re not addressing key concerns they may have, and how you will protect the business against them.
DO THIS: Look at your business from every angle. Where are your potential weaknesses, and what is your plan to overcome them?
2. Pitch to the right investors
The sectors and mandates that different investors and funds follow dictates the businesses that will interest them. Pitching your business to the wrong investors wastes their time, your time, and potentially damages your brand in the market place — waste the time of too many investors, and the word will spread.
DO THIS: Research the investors and funds you are pitching to thoroughly. This will narrow your focus, and help you develop your pitch deck. It will also help you unpack the areas of the business that you’ve discovered are important to the particular investors you’re pitching to.
3. Don’t follow fads
Investors aren’t interested in ‘flash in the pan’ business ideas. They care about products that stand a chance of long-term success. You might start off selling to a niche audience, but the goal must be to reach a wider audience as the product develops and matures.
DO THIS: Critically evaluate the staying power of your business idea. Is it a product that’s trendy but could lose traction as market fads change, or does it solve a real and enduring need?
5 Tips To Get You Ready To Launch That Business Now
Are you dreaming about becoming an entrepreneur, but not sure whether you’re ready to take the plunge? Some of the world’s top entrepreneurs weigh in on what it takes to be a success.
1. Think out the box
A general rule of thumb is that you should do what you know. Spend time in an industry before launching your business, build up a network and understand your target market and their needs. This is all sound advice, and has been the foundation of many successful start-ups.
However, there is an inherent danger that entrepreneurs should avoid at all costs: Many industries are bound by legacy ideas and systems that are the enemy of disruption and innovation. Entrepreneurs who didn’t know something couldn’t be done are often the ones who find a way to make it happen.
Approach an industry or idea with fresh eyes. Take lessons from other industries. Don’t be limited by your lack of knowledge — go out and learn, even if you’re learning on the fly.
Airbnb, Uber and Netflix are three of the most disruptive businesses in the world today, and they’ve achieved phenomenal success because they didn’t buy into the simple and engrained idea that an accommodation business should own property, a taxi service should own vehicles, or a movie rentals business needed to own DVDs.
If you really want to differentiate, you need to lead, not follow.
“Don’t be intimidated by what you don’t know. That can be your greatest strength and ensure that you do things differently from everyone else.” — Sara Blakely, Spanx founder and self-made billionaire
2. Be an open-source person
Have you been delaying launching your own business because you’re not sure if you’re ready? Some of the most successful entrepreneurs have taken the plunge and learnt along the way. Gil Oved and Ran Neu-Ner, founders of The Creative Counsel — South Africa’s biggest advertising agency with an annual turnover of R750 million — followed this simple rule in their start-up days: They always bit off more than they could chew, and then chewed like hell.
Their philosophy was that ‘no’ was never the end of a negotiation, but the beginning of one. This tenacity kept them going, even though they spent their first year barely making ends meet.
Gil and Ran are not alone in their thinking. Robin Olivier, founder of Digicape, a R240 million Apple products and services business, prepared himself for entrepreneurship by putting his hand up for anything and everything that came his way. “I’ve always been like that. I jump in with two feet and figure things out along the way.” For Robin, that’s the only way you learn.
Joshin Raghubar, founder of iKineo and the chairman of Bandwidth Barn and the Cape Innovation and Technology Initiative, began his career working for Ravi Naidoo at African Interactive. At 23, he found himself project managing the African Connection Rally, a massive partnership with the Department of Transport. Why? Because he was always ready to step in, learn something new, offer his opinion and take on any challenge.
Joshin believes that successful entrepreneurs are open-source people who are willing and able to consistently and continuously learn new things. If you’re moving forward every day, you’re already on the path to success.
3. Be significant
Start-ups are tough. They are lonely, and they take a lot from you physically, mentally and emotionally. Passion and significance are two key components that will keep you going through your darkest hours. If you can answer why you are doing something, you’ll be able to forge on, even when the challenges ahead seem almost insurmountable.
“If something is important enough, even if the odds are against you, you should still do it,” says Elon Musk, who isn’t letting go of his dream to colonise Mars during his lifetime, despite many challenging tasks ahead of him. The lesson is simple: Whatever you endeavour to accomplish, out of this world or not, do not allow yourself to be deterred by the odds. Bravely forge ahead.
Steve Jobs shared a similar outlook. Before entering into business with Steve Wozniak, he dropped out of college and took time off figuring out what he wanted to do with his life.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work,” he said. “And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.”
If you know you want to be an entrepreneur, but you aren’t sure what you should be doing or haven’t found the right business idea, think about the things that truly matter to you. What problem would you ultimately like to solve? Sometimes you need to build up to it, and start with one thing that will lead you to the next (consider how Musk built the Tesla to fund other parts of his business), but once you’re on the path to significance, nothing will hold you back.
“The key to realising a dream is to focus not on success but on significance — and then even the small steps and little victories along your path will take on greater meaning.” — Oprah Winfrey, self-made billionaire media mogul
4. Look for opportunities in every challenge
Some people see challenges, others see opportunities. The latter are known as entrepreneurs. Some of the most successful businesses have been launched in the midst of recessions. How? Because entrepreneurs aren’t daunted by a challenge. In fact, challenges are great, because they keep the competitive pool smaller.
Vinny Lingham, Shark Tank South Africa investor and serial entrepreneur, says that he would rather have been homeless than not start a company because he didn’t have any finances. He sold his house, rented back a room in his (now former) home, and launched Clicks2Customers, a business that hit the R100 million turnover mark three years later. He didn’t see the challenge; he focused on the opportunity.
You’ll have to keep a close eye on cash flow and find some really smart solutions to real-life problems, but that’s the foundation of a great start-up. It’s all about the lens you see the world through. Are you open to opportunities, or limited by challenges?
“Dear optimist, pessimist, and realist — while you guys were busy arguing about the glass of wine, I drank it! Sincerely, the opportunist!”— Lori Greiner, Shark Tank US investor
5. Failure is a critical element of success
Don’t let failure hold you back, or worse yet, keep you from trying. You already know that failure is a part of the business of entrepreneurship, but it’s easier said than done when you’re picking yourself back up after a bad break. Remember that with a shift in your perspective you can transform the stumbles and falls into opportunities to improve yourself and your business offerings. What didn’t work? What did? Keep at it — you only have to get it right once.
Oprah agrees. “At some point, you are bound to stumble, because if you’re constantly doing what we do, raising the bar; if you’re constantly pushing yourself higher, higher, the law of averages — not to mention the Myth of Icarus — predicts that you will at some point fall. And when you do I want you to know this, remember this: There is no such thing as failure. Failure is just life trying to move us in another direction.”
And what about Richard Branson? The billionaire mogul has launched more than 200 successful ventures, but he’s also had some dismal failures, including Virgin Cola and Virgin Brides. If he didn’t ‘screw it, just do it’ in the face of failure, where might he be today?
Instead, he believes in getting back up and pushing on. “The main thing is, if you have an idea for business, as I say, screw it, just do it. Give it a go. You may fall flat on your face, but you pick yourself up and keep trying until you succeed,” he says.
There’s no such thing as a successful entrepreneur who didn’t fail while they found their success. But, there are many, many entrepreneurs who haven’t found success because they’ve been too afraid to fail. Which will you be?
“Don’t worry about failure. You only have to be right once.” — Drew Houston, CEO of Dropbox
The 3 Blueprints For Starting A Business
There are three templates to starting a business. Get this first step right, and success will fall into place.
“One reason that America continues to do so well as a market,” an economist explained to the audience at a recent conference, “is that they are still leading the charge to do new things. In addition to pioneering new products, they are still pushing the boundaries of frontiers like space-travel and technology. They don’t merely copy the products made in other countries. They make and do entirely new things, and that matters.
“By contrast,” he explained, “many of the older economies, like Europe, are just ‘kicking the can down the road’. They don’t really have a vision for the future. They’re just trying to maintain what is, to survive a little longer.”
Grow or shrink
Companies, countries and entire economies are all broadly following one of these two approaches. One is the bold, growth option, while the other is only about maintaining what already exists. The trouble with maintaining, however, is that, in a dynamic system, you tend to be either growing or shrinking. A dynamic system rarely tolerates anything simply standing still. To stand still is, often, to shrink.
Once in a lifetime chance
Your company, team or organisation’s founding moment is a once-in-a-lifetime opportunity to get this one right. Are you simply going to kick the can down the road? Or do you want to build spaceships? Are you going to be a soulless ‘also played’? Or would you prefer to do something new and meaningful? Mission matters greatly.
In Exponential Organizations: Why New Organizations are Ten Times Better, Faster, and Cheaper than Yours (and what to do about it), Salim Ismail calls it a ‘Massive Transformative Purpose’. The stronger your purpose, the more you attract tribes of people, both as aspiring employees and as a supporting community of customers.
This is not to say that you are obliged to invent something brand new and original. A good deal of research is showing that pioneers in a new industry do not tend to do as well, or last as long, as the ‘settlers’ who come after them. One reason is that the pioneers have to make all the initial mistakes. The settlers get to enjoy greater leverage, by observing what has already worked or failed, then capitalising on that learning.
The idea of founding a company that thrives on meaning has more to do with how meaningful the work is, and how much of a drive to achieve goals is built into your corporation.
Elon Musk’s SpaceX is certainly not the pioneering organisation in space-travel. We have left earth’s atmosphere before, decades ago. In that sense, SpaceX is a settler, and not a pioneer. That said, it is nevertheless a strongly goal-oriented, purpose-driven organisation. You don’t have to invent something entirely new to create a mission-driven company.
The Israeli Defense Forces is highly mission-driven, because it has to be. Pixar is mission driven, because it chooses to be, and because it believes in magic.
Being mission-driven, from the top to the bottom of an organisation, changes the energy. It converts ‘mere work’ into ‘shared purpose’.
Sociologist James Baron and his group of experts led a study in the mid-90s looking at how people founded their companies, across a wide spectrum of industries, including hardware, software, medical devices, research and manufacturing.
The study asked about their original blueprints. What organisational models did they have in mind when they started?
Baron determined that there were three templates for starting a business. You might start your company based on:
- A Professional blueprint, in which you hire people with a preference for specific skills (prior to its fall from grace, Kodak hired people based on specific educational qualifications)
- A Star blueprint, in which you hire ‘superstars’ based on future potential, placing a premium on choosing or poaching the brightest hires. You look for raw potential, not current knowledge
- A Commitment blueprint, in which you believe that skills are nice, but cultural fit and buy-in to shared values is more important. You build strong bonds to the company. Employees tend to be passionate about the mission.
Baron and his experts tracked the firms through the 1990s and into the next decade. Those that used the Commitment blueprint, which prioritises a shared sense of mission and values, greatly outperformed the others. The failure rate for firms with a Commitment blueprint was zero.
Failure rates were substantial for the Star blueprint, and more than three times worse for the Professional blueprint. It seems these approaches don’t keep people going in the same way that buy-in to a mission does.
Nevertheless, the Professional blueprint, which prioritises the specific skills on people’s CVs, tended to be the most common.
There were two other rare blueprints: Autocracies and bureaucracies, focusing on detailed rules and procedures. These blueprints were the most likely to fail, and autocratic was most likely to fail out of the two. This is an important point: Rules-based organisations and dictatorships, according to this finding, are so likely to fail that investing in them is not worthwhile. But where a culture of people is part of a mission, they are most likely to succeed. Translation: Autocracy rarely ever works, and systems of intense rules and guidelines work slightly less badly.
Rules and dictatorships = likely to fail.
Mission-driven culture = 100% success rate.
Most real-world autocrats would probably agree with this finding, if they heard it. Then they would continue to run their business as autocrats, because, they’d say, “My situation is different, I happen to be right, and people should do what I say.”
When you’re an autocrat, it’s hard to know that you’re an autocrat. When you create your business to follow a mission from the word go, and you allow a degree of genuine democracy in which others can outvote you for the good of the mission, you instil the possibility of overcoming this blind spot, sometimes in spite of yourself.
Now, here’s the kicker: The Commitment culture is extremely effective in starting an organisation and ensuring its initial survival. But over time, the same study found, it is not the best performer.
The challenge is that when organisations mature, encouraging layer upon layer of like-minded people tends to discourage innovation and original thinking. Too much shared value = groupthink.
So, what’s our total moral? In a best-case scenario, we need to start with a common mission and committed people, and focus on growing. Once we’ve matured, we need to make a point of bringing in diverse thought, in order to avoid too much homogeneous thinking and yes-mannery.
In Originals: How Non-Conformists Move the World, Adam Grant shows how these findings map perfectly onto the rise and fall of Polaroid. Like-mindedness worked well to get the brand going initially, but then, ultimately, the same like-mindedness prevented them from learning, growing, changing and adapting in a volatile market.
Like the IDF, they had a strong sense of shared purpose. But unlike the IDF, they were incapable of a belief system that said ‘the only tradition is that we have no traditions’. They were not a learning and growing organisation.
The more a company develops a culture, the more it will tend to hire for that culture, and the more resistant its own people will be to new ideas or contrary views.
So what if…?
What if you decided to be an organisation on an important mission, rather than merely a group of people kicking the can down the road?
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