There's nothing wrong with quitting your job to start a business that competes with your former employer. But going about it the wrong way can ruin your most valuable asset: your reputation.
Ready to quit your job and start a business that competes with your former employer? There's nothing wrong with that. Just make sure you play by the rules
There's a woman I know who owns an interior-decorating business. Let's call her Karen. She comes from the South, and she's as kind and honest a person as you'll ever meet. She's also a very capable businesswoman who overcame one of the biggest hurdles people face in a personal-service business: getting clients to work with someone other than the proprietor.
Karen's idea was to combine the decorating business with a high-end retail store carrying elegant items for the home. As salespeople, she brought in women like herself, with decorating experience, enthusiasm, and good taste. The customers got to know the salespeople and learned to trust their advice. As time went along, they took on more responsibilities, and Karen was able to build up a small staff of decorating consultants who worked together as a team.
Or so she thought. About three months ago, two of her interior decorators came in and told her--in front of customers--that they were quitting to start their own business in competition with hers. They'd already begun construction on a store about four miles away. It was a done deal.
Then they walked out.
Karen was stunned. She hadn't seen it coming. She was completely unprepared. She didn't even know the status of all the projects the two had been working on. She felt panicky and hurt. One of the decorators had been with the company for more than 12 years. Now it turned out that she and her coconspirator had been plotting against the company for the past few months. Karen was devastated.
I can sympathize with her. I know how it feels when employees leave to go into competition with you. It's happened to me six times. But I also know how it feels to be the one who's leaving. That's how I got started in my first business.
Listen, there's nothing wrong per se with employees going out to start competitive businesses. Not only is it an inevitable consequence of our entrepreneurial culture, but overall it's a good thing. It's healthful for our economy and our society. It's how a lot of successful companies get off the ground.
But there are right ways and wrong ways to go about it. Karen's ex-employees did some things that were wrong, and they may wind up paying a price in the future. Why? Because they've taken an unnecessary risk with the most valuable business asset they have: their reputation in the market.
People preparing to strike out on their own need to give careful thought to the manner of their leaving. It's hard enough to get started in business without giving yourself a black eye before you've even begun. No one is going to blame you for wanting to be your own boss. But you're creating problems for yourself if the general perception is that you've behaved unfairly, or even unethically, on your way out the door.
I'd argue that there are four simple rules you should follow. The first one is the most obvious: Give an honest day's work for a day's pay.
Employment is a two-way street. When you accept a paycheck, you accept the responsibilities that go with it, which include focusing on the work of the company while you're there. Your boss has a right to expect that much in return for what you're being paid. You'll expect the same from your employees when you have them. You can plan your new business on weekends, during vacations, before and after work, whenever. But on company time you should be doing the job you've signed up for, and you should be doing it to the best of your ability.
Rule number two is a corollary to rule number one: Don't poison the well.
People have a natural tendency to try to justify themselves. If they're planning to leave a company, they often look for support, moral and otherwise. They complain about the boss and the way the company is being run. They recruit other employees to go with them. They may even try to line up some of the company's customers for the new business.
I once had six employees who did just that. They'd contacted several customers and were getting ready to bolt when I found out about the plan. The timing couldn't have been worse. The company was in deep trouble, and I was desperately trying to save as many jobs as possible--including those of the defectors. Needless to say, I fired them all on the spot.
That kind of behavior stinks. If you feel you've been treated badly, you should exercise your option to leave, after which you can contact whomever you please and say whatever you like, as long as you don't violate any laws or contracts. But it's wrong to be working against the company while you're on the payroll.
Rule number three: Give sufficient notice and make yourself available to clean up loose ends.
How much notice is "sufficient"? It depends. In general, I'd say two weeks. I myself gave 30 days' notice when I resigned from the courier company I'd been working for in order to go out on my own, but I wound up staying just 11 days. Once my boss knew my plan, he didn't trust me anymore. He was suspicious of everything I did. By the time I left, we were both happy to call it quits.
But at least I could walk away knowing I'd done the right thing. I'd given my boss time to get whatever information he needed from me and to reassign my responsibilities. Karen's ex-employees would have helped themselves immensely if they'd done the same for her. Instead, people hear the story and say, "How could they have left her in the lurch like that?"
Finally, there's rule number four: Don't lie.
That seems straightforward enough, but it's actually a little tricky. There's a difference, after all, between telling the truth and telling the whole truth. Do you have a moral obligation to tell your boss at some point in the process that you're planning to start a competitive business? I don't think so. True, when I gave notice, I said what I was going to do, but I can see why other people might choose not to. They certainly have nothing to gain by sharing the information with their soon-to-be-former employer, and they may have something to lose.
Most employers, I suspect, would disagree with me on that point. They want to know what the employee has in mind because they worry about losing customers--especially if the employee is a salesperson. But that concern is misplaced, or at least it should be. In a well-run business, the customer belongs to the company, not to any particular individual. If you're providing good service at reasonable prices, and if you've set up good lines of communication between customers and executives, as well as salespeople, you should have nothing to fear.
Nothing, that is, except maybe fear itself. After I went out on my own, my former boss was so worried that he had salespeople contact all of his customers to discourage them from working with me. I couldn't have had a better introduction. Customers began calling me, asking why I hadn't yet come around to solicit their business. I promised I'd get back to them when I was ready.
Karen, to her credit, has not made the mistake of overreacting to the departure of her former employees. She's a spiritual, introspective person. She realizes that she herself may have been partly to blame by spending too much time away from the business. Now, the crisis has reinvigorated her, as crises often do, and she's more engaged than ever.
She says she has no ill will toward the people who left. "It's a big world," she told me. "There's plenty of business. I'm not angry at them for going off on their own. I just regret the way they did it."
Someday they may come to regret it as well.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc. 100 company and an Inc. 500 company. This column was coauthored by Bo Burlingham.