From Employee to Competitor

Business owners get many surprises. In my experience, the two biggest surprises - and the ones that hurt them the most personally – are (1) employee embezzlement, and (2) the employee who becomes the competitor. This posting is about the second item – the employee who becomes your competitor.

Have you ever noticed how businesses that are in the same industry seem to be in the same geographic location? Why does “Silicone Valley” exist? Why are all of these businesses in the same geographic location? The answer is quite simple. Employees leave their employer and start their own business “down the street.”

Here is the typical scenario. An employee sees the success of the owner. The employee has worked at the company for several years. She knows the product or service and the industry well. She wants to stop making the boss wealthy and start making herself wealthy. In many cases she feels she “runs the company” because the boss is always golfing or on vacation. One day she walks into your office and says, “I am giving my x days notice. I am starting my own business.” You can’t believe what she just said. She has worked for you for ten years. She has been to your children’s birthday parties and graduations. Now she is telling you that she is going to try to take business away from you? How can she possibly do this to you?

If you are a business owner and this has not happened to you yet, be prepared. It may. Although you can’t stop this from happening, you can make sure you have taken the necessary steps to minimize the effect.

First, make sure you do not lose contact with your customers. I am NOT saying that you should be the only one that talks to your customers. There is a fine line between keeping contact so they do not follow your employee to a new business and having the customer so dependent on you that you will never be able to sell your business. Encourage your customers to deal with your employees but never let then forget who you are. Have lunch with them. Play golf with them. Take them to the baseball game. In other words, socialize with them but let them place their orders through your employees.

Second, know what to say to your customers. Have a plan in place so you are not "on the defensive" and not acting on emotion. In many cases, the ex-employee has started working on his new business BEFORE he gave you notice. In addition, he probably contacted your customers and told them what his plans were in hopes they would become his customer when he opened his new business. The sooner you contact them the better. Do NOT say bad things about your ex-employee. Always talk about the positives of YOUR business.

Third, be prepared to compete. In my experience, the first thing that the employee says when he leaves and starts his business is, "I can do it just as well and SELL FOR LESS." Of course, competing on price is a mistake. In addition, chances are very good that the ex-employee has no idea what his costs will be. Nevertheless, he will sell for less. If you don't want to reduce prices (and you shouldn't), be prepared to let your customers know why they should continue buying from you at the higher price. You need to let them know why your product or service is worth the price.

Some business owners think that because their emloyees have signed non-compete agreements that this can never happen to them. I STRONGLY advise you to consult your attorney about any non-compete agreement. Many do not hold up in court.

You may never have an employee leave and become a competitor - but you do need to be prepared if it does happen.