How do I prevent employees from either switching to competitors or opening their own business?

Question

I am about to start my very own small scale business. However, there is a huge problem I cannot seem to solve. My business has two aspects: the business side and the technical side. I am more than capable of handling the business side of things however the technical side is out of my control. I understand it, however understanding theory and putting those tasks in action are a problem.

My small business is on the edge of uniqueness and similarity and hence I don't want my technical staff to abandon me if they believe that they can have more benefits elsewhere or decide to start a similar business like my own. How do I make my employees stay and honor their agreements when the business takes off?

Answer 1

I would focus on:

don't want my technical staff abandon me when they believe that they can have more benefits elsewhere

rather than the last one because that is basically a question of "Non-compete clause" (and to that the answer is short, you pay for it).

Give your staff better benefits than they would have elsewhere. Compete with other via monetary gains (medical aid, gym memberships, free coffee machines), non monetary gains (ease to buy lunches and food, parking spaces near company AND most important working on unique technology, having the ability to test new ideas, deliver special products).

Have in mind that there might be people who don't care about what they do as long as they are paid enough. There are also people who don't need extra financial gain as long as they like what they are doing and the job is "fun" for them. What type of workers you try to attract depends on you and based on that you should adjust your company approach and final benefits.

Answer 2

I have a lot of experience in this area. My job for the past 15 years has basically been using technology to automate processes for small businesses. I've worked with dozens of businesses over the years, some for just a few months, some for years, most while still in the small business stage, and many with the same concerns as you. I approach things from the technical side - I'm a programmer at heart. However, I've worked very closely with enough business owners that I also consider myself half "business guy". I say all of that to explain that, having seen many of these things both succeed and fail, I think you have a few false assumptions in your question. Correcting those may increase your odds of success. So:

1. This is a partnership. I don't know anything about what you are trying to do, but these days tech is a vital aspect of most unique business ventures. You obviously recognize this and seem to understand the fact that you can't do the tech side yourself. As a result, your tech team is going to be critical to your business, and no amount of business skill on your part will change that. Treat them accordingly. You need them as much as they need you. Ventures like this are only successfully when you team up great business people (who understand the industry and its needs) with great tech people (who can make sure that your system does what the business needs it to do). Especially at this early stage you need a great partner more than you need an employee (a metaphorical partner: I'm not suggesting you have to make someone a part owner).
2. Trust. Your question implies a bit of natural mistrust of technology people, and suggests that you might inadvertently start with an adversarial relationship. Your post could be read as asking, "How can I make these people do what I need them to do?". If that's your attitude, get over it now: you'll poison any relationships you have with any new employees before they even get started, just about guaranteeing failure. Again, you need partners, not employees. You can't do this without a great tech team, any more than they could do something like this without a great business partner.
3. People will leave. It's just a fact of life. You might find someone who will stay with you forever, but statistically you probably won't. In fact, you shouldn't even bother planning on it happening any other way. However, if you treat your employees well, if you treat them as if you want them to stay around forever, you will be much more likely to get that result. Even when you don't though, you will be substantially more likely to find that you have an outgoing employee who is happy to do everything they can to make the transition painless for you. That isn't as awesome as having one person long-term, but it is the next best thing and will let your business continue sailing with minimal hiccups.
4. There is always a competitor. I've seen many guys in your position think that they have something unique (there is no such thing) and that they need to get off the ground before the competition does. There is some truth to the whole "First to market, first to mind" adage, but the reality is that competition always exists. If one of your employees leaves to start their own venture: so what? For every employee that leaves and tries to compete with you there are 5 more people already trying to do the same thing that you will never even hear of. Don't worry about it. It doesn't matter. At risk of sounding like a cliche, all you can do is do your best to do the best that you can do. There will be competition and you won't "beat" them because you are first or fastest, you'll beat them by doing better than them. To do that you'll need a great tech partner. See item #1. If one of your tech guys leaves to start his own similar business then I really wouldn't worry: business is a skill like any other, and few tech guys have the skills necessary to also run a business. They need a partner just like you, and if they don't have one they will fail badly.

tl/dr: Don't worry about any of that. Understand that you need good tech guys on your team, so treat them (or at least the first ones) as partners, not employees. Treat them as partners. Treat them well enough that they want to stay. Then if they leave (which they probably will) they will do it in a way that doesn't destroy your business. Don't worry about them becoming competition. Just worry about doing better than your competition, no matter who they are.

Answer 3

Basically, you don't. People come and go from job to job, and keep their experience.

That being said, a very innovative idea is usually quickly copied. Paul Graham reminds how easily he did copy his opponent"s views :

Sometimes, in desperation, competitors would try to introduce features that we didn't have. But (.../...) our development cycle was so fast that we could sometimes duplicate a new feature within a day or two of a competitor announcing it in a press release. By the time journalists covering the press release got round to calling us, we would have the new feature too.

Said otherwise, your edgy idea is an asset only if your execution is quick and flawless, enough to leave opposition behind you. You'll have to rely on technical people for the execution. In your shoes, I'd be far more wary of other firms trying to copy your ideas than insiders getting out and doing the same thing. It may happen, but it's not the most common problem of people with new ideas.

As Joe states in his comment, choose the best, pay them well, and treat them well. Not only it reduces the odds that they'll go elsewhere(doing damage to your business, or simply leaving you without their talent), but it will be known, and it should attract others amongst the best. Which you need, if you want to keep your edgy idea edgy.

Answer 4

I have been on both the good and bad side of this problem. There is a VERY simple solution that keeps everyone happy:

Realize what your business's revenue stream really is.

With what you describe, there are only two roles that really matter:

1. Development. If you don't have a deliverable product that works well, nothing else matters.
2. Sales. If you can't sell your product, there's no point in making it.

NO ONE else matters.

Businesses get all kinds of "lost" by worrying about social media presence, human resources management, accounting tools. All of those are SUPPORTING functions. They are not the core of your business.

Salespeople are fairly easy to keep happy: Give them a product that's in demand, reasonably priced, and is built and functions well. Give them the tools they need to get it in front of their leads, and don't ever give them any grief about commissions they've earned. They'll be happy. Seriously, that's all they want. Don't put a bunch of headache on expense reports and coding those expenses in front of them. That's what will drive them off. If you start getting accounting types that try to run the business and make grief about whether or not your salesperson bought a lunch for a customer's manager and not a VP, drop those accounting types like it was your MySpace page.

Developers require a bit of other-than-normal thinking to keep happy, but they're also easy. First, let them have a hand on the tiller on product features and design. You hired them because they're smart. Let them be smart. Listen to them. If one of them comes up with an idea, listen to them. If it's not immediately apparent that the idea is a good one, rather than quash it, you, the developers, and the sales team sit down every now and then and let the sales team weigh in on it. If nothing else, they'll get some customer research in on it.

Second, accept off-hours and work-from-home solutions. Developers (well, good ones anyway), don't just "think outside the box." They see the space the box is in, see all 12 sides of the box at once, build the box, decide its size, and where in the space it is. They don't think like normal people do. Don't expect them to behave like normal people do. If you insist that they do, don't expect them to be happy.

Above all else, don't let the accounting and HR needs get underfoot or in the way of these two teams. That is YOUR work to do. If you need to hire help in these areas, do so, but make sure you and your staff in these areas are always fully aware and work to support either sales or development. The minute you let accounting and HR start pushing things on sales or development, you will lose your best people in both areas. The simple reason for that is they just don't have to tolerate that in today's market.

Answer 5

You're looking at this question the wrong way:

1) Starting your own business, as I'm sure you know, is not easy. So by default, your employees would rather stay at their job with you than start a new business and compete with you (given that you already have a head start, and already take care of the business overhead for them).

2) It is human nature to take the path of least resistance. If the path of least resistance is to stay at one's current job, then that's what people will do. That said, "path of least resistance" can mean many things to many people, and does not only concern one's work. For example, if my path of least resistance in my life in general includes getting a higher salary, then I'll leave my current job to find one that will pay me more. If my employer isn't giving me health care benefits as I get older and need to see the doctor more, then I'll find one who does. If my commute to work is an hour and a half by car, and I find another job that I can commute to in 10 mins by walking, I'll change jobs. And so on. So what you should do is to give your employees the best benefits package you can to encourage them to stay and make your company the path of least resistance.

3) Path of least resistance also includes how you treat your employees. I can tell from this post (and many others have commented as well) that you do not even have a company yet and you already distrust your future employees. Trust is an issue. Nobody likes a micromanager, and if you frustrate your employees by micromanaging them or trying to keep "company secrets" or so on, that makes their job harder and more frustrating. You should trust your employees to do their job and give them the tools they need to do it; if they find themselves frustrated, that makes you not the path of least resistance.

4) Every person is different and judges things differently. You can't be the path of least resistance to everyone at all times; some people want a high salary, others want interesting work (and "interesting" itself is subjective too!), others want to slack off (and you don't want to fall into the trap of retaining a slacker just because they might go to a competitor), etc. Since you can't be everything to everyone, people will eventually leave for reasons you can't control. It happens. Don't worry about it.

Answer 6

TL;DR: Consider a non-disclosure agreement and avoid non-compete agreements, give them good and compelling reasons to stick with your company, and remain competitive in the market if you want to find and retain talent. Every company has these challenges and neither you nor your company are special here. May you find this reality check helpful, even if it's not necessarily what you wanted to hear in the first place.

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Preventing Employees from either switching to Competitors or Opening Their Own Business

You can't and you won't. First, it's not like your employees are preventing you from firing them or laying them off whenever you feel like it. Secondly, you don't own your employees, and trying to act as such is, quite frankly, a border-line fascist approach to the situation.

I don't want my technical staff to abandon me

Then, rather than trying to impose your will on them to "prevent" them from leaving, give them good and compelling reasons not to. You clearly expect them to give you good and compelling reasons to keep them employed (e.g. good performance), so why shouldn't the same standard apply to you? You don't get to have it both ways.

Also, they're not "abandoning" you, as if they somehow owed you anything. The employment is a business transaction based on mutual consent, consent which can be withdrawn by either side at any time for any reason.

If companies can dump their employees like trash for any reason, including no reason, then employees can also dump their employers like trash for any reason, including no reason.

That's the environment that "at will" employment produces, with its pros and cons.

if they believe that they can have more benefits elsewhere

Then you lost to your competition. Your employment agreement with your employees is a transaction based on mutual consent. Either side is free to terminate said relationship at any given time. And that should be the end of it. If you try to impose agreements that survive a terminated employment relationship, then I think you're crossing the line.

To deal with this, you could start by genuinely trying to do better than your competition; you can also look for people who like to work in startups and those kinds of environments, but you may also need to offer them good incentives (e.g. as the company grows and succeeds, you will too; I don't know what it's called, but it may be profit-sharing of some sort, IIRC).

or decide to start a similar business like my own.

Look around. Every possible business idea has multiple/different companies trying to implement them. Imagine if your line of reasoning were applied to car manufacturers... only one car company would exist.

What you can consider is a Non-Disclosure Agreement (NDA), in order to put some teeth on enforcing cases where employees leave and take company property with them to use elsewhere (e.g. sensitive documents, etc).

As for other people's suggestion to using Non-Compete Agreements (NCA), and this is more of a personal take, but I would suggest you avoid going down that road. There're many reasons for this, and I could go into it in length, but I'll keep it brief:

1. This is very immoral, as you'd be punishing your employees by making them unemployable1, depriving them of their right to make a living and look for work in their own field/area, even if you lay them off.
2. If you think that they can simply "get a different job", that makes no sense, as their actual experience is in the work they just spent their time doing for you, so goto 1.
3. I have rejected otherwise good job offers precisely because of an NCA (that wanted me to spend a minimum of 2 years without working in my field).
4. It's arbitrary, since the company arbitrarily decides who/what is concidered a "competitor", thus making it impossible to find a company in the surrounding area that isn't covered... again goto 1.

For example, if I work 5yrs at company X doing Y, and I either leave or get laid off, then I'll be effectively unemployable for, say, 2 years. If my last 5 years were doing Y, why on earth would someone else hire me to do Z instead, when I don't have experience there? Worse, after the hypothetical 2-year NCA period expires, I will have no professional experience to speak off during that time, making it even more difficult to even get noticed.

In a technical field like mine, which you say is what your employees do, I wouldn't get past the technical interview stage. Thus, the former employer has used an NCA to setup their employees for future failure.

I could go on, but any reasonable person should've gotten the picture by now.

How do I make my employees stay and honor their agreements when the business takes off?

Presumably, this is where lawyers get involved, but given the kind of agreement that you want to force upon them, I strongly advise you to reconsider your general approach.

If you're not going to guarantee them work for some period of time, you can't expect to impose such a requirement on them (i.e. that they won't leave for a better opportunity, real or perceived).

If you're not going to keep paying them during the NCA unemployment period after your employment relationship is terminated (e.g. 2 years or whatever is stated in the NCA), then the idea of getting them to agree to not work in their field after their employment is terminated, and potentially pursuing legal action against them for finding a similar job at another company to get them fired, is fundamentally immoral.

Answer 7

I don't understand how no one here has made the most obvious recommendation: equity in the business. Give new employees a stock disbursement in the company or options. If the employees are already part owners of the business then they would be more inclined to invest additional time in to your company vs a very uncertain future business that may bankrupt them personally.

Answer 8

There is no single thing you can do to prevent people leaving, and preventing people leaving is not the only way to keep your advantage in the marketplace. What's more, you don't need the entire marketplace; you need enough of it to make the money you want to make. You may even be helped by others offering the same service, paying for ads, convincing companies to try it, and so on.

The most important thing you can do is to offer value both to your customers and to your employees. Ideally you want your customers to say "we could get a similar thing from another company, but we get great service and support so why switch?" and your staff to say "I suppose I could go out on my own offering this, but I would have to do sales, support, management, book-keeping and all that, why bother, here I can just do my technical stuff in a great atmosphere, with good money and benefits and nice team-mates."

You can of course rely on noncompete, nondisclosure, pay-back-your-bonus-if-you-leave-quickly and other legal agreements. They may keep people around, but not as well as being a terrific manager and business-runner will. There are generally no equivalent agreements for customers, so for them, you have only excellence to rely on.

Answer 9

If you pay well or appropriately then you will find good people leave while other good people arrive.

Some want money in the pay packet (or salary) and some want benefits (lunch, gym etc) , while others want or will be interested in shares so as you grow so do they, and they stay because the better they contribute then the faster you all grow...

Employees always leave, but if it is mostly for "family" reasons then that happens...

Answer 10

business is on the edge of uniqueness

Are you really really sure about this? if so the answer is quite simple: money
All other answers are sugarcoated ultimately if you wish to protect your idea and keep it going you need to pay your staff pretty well and you only need to pay like this to one person, get a good CTO with technical experiencia and pay him well, he will layer the business logic and prevent it from being stolen from other staff in a lower role

Answer 11

1) Create a business plan that shows the market potential and how you will take some portion of that market, producing a valuation (albeit a speculative one.)

2) Show your value to the team by running the business and selling the product or service - many techies are not interested in those aspects. If they see your value they will have to be better in order to sell AND code.

3) Offer a small but non-trivial ownership stake in the company, vested over 3 to 5 years. Show potential employees that valuation (this doesn't require disclosing the idea or strategy) to point out their upside. Many startups offer a salary commensurate with the ownership stake (the higher their stake in the company the lower their salary and vice versa. Techies respond to money just like everyone else.)

4) Require a non-disclosure and non-compete clause in their employment offer (make it clear to them during the interview if you are interested in them.)

Answer 12

I've also seen another practice with this general theme, that I don't think was covered in earlier replies: indeed, accept that over time people would leave. It may be for creative differences, such as different ideas about ways the project could go or be used for, which do not fit your business plans.

Even so, you don't have to be competitors and "enemies" if you part ways, and especially so if a great talent you value is keen on leaving. You can actually help them start their competing business, invest in it, maybe license your shared technology base to use, keep a slight or tight grip on it, and maybe later buy it back as a department of your company if it is a success. Or vice versa it it succeeds so much that your original plan fails. Or just enjoy the earnings as a co-owner.

And if they do fail, as a majority of startups do (and not due to your "machinations" or what they would perceive it to be), you can still be friends and pick the talent back should they want to. You'd have had a limited-budget experiment and experience in return. Knowing in detail where to NOT go is also very valuable.

Answer 13

Conor Mancone's answer and others provide a lot of good information from a business point of view. In this answer I'm going to focus on how you deal with your technical staff to avoid actions that may make them want to leave. (As background, I've am primarily a technical person, but I have been CTO of a small company in the past and also CEO of my own smaller company.)

First, you say that you understand the technical side of things, but (as I read it) you don't feel you have the skills to successfully execute or direct the execution of the technical side. That's a normal situation, and you're going to need a person or people to properly manage the parts you don't understand: these people will be criticial to the execution of your business.

It's important you treat these people as managers of part of your business. As others have said, treat them as a partner, even if they don't have an equity stake in the firm.

In particular, with senior technical people, it's important to avoid micromanaging them, especially in areas where you're not an expert. It's good to ask them to explain why they're doing what they're doing, and to go through cost and risk analysis of various options with them. But if you start dictating that things won't be done in a certain way because "it's too expensive" or "it takes too long" or "that won't happen" without doing the analysis with them and coming to a consensus, your technical person is likely to get annoyed, frustrated, and may even eventually leave. (Not to mention it will hurt your business.)

A good heuristic for how much detailed direction you should provide for any particular techincal area is, "do I feel comfortable implementing this myself?" If you are a long way away from having the technical skills to implement something, you are probably also a long way away from having the information you need to make detailed decisions correctly.

This extends even to things like a comfortable working environment for individuals. I would never use a Mac over a PC running Linux as my primary development environment myself if I could avoid it, but if a developer came to me asking for one, I'd generally spend the extra money to give it to him because this is a typical area where it makes a developer more productive (even if just by making him less frustrated with small things). You need to take the same attitude: realize that how you think someone should or would work best may be remarkably different from how they actually work best.

To look back at the bigger picture, if you don't want your technical (or any other) staff to leave, treat them as partners with whom you must co-operate and respect their decisions unless they're grossly out of alignment with the business. You don't "make your employess stay and honour their agreements"; you sell them on doing so.