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Why Noncompetes are Killing Your Business!

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I love a good mystery. I have an insatiably curious nature. When I am faced with a puzzling problem I tend to look at it from all angels. Before I attempt to solve the problem, I question why the problem exists at all.

My latest business conundrum is: the case of the noncompete clause.

Oh I know, at first blush you’re thinking, “there’s no mystery here, businesses entertain noncompete clauses to protect their bottom-line. If an employee leaves, you don’t want to see business leave with them.”

Makes sense… but upon both a closer look and a big picture view, I surmise that a noncompete clause may in fact cause irreparable damage to a business.

Although there are some very specific situations where such a clause may be extremely valuable, the use of this legalese has reached epidemic proportions. It seems to be generically added to standard employment contracts without the slightest thought on the ripple it may create. Some companies have gone to the extremes of ensuring anyone, in any position signs such agreements.

Noncompete clauses are in many service and sales related businesses such as: Accounting and Legal firms, Architectural and Design Businesses, Health and Beauty Services, Investment Companies and Recruitment Firms. These are a sample of businesses that promote relationship development, and there lies the problem.

It’s a case of; Miss Scarlet in the conference room with the double-edge sword, if you will.

The double edge sword, the actual murder weapon killing business (pardon the pun), is based on the premise of building a relationship.

We hire for exceptional relationship skills. We set sales targets and train toward solidifying strong relationships with clients and then when there is a parting of ways the clients become “the kids” in a nasty “divorce”.

There is one very important puzzle piece that is never discussed in noncompete contracts… the client’s rights, or lack-there-of if a noncompete is exercised.

There are 3 main players in such contractual obligations:

  • The business owner,
  • The employee and
  • The client.

The client is a critical player. Employers covet them as they represent a consistent revenue line. They are the reason employers support the idea of relationship selling and the reason the noncompete clause exists. The client, for all intent and purpose, is the reason the business exists at all. Without the client, most business would be unnecessary.

 When you force a client to choose, be prepared for their answer!

Whether I am being told that my trusted investment specialist will not be continuing with my portfolio, or that the hairstylist that knows exactly what I want without asking, is no longer employed, my first question is: “Where did they go?”

As a client, I am frustrated with being part of a relationship that I have no control over. In some cases clients are so angered with the results of noncompete clauses that they take their business elsewhere. This is the one act that the clause was supposed to protect against.

Why shouldn’t they leave? If the only relationship they have is with a single team member then they have nothing invested in continuing. In their eyes, that team member was the business.

 Loyalty to business is fleeting unless the reputation and brand is strong.

 4 suggestions that negate the need for a noncompete agreement:

 1) Hire with intent to keep your staff. This may sound obvious, but hiring the wrong person is the most common and problematic act business owners engage in. If you hire properly you will have the best platform to build lasting relationships on. Interview well and check references!

2)Build a trusting and responsible team environment that represents your whole business. Develop strategies that support team rather than focusing on individual effort. Awarding only top sales is a dangerous and shortsighted business plan. As an employer it’s on you to develop your team so they support the corporate initiatives. If team members leave and your clients want to follow- know that you set that process in motion.

3) Appreciate the strength of a relationship. If I client wants to leave they will leave. So make sure they want to stay. Staff changes happen in all organization, focus on continuous relationships that lead to solid referrals. Relationship selling should never come only from a single staff member. Your clients need to know all that your business offers. As an employer, what are you doing to ensure your clients get this message?

4)Create a positive reputation and you strengthen your brand. Whatever industry or city you work in, word gets around. This is true for attracting talent to your team as well as clients to your business. Noncompete issues can make your business as appealing as the plague. Focus on building a respectful relationship at the outset.

Rethink that Noncompete. It’s really not helping your business.

A noncompete clause is reactive;                                                                                                                                Building a business your clients wouldn’t want to leave is proactive!

Business isn’t complicated- so don’t make it complicated

 

Leanne Brownoff is a Business Coach with over 20 years business experience.

If you are interested in taking your business from good to great she can be reached at leanne@leannebrownoff.com

It’s a case of; Miss Scarlet in the conference room with the double-edge sword, if you will.

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