Over lunch with one of my teammates on a rainy day, he confided in me that he had started up a side business with a fellow employee. He wanted my advice on whether or not it was a good idea or a potential conflict of interest before they got too far. The project wasn’t competing with what we were building at our company, but it was kind of in the same industry, which placed it in the gray area as far as he was concerned.
Maybe you’ve seen a similar situation play out at your company; coworkers starting a business together on the side of their day jobs.
It makes sense. The average American working a full-time job spends 47 hours at work each week—with nearly 4 in 10 workers clocking more than 50 hours in the office weekly. That’s a lot of time spent with your coworkers.
There’s more to a coworker than work
As the social creatures we are, it’s only natural to form deep bonds with the people we spend more than a third of our waking hours with. There’s even evidence to support the benefits of becoming good friends—or work spouses— with your coworkers. According to a recent Gallup Poll, employees who report having a best friend at work were 43 percent more likely to have received recognition and praise for their work in the last week.
Plenty of us take it beyond office friendships and work wives. According to a recent survey from CareerBuilder, a whopping 41 percent of workers report having dated a coworker—which is generally acceptable as long as it’s not a supervisor or subordinate, explicitly against company policy, or otherwise distracting to the performance of anyone in the office.
If so many of us are building friendships and sparking romances in the workplace, shouldn’t it stand to reason that starting a business with your coworkers can also be a good move?
If so many of us are building friendships and sparking romances in the workplace, shouldn’t it stand to reason that starting a business with your coworkers can also be a good move?
It turns out, there’s no definitive answer to this dilemma. Whether it makes sense to start a business with a colleague or not, must be assessed on a case-by-case basis. There are, however, important legal considerations that need to be taken into account before you make it too far down this path.
Is this soliciting, or not soliciting? That is the question.
When you started working for your current employer, you likely signed an employment contract. Within that contract, there’s a good chance of finding a non-solicitation clause, in which you agreed not to solicit the employer’s clients or customers, for your own benefit or for the benefit of a competitor after leaving the company. It’s common for non-solicitation clauses to also include an agreement not to solicit other employees to leave when you quit or otherwise move on.
Because this can very quickly get complicated, I tracked down Sharon Drew, a 17-year tech attorney in San Diego, CA and got her explanation of how this translates into the real world.
“I think you can successfully argue that you are not soliciting your coworker (unless you are) if the two of you are pursuing a business opportunity that does not compromise company property in any way,” Drew explains. “More importantly, the California Business and Professions Code section 16600 says that, ‘every contract that restricts anyone from engaging in a lawful profession, trade or business of any kind, is to that extent void.’ Court cases have reinforced this since a landmark 2008 case.”
Beyond that, Drew adds, “Non-solicitation clauses are typically only enforceable in California to the extent necessary to protect employers trade secret information. It is public policy in the State of California to not restrict anyone from pursuing their lawful trade or business. Unless you are using any proprietary property of the employer, you should be fine. There are exceptions for LLCs and dissolving a company, so contact a lawyer if either of those issues are present.”
Outside of California, the stipulations of the law and enforcement precedent on non-solicitation varies greatly by state and country. In short, you’re usually fine as long as you’re not using proprietary information from your employer, building a competing solution, or poaching customers. When in doubt, there’s no substitute for consulting an attorney to weigh in on your unique situation.
Now, even if you’ve determined that you’re legally in the clear to start a business together, there are still a handful of other crucial considerations you’ll need to take into account. The reality of the matter is that all of our relationships are complex and unique. And you’re creating something that has the potential to last for many years, so you need to make sure you’re not starting up with a toxic coworker or one of these five types of negative people that could make your life as an entrepreneur a living hell.
Make sure you’re not starting up with a toxic coworker or one of these five types of negative people that could make your life as an entrepreneur a living hell.
Forging ahead as coworkers and entrepreneurs
Before starting up with coworkers, you need to make sure everyone is on the same page. Start here.
1. Do you share the same business goals?
Let’s say your coworker wants to build a high-growth startup, earn millions in the first year and sell it to a big company. On the other hand, you’re more interested in replacing the income from your full-time job while building a lifestyle business that can pay the bills and give you proper work-life fit. This fundamental difference in vision and growth strategies would lead to an eventual cofounder conflict, which you don’t want to deal with after you’ve entered into business together.
2. Is there a founder-product fit for both of you?
In a recent interview with bestselling author and behavioral designer, Nir Eyal, he brought up the importance of a genuine connection with your customers. Before building a solution for them, can you honestly say you empathize with your customers and their challenges? Because if you can’t, you’re probably going to fail. To counter this, Eyal advises, “I always tell entrepreneurs to build a product for themselves—at least that way you ensure you’ve built something for a user you know intimately.”
Are you and your coworker both building something you truly care about? If one of you isn’t wholeheartedly in love with the problem you’re solving, it’s time to move on.
3. Do you share the same values?
Just like dating, if your coworker has a dramatically different set of values and personal beliefs, you should think twice about mixing your futures together. The New York Times bestselling author and Wharton professor Adam Grant, advises founders against starting up with friends. On the other hand, he’s much more supportive of launching a venture with people you’ve worked with in the past. Grant explains, “You can get to know a friend well through hanging out socially. But you can only get to know a cofounder well by collaborating. By working together prior to founding a startup together, people are able to answer some fundamental questions. This isn’t to say that friends can’t build successful startups; it’s just higher-risk and lower-odds.”
If you have drastically different values, think twice about mixing business with coworkers.
4. Do your skills complement each other?
Take a hard look at why you decided to start a business with your coworker in the first place. Is it simply because they were in the same room when you had “the great idea,” or are they really bringing complementary skills, experience, and traits to the table? Make sure you’re starting a business with a coworker because it would truly benefit you both, not just because you spend a lot of time together in the office and it sounds fun.
5. Do your routines, habits and work schedules align?
When I started a side business with a friend right out of college, we couldn’t have been more different in terms of work schedules. I preferred working on our company in the early hours of the morning before heading into my draining day job, but my friend was a night owl and wanted to collaborate together far past my bedtime. That eventually lead to a conflict when we both felt that the other wasn’t contributing the same amount of time and effort to the company—simply because we rarely saw each other while we worked. Be sure that you and your coworker have mutual times you can work together, especially while it’s getting started and you’re still keeping your day jobs.
6. What’s your strategy for resolving conflicts?
If you and your coworker tend to argue or avoid talking about difficult subjects in the workplace; chances are, that default method of conflict resolution (or lack thereof) will carry over into the business you build together. Be sure that you’re compatible with your coworker when it comes to resolving founder conflicts, which will happen on a regular basis.
7. Do you have clearly defined responsibilities?
My last cofounder and I were a perfect match for starting a business together. I knew how to build websites and had spent years honing my marketing and writing abilities; my partner had worked first-hand in the trenches making cold sales calls. Once we launched our company together, we naturally fell into complementary roles and responsibilities based on what made sense. We both did what we were best at and there wasn’t much overlap. You, too, need to clearly define your complementary roles with your coworker in writing within your founder agreement, and make sure they engage each of your strongest skills.
8. How stable are your lives outside of the office?
You don’t want to start up with your coworker if they’ve been seriously talking about selling all of their belongings, packing up and traveling through Southeast Asia for the next year. Are they in danger of needing to move back in with their parents if the business isn’t an instant success? If your coworker is in a relationship, how does their partner feel about the prospect of them starting a business? Are you on the same page when it comes to the topic of deciding whether or not you should tell your employer about your side business? These are all hugely important questions that need to be answered before you begin mixing finances together.
9. Are you both willing to follow each other’s direction when the subject matter expert speaks?
Within your business, you’re the expert at what you do. Your coworker probably has their own domain of expertise. Are you both willing to handle constructive criticism from each other and acknowledge when it’s best to trust your partner’s judgment?
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Starting a business with a coworker won’t always be a walk in the park, but it can be done. Keep a clear line of communication, express your feelings when you’re frustrated, and make sure you’re both on the same page when it comes to the non-negotiables.
Ryan Robinson is an entrepreneur and content marketing consultant to the world’s top experts and growing startups. On his blog, ryrob.com, he teaches over 200,000 monthly readers how to start a profitable side business. Find Ryan on Twitter: @TheRyanRobinson.
Photo by Kait Miller Photography.
