Planning Your Startup While Working
Launching a new business involves a procession of important decisions. One of the very first decisions you may have to make is whether or not to continue working at your current job while you start your business. “Overnight success” for a startup can in fact take months or years of planning and execution. During that extended research and validation period, you will need money, not only to launch your business but also as a source of personal income. To successfully navigate your dual obligations as an employee and an entrepreneur, you must have a firm understanding of the risks and opportunities in such an approach. This article will help you understand them so you can make an informed decision about whether to remain in your current job and, if so, for how long.
CorporateServices.comINCORPORATE ONLINE →
Most employment agreements impose some restrictions on the ability of an employee to start another business. Even in the absence of such prohibition, an employer may claim ownership over a startup idea if an employee used any of the employer’s resources while developing the startup. These are just some of the challenges that you must consider if you plan to continue working while exploring your startup idea. If you are considering such a move, this article provides guidelines on the things that you should not do and the things that you should do while you are still employed by another company.
What’s at stake when you are planning your startup while working?
Note that the issues discussed below are general in nature and the laws that cover them may differ somewhat from country to country.
INTELLECTUAL PROPERTY RIGHTS
Does my employer have intellectual property rights to what I create? This question is particularly important if your current position is at all creative, including engineering or product design. Assignment of invention clauses in employment contracts ensure that the things you conceive, invent or create as part of your job automatically belong to your employer. In some cases, assignment of invention applies to anything you create during the tenure of your employment, even if what you created is on your own time and at your own expense. This is especially important if your planned endeavor involves anything that is even remotely similar to what your employer has paid you to produce. The bottom line when it comes to questions regarding intellectual property rights, it’s better to err on the side of caution and protect your new business from costly litigation over ownership of the underlying ideas, practices or products even if this means leaving your job sooner rather than later.
Are you violating a non-compete agreement that you may have signed with your employer? Even though you may not be in business yet, your activities qualify as competing. This occurs because non-compete agreements often include a period of time (up to a year or more) after you have left your job. The problem for entrepreneurs is that non-compete agreements can be difficult to define. For example, you may work for a company that manufactures widgets and you plan to manufacture gadgets which you consider to be entirely different. Your business producing gadgets may be considered a competitor if it’s in the same or similar business as your employer. If you will be marketing to the same customers or if you employ the same or similar technology, the likelihood of this happening increases.
However, countries differ in how stringently they enforce this issue. For example, US courts have a long history of viewing non-compete agreement and covenants in favor of the employee. The primary reason they are struck down as unenforceable is that they are deemed to be unreasonable and would place an undue hardship on the employee. If you have a non-compete agreement in place, the best course of action may be to consult an attorney to determine if the agreement is enforceable and what steps you can take to address the issue.
EXTERNAL BUSINESS INTERESTS
Are you required to report external business interests? Some employers require employees to disclose or seek permission before pursuing business ventures outside of their employment. While this condition may not be expressly mentioned in your employment contract it may be a company policy that you generally agreed to abide by as a condition of your employment.
POST-EMPLOYMENT RESTRICTIVE PERIOD
How long does your agreement follow you after you leave your job? Certain terms and conditions of employment contracts often have sunset dates that extend beyond the term of your employment. This means that you may be subject to restrictions long after your separation date. These same sunset dates may also leave your business or ideas subject to legal action at a later date. If your employment contract includes any type of restrictive post-employment covenant be sure to allow adequate time between when you leave your position and when you anticipate starting your business. This step will help you avoid potentially costly litigation down the road.
The issues above are not an exhaustive list, rather a starting point in understanding your rights and obligations as as an employee. It is advisable to hire an attorney specializing in employment law if you plan to stay in your job while starting a business. While legal advice can be expensive, it is a bargain compared to the cost of having to defend against litigation in the future.
What Not To Do
Things that you should not do while you are still employed
Do not use any resources of your employer for your startup.
There are two categories of things you should not do while you are still employed, those that may be legal but a bad idea and those that are illegal and a bad idea. The following list describes the things you should not do.
YOUR TIME AT WORK
Using your employer’s resources such as computers, internet connection, phone, office space, etc. to conduct any kind of activities related to your personal business can mean serious trouble for your startup venture. While your employer may not mind you using your work computer to email friends and family while you’re out to lunch, they may take a much dimmer view of your using your work computer to contact potential investors for your business. Restricting your start-up activities to your personal time outside of work hours eliminates any ambiguity as to whether you are using the time that your employer is paying for, for your business.
CUSTOMERS, CLIENTS AND PROPRIETARY INFORMATION
Maintain a clear distinction between your employer’s customers and clients and potential customers for your own business. It’s sometimes easy to forget that the clients you built a relationship with over time are your employer’s clients and not yours. While you are employed, and possibly after you leave, those customers are your employer’s. Even if your employment contract does not forbid you from contacting customers after you no longer work there, be careful not to use proprietary information gained while employed. Such proprietary information includes customer lists, workflow processes, business plans, product development roadmaps, software code, etc.
DON’T DISCUSS YOUR BUSINESS VENTURE
Perhaps the hardest part of starting a business while you are still employed is not talking about your new business to anyone who will listen. But, keeping quiet about your plans at work protects you from unwanted attention of supervisors and jealousy of co-workers, both of which can end your employment much sooner than you would like. Remember that you are continuing to work for a reason — you need the income while you start your business — and that silence helps you.
UNDERSTAND EMPLOYMENT LAW
If you stay in your job while starting a business, it can be easy to run afoul of your legal obligations to your employer. The terms of your employment are governed first and foremost by national employment laws, followed by state or provincial laws, and finally by the terms your employment agreement and your employer’s internal policies. Since employment laws vary greatly from one country to another and individual employment contracts have the potential to be as diverse as the attorneys who draft them, get the know the local employment law and your employment agreement and consult with a competent lawyer as necessary.
What To Do
Things that you should do while you are still employed
Be honest, discreet and plan your time well.
A new entrepreneurial venture is like an iceberg because most of the reasons for its success (or failure) are hidden from view, having taken place in the run-up before the first transaction ever takes place. The pre-operation work that goes into a new business can be time consuming, but not in the conventional sense of man hours spent producing goods or services. The time demands of a new business in the early stages involve thinking and planning tasks that often do not require interacting with outsiders during normal business hours. Thus, they are ideally suited to completion while you are employed elsewhere.
Because the number of hours you have available is limited to evenings, weekends and the occasional “regular business hour,” it is vital that you get the maximum productivity from your available time. Since your current job and future business are not the only things in your life you should develop a schedule that parcels out your most valuable resource – time.
RESEARCH AND PLANNING
You should develop a schedule to execute and track the various tasks for your startup. You should establish milestones that you want to achieve by specific dates. The schedule should also include time off to recharge your emotional and intellectual batteries. Burning out before you ever get off the ground is a peril that first-time entrepreneurs often ignore. Your daily or weekly routine should include:
- Research and validation of your startup idea
- Thinking through whether you have what it takes to succeed
- Research – regulations, competition, suppliers, customers, etc.
- Brainstorming with potential partners and co-founders
- Networking to identify potential team members and co-founders for your business
- Developing and refining the financial model for your business
- Planning for the coming weeks and months
Successful entrepreneurs never go it alone. That means developing and nurturing professional relationships with individuals and groups that can have a positive impact on your enterprise. You should maintain good relationships with your co-workers and managers, they may turn out to be good employees for your business in the future. Establish relationships with venture capitalists, bankers, accountants, lawyers and other advisors early. This will provide you both the opportunity to grow together, reducing the time and expense needed to bring them up to speed later.
Be upfront and honest with everyone you deal with in the planning stages of your venture. Explaining that your time is limited because you are still employed elsewhere is preferable to missing appointments or commitments because you are detained unexpectedly at work. Your honesty will be a great character reference.
AT THE RIGHT TIME, LEAVE GRACEFULLY
At some point if you expect your business to succeed, you will have to leave your current job. Ensure that your exit is graceful. Be as helpful as you can with the transition because litigation can arise from bruised egos. Moreover, you may want to turn to your former employer or co-workers for help later in your career. Four issues you want to consider in deciding when to leave your job are:
- If you continue working will you have adequate time and attention to devote to your new business?
- By continuing to stay, will you damage your relationship with your employer and your professional reputation?
- Do you now have enough money to start your business and support yourself?
- Was working a double shift destroying your personal life?
Planning a startup while you are working requires a balancing act. While it is great to have the paycheck from your job, you may also be exposing your startup to future risk if you do not carefully separate your work and startup activities. Therefore, it is important to understand and carefully follow the do and don’t for launching a startup while you are still working.