Episode 47
E47: Non-Compete are Niche Killers!
Do you know my nickname for “non-competes”? “Niche killers.”
A non-compete is a provision that restricts your ability to seek and work with similar clients. And what is a group of similar clients? A niche!
Non-competes are the enemy of strong positioning. Being the go-to person for a niche increases profitability and authority.
In this episode, I discuss how to identify and negotiate these controversial provisions. A few topics we will be talking about are:
- Improving your profitability by focusing on your niche
- Ways to narrow down the non-compete provision as a means of compromise
- The importance of negotiating an agreement to protect your business
This was an intentionally surface-level discussion; don’t hesitate to send me a message with your questions.
Connect with Erin and find the resources mentioned in this episode at hourlytoexit.com/podcast.
Erin's LinkedIn Page: https://www.linkedin.com/in/erinaustin/
Think Beyond IP YouTube Page: https://www.youtube.com/channel/UCVztXnDYnZ83oIb-EGX9IGA/videos
Music credit: Yes She Can by Tiny Music
A Team Dklutr production
Transcript
Hello everyone.
Speaker:Welcome to LinkedIn Live.
Speaker:I have these every last Wednesday of
Speaker:the month, at noon.
Speaker:Eastern.
Speaker:So, again, Erin Austin, very happy
Speaker:to be here with you, founder of
Speaker:Think Beyond ip, we talk about.
Speaker:Issues that help you scale and
Speaker:hopefully someday sell your business.
Speaker:this is being recorded live on
Speaker:LinkedIn live, but it's also going to
Speaker:be, distributed as part of my podcast.
Speaker:Hourly to exit.
Speaker:So just to let you know if you are
Speaker:listening to this on the podcast,
Speaker:that there are some slides that
Speaker:go with this conversation that
Speaker:will be helpful.
Speaker:So you can find them either over,
Speaker:my YouTube channel for Think Beyond
Speaker:ip, YouTube channel, or, I will have
Speaker:that there's a link to the slides
Speaker:actually in the show notes as well.
Speaker:either way, you should be
Speaker:able to get.
Speaker:The full benefit of our conversation
Speaker:today, Feel free to put,
Speaker:questions in the chat at any time.
Speaker:Today we're going to talk about
Speaker:non-competes, which I call niche
Speaker:killers, and, that will become
Speaker:very, obvious.
Speaker:Why, as we go through our
Speaker:conversation.
Speaker:first, what is a non-compete?
Speaker:So, non-compete is a restrictive
Speaker:covenant, and you'll find it as
Speaker:a provision in your client agreements
Speaker:where they restrict your ability or
Speaker:maybe even prohibit you from working
Speaker:with any of their competitors.
Speaker:what is a group of competitors?
Speaker:If you specialize in working with
Speaker:law firms or you specialize working
Speaker:with doctors, or you specialize working
Speaker:with teachers, a group of competitors
Speaker:is a niche.
Speaker:And so that specialized
Speaker:segment for your goods or services.
Speaker:Now, if you are here, you've
Speaker:probably heard a million times that,
Speaker:riches are in the niches there are
Speaker:tons of resources, if you haven't heard
Speaker:that before, that I can point you to.
Speaker:I love the, business of
Speaker:Authority podcast.
Speaker:Talks about that a lot.
Speaker:Jonathan Stark and Rochelle Moton.
Speaker:also, biz Chicks talks
Speaker:about it a lot.
Speaker:the two bobs, there's so many
Speaker:resources to tell you about the value
Speaker:of having a niche.
Speaker:Now, just to go over them very
Speaker:quickly here, one, know, to be fishing
Speaker:in a, Small pool instead of fishing
Speaker:in an ocean.
Speaker:Your resources are the same whether
Speaker:you're fishing in an ocean or you're
Speaker:fishing in a pond, and so you're
Speaker:gonna be a lot more effective fishing
Speaker:in a pond with your resources than
Speaker:you are fishing in an ocean.
Speaker:Also, when you have a niche, you
Speaker:get very strong positioning.
Speaker:You become known as the go-to person
Speaker:or the authority in your area, and that
Speaker:is only possible within a niche.
Speaker:You have less spending on
Speaker:your marketing.
Speaker:When you are known as the authority or
Speaker:the go-to person, then you are
Speaker:highly referable.
Speaker:People will know, oh, I know
Speaker:exactly You are an accountant
Speaker:and you need help with your S E O.
Speaker:I know exactly who you need to talk to.
Speaker:So you become very referable and,
Speaker:therefore spend less on marketing
Speaker:when you are known as the authority
Speaker:in an area you can.
Speaker:command higher premium pricing.
Speaker:You cannot get those premium pricing when
Speaker:you are just another SEO expert or just
Speaker:another copywriter.
Speaker:and then it, of course, it
Speaker:accelerates the development of
Speaker:your expertise.
Speaker:When you are working in a specific
Speaker:area, you get to know intimately
Speaker:the issues that your clients have,
Speaker:their businesses really well, you
Speaker:know the language that they, speak
Speaker:and that helps you really accelerate
Speaker:your expertise.
Speaker:It's all kind of builds on
Speaker:each other.
Speaker:And so if riches are in the niches,
Speaker:then what is in non-competes?
Speaker:And so it's really kind of the opposite
Speaker:of what's, the riches In the
Speaker:niches, you have weak positioning.
Speaker:if you are working, if you're doing
Speaker:SEO o for every different kind of
Speaker:client, it is very hard to have a
Speaker:strong positioning, as they say.
Speaker:If you work with everyone, then you
Speaker:work with no one.
Speaker:Your messaging is very squishy.
Speaker:Are you talking to, clients who
Speaker:serve customers, or are you talking
Speaker:to clients who serve patients, or
Speaker:are you talking to clients that serve,
Speaker:collaborators like.
Speaker:Who are you talking to?
Speaker:What is the language that they're using?
Speaker:And that's hard to do if you don't
Speaker:have a niche.
Speaker:You get a grab bag of clients.
Speaker:in the legal world they're called, the,
Speaker:front door clients.
Speaker:Like anyone who walks through the
Speaker:front door is your client is, and that
Speaker:generalist, law practice that's,
Speaker:Actually, pretty hard to maintain.
Speaker:the more niched a lawyer is, the
Speaker:higher and more premium prices
Speaker:they can command.
Speaker:And that applies to many other areas of
Speaker:expertise as well.
Speaker:And then if you are getting referrals
Speaker:at all, cuz sometimes you aren't
Speaker:because people.
Speaker:Find it hard to refer to you.
Speaker:They aren't the right kind
Speaker:of referrals.
Speaker:They don't quite understand
Speaker:what you do.
Speaker:so if they just hear some random
Speaker:buzzword, then they'll go, oh yeah,
Speaker:I think you need to talk to this person.
Speaker:And then you spend time on the phone
Speaker:with them and find out that they're
Speaker:not the right referral for you.
Speaker:It's much harder to build valuable
Speaker:IP because again, you're kind of all
Speaker:over the place and often you'll find
Speaker:yourself reduced to selling your time
Speaker:instead of selling your expertise.
Speaker:these are the reasons we don't
Speaker:like non-competes, which interfere
Speaker:in our ability to create niches and
Speaker:all the wonderful riches that
Speaker:come with them.
Speaker:So let's talk about some
Speaker:specific examples of non-compete
Speaker:provisions that you will see in your
Speaker:services agreements.
Speaker:again, look for the slides if you are
Speaker:listening to this on the podcast.
Speaker:So my first example, which, involves
Speaker:when you are the subcontractor and
Speaker:there is an end client it is not.
Speaker:That unusual for your immediate
Speaker:client to want to prevent you as a
Speaker:subcontractor from doing an end run
Speaker:and serving that end client directly?
Speaker:not that I'm a huge.
Speaker:Antifa of non-competes, but
Speaker:the only time I'm not offended by
Speaker:non-competes is in this circumstance,
Speaker:it is fair for your client not
Speaker:to expect you to like, do the end
Speaker:run and go directly to the end client.
Speaker:for those services that you've been
Speaker:engaged to do.
Speaker:in this example, if the contractor
Speaker:provides services to a client of
Speaker:company under this agreement,
Speaker:subcontractor agrees not to independently
Speaker:contract to provide services to such
Speaker:client during the same period and for
Speaker:a period of one year after completion,
Speaker:expiration, or termination of
Speaker:such services.
Speaker:If subcontractor has an existing
Speaker:agreement in place with a company
Speaker:client prior to the effective date of
Speaker:this agreement, any services provided
Speaker:by subcontractor pursuant to that
Speaker:agreement are excluded from
Speaker:the proceeding restriction.
Speaker:And just to clarify, in this
Speaker:example, you are the subcontractor
Speaker:and your client is company and then
Speaker:company client would be the end client.
Speaker:And so this is an example where, your
Speaker:client does not want you to do an end
Speaker:run to go directly to the end client.
Speaker:That said, it is still too broad.
Speaker:There are a number of issues that
Speaker:I have with that provision and, In
Speaker:this next slide, I am, addressing
Speaker:the way that I would remedy this
Speaker:to make it more reasonable so it
Speaker:doesn't interfere with your ability to
Speaker:create your niche.
Speaker:I e work with competitors of your
Speaker:client, In this one, one, you need to
Speaker:make sure that you actually know who
Speaker:that end client is.
Speaker:Depending on the nature of your
Speaker:services, sometimes you don't know who
Speaker:the end client is.
Speaker:Maybe you're brought in just
Speaker:to do something specifically.
Speaker:Maybe, in the market research field,
Speaker:you may be brought in to provide.
Speaker:respondents and you don't know who
Speaker:the end client is, so you certainly
Speaker:don't want to agree to, not provide,
Speaker:services with an end client that you're
Speaker:not even aware of.
Speaker:So you, would, accidentally breach
Speaker:your agreement.
Speaker:Also, you may provide services
Speaker:that don't actually compete
Speaker:with your client.
Speaker:You may be in completely different
Speaker:industries, but your client is providing
Speaker:kind of a 360 degree, solution.
Speaker:And so they need to bring in
Speaker:subcontractors in order.
Speaker:To fill in the blanks where they
Speaker:don't have that expertise in house.
Speaker:So if you are not competing with your
Speaker:client, there's no reason for you to
Speaker:not be able to work with that end client
Speaker:providing services that don't even
Speaker:compete with your immediate client.
Speaker:So you wanna make sure it's clear
Speaker:that any non-compete would apply only
Speaker:to services that compete with your
Speaker:immediate client.
Speaker:Also for that one year tale, that one
Speaker:year non-compete period after your
Speaker:services have been completed.
Speaker:the point is for you to not poach
Speaker:this client, the point is not for.
Speaker:There to be some exclusive market
Speaker:that only your client can play in.
Speaker:You have your own expertise, they have
Speaker:their expertise.
Speaker:You should be able to go out in the
Speaker:market and compete in the market
Speaker:based on your expertise without
Speaker:any restrictions.
Speaker:And so that non-compete period
Speaker:just apply to providing services
Speaker:to that client in connection with
Speaker:this engagement.
Speaker:And then, never, agree to anything
Speaker:that will interfere with your current
Speaker:relationships.
Speaker:As an expert, one of your most valuable
Speaker:assets are your relationships.
Speaker:So if you have relationships
Speaker:either that you're cultivating or.
Speaker:That are with actual clients, you want to
Speaker:be able to continue to cultivate those
Speaker:relationships.
Speaker:You don't want anything to come
Speaker:between you and that, obviously
Speaker:if you have a client that has,
Speaker:worked with you in the past and they
Speaker:come back to you, can you imagine
Speaker:having to say no?
Speaker:because of one of these non-compete
Speaker:provisions.
Speaker:So make sure that it doesn't apply that
Speaker:any non-compete.
Speaker:Not only carves out existing agreements
Speaker:but it also carves out existing
Speaker:relationships.
Speaker:Another example.
Speaker:So this is, a more general
Speaker:non-compete, not the subcontractor
Speaker:scenario, but it is just you and your
Speaker:client may, have engage with the
Speaker:same market from time to time, and
Speaker:your client just wants you completely
Speaker:out of the market.
Speaker:and just because you've worked
Speaker:together on this one specific
Speaker:project, and that is unreasonable.
Speaker:So this language during the term
Speaker:of this agreement, and for a period
Speaker:of one year after the termination
Speaker:of this agreement.
Speaker:Contractor shall not engage in
Speaker:any employment, consulting, or
Speaker:other activity that competes
Speaker:with the business.
Speaker:Proposed business or business interest
Speaker:of company and contractor will not
Speaker:assist any other person or entity
Speaker:in doing so without company's prior
Speaker:written consent.
Speaker:There are many, many things wrong
Speaker:with this provision.
Speaker:So many that my recommendation is
Speaker:to simply strike it.
Speaker:you're not in the business of
Speaker:carving up the market for using
Speaker:your expertise.
Speaker:you have yours, they have theirs, and
Speaker:you should be able to go out into the
Speaker:market and compete.
Speaker:As the market, demands.
Speaker:step one is try to eliminate it
Speaker:all together.
Speaker:Now, any contract negotiation depends
Speaker:on the relative, negotiating power
Speaker:of each And so there may be a reason
Speaker:that you need to agree to some level
Speaker:of non-compete, and so you need
Speaker:to negotiate this provision.
Speaker:So here my recommendation, the
Speaker:fallback position would be first limit
Speaker:the term or the non-compete to the
Speaker:term that you're working together.
Speaker:Two, the restriction on Doing competing
Speaker:employment or other activity
Speaker:is far too broad.
Speaker:maybe you are solo and one of your
Speaker:other clients, wants you to go in
Speaker:house and that is a competing client.
Speaker:There should be no restriction
Speaker:on your ability to go in-house
Speaker:with a client and provide services.
Speaker:you will always be subject to the
Speaker:non-disclosure obligations.
Speaker:You, of course, are not permitted to use
Speaker:any other party's, intellectual
Speaker:property or their secrets without
Speaker:their permission, but for you to use
Speaker:your expertise, you can use it
Speaker:with anyone.
Speaker:and so we're limiting that
Speaker:language, that competes with
Speaker:the services, they have here.
Speaker:You can't compete with proposed
Speaker:business or business interest.
Speaker:I mean, how broad is that?
Speaker:How would you possibly know what
Speaker:other proposed business, prospects
Speaker:they're looking at, what other business
Speaker:interests they have other than what
Speaker:you're directly engaged to perform.
Speaker:So you need to eliminate anything
Speaker:that is so broad and so vague as proposed
Speaker:business interests.
Speaker:and then you can't, assist.
Speaker:Well again, you may not know that one
Speaker:of your clients, is a competitor
Speaker:of the old client.
Speaker:you can't, be in a position of
Speaker:accidentally an agreement because
Speaker:you're not aware of who the end
Speaker:clients are.
Speaker:And again, always, always, make sure
Speaker:that any restriction does not apply to
Speaker:your preexisting relationships.
Speaker:Now, there is a provision here
Speaker:called interference.
Speaker:This is a real provision that came
Speaker:from a services agreement that.
Speaker:Absolutely blew my mind when I saw it.
Speaker:And I think, you don't need to be
Speaker:a lawyer to know why this, provision
Speaker:is so outrageous.
Speaker:during the term of this agreement,
Speaker:and for a period of one year following
Speaker:termination or expiration of
Speaker:this agreement, supplier agrees
Speaker:not to induce.
Speaker:Or attempt to induce influence or attempt
Speaker:to influence any client, supplier
Speaker:or other business relation of company
Speaker:or any affiliate of company deceased
Speaker:doing business.
Speaker:Terminate or modify any written or
Speaker:oral agreement, arrangement or
Speaker:course of dealing or to otherwise
Speaker:interfere with the business
Speaker:relationship.
Speaker:This is so broad that you literally
Speaker:couldn't, like what can you do
Speaker:that doesn't breach this provision?
Speaker:anytime you talk to another client,
Speaker:another supplier or other business
Speaker:relation, I mean all sorts of people
Speaker:we have business relationships
Speaker:with, that might.
Speaker:Caused them to work with you instead
Speaker:of with them and all those things.
Speaker:Even attempting to, not even succeeding
Speaker:to, but just having a conversation
Speaker:about possibly working together
Speaker:would breach this provision.
Speaker:This is a hundred percent unreasonable
Speaker:and, absolutely, would be something
Speaker:that could.
Speaker:Kill your business and as a general
Speaker:rule, you know, even with provisions
Speaker:that seem a little more reasonable,
Speaker:such as the very first one regarding
Speaker:the subcontractor arrangements, you
Speaker:need to think about.
Speaker:The overall effect of agreeing to
Speaker:provisions like this, any version
Speaker:of non-compete or non-solicitation.
Speaker:You if you agreed to the language
Speaker:that this particular client is asking
Speaker:you to agree to, and you did that
Speaker:with every client, be out of business?
Speaker:Like what would be left if with
Speaker:every client you said, okay, I won't
Speaker:work with any of your competitors.
Speaker:And so that eliminates 20%
Speaker:of the market and then you do it
Speaker:with another one, eliminates another
Speaker:20% and another one pretty soon you're
Speaker:out of business.
Speaker:So you really need to think about the
Speaker:overall effect of agreeing going,
Speaker:just slippery slope of non-competes,
Speaker:when you think about that.
Speaker:make sure that.
Speaker:You don't lose that when you're,
Speaker:negotiating with your clients.
Speaker:So the key takeaways here, You need to
Speaker:restrict any type of non-compete.
Speaker:You know, first try to get rid of 'em,
Speaker:but if you can't, make sure that any
Speaker:restriction is as narrow as possible
Speaker:in terms of the time that it applies,
Speaker:who it applies to and what services
Speaker:it applies to.
Speaker:Make sure that standard carve
Speaker:out is there any preexisting
Speaker:relationships must be carved out.
Speaker:most importantly, don't be afraid
Speaker:to stand up for your business.
Speaker:It is a B two B relationship.
Speaker:You are partners in making sure that
Speaker:both parties have, a happy resolution.
Speaker:Any business relationship where
Speaker:both parties don't feel like they got
Speaker:value from it is an unsuccessful one.
Speaker:And so the other party does want you
Speaker:to feel good about their relationship
Speaker:as well.
Speaker:And they are set up for you to have
Speaker:conversations about those provisions.
Speaker:What do I do if my client insists
Speaker:on including a non-compete?
Speaker:Yeah, I mean, sometimes as it
Speaker:will happen, and again, depending on
Speaker:the nature of your industry, it will
Speaker:be very important for them to know
Speaker:that you aren't.
Speaker:Working with their competitors.
Speaker:Certainly if you're doing anything that
Speaker:involves access to your client's
Speaker:trade secrets, they are going to,
Speaker:probably insist on having some version
Speaker:of a non-compete.
Speaker:And so again, you're going to have to
Speaker:just make sure that it is as narrow in
Speaker:scope as possible.
Speaker:and even specific to, maybe let's
Speaker:say it is a pharmaceutical
Speaker:company and they you to not work with any
Speaker:other pharmaceutical companies, maybe try
Speaker:to get it as narrow as We won't work
Speaker:with someone who is in the same category
Speaker:of drug, know, diabetes drugs or
Speaker:hypertension drugs.
Speaker:So as narrow as you can make it
Speaker:so that, you can still work with
Speaker:other pharmaceutical companies.
Speaker:You certainly there are a lot
Speaker:of pharmaceutical companies, although
Speaker:they may be competitors on the
Speaker:surface, they really aren't because they
Speaker:work in different areas of, therapy.
Speaker:that would be my recommendation.
Speaker:Um, again, just as narrow as possible
Speaker:and making sure that you can
Speaker:continue to work with your existing
Speaker:relationships.
Speaker:one other thing I wanna add, Is
Speaker:when they ask you to come and get
Speaker:their approval of working with
Speaker:any competitors.
Speaker:That is generally not workable.
Speaker:Your clients are not going to want you to
Speaker:talk to your other clients about who
Speaker:you're working with and they wouldn't
Speaker:want you to.
Speaker:so anything that says you need to
Speaker:come to us and get approval really
Speaker:isn't workable.
Speaker:You need to just make sure that
Speaker:there are very clear parameters that
Speaker:you can work with.
Speaker:so that you can continue to grow
Speaker:your business, create a niche
Speaker:so that you can develop, a high
Speaker:value business, where you're known
Speaker:as the authority in the business
Speaker:can command premium prices,
Speaker:can accelerate your expertise all
Speaker:the riches that come with niches.
Speaker:So, Thank you for joining me and all
Speaker:the links, will be in the show
Speaker:notes and of course if you have any
Speaker:questions, please don't hesitate
Speaker:to contact me.
Speaker:Oh, actually have contact page.
Speaker:you can find me on LinkedIn.
Speaker:I am the Erin Austin, without
Speaker:Thethe of course, and I also have
Speaker:many resources.
Speaker:On my website, think beyond@ip.com
Speaker:where you can find me as well.
Speaker:So thanks again for joining me.
