Requiring Non-Competes Is A Sign That You Can't Compete

Need a non-compete to protect your super secret hush-hush world changing project? Think again. I’m not saying I’m the smartest, most experienced investor or entrepreneur in the room, but any new company that came to me saying they require all investors, managers, partners, and employees to sign a dubious non-compete agreement is an immediate red flag. It is all too often hallmark of paranoid company leadership who know they can’t survive on their own talents.

Regardless of the fact that many of them end up being at least partly unenforceable and that startups rarely have years of time and a couple hundred thousand dollars laying around to pursue enforcement, too many people do it anyway based mostly on the poor guidance of lawyers looking to increase billable hours and “advisors” with limited entrepreneurial experience. Even if you do follow through with enforcing one, it will usually only serve to cripple your business with legal debt and brand it with an image that no investor wants to touch. The gain, if any, will be nonexistent because no one besides lawyers come out ahead in prolonged legal battles, regardless of the final judgment.

I’m not saying that all such agreements are bad. In super high-tech arenas where REAL world-changing tech is made, like biomedicine that takes years of development and millions of dollars in research, it may be totally warranted. But for your average startup with a software product that someone can duplicate in a matter of days or weeks, not so much. Stop asking people to sign them because it only makes your company appear incapable of competing on your own merits and I, personally, have learned to stay far away. I’m hoping others do too.

Patents, however, are another matter for another post and are more complicated. But it is rather cut and dry with non-competes — if you think you need them, think again.