EPS 47 -Non-Competes are Niche Killers!

Erin Austin: Hello everyone. Welcome to LinkedIn Live. I have these every last Wednesday of the month, , at noon. Eastern. Um, I am trying a new mic, so if anyone can't here, please, , post a comment in the comment box. So, , again, Aaron Austin, very happy to be here with you, founder of Think Beyond ip, where we talk about.

Erin Austin: Issues that help you scale and hopefully someday sell your business. , this is being recorded live on LinkedIn live, but it's also going to be, , distributed as part of my podcast. Hourly to exit. So just to let you know if you are listening to this on the podcast, that there are some slides that go with this conversation that will be helpful.

Erin Austin: So you can find them either over, , my YouTube channel for Think Beyond ip, YouTube channel, or, um, I will have make sure that there's a link to the slides actually in the show notes as well. So either way, you should be able to get. The full benefit of our conversation today, so. Feel free to put, , questions in the chat at any time.

Erin Austin: Today we're going to talk about non-competes, which I call niche killers, and, , that will become very, , obvious. Why, um, as we go through our conversation. So first, what is a non-compete? So, non-compete is a restrictive covenant, and you'll find it as a provision in your client agreements where they restrict your ability or maybe even prohibit you from working with any of their competitors.

Erin Austin: So what is a group of competitors? If you specialize in working with law firms or you specialize working with doctors, or you specialize working with teachers, a group of competitors is a niche. And so that specialized segment for your goods or services. Now, , if you are here, you've probably heard a million times that, you know, riches are in the niches and there are tons of resources, if you haven't heard that before, um, that I can point you to.

Erin Austin: I love the, , the, a author, , the, um, business of Authority podcast. Talks about that a lot. Jonathan Stark and Rochelle Moton. Um, also, um, biz Chicks talks about it a lot. Um, the two bobs, there's so many resources to tell you about the value of having a niche. Now, just to go over them very quickly here, one, you know, to be a, you know, fishing in a, um, Small pool instead of fishing in an ocean.

Erin Austin: Your resources are the same whether you're fishing in an ocean or you're fishing in a pond, and so you're gonna be a lot more effective fishing in a pond with your resources than you are fishing in an ocean. Also, when you have a niche, you get very strong positioning. You become known as the CO2 person or the authority in your area, and that is only possible within a niche.

Erin Austin: You have less spending on your marketing. When you are known as the authority or the go-to person, then you are highly referable. People will know, oh, I know exactly who you know. You are an accountant and you need help with your S E O. I know exactly who you need to talk to. So you become very referable and, um, therefore spend less on marketing when you are known as the authority in an area you can.

Erin Austin: , command higher premium pricing. You cannot get those premium pricing when you are just another SEO expert or just another copywriter. Um, and then it, of course, it accelerates your, the, the development of your expertise. When you are working in a specific area, you get to know intimately the issues and the.

Erin Austin: That your, that your clients have, you know their businesses really well, you know the language that they, , speak and that helps you really accelerate your expertise. It's all kind of builds on each other. And so if riches are in the niches, then what is in non-competes? And so it's really kind of the opposite of what's, , the riches in the niche.

Erin Austin: In the niches, you know, you have weak positioning. If, again, if you are working, if you're doing SEO o for every different kind of client, then it is very hard to have a strong positioning, as they say. If you work with everyone, then you work with no one. Your messaging is very squishy. You know? Are you talking to, to, , clients who serve customers, or are you talking to clients who serve patients, or are you talking to clients that serve, you know, collaborators like.

Erin Austin: Who are you talking to? What is the language that they're using? And that's hard to do if you don't have a niche. You get a grab bag of clients. You know, in the legal world, world they're called, you know, the, um, front door clients. Like anyone who walks through the front door is your client is, and that's that generalist, um, law, law practice that's, Actually, you know, pretty hard to maintain.

Erin Austin: Um, the more niched a lawyer is, the higher and more premium prices they can command. And that applies to many other ex areas of expertise as well. And then if you are getting referrals at all, because sometimes you aren't because people. Find it hard to refer to you. They aren't the right kind of referrals.

Erin Austin: They don't quite understand what you do. Um, so if they just hear some random buzzword, then they'll go, oh yeah, I think you need to talk to this person. And then you spend time on the phone with them and find out that they're not the right referral for you. It's much harder to build valuable IP because again, you're kind of all over the place and often you'll find yourself reduced to selling your time instead of selling your expertise.

Erin Austin: So these are the reasons we don't like non-competes, which interfere in our ability to create. Niches and all the wonderful riches that come with them. So let's talk about some specific examples of non-compete provisions that you will see in your services agreements. , again, um, look for the slides if you are listening to this on the podcast.

Erin Austin: So my first example, which, um, involves when you are the subcontractor and there is an end client and it is not. That unusual for your immediate client to want to prevent you as a subcontractor from doing an end run and serving that end client directly? , not that I, you know, I'm a huge. , , Antifa of non-competes, but the only time I'm not offended by non-competes is under in, in this circumstance, it is fair for the client, for your client not to expect you to like, kind of, you know, do the end run and go directly to the end client.

Erin Austin: Um, for those services that you've been engaged to do. So in this example, if the contractor provides services to a client of company under this agreement, subcontractor agrees not to independently contract to provide services to such client during the same period and for a period of one year after completion, expiration, or termination of such services.

Erin Austin: If subcontractor has an existing agreement in place with a company client prior to the effective date of this agreement, any services provided by subcontractor pursuant to that agreement are excluded from the proceeding restriction. And just to clarify, in this example, you are the subcontractor and your client is company and then company client would be the end client.

Erin Austin: And so this is an example where, um, your client does not want you to do an end run to go directly to the end client. That said, it is still too broad. There are a number of issues that I have with that provision and, , In this next slide, I am, , addressing the way that I would remedy this to make it more reasonable so it doesn't interfere with your ability to create your niche.

Erin Austin: I e work with competitors of your client, so, In this one, one, you need to make sure that you actually know who that end client is. Depending on the nature of your services, sometimes you don't know who the end client is. Maybe you're brought in just to do something specifically. Maybe, um, in the market research field, you may be brought in to provide.

Erin Austin: Um, , respondents and you don't know who the end client is, so you certainly don't want to agree to, , not provide, , services with an end client that you're not even aware of. So you, you would, um, accidentally breach your agreement. Also, you may provide services that don't actually compete with your client.

Erin Austin: You may be in completely different industries, but your client is providing kind of a 360 degree, um, solution. And so they need to bring in subcontractors in order. To fill in the blanks where they don't have that expertise in house. So if you are not competing with your client, there's no reason for you to not be able to work with that end client providing services that don't even compete with your immediate client.

Erin Austin: So you wanna make sure it's clear that your any non-compete would ap, any non-compete would apply only to services that compete with your immediate client. Also for that one year tale, that one year non-compete period after your services have been completed. You know the point is for you to not poach this client, the point is not for.

Erin Austin: There to be some exclusive market that only your client can play in. You have your own expertise, they have their expertise. You should be able to go out in the market and compete in the market based on your expertise without any restrictions. And so that non-compete period should just apply to providing services to that client in connection with this engagement.

Erin Austin: And then, Never, never, never agree to anything that will interfere with your current relationships. As an expert, one of your most valuable assets are your relationships. So if you have relationships either that you're cultivating or. That are with actual clients, you wanna be able to continue to cultivate those relationships.

Erin Austin: You don't want anything to come between you and that, you know, obviously if you have a client that has, , worked with you in the past and they come back to you, can you imagine having to say no? Um, because of one of these non-compete provisions. So make sure that it doesn't apply that any non-compete.

Erin Austin: Not only carves out existing agreements that it also carves out existing relationships. Another example. So this is, , more a more general non-compete, not the the subcontractor scenario, but it is just you and your client may, , have may. , engage with the same market from time to time, and your client just wants you completely out of the market.

Erin Austin: Um, and just because you've worked together on this one specific project, and that is unreasonable. So this language during the term of this agreement, and for a period of one year after the termination of this agreement. Contractor shall not engage in any employment, consulting, or other activity that competes with the business.

Erin Austin: Proposed business or business interest of company and contractor will not assist any other person or entity in doing so without company's prior written consent. There are many, many things wrong with this provision. So many that my recommendation is to simply strike it. It you're not in the business of carving up the market for using your expertise.

Erin Austin: Um, you have yours, they have theirs, and you should be able to go out into the market and compete. As the market, , demands. So step one is try to eliminate it all together. Now, any contract negotiation depends on the relative, , negotiating power of each party. And so there may be a reason that you need to agree to some level of non-compete, and so you need to negotiate this provision.

Erin Austin: So here my recommendation, the fallback po , position would be first limit the term or the non-compete to the term that you're working together. Two, these, , the restriction on having. Doing competing employment or other activity is far too broad. You know, maybe you are solo and it you decide that you need you.

Erin Austin: One of your clients, one of your other clients, wants you to go in house and that is a competing client. Um, There should be no restriction on your ability to go in-house with a client and provide services. You know, you will always be subject to the non, , co the confidentiality obligations, the non-disclosure obligations.

Erin Austin: You, of course, are not permitted to use any other party's, , intellectual property or their secrets without their permission, but for you to use your expertise, you can use it with any anyone. Um, and so we're, we're limiting that language, um, that competes with the services, you know, they have here. You can't compete with proposed business or business interest.

Erin Austin: I mean, how broad is that? How would you possibly know what other proposed business, um, prospects they're looking at, what other business interests they have other than what you're directly um, , engaged to perform. So you need to eliminate anything that is so broad and so vague as proposed business interests.

Erin Austin: And, , and then you can't, , assist. Well again, you may not know that one of your clients, um, is a competitor of the old client. Um, you can't, , be in a position of accidentally breaching an agreement because you're not aware of who the end clients are. And again, always, always, always make sure that any restriction does not apply to your preexisting relationships.

Erin Austin: Now, there is a provision here called interference. This is a real provision that came from a services agreement that. Absolutely blew my mind when I saw it. And I think, yeah, you don't need to be a lawyer to know why this, , this provision is so outrageous. So, during the term of this agreement, and for a period of one year following termination or expiration of this agreement, supplier agrees not to induce.

Erin Austin: Or attempt to induce influence or attempt to influence any client, supplier or other business relation of company or any affiliate of company deceased doing business. Terminate or modify any written, any written or oral agreement, arrangement or course of dealing or to otherwise interfere with the business relationship.

Erin Austin: This is so broad that you literally couldn't, like what can you do that doesn't breach this provision? Like anytime you talk to another client, another supplier or other business relation, I mean all sorts of people we have business relationships with, um, that might. Caused them to work with you instead of with them and all those things.

Erin Austin: Even attempting to, not even succeeding to, but just having a conversation about possibly working together would breach this provision. This is a hundred percent unreasonable and, um, absolutely, um, would be something that could. Kill your business and, and as a general rule, you know, even with provisions that seem a little more reasonable, such as the very first one regarding the subcontractor arrangements, you need to think about.

Erin Austin: The overall effect of agreeing to provisions like this, you know, any version of non-compete or non-solicitation. You know, if you did, if you agreed to the language that this particular client is asking you to agree to, and you did that with every client, would you be out of business? Like what would be left if with every client you said, okay, I won't work with any of your competitors.

Erin Austin: And so that eliminates 20% of the market and then you do it with another one, eliminates another 20% and another one pretty soon you're out of business. So you really need to think about the, the overall effect of agreeing going, just slippery slope of non-competes, um, when you think about that. So make sure that.

Erin Austin: You don't lose that when you're, when you're negotiating with your clients. So the key takeaways here, you know, You need to restrict any type of non-compete. You know, first try to get rid of 'em, but if you can't, um, make sure that any restriction is as narrow as possible in terms of the time that it applies, who it applies to and what services it applies to.

Erin Austin: Make sure that standard carve out is there any preexisting relationships must be carved out. And most importantly, don't be afraid to stand up for your business. It is a B two B relationship. You are partners in making sure that you both parties have, um, a, a happy resolution. Any business relationship where both parties don't feel like they re got value from it is an unsuccessful one.

Erin Austin: And so the other party does want you to feel good about their relationship as well. And they are, they are set up for you to have conversations about those provisions. So Stacy, so what do I thank you for. Other questions, Stacy. What do I do if my client insists on including a non-compete? Yeah, I mean, sometimes you, as it will happen, and depending on the, again, depending on the nature of your industry, it will be very important for them to know that you aren't.

Erin Austin: Working with their competitors. Certainly if you're doing anything that involves access to your client's trade secrets, they are going to, um, probably insist on having some version of a non-compete. And so again, you know, you're going to have to just make sure that it is as narrow in scope as possible.

Erin Austin: Um, and even specific to, um, You know, maybe let's say it is a pharmaceutical. Company and they want, once you to not work with any other pharmaceutical companies, maybe try to get it as narrow as you know. We won't work with someone who is in the same category of drug, you know, like, You know, diabetes drugs or hypertension drugs.

Erin Austin: So as narrow as you can make it so that, you know, you can still work with other pharmaceutical companies. You know, certainly there are a lot of pharmaceutical companies, although they may be competitors on the surface, they really aren't because they work in different areas of, of, um, therapy. So that would be my recommendation.

Erin Austin: Um, again, just as narrow as possible and making sure that you can continue to work with your existing relationships. And the one other thing I wanna add, Is when they say, , they ask you to come and get their approval of working with any competitors. That is r generally not workable. Your clients are not going to want you to talk to your other clients about who you're working with and they wouldn't want you to.

Erin Austin: So, so anything that says you need to come to us and get approval really isn't workable. You need to just make sure that there are very clear parameters that you can work with. Um, so that you can continue to grow your business, create a niche so that you can develop, you know, a high value business, um, where you're known as the authority in the business can command premium prices, can accelerate your expertise and all the riches that come with niches.

Erin Austin: So, Thank you for joining me and , all the links, um, will be in the show notes and of course if you have any questions, please don't hesitate to contact me. Oh, actually have contact page. Um, you can find me on LinkedIn. I am the Erin Austin, um, without Thethe of course, and I also have many resources. On my website, think beyond@ip.com where you can find me as well.

Erin Austin: So thanks again for joining me.