View from the Corner Office: Costliest Lesson I’ve Learned As an Entrepreneur
People say non-competes are toothless pacts that are unlikely to come back and bite you. There’s some truth that there’s almost always a way to wriggle out of those stipulations, but we misapplied the lesson by going after a competitor ten times our size, hiring the best sales representative off their team.
We have every employee sign a “No prior obligations” agreement, so it was not even the non-compete itself that gave us trouble. Things went wrong because the new sales rep was not fully transparent with us on how they were handling the transition.
Within the first months with our company he was able to secure several accounts. We were very pleased with his performance until we got a letter from a federal court that said we were under investigation for conspiracy.
Unbeknownst to us, the rep had wiped his hardware and scrambled all remaining data before handing it into his former employer. The employer went to the trouble to unscramble the data. What they found was that he had held off on several accounts with his old company and saved them for when he was with our company; hence the extraordinary sales numbers.
If the playing fields were level, this would not have been an issue for us. We knew that they knew that no conspiracy took place and that we had no intention for him to pull a move like this. But given the size of the company we were taking on, they were able to teach us a lesson through legal fees and an out-of-court settlement that totaled $350,000.
From every bad lesson there is a good one to learn. This incident validated and strengthened one of our core ethical values: scruples and transparency are essential qualities in the people we work with. Don’t ask, don’t tell is not a sufficient policy for staying above board, and every organization should think twice before ignoring red flags on seemingly minor issues.