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Earlier quoted context omitted.
Previous owner can start the same business immediately and poach all the clients, reducing the value of the sold business to zero. Buyers obviously anticipate this and won't buy the business without the non-compete.
That would violate a non-compete attached to the sale.
Earlier quoted context omitted.
>Besides, competing would have meant doing exactly the same thing over again. What's the fun in that? All of the baggage and tech debt gone! THIS TIME WE'LL DO IT RIGHT
It is not unheard of that employees leave a company to start their own precisely because the company is not addressing something specific leaving a gap in services. The startup begins to gain traction to the point the company the employees left buys the startup. It's like this is the only way for the company to "do it right", yet it would have been cheaper if they'd just let the employees do the thing as employees in…
Keep in mind the company is probably not refusing to do things because of cost. Often it is because of risk.
A lot of people running businesses have terrible judgement when it comes to risk
Earlier quoted context omitted.
Why? They started one successful business. It seems good for society if they go on to start another.
Often an acquisition of a company is for the set of customers. If I sell my lawn care business and then turn around and email all my former clients offering them lawn care via my new company, I’ve just undercut what I just sold. Noncompete shouldn’t be so broad that I couldn’t move to another city and start a lawn care business there, but I shouldn’t be able to compete directly with the business I just sold using my…
That's a merger. You can, not having any business currently, buy yourself into one. In which case the acquisition is purely for the profits.
> I’ve just undercut what I just sold.
No you've just competed with them. If your prices are lower then you've undercut them. If their prices are artificially high then the market, a.k.a. those customers, are the ones to benefit.
> but I shouldn’t be able to compete directly with the business I just sold
Competition is _competition_. You didn't buy a market you bought an opportunity. You still have to compete against everyone else.
> I just sold using my insider information of that business.
Insider information? On a lawn care business that has no issued securities?
The only time I see non-competes as reasonable is when someone sells a business. It seems fair to put a territory restriction on a seller so the new owner doesn't have to immediately start competing against the person they bought out.
Here in Sweden non-competes without a financial agreement is void. And those that offer some financial are probably OK, but haven't been tried extensively. The non-competes I've signed have offered 60% of my base pay for six months (the length of the non-compete) if I cannot find a job because of the contract if the company exercise it. They never have exercised it for me.
Partly it was naked power.
This feels a tad heavy-handed and will make it tougher to sell a business without hard assets. It should just be banned for employees or require a payout of (previous salary) * (length of non-compete).
As the years go buy I'm gradually more and more in favor of restrictions to sell businesses. They tend to benefit two groups: the people running a successful business and the people running the even more successful businesses buying them. They tend not to benefit the employees, the customers, the competitors and really anyone else besides a small number of people who are already very successful.
If you had asked me in 1995 what was the one thing[1] that Boston could change in order to compete with Silicon Valley I would have told you "Make non-compete agreements illegal" Companies in the Bay Area whined about it all the time but it kept the ecosystem vibrant and a lot of technology exists because of that. In the late 90's early '00s a big reason for a lot of 'high profile' people quitting their cushy job and…
It’s not the noncompetes that’s the problem, it’s confidentiality agreements with extremely broad language. Learn about the legal principle of “inevitable disclosure”. It’s the idea you can’t work for a competitor because you can’t help yourself but violate an NDA
It seems these labs are revolving doors, and any kind of breakthrough knowledge would immediately make you incredibly valuable to other labs or incredibly valuable as a spinoff start-up. Never mind these researchers all knowing each other and certainly having more than a few common spaces (digital or IRL). And the excitement of working in a fresh field still littered with low hanging fruit.
I can't help but feel that a large part of the reason why the labs are neck and neck is because everyone is talking to everyone else.
I can't substantiate any of this though, it seems to have largely dodged anything besides internal conversation.
A clause I frequently see (as one who performs a lot of contract work) is a restriction on accepting an offer of employment from the client of the consulting firm I'm contracting with. Whenever I see this clause, I redline it out and advise the consulting firm to fashion a buyout clause* with the client. I'm very firm that the consulting firm cannot restrict my employment opportunities. * The buyout clause is between…
It always baffles me how much resistance there is to banning noncompetes every time this is proposed, and how that resistance lives right alongside “we want to be the next Silicon Valley”, even though pretty much every analysis of “what’s Silicon Valley’s secret sauce” cites the unenforceability of noncompetes as one of the most important factors. But maybe the ship is turning very slowly.
What's the actual steel man argument for why noncompetes are good? I've never really encountered one, just seen the corporate advocacy that they don't want to deal with high employee turnover. Best I can do: Non-competes are (possibly) unenforceable anyway, so signing one maybe acts as a value signal for the employee? "I'd have to violate my non-compete, so in order to do that and permanently burn the bridge with my…
It probably depends on the kind of job.
If say Walmart tried to use a noncompete to stop cashiers from going to Target there probably is no reasonable argument in favor of that.
On the other when the employee is a top level executive who knows all the company's trade secrets and all their plans for the next year or so and they want to go to a direct competitor it is hard to see how they won't use that information at the competitor. Even if they scrupulously try to uphold any NDAs they are under and so don't consciously do it stuff will leak.
If the first company sues accusing the second company and/or ex-employee of using such information it can get pretty messy, and consumer judicial resources better used for other things.
A policy then of allowing noncompetes in this situation might overall be beneficial. Top level executives are generally well compensated and should be sufficiently sophisticated financially to understand the consequences of a noncompete and take that into account when deciding on taking the job so having to sit out 6-12 months before taking a directly competing job should not be a serious issue.