Let’s say that, like most businesses, you have spent considerable time, effort, and money developing your customer list. How can you best protect your investment? Successful businesses implement two methods — one incorporating legal strategies and the other sound business practices.
The legal strategies recognize that your employees are the greatest risk to your intangible assets, including your customer list. As part of your plan to implement prudent employment practices, you should consider having your employees sign restrictive covenants, including a non-solicitation agreement.
Under a non-solicitation or anti-piracy agreement, your former employee agrees not to solicit your customers for a specified period of employment, usually one year or less. The agreements often prohibit the former employee from soliciting your employees for that same period. If you have properly implemented a non-solicitation agreement, the courts will enforce your efforts to keep employees from diverting or stealing your customers.
Because a non-solicitation agreement does not prevent your former employee from working in your same industry, it is less restrictive — and, therefore, easier to enforce — than a non-compete agreement. You must still, however, be able to meet the requirements of any restrictive covenant by showing that the agreement (1) protects a legitimate business interest, (2) is no broader than is necessary to protect that interest, and (3) is reasonably applied to this particular employee.
WARNING: Don’t try this at home. The law on restrictive covenants varies dramatically from jurisdiction to jurisdiction. A restriction that is legitimate and enforceable in one jurisdiction may violate public policy in another. Seek the advice of competent, experienced legal counsel as you develop your policies on restrictive covenants. Your money will be well spent.
While the legal strategies are a critical part of protecting your customer list, your efforts will fail if you do not implement sound business practices. The key to those practices is the sobering thought that, at the most fundamental level, you have no claim to your customers.
Customers are human beings. You do not own them or have a possessory interest in their business. They are your customers only as long as they choose to be. If they are indifferent or uncommitted to your business, they will not be your customers for long, no matter how badly you want or need them to stay.
How do you make your customers want to stay? You can bribe them with the lowest prices for your services, but that strategy is effective only as long as you have the lowest prices. Your customers will jump ship as soon as your competitor cuts his prices lower than yours. And if you and your competitor get in a price war, you quickly will find that you are fighting over business that is increasingly less profitable.
A better strategy is to differentiate your business on something other than price. Think Like a Client and focus on your customer’s interests and needs. Read Harry Beckwith’s fabulous book What Clients Love and contemplate ways your can improve your customer service. Even if you think your customer service is stellar, it’s not. You can (and must) dramatically improve.
Give your customers a compelling reason to love your business. Provide spectacular service. Develop innovative products and services focused on your customer’s needs. As Harry Beckwith writes, ask yourself, “What would people love?” then give them what they will love.
Focus on your customers, and your business will boom.
I am, first of all, a husband and father. Rebecca and I have been married 23 years; we have four children ages 21, 19, 18, and 15. My family is my greatest joy in life. For 24 years, I have practiced business law in Arizona, the past eleven as the managing partner of Gibson Ferrin, PLC. We help businesses and their owners meet their business and personal goals. My practice focuses on the intersection between intellectual property law and employment law. I help businesses prosper by properly managing their intangible assets.
I am licensed to practice law in Arizona only. Though I believe the advice in BiziBoom™ is based on sound legal principles, the law of your jurisdiction may be different. The advice given on BiziBoom™ is informational only; it may not be applicable to your specific situation. You should seek the advice of competent counsel in your jurisdiction, someone who knows the particular legal requirements of your jurisdiction. Until you have signed an engagement letter with Gibson Ferrin, PLC, neither the Firm nor I are acting as your legal counsel. Nothing on BiziBoom™ creates an attorney/client relationship between you and the Firm.