Coming up fast - Stepping out alone without treading on toes - If you want to quit your job to start your own business, it's best to play fair by your present employer, says Nigel Cope. Check your contract and be sure to leave on good terms.
Everybody, or virtually everybody, fantasises at some point about breaking out from the constraints of salaried employment and setting up their own business. For most potential entrepreneurs it is the ultimate commercial dream. It offers freedom, control and excitement. It can also offer the chance to make some serious money.
It is natural, too, for these individuals to start up in the same line of business as their former employers. After all, it's the industry they know, in which they have useful contacts and commercial expertise. But how do you strike out on your own without alienating your former employer or, worse still, landing yourself in a legal minefield? How can you manage the process of departure so that the transition is relatively smooth and painless for both parties, while avoiding the heartache of broken friendships and bank-breaking solicitors' fees?
Early planning and professional advice can help, says Penny Christie, partner with legal firm Bird & Bird. 'There are a lot of things that need to be borne in mind. Non-compete clauses are the obvious one and are very common in the service sector in areas such as advertising, recruitment and so on. But people also need to be sure they don't jump the gun, either during their notice period or before. You have to be patient and not start work on your own business while you are still working for the old one.'
These are issues of which Stuart Hopson Jones is all too aware. A serial entrepreneur whose previous business interests include salmon wholesaling, fashion sales and music management, he is now a successful restaurateur.
But the floppy-haired, former Gordonstoun pupil did not skip happily down the path to entrepreneurial success without a few stumbles on the way.
Restaurants have proved the 34 year old's passion. Helped by a friendly recruitment consultant, he landed a job in the early 1990s with Sir Terence Conran's restaurant group, which had already opened Le Pont de La Tour by London's Tower Bridge and was busy working on its next project, Quaglino's.
Hopson Jones was taken on as assistant to the managing director, with a brief that included the organisation of new sites, undertaking feasibility studies, co-ordinating budgets and so on.
'I said to them at the time that I would want to set up on my own.
I have always wanted to run my own business.' But he ended up staying for nearly five years.
Then Hopson Jones and his younger brother, Angus, bought a potential restaurant site in Clapham Old Town in south London and his dream developed a darker edge. 'They found out what I was doing and sacked me just like that,' says Hopson Jones. 'They said that if I was going to open my own restaurant and hadn't handed in my notice, that meant I was going to do it all on company time.'
Hopson Jones pressed on while pursuing an industrial tribunal case for wrongful dismissal. Friends and family rallied round and, by chance, he met a Salomon Brothers trader, who after a brief chat wrote him a £30,000 cheque on the bonnet of a car. Fourteen weeks after Hopson Jones left Conran, the two brothers had opened the Polygon Bar and Grill to warm reviews.
His dispute with his former employers ended when the Conran Group settled for an undisclosed sum just before the industrial tribunal date. But the problems didn't end there. When setting up Polygon, he found that some of Conran's suppliers would not do business with him. 'I thought it was a bit petty, but I just had to accept it and go elsewhere,' he says.
Any rancour now seems to have faded. 'I still see Sir Terence occasionally.
I wouldn't go as far as to say that he is supportive but I think he understands.' With hindsight, Hopson Jones stresses the importance of trying to manage the departure well in order to reduce the chance of unnecessary aggravation.
It may be worth putting yourself in your employer's shoes. Think about whether misunderstandings have sprung up between you. Being ambitious is acceptable. Ripping off your boss on his or her own time is not.
But striking out on your own need not be a legal minefield. Fashion designer Robin Archer is a good exception. A graduate of London's Central St Martin's College of Art, Archer had started to go to fetish nightclubs with his wife, where he noticed the poor design and quality of many of the outfits people were wearing.
'I looked at the garments, many of which were home-made, and thought: 'Well, I can do better than that."
So he did. In 1994, he landed a job on a freelance basis with Skin Two, a rubber fetish company with magazine publishing and retail interests.
The company asked Archer to set up and run its in-house manufacturing division, which would supply its shop and mail-order business.
But two years later, after an altercation with his bosses over exclusive licensing rights in the US, Archer found himself removed as head of production and reassigned to the humble role of designer instead. The situation rumbled on for several months, until he decided to leave in spring 1997.
Archer was fortunate. He had no contract so there were no restrictions on him. 'By that time, I had established good relations with key customers around the world,' he says. Within weeks, he had drawn up a new range, designed a catalogue and was selling it on his own behalf. He had also decided on a resonant new name, House of Harlot. With funding from his bankers, Lloyds TSB, and his father, a former Coutts banker, he was in business.
The clothing might raise some eyebrows in certain quarters. The range extends from £60 rubber miniskirts to custom-made bodysuits that can sell for as much as £3,500. His customers cover a broad spectrum, from teenage shop girls to British and American multimillionaires. Archer was lucky in that his transition from employee to owner-manager was relatively smooth.
Without the restrictions of an onerous contract he was able to take several major clients with him from Skin Two, as well as three members of staff. Sales in the first year reached about £150,000, with projections of £200,000-plus this year.
'We had no legal problems but there possibly was a bit of rancour,' says Archer. 'My advice is to try and do it all without generating too much animosity.' This seems to have worked at House of Harlot, which actually receives some referral business from Archer's old employer. It also advertises in Skin Two's magazines and Archer's old boss occasionally seeks the younger company's help with outfits for photo-shoots. 'We get on reasonably well. There is a bit of tension. But then there always was.'
An amicable break was something the Hogarth Partnership, a financial public relations consultancy born out of the Shandwick group, was keen to ensure. The partnership was set up in 1997 by five ex-Shandwick employees, including John Olsen and James Longfield.
In client support sectors such as PR, advertising and recruitment, breakaway groups are very common. This is because the start-up costs are relatively low and the key relationship in these businesses is often between the client and the account executive rather than the client and the company.
That makes it much easier for new firms to build their own customer base relatively quickly when they start up.
'The opportunity to own and run our own business was very attractive,' says 35 year old Longfield. 'We felt the market was changing and there was a chance to set up a different kind of company. Then of course there was the financial incentive with the scope for greater returns.'
The breakaway group was well aware of the potential contract issues and so sought the best legal advice. They approached London-based firm Lewis Silkin, which had advised Maurice and Charles Saatchi when they were setting up M&C Saatchi out of the original Saatchi & Saatchi advertising agency.
'It can help if there is a group of you because you have greater negotiating power,' says Longfield. 'The ultimate sanction is that a departing employee or group can withdraw their labour. Contracts can be a very grey area but both sides are best advised not to end up in the courts.'
When the five employees left to set up Hogarth, they were careful not to poach clients or staff. To have done so might have put them in breach of contract. The only client they took
with them had already said it wanted to leave. But several other clients subsequently put their business up for review, enabling other agencies, including Hogarth, to pitch for it.
The relationship between Hogarth and Shandwick has remained reasonably cordial, according to Longfield. 'We had to spend the last few weeks working in a separate room with no access to the firm's computer network. Our biggest fear was that they would do something that would stand in our way. But really it is best for the original firms to accept that it is going to happen and work to manage the departure in a professional way.'
What all three entrepreneurs are agreed on is that, if managed properly, any initial bad feeling quickly subsides and both parties move on. They are all now keen to look to the future rather than dwell on the past.
Hogarth has now grown to the point where only a quarter of its clients are ex-Shandwick. It has 24 clients on a retained basis, plus another half a dozen for which it undertakes specific project work. With impressive offices overlooking the Thames at Butlers Wharf near the Tower of London, and a steady flow of work helped by the recent increase in merger and acquisition activity in the Square Mile, the company is fast developing a successful track record.
Archer's House of Harlot business is branching out into leather clothing this year, which should have broader appeal and greater scope for sales growth. 'We would expect leather clothing to outsell rubber by a factor of two to one,' he says.
Hopson Jones is busy working on his new £2.5 million restaurant. Opening in November, Smiths of Smithfield will be an upmarket venue with a top-floor 'expensive' steak restaurant and a more averagely priced eatery downstairs. In a break from the 'Conran look', it will be 'much harder edged', as Hopson Jones puts it, with an almost industrial feel. He has recently recruited a Conran old boy in the shape of top chef, John Torode, who also had no contract restrictions. The venture has attracted the financial backing of several celebrities, including Nick Mason, the Pink Floyd drummer, a couple of Formula One racing drivers and Angus Deayton, the television presenter.
One thing is abundantly clear from this trio of up-and-coming young business people. Whatever nervousness or problems they may have experienced in the early stages of setting up in competition with their former employers, none of them has any regrets. As Archer puts it, smiling broadly: 'It is the best thing that ever happened to me.'
SETTING UP IN COMPETITION WITH YOUR FORMER EMPLOYER
- Check your contract for non-compete clauses. Contracts could also bar the soliciting of former clients and staff. Failure to adhere to these restrictions could result in an injunction from the old employer.
- Check your notice period. 'Gardening leave' clauses of three to six months can entitle an employer to pay a worker to effectively sit at home and do nothing before they start on the new venture.
- Seek legal advice on contract matters and restrictive covenants.
- Try to make the break as amicable as possible. You never know what might happen in the future.
- Jump the gun. When you are still working for your old employer, work for them. Work on your own business in your own time.
- Use confidential information. If any confidential information is used by the new company that has been taken from the old, the former employer can prevent its use.
- Just set up against your old employer because you think you can offer a cheaper service. Larger organisations can nearly always undercut you. You have to be better, not just cheaper.