The Perils of the Side Business

Today it’s popular to start a side business while being employed somewhere else. My Shanghai-born friend Annie says the Chinese even have a saying for it: “riding in the big boat while carrying the little boat.”

But one entrepreneur tells a horror story of the pitfalls of starting a side business. Hasan Luongo, founder of PromoterForce writes:

I was recently “let go” from my job of three years for violating my employee agreement for allegedly working on a side business and not properly disclosing this to my employer. In addition, I’m now fighting my employer’s claim that because I did some writing on my blog during work hours, my startup’s IP is their property.

Some employers do not care about side businesses, as long as you get your regular work done. A small number of employers even go so far as to actively encourage entrepreneurial side businesses. For instance, big corporations that sell to the small business market value employees with entrepreneurial experience and insights.

But from my experience in the Corporate world, I’d say you are more likely to find employers that discourage or prohibit side businesses. Sometimes it’s an outright prohibition of any side business under the theory that they want your full attention as an employee (even if you claim to work on it during your non-work hours — I’ve seen agreements that attempt to prohibit ALL side businesses, period). Other times they discourage only side businesses that are a conflict of interest — usually that means any business remotely related to your employer’s. These prohibitions often appear in the employee handbook. Or you may be required to sign a “no conflict” or “no moonlighting” agreement.

Another pitfall is an agreement named something like “assignment of intellectual property.” Companies that generate considerable intellectual property (such as technology companies) may require an employee to sign an agreement stating that any invention or intellectual property created while you are employed is owned by the employer. These agreements can be so broadly worded that even if your side business was run 100% on your own time, they may still purport to grant ownership to your employer.

While I am a big believer in starting businesses on the side, Hasan’s experience demonstrates that you first have to know exactly where your employer stands. Make sure your side startup does not violate your employer’s moonlighting policies. Also check on those intellectual property assignments or policies — they, too, can trip you up. The way to be certain is to ask your employer and get written permission to start a side business.

Read all the gory details: The Dangers of Moonlighting: How I risked my IP by founding my startup ‘on the side.’

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.