There are four basic rules to follow when you’re leading a double (or triple or quadruple) life as an entrepreneur. I’ll describe them here.
Rule #1: Unless you own 100% of all of your businesses, you need to maintain a firewall between them.
Your ambitions and assets can be shattered in one swift blow if you don’t follow this rule. Never, ever, ever mix your side projects with your day job. That means don’t use the same laptop, code snippets, or even the same printing paper. If you think I’m being overkill on this point, think again. I’ll illustrate this point using two very different examples from my own career.
Common example: You work for someone else and have a business on the side.
Even though I am a co-founder of Scripted, it stopped being “my” company almost as soon as we launched it. That ownership dynamic shifted when we took in venture capital, hired a larger team, moved into an office, and started really cranking on our growth targets.
Also, I was not the CEO of Scripted until the year before we sold it. So even though I was a co-founder, my day-to-day work life was pretty normal. I reported to the CEO and could have been laid off or fired just like anyone else at the company.
Toofr was running on a nights and weekends schedule on the side, without conflicting with Scripted, except for a daytime phone call or an email here or there. When there was money on the line and I needed to take a call, I’d step out of the office or schedule them on my lunch breaks.
I admit to doing some Toofr support emails in the office, but I did them in the only place it seemed appropriate: on the toilet in the bathroom using my personal iPhone. (For those of you reading this who might have received a Toofr support email from me during this time and are now stuck with that visual, I’m sorry.)
For these phone calls and emails I always used my own iPhone and not the company laptop. Scripted paid a portion of my phone bill because we all used our personal phones for work. Nobody wanted to carry around a separate device just for Scripted, so the company paid roughly half of our phone bills because we figured half the data usage, if not the voice fees, could be work related. Therefore the other half of the bill could be personal, and in this context my Toofr emails and calls were personal. I felt fine with that.
One thing I never did was have a byte of Toofr code on my Scripted laptop. I was paranoid about this. I knew how messy this could get if my relationship with Scripted were to suddenly sour. I couldn’t imagine what would cause it, but I knew if it did and Toofr code was found on company property, I could be forced to hand all of Toofr over to Scripted. All those long nights of hair-pulling programming would be for nothing.
I had a MacBook Air for work and I loved it. My home laptop was an Asus eePc, a tiny Windows laptop that was awful for programming.
MacBooks are Unix-based, giving you roughly the same environment as a website server. That made it easy to have your local environment mimic your production environment, reducing bugs and setup time.
I couldn’t figure out how to make it work on my tiny Windows PC, so my solution was to log into a server and do all my work there. It was annoying but it worked. As tempting as it was to use my Scripted laptop instead, I didn’t do it. You shouldn’t either.
As soon as I had the money, I splurged on a top-of-the-line MacBook Pro with a 15-inch screen. I spent about $3,000 on it, but after years of hacking on Toofr with a tiny laptop, I deserved it. It’s still my main machine. I’m writing this book with it today.
It’s been about a year since I left Scripted, and I’ve been very public about Toofr’s success and how much of my time working on it overlapped with Scripted. I’ve had no problems because I followed my own rules.
Alternate example: You own all your businesses 100%.
If you’re the sole owner of every business that you’re working on and see it staying that way for the foreseeable future, then you have nothing to worry about. Mix and match, share code, paperclips, everything. It’s that synergy word again. This is the key to being a successful parallel entrepreneur, actually. To run multiple businesses at once you need to share resources. To share resources, you need to own the businesses fully.
This is what I’m doing now with each of my online businesses. Toofr, Inlistio, eNPS, and Thinbox share a lot of the same code. Everything from front-end templates to back-end subscription libraries are shared and tweaked between them. Why should I write another subscription feature when the one from my other business will work perfectly well? Why design a brand new pricing page when I’ve already optimized one for my other business?
Same goes with software. I use Sketch to manipulate text and images for banners and remarketing ads. I don’t use a separate license for each business I run today.
This is the goal. This is where you want to be. Parallel entrepreneurship gets a lot easier as soon as you’re legally able to share resources between the companies you’re working on.
As Buddy Arnheim, a partner at the prestigious law firm Perkins Coie reminded me, the caveat is you may ultimately decrease the value of one or both of your companies by obfuscating which company owns which intellectual property (IP). It can be confusing to future investors and acquirers, which will complicate your liquidity prospects.
So before you irrevocably tie your businesses together by sharing critical IP or even trivial code snippets, think it through. Can you easily explain the relationship between your two businesses to someone who wants to put money into just one of them? Can you surgically remove the IP from one if you wanted to sell the other?
The point is to be very clear about what you’re doing. Whether or not you fully own both businesses, you need to have clear documentation of the flow of IP.
In fact, even if you’re the co-founder and CEO of your day job, as I was at Scripted even while I had Toofr running on the side, you have to be aware of the “corporate opportunity doctrine” or COD.
Stimmel, Stimmel, and Smith, a law office in San Francisco, writes that COD means that a fiduciary (which you would be as an employee or CEO) “can not take for him or herself a business opportunity that should, instead, be reported and given to the company.”
In other words, when you’re running your side business, you can’t take business opportunities away from your day job and funnel them to yourself. It would be like a support engineer offering up a consulting engagement outside of the office to a customer needing help. That kind of business belongs to the employer.
Finally: Do not mix funds.
Importantly, even though Scripted actually used Toofr quite a bit, Scripted never paid for Toofr. I gave free accounts to Scripted employees who wanted to use Toofr and did a fair amount of prospecting for Scripted using Toofr myself.
There were real costs for this activity but I never charged for it. Not a single penny. I thought this was really important so whenever I broke up with Scripted there would be no awkward money trail to follow.
And this should be obvious, but if you have access to a charge account or credit card for your day job, never use it for your side business. Not even for a cup of coffee. It’s not worth it. Little mistakes like that can change your day job’s perspective from “Oh, whatever” to “What a jerk, let’s take what’s ours.”
Inevitably there will be some awkwardness with your previous employer when you’re public about your side venture. But if you follow this rule then there will be no reason for them to be upset.
You might even find that they’ll be happy for you. That’s the goal.
Case Study: Google and Uber
This story, documented all over the internet in 2017, is a study in exactly what not to do when you launch a side business.
The case involves a star engineer who worked in Google’s self-driving car division, which later spun out as its own company, Waymo. Google alleges that this engineer downloaded 14,000 documents, nearly 10 gigabytes of data, prior to quitting to start his own autonomous vehicle company.
Google claims the stolen documents described Google’s proprietary lidar system, the technology that self-driving cars use to “see” the world around them. It’s a critical technology and the major companies in this market, including Google and Uber, have each developed their own systems.
That theft alone would be a major issue, but it became a huge problem when Uber acquired the former Google engineer’s company a mere six months after he launched it. Google alleges that the stolen documents went with the acquisition, an allegation that Uber denies.
This is what happens when you launch a new business that is competitive with your old employer. It gets really messy really fast.
In February 2018, Google and Uber reportedly settled out of court. Under the reported terms of the agreement, Waymo will receive at least a .34 percent equity stake in Uber, which would be worth around $245 million. Meanwhile, Uber will not use any of Google’s intellectual property in its own self-driving efforts. There are a few takeaways for you from this story.
- Be very careful if you launch a business similar to your day job while you’re employed or even shortly afterwards. The law is generally on the employer’s side if your new business overlaps in any way. Better yet, don’t overlap at all.
- Never, ever, ever take anything from your employer and use it for your own business. And the worst thing you can do is take intellectual property, as alleged in this Google case. It’s a surefire way to get sued.
Rule #2: Your side projects should be very different than your day job.
While I was working at Scripted, I would not have been able to start a marketplace for content managers, or editors, or built an inbound marketing analysis tool, while claiming any of them as a side project, separate from Scripted.
Any of those projects would be way too similar to my day job. Scripted would not have been happy about that. Tables turned, as a Scripted executive if I caught wind of an engineer spinning up an inbound marketing subscription tool on the side, I’d be bothered by it.
There’s simply no way to maintain the firewall when your day job and your side business are a similar product, a similar market, or have similar customers.
The details here boil down to the legalese, which I’ll get to in the next section, but suffice to say that “intellectual property” is a fairly broad term. When you sign the paperwork at a new job, you invariably sign something called a Proprietary Information and Inventions Agreement.
The “information” part is the tricky part. You may claim that your invention was distinct, that you followed my Rule #1 to the letter, but it will be very difficult to claim a distinction of information. If what you learn at your day job is used to benefit your side project in material ways, then there’s a conflict.
To avoid the conflict, you have a few options:
- Quit your job. And when you do, read very carefully what you can and can’t do with the confidential information from your employer. You may need a cooling off period before you can launch your company. You don’t want to start a new venture only to be immediately sued by your old boss.
- Be an intrapreneur. In other words, start the product within your company. Convince the leadership that your idea is great, and see if you can get the resources to launch it internally. You won’t own the product, but you can ask for compensation if the new product takes off.
- Spin it out. Ask your employer to let you take some IP out of the company with you. There is a legal cost here and the employer will likely want to keep some equity in the spinoff, but this tactic has worked wonderfully for many entrepreneurs.
Case Study: iCIMS
My favorite example of a spinoff is by an entrepreneur named Colin Day. Most people haven’t heard of him.
In 1999 Colin was your typical college graduate working at his first real job. He had landed at a staffing company for IT professionals in New Jersey called Comrise. He woke up, went to work, and did his job. He was great at it and developed a rapport with the owner. But when he got home at the end of the day, he felt something was missing. There was an itch he couldn’t scratch.
He channeled that extra energy into writing business plans. He was looking for an idea that he could quit his job and run with. Then a unique opportunity to land his entrepreneurial dream came from the unlikeliest of places: his boss.
Comrise had recently begun to build a software product for recruiters. Colin was able to convince the CEO to let him quit, take that product with him, and run it as a separate business.
This was nearly twenty years ago when web technology wasn’t nearly as inexpensive and available as it is today. Colin would need a significant amount of funding to pay the engineers to complete the project. Because Colin had already proven himself as a trustworthy employee, the CEO provided him with $2.5 million in loans over two years to build it.
Now Colin’s business, iCIMS, is one of the fastest-growing private internet companies in the world and makes more than $100 million revenue every year.
Colin made the leap from employee to parallel entrepreneur the right way. Unlike the engineer in the middle of the Google / Uber lawsuit, Colin did everything above board. He didn’t sneak around and try to copy the recruiting software. He saw the opportunity, asked permission, and was rewarded for it.
Rule #3: Keep it quiet, but if you’re asked about it, don’t lie.
Most of my friends knew I was running Toofr while I was working at Scripted. I even did a quick demo of Toofr in the final meeting with one of the venture capital firms who invested in Scripted. The partner loved it and saw it as an indicator that I was the kind of entrepreneur in whom he’d like to invest: scrappy, clever, and able to move fast and build cool things.
Over the years when Scripted and Toofr overlapped, I didn’t hide Toofr from view or lie about it. But I also didn’t gloat about how much money it was making. For my last two years at Scripted, Toofr generated more revenue than my Scripted salary. Only my wife knew that.
When Scripted employees saw it on my LinkedIn profile, I told them it was a side project, something I worked on to learn how to program, which is 100% true.
It’s hard to grow a side business when you can’t be very public about it. I never posted about Toofr on my Facebook page and rarely mentioned it on LinkedIn. Toofr had a blog, a Twitter account, and a Facebook company page, so I’d push content up there but did so anonymously.
I also had a newsletter with distribution to nearly 20,000 people who registered for Toofr over the years. I was careful to scrub it for Scripted employees and others in my Scripted universe who may have signed up to explore.
I removed them because I didn’t want them to receive a newsletter describing all these new features in the middle of the day and get confused. They wouldn’t know that in my newsletters I’d intentionally make Toofr look bigger and busier than it is. I’d also write the newsletter the night before and then use MailChimp to schedule the delivery for the middle of the following day.
I wanted to boost my appearance to the people on my newsletter list, not to the people who were depending on me to help Scripted succeed. Filtering where I could helped avoid unnecessary confusion.
Case Study: Josh Pigford
I mentioned Josh’s story earlier. He’s the CEO of a hot subscription analytics company who decided to also publicly launch an e-commerce company.
So I asked him if he were concerned about how his Baremetrics customers might perceive his side business. Here’s what he told me.
“I address the negative perception by blocking trolls on Twitter and email,” he said.
He’ll even cancel Baremetrics accounts of customers who are rude to his staff, especially when they blame downtime or other problems that every internet business has on Josh’s attention to his side business.
“Everybody has a different way of running a business and staying sane running a business,” he told me.
For Josh, Cedar & Sail is a creative outlet, basically a hobby, and he believes that just because his hobby has a website and makes money it shouldn’t be treated differently than anyone else’s hobby. Some people play pickup basketball. Some people knit, work on cars, or plant a vegetable garden.
Josh has a lifelong habit of turning his hobbies into businesses and he’s unapologetic about it. He gives his employees the same opportunity.
“I encourage people on my team to have side projects. One of my customer support guys recently competed on Master Chef. He works at a restaurant on some nights. Baremetrics has always had a culture of side projects. I even give feedback on my employees’ side projects during our one-on-ones.”
It’s ingrained into his company’s culture and he doesn’t pretend to be purely altruistic about it. There are tangible benefits.
“It’s a healthy thing to flex new parts of your brain. It comes back and benefits Baremetrics. Doing other projects gives your brain a break or gives a new skill set or perspective that makes Baremetrics better in the long run.”
His advice for other entrepreneurs is pretty simple: “The idea that you can’t have hobbies is absurd. Ignore those people.”
So go ahead. Start a business and keep your day job.
Rule #4: Complete your PIIA and know what it means.
If you included your side projects in the Proprietary Information and Inventions Agreement (PIIA) that you probably signed when you started your day job and followed the three rules above, then you should be fine. It’s still important that you understand what a PIIA is and why you had to sign it.
The easiest way to explain a PIIA is from the perspective of your company’s founder.
Entrepreneurs don’t start their own businesses to lead normal lives. They don’t want to go to the office every day, do some work, come home, sleep, and do it all again. No, they want a pay day. They want to liquidate that equity and chill out for a while, pay off debts, and maybe do it all again. Entrepreneurs are a special breed.
You should know! If you’re reading this book, then you’re probably one of them.
One thing that can prevent your day job employer from selling their business is a rogue employee who claims ownership of the business. Consider how they’d feel receiving an email like this:
“Hey Boss, you know that widget that everyone likes so much which is the whole reason you’re able to sell your business for millions of dollars? I designed that thing. It’s mine. If you sell this business and don’t pay me for it, I’m going to sue you.”
A rogue employee threatening litigation is a very fast way to sink an acquisition deal. The PIIA you signed prevents you from claiming any ownership whatsoever for the work you did while employed for the company. It also goes further than that and says anything you worked on during your employment belongs to the company.
Anything? Really? What about your side projects?
Don’t worry: there’s a section in the PIIA that allows you to explicitly exclude something you worked on outside of your employment.
So long as you didn’t use company property or company information in building your side project, you’re clear. Just describe your project, play by the rules above, and you’re fine.
There’s more to the PIIA than assignment of rights, though. Buddy Arnheim, counsel to many startups and a partner at Perkins Coie, says there are three elements to the PIIA:
- Intellectual property assignment;
- Confidentiality agreement; and
Let’s briefly discuss each of these elements.
Intellectual property (IP) assignment
This is the critical piece and the one that causes the most headaches for both employers and employees when they start side businesses. Whatever you work on, invent, produce, or create while an employee at someone else’s business belongs to them. Full stop, end of story. If you use something you made at work for your side business and your employer challenges you, you’ll probably lose. The law is against you in this case.
Buddy suggests, “If you’re running a side project then you have to do it without any contamination of your employers resources. You shouldn’t do it during working hours. Don’t use your company-issued laptop or phone. Keep them as separate as possible. Don’t even have email correspondence or other data going through your company office network.”
Follow the rules above and you should be fine. The hard thing is to stick to it, don’t cut corners, and do it 100% of the time. The one time you back down and tell yourself, “It’s okay, I’ll send this one email from my work computer or take this one call using the office phone in the conference room,” is the one time that will get you. And then it won’t matter that you followed the rules the other 99% of the time.
Another thing to consider if you own both of your businesses is how the intellectual property and source code rely on each other. Andrej, head of product at the AI studio I mentioned earlier, is running several companies, and one of them is planning to share parts of its source code publicly. The other will not. There are very specific rules about this practice of “open sourcing” a project and he is consciously keeping the IP completely separate even though the studio runs both companies.
Also known as a non-disclosure agreement (NDA), this part of the PIIA assumes you will learn trade secrets, intellectual property, and knowledge and techniques while employed at your day job. You have to keep these to yourself and not share them with other companies.
So if your side project is a contracting job with another company, you can’t share what you know from your day job. Some employers go so far as to restrict side projects and contracting engagements simply because they recognize how difficult it can be to keep this firewall up. So rather than litigate it, they just outright restrict it.
In summary, not only can you not use IP that you created for your employer outside of work, you also can’t use IP that other people created or that you learned while at work.
This agreement typically states that if you leave your job you won’t attempt to hire your former colleagues for a period of twelve months. If you leave and go full-time onto your side project, you won’t be able to explicitly recruit others to join you. They may leave and work with you on their own volition, but it better be very clear that you didn’t influence their departure.
When the tables turn
If any of this sounds harsh, put yourself in your employer’s shoes. Or better yet, actually go out and start that business. If you hire anyone else, part-time or full-time, you will rest easier if you have them sign a PIIA for you. It’s prudent and most contractors or employees won’t object to the terms. If you ever sell your business you’ll be rewarded for having the foresight to get these documents signed.
A quick plug for investing in real estate
The same proportion of parallel entrepreneurs I interviewed who ran SaaS companies also owned income-generating real estate.
Real estate is an evergreen investment. Yes, there are downturns, but it’s a very safe bet that in the long run you will make good money. If you accumulate a lot of cash, property is a great place to park it.
And more importantly, unless you currently work in a real estate company, there will be no conflicts. You can safely run your own real estate holding company at nights and on weekends and keep your day job. If you have to respond to the one-off emergency call from a tenant (or better yet, a management company you pay to run your properties and support your tenants), then take it outside the office.
Income properties are a fine and potentially very lucrative way to earn income outside of your job and not have to worry about PIIAs, CODs, or getting in any sort of trouble with your boss or their lawyers.