Employed with a side of startup

Most people start their first company while they still have a day job.

It makes sense: You don’t need loans, and you don’t need funding. If you “fail” all you’ve lost is time, but considering the fun, the stories, and everything you’ll have learned, that’s hardly a failure.

You just need to give up all your free time which, if you’ve caught the “founders” bug, is A-OK with you.

Work hard play hard

But you’ve also placed yourself in a hazardous, potentially legally ambiguous situation. If managed improperly, you’re unnecessarily risking lawsuits and worse.

I’ve been on both sides of the table: I’ve done a startup while working and I’ve employed people who either were or are very capable of having their own startup on the side. And I’ve known people who were sued because of it, and not all of them won.

Here are my tips for how to pull this off.


Ho hum, hedging is so tedious. But I have to say it: I Am Not A Lawyer. None of this is legal advice. If you do or don’t do anything listed here and anything bad happens, it’s not my fault.

If anything good happens, I’m thrilled and honored to accept your munificent cash donation.

Pick a business that can thrive within your constraints

Your side venture has constraints a “normal” business doesn’t have:

  1. You can’t answer the phone during normal business hours.
  2. You can’t answer emails during normal business hours.
  3. You can’t afford to hire three developers to add features and bugs.
  4. You have to work in fits and spurts.

Your natural tendency is to fight these constraints, but that’s the wrong approach. For example, you know that to avoid social media shitstorms you’re supposed to have stupendous customer service, so you claim as much on your website. But then you don’t have a phone number and emails sent to you at 10:00am don’t get answered until that night (which means they’re not viewed until the following day).

That’s called a “missed expectation.” It’s also called pissing in the wind — it’s just going to come right back at you.

The right attitude is not only to work inside your constraints, but to turn them into competitive advantages!

For example, your regular income affords you the luxury of underpricing your service. So if anyone complains that there’s no phone number, you can just point out that for $5/mo you can’t afford a phone staff.

As another example, pick a product in which simplicity and having very few features is an advantage. “We do only one thing and we do it better than anyone” is a great marketing slogan. You don’t have the time to make a Microsoft Excel knock-off, so don’t!

Embrace slow growth

We all have dreams of stratospheric growth, whether it’s hoping the next blog post will get 267 votes on Hacker News and double your RSS subscribers, or hoping that the advent of release v1.1 will set the blogosphere ablaze.

Good work if you can get it, but it’s not a “plan,” especially not for a business you’re running in your spare time. In fact, any bootstrapped company should be aiming for slow, consistent growth rather than explosive growth.

This is not a bad thing! Slow growth maximizes your chance for success. Slow means your success is not dependent on some unlikely, massive event that’s totally outside your control. Slow means you can change drastically during the early days without sinking the company. You have a job, so you don’t require explosive growth to be successful anyway.

Remember, your immediate goal isn’t to make millions of dollars, it’s to build a business just solid enough to quit your day job. It’s not quitting your job, taking a course from a “top online MBA programs” and thinking your business will pull in revenue. It really means enough profits that you can already live (frugally) off the company. Or it might mean you have enough customers to have “proved” you have a viable business model, so now you can raise money with sensible terms.

Don’t lie at work

The best way to avoid a lawsuit is to prove that your employer knows you have a side project.

I know, you really really want to ignore me and operate in secret. You’re afraid to tell them because they’re might do something — fire you, distrust you, or look at you funny at lunch.

Yes, that might happen. But what’s worse — one of those things or a lawsuit? If you don’t think they’ll sue you, then you shouldn’t be afraid of telling them! They are going to find out anyway. You need to tell them on your own terms.

I’ve always told my employer, and it always worked out for the best.
Here are those stories.

How do you tell them? Write a simple document explaining what you’re doing. Here’s my template:

To Whom it may Concern:

I have a hobby which does not in any way conflict with work. I’m writing this letter to make sure you’re aware of it so there’s no misunderstanding.

My hobby is ….

I work on my hobby only at home and on my own time; it is not in conflict with my employee agreement. I own it; [Company] has no ownership or rights to it. Like any hobby, it could generate a small amount of income.

Although I don’t anticipate it, I understand that if my hobby ever became in conflict with my job that it’s my responsibility to notify you immediately.

Thank you.

Then you get this letter signed by someone with authority. “Authority” means someone who can legally represent the company. This will of course depend on the company, but typically C*Os or the company’s legal council is a good bet.

Getting a supportive boss to sign it isn’t good enough. He can’t speak for the company.

Check your employment agreement

There’s a phrase in the template letter about your side business not conflicting with your employment agreement. Is that true? It’d better be.

Employment agreements are typically biased in favor of the employer, sometimes with outrageous clauses saying that anything you do, even at home and on your own time and unrelated to anything at work, is automatically owned by the company, and that furthermore you’re responsible for identifying and reporting on those things, and if you don’t do all of the above there’s no limit to the damage you could have caused.

Courts have thrown out some of these egregious contracts, but that’s unusual, and you can’t depend on that. You don’t want to go to court at all. Besides, you signed it.

Read over your agreement and make sure it’s legal to have the side business. If it isn’t, you must write a letter like the one above specifically stating that this is a valid exception to your employment agreement.

Don’t use company property or Internet, for reals

Another clause in most employment agreements is that anything you do physically at work, or on software and equipment owned by the company (e.g. laptop, customer lists, Photoshop) is automatically the property of the company.

This clause is fair. If your project is really on the side, you have no business doing business at work. If your project is really yours alone, it cannot be assisted by a company laptop, company software, or company Internet connection.

When it comes to company property, be paranoid. Assume Big Brother is watching. Assume every laptop has a secret program that records all keystrokes, mouse clicks, screen shots, web sites, and emails you read or write. Assume everything you do on the Internet is recorded, cataloged, tagged, and monitored continuously by a methamphetamine-powered slave-army.

Now I realize you’re super clever. You want to sneak in some tech support emails during the day, so you use a cocktail of  Anonymizer plus GMail-over-SSL to confound the network admin. Because of course covering up your activity is a sure sign you’re doing something legal…

Even that is not enough. If they decide to sue, they get to look through your email records (it’s called “discovery”). Then they have 100 emails you sent during work hours. You lose.

Get the picture? Just don’t do it.

Time management is critical

I’m naturally awful at personal time management. I procrastinate, I’m disorganized, and if I’m not careful I’ll burn two hours ROTFL at FailBlog with nothing to show for it but tears of laughter puddled under my keyboard. Which maybe would be fine if I’d won a load of money at an online casino dawdling around playing blackjack. Then at least I’d have money to show for it.

A startup already generates an infinite amount of work. It takes all your time, which for you is 40 hours/week less than it ought to be. You can’t afford to waste time, whether that means bad habits or working on the wrong tasks.

There’s no silver bullet — workflow is a personal matter — but here are some techniques to get you started:

  • Check email infrequently.
  • Inbox Zero — Processing email until nothing remains has both psychological and practical advantages.
  • GTD (Getting Things Done) — This technique literally changed my life. Few people implement 100% of this system, but everyone can take away a trick or two that makes them more productive.
  • Work in sprints — Short, focussed bursts of activity eliminate the surprisingly large waste that comes from context-switching and interrupt-driven behavior.
  • If you don’t sleep enough, your productivity plummets. Trading an hour of sleep for an hour of coding is never efficient.
  • Use a tool like RescueTime (free!) to empirically discover where you’re spending time; the waste becomes clear. P.S. Tony Wright, founder of RescueTime, started that company while employed and wrote about what he learned.
  • Optimize slowest tasks first — Identifying and optimizing the slowest tasks increases your overall productivity more than you think.

What are your tips? Leave a comment and join the conversation.

30 responses to “Employed with a side of startup”

  1. As always – this is GREAT advice. It’s obvious you’ve “been there – done that and bought AND sold the T-shirt factory”.

    One of the “gems” here that many people starting their own business overlook – the whole “Don’t use company property or Internet to conduct your side business”.

    There once was an email program called Eudora – it’s ancient I know- but it was a BIG hit in the 1990’s… and the developer didn’t see a dime because he lovingly wrote the code on his employer’s computer.

    If he had followed your advice…. “Assume everything you do on the Internet is recorded, cataloged, tagged, and monitored continuously by a methamphetamine-powered slave-army”… he’d be sitting pretty now. Instead he’s a poster child.

    It’s the whole “an ounce of prevention” mindset…. but YOU already know that. Thankfully you’re sharing that bit of hard won wisdom with others just starting the voyage! Thanks Jason!
    .-= Kathy | Virtual Impax’s latest blog post: Creating Authority with Your Business Blog =-.

  2. Great article, what about reading HN, and commenting on blogs? Do you think that’s kosher?

    I live in Austin and will certainly be going to SXSW.

    • That’s kosher from an IP point of view because if the company “owns” your comments on some blog, who cares.

      But it may or may not be kosher from a company policy point of view. Some companies forbid social networking at work, some don’t. Of course that will all depend. But here you’re not risking ownership of something, just whether you’re adhering to some HR policy. I doubt “violation” (the first time) would be more than a warning.

      Of course reading this blog is vital for your ability to contribute at your peak performance, and therefore ought to be required everywhere. :-P

  3. Great post! I did actually start a startup while at an employer and when I left the company they sent me a letter laying claim to my “Project GuestList” since I used their computing resources to send and receive emails about it. “Project GuestList” was actually a startup like Yelp.com and I mothballed it when I learned about Yelp.

    Now I’m self-employed to and have no conflicts with myself. (Hmm…that’s an interesting sentence.) I primarly work on SocialGrow in the morning and evenings proactively and then am reactive during normal business hours throughout the day while I am being proactive on my money earning business.

    It works out very well, but my other business that I use to earn money is also a startup too technically, although I am fairly established in the Boston area as a great technical recruiter.

    So another suggestion would be if people want to make money and still have a startup on the side, can you perform the role you do at work as an independent contractor for your current employer or for other companies?

    Marsh Sutherland
    SocialGrow, Inc.
    @marshsutherland | @socialgrow

    • Thanks for sharing the story, and great point about being independent rather than an employee.

      When you’re a 1099 contractor rather than a W2 employee, suddenly you can do whatever you want. The rules about using company (now: client’s) property and Internet still apply, but all the rest does not apply because you’re not operating under their employment agreement and corporate HR policies.

      Indeed, it’s illegal for them to attempt to impose such policies on you, because then the IRS would call you an employee and they would owe employment taxes!

  4. Jason, good roundup of key issues when you are preparing to leave but haven’t left (a process that may last a few weeks to the better part of a year for some entrepreneurs).

    Here are some things I have seen folks do in California (where the law allows you to own whatever is developed on your own time with your own materials).

    Two cell phones, or you don’t ask the company to reimburse you for (or don’t get reimbursed for your cell phone).

    Own your own laptop and only use it for your work. This may mean you keep your laptop in your car and use your company laptop at work and at home when working on company business.

    Take a lunch break or a coffee break and connect on a public network then. Return calls on your own cell phone then. Be careful about lunch plus coffee breaks exceeding 30 minutes a day.

    Don’t have company pay for your home internet connection (e.g. don’t get reimbursed for DSL/Cable connection).

    Your company is likely to get much less excited about your startup if you are pursuing an opportunity that’s unrelated to their lines of business.

    One you left off is to avoid soliciting your company’s customers for business. It’s unethical and will agitate your employer immediately.
    .-= Sean Murphy’s latest blog post: Use Wikis for Team Projects =-.

    • Great list, and so true about treating the company’s customer list as sacred.

      We’re used to thinking of things like source code and marketing documents as “trade secrets” or “intellectual property,” but customer lists are absolutely also included in those categories and are almost always explicitly named in the employment agreement.

  5. Nice approach. When we started our venture we were moonlighting at our day jobs. There are a few things we did that made the appearance to our customers seem like we were ‘working’ during business hours.

    1. Set up a virtual phone system. Grasshopper is great. Have all your calls go to voicemail and ask them to leave a message with their company information, email address, phone number etc. This makes it easy to respond by phone or email depending on what’s easier during lunch or at 11pm when you are grinding at home.

    2. Hire a professional assistant in the Philippines. For a very, very low rate you can have someone answering your customer’s requests 24 hours a day. If your startup is worth hundreds of sweat equity hours it should also be worth $400 of your cash money. This hire will be pivotal in so many ways..

  6. Did you mean to link to failblog.net instead of failblog.com? The .com version looks like a squatter site.

  7. I think you give alot of good advice here.
    Im in the midst of building a startup and working part time. I work part time because I was nearly made redundant last year, luckily i got to keep half a job. My employer is pretty cool about my project and my boss actively helps me with business plans and things which is pretty cool. I think im in an unusual position though.
    Im not sure how im going to handle support and things when I actually launch though.. ill cross that bridge when i get there i think.

  8. I’m in this boat… and probably do way too much of my business while on my employer’s computers.

    I own and operate a real estate brokerage, providing property management. What other slow growth businesses are worth starting while employed?

  9. Thank you, Jason, for posting this – the comments too, are especially helpful. I’m one of those people with a lot of ideas and little execution and five years later, someone else is sitting fat and happy because they too had the idea but unlike me, they executed. What keeps me from executing? The excuses I keep coming back to seem to be a shortage of free time due to my full-time+ job, busy family life, and fear of failure. Fortunately for me, the legal aspects have been clearly defined by my current employer with a clear path for answering any legal-related questions. I honestly believe thanks to so many of the incredible bloggers that I follow, that I am over that.

    I found your time management links especially helpful – thank you! For me, when I’m passionate about something, it’s hard not to focus / think / work on that in some capacity throughout the day. That’s not a decent excuse not to try.

    One question I’ve been asking myself lately that you did not address in this post, is “Do I want to do this alone?” Before, I’ve thought that due to my constraints with a current employer and the consequences to my schedule (9-12 am) that this would simply be impossibly. I’m beginning to see that this is just another excuse and is simply another question that will require my creativity and resourcefulness to find the proper solution.
    .-= Jen’s latest blog post: Yes, I said Seth was wrong…here’s why… =-.

    • Great question about going alone. In retrospect I probably could have written another entire section about how you probably should NOT go alone, simply because more people means more hours whether or not either of you have a job.

      Yes partners mean compromise and sometimes even heartbreak and the end of the company. But it seems like a trade worth taking when you’re attempting to do something (a startup) which by definition needs as much time as possible.

      • That’s interesting, Jason. The flip-side of this argument is that it’s not always possible to find the right people with which to partner, and in those cases surely it is better to go it alone than end up carrying people whose contributions don’t justify whatever share they negotiated up front?

        I’m giving this very thing a lot of thought right now, as I have a number of ideas but I’m not sure I necessarily have the time nor ability to service each properly. And that’s before getting into the benefits of having someone to motivate/nag/inspire. However, holding back for the ‘right team’ is a blocker to actually getting out there and doing something, so I’m conflicted!
        .-= John Clark’s latest blog post: Wireframe or Interactive Prototype? =-.

        • Of course partnering with the wrong folks is worse than going it alone — possibly worse than not doing it at all!

          Going alone is fine, but it’s useful to decide whether you’re going to make yourself open and available to finding those partners. For example, deciding what skill-set in a partner would be most valuable (thus worth the risk of partnership) and deciding that you’re going to go to certain meet-ups or groups to keep yourself open to meeting people.

  10. Po Bronson called it “parasitical entrepreneur” and I did it for over a year before I was able to replace my income and leave the day job. It was stressful but worked out perfectly, I couldn’t be happier!

  11. This is also really applicable to part-time professionals in the Arts & Entertainment Industry who have a day job to pay the bills. A lot of my musician clients deal with this issue and I’ve had a client who got fired because she was booking gigs on company time and internet.

    For me, it’s not only a risk because you could lose your job or be sued. It is also an ethical question. Because you are STEALING from your employer when you use your paid work time or their equipment to work your business.

    So employ the Golden Rule. If you’re creating a start-up where you will have employees – would you want them to treat you in this way?
    .-= Debra Russell’s latest blog post: American Idol – Top 24 =-.

  12. I am a part time business owner for at least one more year. I use Internet in my day job to read blogs such as Smart Bear Blog. I do not use it for any other purpose. And I spend time reading only when I finish the job work and get free time.

    Do you think this is legitimate?

    I admit, I am addicted to emails and check it every few minutes but I have now decided to set a limit of every 3 hours.

    Thanks for a great post again :)

    • Reading doesn’t create any IP for them to own, so that’s OK. It’s the same as reading about how to cook and then the company claiming they own anything you make in the kitchen at home.

      Good call on the emails. I’ve been on-and-off addicted as well. Here’s a nice way to think about it:

      If you’re actually waiting for a certain email to come in because it affects what you’re doing right now, then you do need to check it a lot. But if not, ask yourself why exactly you need to check it! Usually there’s not a good answer.

  13. Great post, I agree with you when you say: The best way to avoid a lawsuit is to prove that your employer knows you have a side project.

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