I came across an interesting story the other day about his relationship with Rose Blumkin, Founder of Nebraska Furniture Mart and how she tricked him into buying NFM without a non-compete clause and he paid the price. Story: http://www.infoblizzard.com/the-blog-smog/a-humorous-story-a...
I read the link and am left to wonder at the role of business ethics in a business deal. Was it unethical for her to start a competing business? Seems like an uncool move, but of course I'm reading this years after the fact.
On a practical level, if I sell my small business, is a non-compete really something that's practical? If all I know is furniture sales and all my contacts are in the furniture business, etc what am I supposed to do now, assuming the sale didn't make me incredibly wealthy to the point where I dont need to work ever again?
Its unrealistic to expect people to suddenly learn new skillsets later in life, especially if they have decades invested into these skillsets. I think this is why non-competes in many industries are ultimately unenforceable and why the courts or state legislatures never want to make non-competes powerful. People aren't machines. They can't really be retooled. If I get a job with Bigco and then switch to Smallco, Bigco shouldnt be able to tell me I can't be a programmer there. Corporations shouldn't have this level of power over us.
Even if we dismiss the first scenario as a 'business sale' I'd argue that sole proprietor businesses or any business with only a few people is much closer to being an employee somewhere. You can't expect someone to give up their only skills for 5 to 10 years for a modest sale. Not every sale is a SV-like billion dollar plus sale.
>, if I sell my small business, is a non-compete really something that's practical?
Yes, it's practical. If the non-compete is explicit and part of the conditions for the sale, the owner-seller is supposed to factor that into her selling price. E.g. if the owner has a mental price of $2 million to sell the furniture business but is unhappy about not being able to open another store, she needs to raise her price to $3 million to be content with not competing. In other words, the buyer of the business is partially paying the previous owner to not compete -- for a limited time such as 5 years.
Maybe you're thinking of employees and their unenforceable non-compete clauses trying to prevent them working for competitors in California. That doesn't apply to the owners selling their businesses.
Usually a non-compete like that is geographically boxed.
When you're selling a business, you're selling the future. If you sell your furniture business, then turn around and open up a store down the road, you're attacking the ROI that you projected going forward and the buyer acted upon in good faith. Sketchy.
Employees are a different matter, as it's a one-sided arrangement where the employee has little bargaining power. Small businesses are different -- both parties are free agents.
My thinking is that I sell my furniture store but then get a job at a different furniture store. I don't necessarily see that as an attack on their ROI. But yes, starting a new company nearby I could see being blocked for x amount of time. The problem I see is that NDA's aren't that granular. They're fairly strict and can hurt one's ability to find work.
I don't think she 'tricked Buffett' on the deal. She started the competing business in anger after arguing with members of her family about running the main business. Dunno about the ethics. It worked out pretty good for Buffett in the end. He bought NFM for $80m and last year the Dallas branch alone did $750m in sales.
Nebraska Furniture Mart is such a weird anomaly. You hear of the local places being run out of town by all the national big chains, but the national big chains can't compete with Nebraska Furniture Mart locally, and the ones than spring up around it, shortly die off.
"Mrs. B." was a total hustler (in a good sense). I grew up going to NFM.
We were once there to buy carpet; she's wheeled up to us in her cart (she had to be 80+ at the time), nearly hit my little sister and basically said "what price do you need to purchase this carpet today?".
She was famous for running the sales floor, even though she could have long retired prior.
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