A founder who steps down as chief executive and stays on as a consultant has signed up for the most delicately balanced arrangement in startup life. They are no longer running the company and are still, in most cases, its largest individual shareholder, often with a board or advisory seat attached. The consulting agreement is the document that decides whether that position is useful to everyone or a slow-burning problem, and the clause that does most of the work is the one almost nobody drafts with enough care: the carve-out to the non-compete.
The standard non-compete in this situation is written in categories. The founder agrees not to work with competitors, not to engage in the company’s field of business, not to assist any entity operating in adjacent markets. Written that way, every one of those phrases is an argument waiting to be had. “The company’s field of business” means one thing to a board protecting an asset and another to a founder who has been in the sector for fifteen years and knows forty people in it. The category is a boundary drawn in pencil on a map that both parties are reading upside down.
The alternative is to name things. Not “competitors in enterprise logistics software” but a schedule listing the specific companies the restriction covers, with a defined process for adding to it. Not “advisory work in adjacent markets” but the named boards and named ventures the founder is permitted to keep, written in at signature. The point of naming is that a name cannot be reinterpreted later by someone who was not in the room. A category can be, and will be, by whoever has the more expensive lawyer at the moment it matters.
This is the difference between ordering a coffee and ordering a flat white with a specific bean, a specific ratio and a specified temperature. The first is a category, and the cup that arrives is whatever the person behind the machine understood you to mean, which may be excellent and may be a disappointment you cannot fairly complain about because you never said. The second takes twenty seconds longer to say and removes the entire conversation about whether you got what you asked for. Nobody has ever regretted being specific at the counter.
The reason this clause carries more weight when a board seat is involved is that the founder is simultaneously inside and outside the company. Inside, they receive confidential information as a director – strategy, pipeline, the real numbers behind the quarterly deck. Outside, they are a consultant with their own time, their own portfolio and their own next act. A category-based restriction leaves that dual position permanently ambiguous, and ambiguity in a fiduciary relationship does not settle quietly. It accumulates until someone has to take a view, usually at the worst possible moment, such as during a financing round or an acquisition process where a disclosure schedule asks a plain question with no comfortable answer.
Naming also forces a more valuable conversation at the point of signing, when both parties are still warm. The board has to decide what it genuinely needs protecting, which is usually a much shorter list than the first draft suggests. The founder has to state what they intend to do next, out loud, rather than leaving it implied. Those two lists, placed side by side, resolve in an afternoon what would otherwise resolve in a year of correspondence.
The rest of the agreement follows more easily once that is settled. Scope of work, hours, who the founder reports to, what happens when the new chief executive wants something different from what the founder would have done. Real questions, all of them answerable. But the carve-out is the one that determines whether the founder’s next five years are their own.
Specificity is cheap at signature and expensive afterwards. Write the names.
Source: Startup Fortune, “How to Structure a Founder Consulting Agreement After Stepping Down as CEO”
