Help! My Rep Sleeps with the Competition!

Here's a guy who needs our help. As a comment to the blog post "Would You Have Sex with a Potential Customer," he writes:

I have an employee who recently started an intimate relationship with the business owner of one of our largest clients (this client also happens to be one of our largest competitors too). I have advised this employee to keep the relationship professional and not have a personal relationship with this client. She did not take my advice and has proceeded with the personal relationship. I see this as a huge conflict of interest and a threat to my business. I do not want to damage the business relationship my company has with our client nor do I want my employee to leak any confidential information to the customer. What do I do?

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The correct answer is Change the Business Model.
The root of the problem is your business model. I know that "co-opetition" is supposed to be a good thing, but it's definitely a strategy to be pursued in moderation.

You've gotten yourself into the position where a big client is also a big competitor. That makes you extremely vulnerable -- and not just to some employee hanky-panky.

That client/competitor has massive leverage... over YOU. At any point, they can pull out their business in order to win a competitive advantage. And in that case, you're screwed.

So, regardless of how you handle the personnel situation, you must extract yourself from a strategically weak market position. You have two choices:

1. Position yourself away from a competitive stance by getting out of whatever business where you're competing with that client.
2. Build out the other parts of your business so that you no longer need this competitor as a client, then compete like crazy.

If the former, you could simply ignore the situation. If the latter, you could simply fire her without fear of losing a client.