My rockstar employee wants to start their own business doing the same thing we do 5 miles away

As mentioned, do you have a non-compete or non-solicitation agreement in place?

If not, I’d focus less on the fact that he’s starting a business and more on whether it’s impacting his performance, availability, or creating conflicts with your customers. The fact that he’s starting a company isn’t necessarily the issue. The fact that weekend jobs are bleeding into the work week may be.

I’d have a direct conversation about expectations and make sure there’s clarity around customer relationships, company resources, and work performance moving forward.