You can not tell from an excerpt from a contract, what that excerpt means. You have to look at the entire contract as a whole, and the facts and circumstances of the deal. Non-compete clauses are very difficult to enforce. They depend on the actual wording and other factors. This clause may not be enforceable. If you need a definitive answer, you should talk to an attorney.
Having said that, the likely answer is obvious. You can answer many legal questions by simply applying common sense. What do you think? Does it make any sense that you could not go to work for a competitor but you could start your own business? I think you know the answer. No it does not make sense.
There may be room to negotiate however. Maybe they will not mind if you could agree not to solicit their customers. Or perhaps you can give them a percentage of your revenue for the time of the non-compete.
If you want to start your own company and not be in violation of the contract, you should consult an attorney.
I agree with Mr. Marshall that it would be necessary to look at the entire contract to give a more complete opinion. I would add that your interpretation is not unreasonable. It is a good idea for you to have a Washington business/contracts attorney look at the entire contract and other relevant information. Many attorneys on Avvo (including my firm) offer a complimentary initial consultation.
Disclaimer: Nothing in this post should be construed as legal advice or as creating an attorney-client relationship. Do not rely on the opinions expressed in this post without discussing them with your attorney. Legal advice must be tailored to unique circumstances and this post is for general purposes only.
A couple of principals of law might help you understand the problem. First, the provision is a restraint on trade and is not favored in law. The cases recite that these restraints have to be reasonable in both duration and geographical scope to be sustained. You provision is not geographically limited so there is an argument, depending on the contract and the context, that it is unenforceable. If you have that aspect reviewed and you get a favorable opinion, you still have to factor in the likelihood of being sued and the cost of defending your position, as well as the risk.
I believe that if you formed a new entity that competed, you would be "engaging in business activities with a competitor." It might be a closer question if you operated a competing sole proprietor ship.