The Advantages To Staying In Stealth ModeBY: Kathryn Hough | June 4, 2012
To stay in stealth mode, or not to stay in stealth mode? That is the question de jour of the startup community. On both sides of the debate there are passionate believers. Although many proven entrepreneurs and investors have publicly discussed the advantages of founders talking about their startup with anyone who will listen, there are advantages to keeping your startup a secret.
Stealth mode is the term that startups use when they are not disclosing their industry or product yet. Once frowned upon, it is rising in popularity among startup accelerator teams whose ideas are not fully baked yet. In the TechStars Boulder class of summer 2012 for example, four out of the 12 companies are listed as stealth mode on its website.
Why should your startup consider staying in stealth mode? Here are a few reasons to consider:
Your competitors won’t see you coming.
This reason is obvious. When competitors can see you rising up with a good idea, they will try to do everything that they can to stop you. This includes stealing your idea and incorporating it into their own product. Chris Dixon, angel investor and Hunch co-founder, disagrees with this point:
“In terms of the risk of someone stealing your idea, there are at best a handful of people in the world who might actually drop everything and copy your idea,” he wrote. But what if the “handful of people” work at Google, Facebook, or Twitter?
It only takes one major technology company to start working on your idea to kill your company before you even get started. Facebook is notorious for copying ideas and implementing them fast to see if they stick. Considering the company’s engineering talent and reputation for fast product development, it doesn’t take it long to build the same thing that some startup founders devote a year of their lives to.
You can make big mistakes on the down low.
It’s easy to kill a product and start from scratch before you have established a brand and a following. Mobile address book startup Xobni pivoted three times during its stealth phase while it searched for the right customer/product fit around its goal – which was to organize the world’s personal public data.
It’s easier to filter feedback.
Everyone has an opinion. If you tell many people about your startup, you will have many different opinions to filter. How do you know which opinions are valid? How do you synthesize feedback from your mom, your programmer drinking buddies, and know-it-alls in your community’s startup scene? No matter how much experience people have, their advice isn’t always worth listening to. In the early stages, startups should go along with the instincts of the founders before starting the iterative process based on customer development.
You’ll figure out the business model without confusing users.
Startups who flounder between offering freemium services and 30-day free trials can confuse and anger early adopters. Startups should consider A/B testing of pricing models in a stealth, closed beta stage. When business models are changed up on your devoted user base, they will jump on social media to complain about your startup faster than you can reach them to explain your reasoning.
You’ll have better information to present to potential investors.
In stealth mode, you’ll be able to test hypothesese and generate data for your pitch deck. Stealth startups can also demonstrate to investors that they can hit key metrics based on the success of a closed beta test. Stealth mode can also build anticipation among early adopters based on the track record of the founders. Enterprise social media marketing platform Hearsay Labs for example stayed in stealth mode as many people were clamoring for a chance to see the new product from “The Facebook Era” author and Hearsay CEO Clara Shih.
Stealth mode should be used as a tool for some startups based on their unique value proposition in the marketplace. Startup founders should always consider from whom advice is given. Are venture capitalists encouraging you to opt out of stealth mode? Maybe they are trying to get key information to help them evaluate a different potential investment. It’s not ethical, but it happens. Keeping your startup in stealth mode does not mean that you are unable to execute on your vision or that you are afraid of competitors. While some startups will get great early press by telling everyone, stealth mode might be appropriate for some startups in the few few months of product testing.
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Kathryn HoughKathryn is a writer for Techli covering ecommerce, social, and the startup hubs of Portland, St. Louis, and Chicago. She is the CMO and co-founder of Huedio, a startup that is currently in stealth mode. Kathryn was an early employee at DailyBurn, a TechStars class of 2008, which was acquired by IAC in 2010. Prior to her foray into startups, Kathryn co-founded the New School Free Press at New School University.
I think advising a startup to go into "stealth" mode does more harm than good to the vast majority out there. Think of all the good ideas, that lacked polish and perspective because founders kept it to themselves and a select few.
While most of the points above are reasonable, being secretive often does more harm than good in terms of exploring strategic partnerships and attracting early adopter clients. If your product is not ready, then don't market it and promise what it does not yet deliver. No need to be in "stealth". Like cameronhouser above, I think it is a big mistake for first time founders to employ the stealth process.
If you are in stealth mode, you better be damn sure that you end up with viable product that will be irreparably damaged if details are leaked.
I think there is a huge advantage to flying under the radar for some startups- they work in a hot/ particularly crowded industry, they have very well-connected founders and advisors in place, their fundraising is well under control etc. I would caution first time founders not to employ the stealth thought process. You are going to need all the help, connections, and feedback you can get and by sharing your idea you gain access to all that and more. When first time founders come to me with an idea and make me sign an NDA, I worry. When more experienced, highly sought-after folks head down this road, I get excited to hear whats next. Its all about reading the situation right. We went out and told as many people as we could about our project and its been amazingly helpful (but perhaps someone else is building out our idea as we speak...!)
cameronhouser You are correct about first time founders versus seasoned founders. When teams are experienced and have resources / mentors behind them, stealth is a better option for sure. In my experience, about half of first time founders spend more time talking about their ideas than actually working on them. You are right, it's all relative to the situation.
I love this article. Even as a services startup there was a lot to think about in terms of being on competition's radar, being able to make mistakes without others taking notice, and figuring out my business model without confusing everyone. I think there is a balance for every company, and for mine it was flying under the radar as long as possible, and now I still keep a low profile as my primary focus is on the success of my clients and not myself. Looking forward to hearing what other statrups have to say on the issue.
RachelTaylorChi Good points Rachel. I also think that this is key: "figuring out my business model without confusing everyone" especially in your field. I also love this: "I still keep a low profile as my primary focus is on the success of my clients and not myself." Too many service-based companies rep themselves more than their clients, which can be an issue.