Is Stealth Mode Ever Worth It?

Posted by Neha Palacherla /March 4, 2014 / Hot Topics, Uncategorized

This guest post was written by Bernard Desarnauts. He has been an entrepreneur and investor for over 20 years in both the Silicon Valley and Europe with companies such as ViaFone and Circade. He is currently Senior Vice President at Glam Media

Stealth: a secret, clandestine, or surreptitious procedure and — I would add — the topic of innumerable conversations and opinions in start-up land.

While being very public and totally open is what 99% of startups should embrace, there are a very few, select tech startups that can and should operate in stealth. This article is squarely focused on new start-ups, rather than assessing the merits of the “Apple-sque” new product secrecy model.

There are really only two legitimate reasons to operate in secrecy – either to generate pre-launch buzz or to have the time to iterate and potentially pivot before MVP and launch — and there are many many more not to. There are also several “ego” or “vanity” reasons to operate early in stealth, such as leveraging prior founder successes, or thinking it might help with funding or recruiting.

Being Stealthy

Back in 1999, I was the founding CEO of ViaFone and we operated in stealth mode for the first six months of the company under the “WAMBAM” codename which stood for Wireless Access Meets Brick And Mortar.

The main benefit of operating in stealth at that time was to allow us to flesh out a very broad concept into a potentially viable business opportunity. While we’d started the journey around the concept to enable consumers to check price and reviews from online sources via the unique UPC codes while shopping in store (talk about doing this way too early!) we ended up rather quickly to focus (pivot) the business towards offering a mobile-commerce ASP (this would be now called a SaaS solution). We then raised a Series A round of more than $12M from premier investors including DFJ and Partech at which point we became public about our goals and purposes.

To be honest, we really only chose to operate in stealth largely because it was the trendy thing to do at the time. We never really analyzed in depth our motivations or reasons for going down that path vs versus being open and somewhat public about our aspirations. In hindsight, this was kind of an accepted trait of a wannabe hot and successful startup. But back then, other expected startup behaviors were emerging as well, included things such as desks made of doors and saw-horses, and fully equipped kitchens with top of the line coffee machines.

Luckily for us, this stealth period didn’t create many negative or undue expectations and instead allowed us to navigate and iterate from the original idea into a more fleshed out and viable path to secure our first institutional round of funding. This proved short-lived, as we ended up pivoting the business six months later from the Mobile eCommerce ASP model to a more classic (for the time) mobile apps enterprise software vendor. Two years later we were acquired by Extended Systems a pioneer in mobile data synchronization which in turn got acquired the following year by Sybase.

Pre-Launch Buzz

The most common reason to go stealth is based upon the notion that unveiling a new product (or service) at the very last moment generates pre-launch buzz. This in turn has the potential to drive a significantly accelerated market momentum that in turn becomes the barrier to entry versus competitors and imitators.

A few startups who followed this path went instantly viral and generated tons of earned media coverage helping them get big very fast. Zillow is one of these startups that comes to mind. Their amazing success was partially driven by being the first to unveil a public and transparent value estimate of every house in the US ,  in an industry that, at best, was opaque until then. This was a defining moment and they got covered in depth by the media. If news had leaked earlier about this feature, several of their competitors could have pre-empted them since it isn’t a hugely complicated feature to develop.

One could, however, contend that the corollary to this approach is that for the majority of startups, the pre-launch buzz ends up generating unsustainable expectations. And with this lack of early unbiased feedback and iteration, by the time the company is ready to launch and unveil, they usually end up being underwhelming or “so-what” launches. At times, they can also evolve into complete and very public disasters affecting all involved from founders to early team members. You might recall what happened a couple years ago to Bill Nguyen’s Color project as a notorious recent example.

Idea to MVP

The other very valid argument for a company to remain in stealth mode is that they have assessed that the time necessary to go from ideation to a fully fleshed out and developed MVP might be so long that others with deeper resources could also get there faster/better than them. In other words, the startup speed agility advantage is potentially dwarfed by the technology complexity and length of development necessary. Therefore, it requires as much secrecy as possible.

Two successful start-up companies here are SIRI and Nest. Both required a couple years of heavy technical work before they were ready to unveil their products.

As Adam Cheyer, one of the founders of SIRI said on Quora, “As a startup, we were potentially competing with large companies with lots of resources (e.g. Google, Microsoft), and we needed a good running head start before anyone knew precisely what we were trying to accomplish.”

Or in the case of Nest, the element of genuine surprise based on Tony Fadell’s previous claim to fame was just exhilarating, “A thermostat? Really? You guys are going from building iPods and iPhones to thermostats?” Most in Silicon Valley would first react that thermostats are so uncool compared to inventing the next consumer electronics!

Going stealth mode really isn’t for every startup and only works for certain cases. When it comes to generating buzz and momentum, stealth mode seemed to be the only way for startups to deliver their message to the masses. But now we have movements like “growth-hacking” (essentially viral marketing with a hipper name) with fully fledged communities that give us one less reason to stay in the dark. The Tony Fadells or Adam Cheyers of this world are part of the exclusive 1% of entrepreneurs who can pull it off. For the rest of us, stealth mode is fast becoming a vestige of Silicon Valley’s past. Embracing openness and leveraging the various “lean” models of continuous iteration with direct market feedback seems to be the way to go.

If you want to dig deeper on the topic of stealth, Mike Abasov, a well-known digital marketing expert, recently wrote a very good article covering the topic in details.

 

Whether you decide to go stealth mode or not, it’s never too early to get connected with entrepreneurs and advisors. Get started today!

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