The First Rule of Stealth Mode Is...
In April of 2012, a six-month-old Web security company in Mountain View, California, took $6 million in investment from two big-name venture capital firms. Less than a year later, it pulled in $20 million more. It made a handful of huge-name hires, signed on a few large enterprise clients, and started to look like a fast-growth company with a promising future.
There was one strange aspect of the situation: No one--well, no one who hadn't signed a non-disclosure agreement or hadn't agreed to a press embargo--knew what the company was building.
That changes today. Twenty-five months into the existence of Shape Security, the company is coming out of its very long quiet period. And it's likely to make quite a nice little media splash.
That's remarkable for a few reasons. This isn't the sort of consumer startup--an Uber, an Upworthy, a Snapchat--that usually grabs headlines. It is a 50-person security company with a staff of seasoned industry veterans that sells a pretty straightforward software solution to enterprise organizations. And, absolutely no one was making a peep about the company until today.
Well, that last part is not actually true. In the case of Shape, dozens of news stories speculated about the company's management team hires, its board members, and--of course--the technology it was creating. The company's executives didn't shy away from interviews. And that was long before this week's buzzy launch.
Working in extreme secrecy, or, to use the argot of the moment, operating in "stealth mode" is an increasingly standard part of a startup's journey from idea-glimmer to full-fledged company. I get approached by lots of them, sometimes a dozen a day, mostly wanting to talk fairly candidly about their "closed alpha" company, in preparation for its forthcoming "launch" and trying to ensure that another one of many news stories show up that very first day of the "launch." Clearly, the first rule of being in startup "stealth mode" is that you most certainly broadcast the fact you are in stealth mode.
Buzz, Intruigue, and the Power of a First Impression
It used to be that a company would stay quiet about what it was working on, and require employees, partners, and potential investors to sign non-disclosure agreements only if it was in the patent-filing process, or if it very seriously feared leaks to (or talent-poaching by) competitors. Increasingly, stealth mode is used not just to protect intellectual property, but also--and more often solely--to build buzz in the media and amongst consumers.
"One of the challenges--even when you are working on something extremely innovative--is getting above the noise," says Ted Schlein, a partner at the Silicon Valley venture capital firm Kleiner, Perkins, Caufield & Byers who sits on the board of Shape Security. "And one tactic you can use to get above the noise is not saying anything. Letting other people say what they think has worked nicely for Shape."
Schlein helped formulate some of the early ideas around Shape Security, and invested almost immediately in the company. He says the stealth-mode strategy entered into the conversation almost from Day One.
Vijay Chattha, who runs public relations firm VSC and a new marketing platform for hardware companies called Wareness.io, both of which are based in San Francisco, says he believes more than half of all stealth modes are embarked upon for the sake of marketing. He says companies want "to make sure that when they come out they create that excitement."
Chattha says his companies have advised roughly 70 percent of the firms' 200 clients at one time to use a stealth-mode tactic before a big, splashy, launch. "We've directed them in how to talk about their company without talking about it. Think about it, he tells me: "If I say, 'I have a secret, I'd like to tell you,' you're likely to respond," he says. "So much in life is about curiosity, and unearthing the unknown."
This is as much for the supposed benefit of press as for consumers. VSC worked on public relations for Coin, another Bay Area startup that recently launched to great acclaim. It was a stealth mode success story. On its launch day, scores of news stories appeared in the tech--and even mainstream--media about the product Coin had created: A single credit card that could store--and be used as--up to eight credit cards. Sales of the product immediately soared--more than 1,000 sold in an hour--despite that it hadn't actually been produced, and wasn't in any consumer's hand.
"These startups have only a few opportunities to make the right impression to their audience, and whatever you can do to control that is smart," says Chattha.
The Inherent Dangers of Going Stealth
The tactic, not unfamiliar to companies of the first dot-com boom, became extraordinarily popular this past year. Twitter co-founder Biz Stone's latest startup, a question-and-answer app called Jelly, just came out of stealth mode this month. The company got plenty of juice out of the occasional journalist wondering exactly what Stone and Co. were up to. There's bitcoin wallet startup Bitwal, which has raised $50,000 in investment; there's Clinkle, apparently a mobile-payments startup that's raised $25 million since 2011 and is fairly tight-lipped about its future; there's Splice, a project by one of the GroupMe co-founders (the other co-founder is allegedly at work on another company so actually stealth its name isn't known.
Whatever happened to needing users to test--and prove the viability of--a startup idea, a strategy plenty of Silicon Valley bigs, including Paul Graham, trumpet? And what happened to the benefit of talking out your idea with anyone who would listen to help validate your assumptions?
Jason Freedman, the co-founder of 42 Floors, an office-space search site, has written about the difference between opening up your idea to early users to test and keeping it closed off to the world until an official launch. He says there's much perceived benefit there to a coordinated launch, such as the one Sean Parker's last company, Airtime, underwent in 2012. But there's a lot more pressure, too--because you're asking the whole world to look at you at once. (That particular launch, an Apple-style live demonstration, was riddled with glitches. The company struggled then to keep its team together and its technology progressing. It never really took off.
"It's better to get it wrong for a forgiving early-adopter group," Freedman says. "When you do it in stealth, you have to get it right in version one. Why would you want that much pressure?"
Cracking under pressure isn't the most significant danger to embarking on a period of pre-launch secrecy, though, says Freedman. He says the greater danger is believing your intellectual property--your idea--is sacred, and doesn't need testing or feedback.
"Most companies by new entrepreneurs are not actually going into stealth mode because it's part of some brilliant strategy--they're going into stealth mode because they're naïve," he says. "The beauty of the stealth mode track, is it lets that the dream continue. The end result of the launch of the majority of startups out there is no one cares."
All in the Game
Of course there are still legitimate uses for the tight-lipped approach. And having a airtight press-launch strategy means something different thing to every different company.
Coravin is a company formed in 2011 that makes a product of the same name that extracts wine from corked bottles while leaving the cork intact. It was an innovation for the high-end wine industry, allowing restaurants to serve single glasses of more expensive bottles, and allowing vinyards to test quality of older vintages. But the company had made strict embargo agreements with journalists, and required sommeliers and industry partners to sign non-disclosure agreements while it was in stealth mode.
Why? It wasn't solely to protect the idea. When the product launched in July 2013, the company's patents were already ostensibly publicly available online. Instead, the company's main concern was a potential avalanche of bad press. The founders knew there was rampant speculative disbelief of the sort of technology the company was using. According to Coravin's president and CEO, Nick Lazaris, the company wanted to take the time to show off the product, in person, to journalists, restaurant critics, and influencers before launching: "There was just all this skepticism out there. The way you convince skeptics is you let them test it themselves."
The company picked someone they dubbed a "key influencer" in the world of wine, Robert Parker, and lifted his embargo first, so he could post a video of the Coravin in action. A lot of other (largely positive) press followed.
"The whole concept of 'new' is very precious. People are inundated with news all the time, and marketing claims they don't believe," Lazaris says. "The other part of it is that the world of wine is a very connected world and very driven by influencers. We made that work for us."
Aside from protecting one's intellectual property, and schooling skeptics, there's also the fact that staying hush about a fledgling company's agenda can eliminate certain distractions--say, customer complaints or in-bound press--for employees and managers.
"In this world with everything being super transparent on social media, and managing all these channels of communications, it's also a nice approach to not being distracted," Chattha says, nodding to startups who value their employees staying "heads down" while building a product.
Freedman points out one other type of entrepreneur who can use stealth mode to his or her advantage (it's the only group he thinks should try it, really): serial entrepreneurs who have in the past built reputable companies.
"They can play games--whether it's to protect their IP or gain publicity," he says. "Frankly, they've proved they know what they're doing, and they have the money to back it."
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