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STARTUP

Why You Must Break Free of Stealth Mode
 

Four ways operating under the radar is destructive for start-ups.

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In 1996, I ran into a former co-worker who had departed my start-up, Computer Motion (later purchased by Intuitive Surgical), to join an Internet company. Rather than proudly sporting swag issued by his new company, he was wearing a polo shirt embroidered with an Artemis Research logo.

I asked him about his shirt. He smiled broadly, leaned toward me and whispered, "That's our code name, we're in stealth mode." He was too good a friend for me to tell him that I thought that his shirt and his company's strategy was bullshit.

Stealth mode just doesn't work. Decades ago, when I was a kid with a dream at Wharton, I was repeatedly taught that companies should establish barriers to entry. Like the first-mover advantage, stealth mode is a vestige of Silicon Valley's past, when the cost to launch a company, including web-based businesses, required significant capital and customized infrastructure. Much has been written about the dramatic decrease in the costs required to launch today's Internet start-ups, including this insightful piece by Mark Suster.

Open source software, cloud computing and infrastructure point-solutions have nearly eliminated capital-oriented barriers to entry and have significantly denuded any first mover advantage that might have existed during the early days of the Internet. In today's market, as soon as a web-based business modifies its website, adds a new feature or exploits a novel marketing channel, its competitors begin emulating the innovation.

The real competitive advantage for web entrepreneurs is to run longer, smarter and faster than their competition, with your company's real name emblazoned on your t-shirt.

Stealth mode impacts a company's maturation in the following four ways:

1) It reduces your viability in the market.

Start-ups that achieve sustainability largely do so by assessing and reacting to market conditions more quickly than their competitors. Since a stealth company cannot be forthcoming with respect to its value prop, secrecy during a company's formative stages handicaps its ability to gather meaningful market feedback and slows the venture's ability to achieve a viable product and market fit.

2) It inhibits stakeholder relationships.

Businesses are built on a foundation of conversations. Successful entrepreneurs realize they must judiciously share their ideas, plans and dreams in order to bring their ventures to life. If you are afraid to talk about your start-up, you will fail. If you are not willing to discuss your venture, you will find it difficult to marshal the necessary resources, recruit investors and inspire employees.

3) It's vain.

Stealth mode implicitly suggests a heightened level of pretension. The underlying message is, "What we are doing is so mind-blowing, so unique, so incredible, I can't tell you about it." Really? I doubt it.

4) No one is fooled.

It is nearly impossible to keep interested parties in the dark for long. If someone has a vested interest in your activities, it is likely they will eventually determine the true nature of your venture. This is especially true if your start-up is led by one or more high-profile entrepreneurs and has secured funding from well known sources.

Does Stealth Mode Ever Make Sense?

Despite the inherent self-importance of a surreptitious go-to-market strategy, there are a handful of circumstances when your pre-launch start-up could benefit from a short-term low profile.

  • When conducting primary research which entails valuable intellectual property that cannot yet be fully protected
  • Prior to securing a desired URL or trademark
  • When a large incumbent has signaled that it may enter your proposed market and knowledge of your involvement might prompt a preemptive announcement that could chill your ability to raise money, hire key employees, etc.

Even so, in each of these cases, don't remain in stealth mode beyond the point at which the disadvantages outweigh the advantages.

IMAGE: BenFrantzDale/Flickr
Last updated: Aug 1, 2013

JOHN GREATHOUSE is a partner at Rincon Venture Partners, an early-stage VC firm. A serial entrepreneur, John led Computer Motion’s $110 million public offering, and the $236 million sale of Expertcity (creator of GoToMeeting) to Citrix. Check out his hands-on start-up advice blog at Infochachkie. Or, follow his start-up oriented Twitter feed, where he promises not to tweet about koala bears or killer burritos.
@johngreathouse




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