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Startup Stealth Mode: What is it and Who Benefits?

Startup Stealth Mode: What is it and Who Benefits?
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For an early-stage startup, any competitive advantage that can differentiate it from its peers is one that should be explored. One method many startups turn towards to potentially gain an edge over the competition is stealth mode. Here we will be discussing how stealth mode can be beneficial for some startups, the potential drawbacks of operating in stealth, and the type of startups who could stand to gain the most from this method.

What is startup stealth mode?

Startup stealth mode refers to the development of a company in secrecy before emerging for a public launch. It enables startups to temporarily keep things under wraps so as not to alert competitors to what they’re working on until it’s ready to fully launch, potentially offering a competitive edge when launch time arrives. Many startups go through a brief stealth stage as they hone their product or service before a full launch, while some may take years raising funds and working on their product in stealth mode before finally launching.

Perceived benefits of stealth mode

Intellectual property (IP) protection & first mover’s advantage

One of the biggest advantages of starting out in stealth mode is that it can prevent competitors from stealing products or ideas while they’re still being honed and perfected. Typically, a startup will keep its activities concealed by executing nondisclosure agreements with relevant parties to prevent those within the industry or the media from catching word. This can help protect IP while patents or copyrights are still in the process of being secured.

For companies with a drastically unique product or service, keeping IP secret can also help increase the odds that they are first to get their idea to market. Being a first-mover means they have a natural advantage over any future imitators in terms of infrastructure and product offerings. However, this may backfire if another company coincidentally gets to market first with the same idea.

Keeps focus on the product or service

Public-facing activities like marketing, PR, and branding can take focus away from honing a startup’s product or service, especially for early-stage companies who may not have the resources to delegate ownership of these responsibilities. Stealth mode offers startups the opportunity to focus all their resources on sharpening their flagship product, laying a solid groundwork before expanding focus to include these other business activities.

Potential drawbacks of stealth mode

Can hinder product/market fit testing

A significant drawback of working in stealth mode is that it can limit the collection of customer feedback on a larger scale, which can make it far more difficult to pinpoint product/market fit. Having a great idea is one thing but going to market blindly with no feedback from the target audience will significantly slow the process of finding the right product/market fit. For founders considering stealth mode for their startup, this is a huge consideration to weigh, as product/market fit is an element that takes time to refine as well as something investors like to see in a potential investment opportunity.

No buildup

Another big downside to stealth mode is that it prevents startups from generating buzz and excitement before launching. For a public startup, right before a product launch is the perfect time to focus on generating some word-of-mouth buzz and reach out to the media. In stealth mode, this buildup is impossible.

Who is it right for?

For certain types of startups, stealth code can make sense, but it’s certainly not the best option for all. Generally, startups that operate in highly competitive environments and are working on a highly unique or specialized product that could potentially be stolen by competitors could stand to benefit the most from launching in stealth mode.

A tech-based startup that developing a new, potentially disruptive technology may benefit the most from developing its technology under the radar until the necessary funding and IP protections are in place. A great example of a company that succeeded with this was is Siri. In 2007, Siri, Inc. spun off of SRI in stealth with the goal of bringing the technology to consumers. In just two rounds of financing, Siri raised $24 million. Three years later, in April 2010, Siri was acquired by Apple. In October 2011, Siri was revealed as an integrated feature of the Apple iPhone 4S.

In determining whether or not a startup could benefit from launching in stealth mode, founders need to thoroughly examine the potential pros and cons. If the need for secrecy outweighs the benefits of operating publicly, then launching in stealth mode could be the best option.