What is a stealth startup and should your startup be in stealth mode?

Author: Partha Chakraborty Published on: June 2, 2022 Published in: Uncategorized

What is a stealth startup?

A stealth startup or a stealth mode startup is a new business that is trying to bring a new product or service to market without people knowing about it. It refers to a company’s early stage when it is not ready to reveal its full identity and workings to the public and is instead operating under secrecy.

Stealth mode, also known as stealth startup or simply stealth, is a term originating from the world of business.

Many startups choose to go into stealth mode in order to avoid competition and build a solid foundation before making a big splash in the market.

Who is a stealth startup founder?

Here are a few key characteristics of stealth startup founders:

– They intentionally keep their startup and activities private in the early stages, to avoid alerting potential competitors about their ideas and progress. This allows them to develop the product and business without others copying them.

– They usually do not publicly announce funding rounds, product launches, or other major milestones until they are ready for a larger public reveal. They tend to only share details privately with investors, employees, and close advisors.

– They typically do not have an active public website, social media presence, or PR/media outreach in the early stages. This helps them fly under the radar.

– They often work out of shared offices or homes instead of flashy headquarters, avoiding public attention.

– They file patents and trademarks to protect intellectual property, but the filings may be vague or obscure to conceal too many details.

– They ask early employees, investors, advisors etc. to sign NDAs to limit information sharing.

– They use stealth tactics like private demos and quiet beta launches to get feedback and validate the product, without broader public promotion.

– When ready, they may intentionally time a public launch to maximize impact and set the narrative on their terms.

So in summary, a stealth startup founder is someone who intentionally stays low profile in the critical early stages to retain control and minimize competition. They reveal details slowly and strategically.

Benefits of starting up in stealth mode

There are several reasons why startups opt for stealth mode.

The first is to reduce competition and copycats (fear that the idea could be stolen). By keeping their plans and operations under wraps, startups can avoid having their ideas stolen or copied by larger companies. If you’re building anything in deep tech for example, being in stealth can help protect your intellectual property.
Second, going into stealth mode allows startups to focus on product development without distractions. They can perfect their product before dealing with the pressures of marketing and sales.
Stealth mode can help startups raise money more easily. VCs and other investors are often more willing to invest in a company that is still in its early stages and has not yet been exposed to the public.
Another advantage of a stealth mode startup is that, if the startup fails, no one knows about it and founders can pivot to the next thing without being labeled as a failure.
Being in stealth mode can also signal to stakeholders like future employees and investors, that the startup is working on something disruptive and new and the only way to know the secret is by becoming a part of it.
When your startup is in stealth mode, it means that you are keeping your activities secret. This is usually a good thing because it means that you can stay under the radar and not draw attention to yourself.

Disadvantages of stealth mode startups

Of course, there are also some disadvantages to operating in stealth mode.

Startups that are in stealth mode can have a hard time building buzz and generating interest in their product.
They also miss out on valuable feedback from customers and the opportunity to learn from early adopters.
Stealth-mode startups are also looked down upon by many investors as they feel that founders have not “figured things out yet”.
Or in other cases, investors feel that by being in stealth, founders are trying to display exclusivity where in reality there is probably nothing new or special since investors listen to tonnes of pitches and in rarity come across startups that claim to be the ‘first one’.
It becomes harder to hire people because most people won’t want to work for a company they hardly know anything about.
It becomes hard to ask for help from mentors, subject matter experts, and investors because without sharing details and nuances you can’t get much guidance. So unless the founders are absolutely sure about what they’re doing, it becomes hard to run a startup without external advice.

When to launch in stealth mode?

When to go into stealth mode is a question that every startup founder needs to answer. There are several factors to consider, including the stage of your business, the competitive landscape, your team’s experience, and your fundraising goals.

If you’re still in the early stages of product development, it may be wise to stay in stealth mode until you’ve perfected your product.

1) You have a sense of product-market fit

If you have a good idea for a product or service and you know the market for it, starting your business in stealth mode can be a good idea. This means not telling too many people about your product or service until you’re ready to launch. This can help you stay ahead of your competition because they won’t know what you’re doing

2) You need time to build new technology

If your product is based on technology, it might take a long time to perfect it. And if people found out what you were doing, larger companies with more resources (like Apple, Google, and Microsoft) might take your idea and do it better and faster than you can.

Starting your startup in stealth mode can help you get a head start on the bigger companies in your niche. When you’re ready to roll out your product, the big companies will have to pay to acquire it instead of developing it themselves.

3) You have a disruptive startup

Very few products are truly disruptive in the sense that they cause a revolution in an industry or change the world. If you’re having trouble thinking of some truly disruptive brands, think about Walmart, McDonald’s, Facebook, Amazon, and Uber.

Even if your product is great, it might not be as disruptive as the iPhone or Netflix. If your product is really good and different, then you might want to start a stealth-mode startup.

4) You are a serial entrepreneur/s

Many stealth startups are founded by experienced entrepreneurs who have connections to investors and the industry. Many stealth startups that actually make it to launch have rich pedigrees behind the business. This would be difficult for first-time founders to replicate.

Startups and businesses that started in stealth mode

Startup founders often choose to go into stealth mode in order to avoid competition and build a solid foundation before making a big splash in the market. In this article, we’ll take a look at some case studies of startups that have successfully operated in stealth mode.

1. Sky9 Capital is a venture capital firm that focuses on early-stage investing. The firm was founded in 2013, but it wasn’t until 2016 that it announced its existence to the public.

2. Basecamp is a project management tool that was founded in 1999. The company operated in stealth mode for its first few years, only revealing its product to the public in 2004.

3. Accel Partners is a venture capital firm that was founded in 1983. The firm remained in stealth mode until it made its first investment in 1987.

4. You might have heard of Coda now, but before its launch, the company was called Krypton. The company had a $400 million pre-launch valuation when it built its Excel-killer in secret.

5. Slack is a team communication tool that was founded in 2013. The company remained in stealth mode until it launched its public beta in 2014.

6. Pinterest is a visual bookmarking tool that was founded in 2010. The company remained in stealth mode until it launched its public beta in 2011.

7. Palantir is a data analytics company that was founded in 2004. The company remained in stealth mode until it launched its public beta in 2009.

8. Airbnb is a vacation rental marketplace that was founded in 2008. The company remained in stealth mode until it launched its public beta in 2009.

9. Stripe is a payment processing company that was founded in 2010. The company remained in stealth mode until it launched its public beta in 2011.

10. Neobanking startup, Jupiter raised $24 million in 2019 from VCs like Sequoia, Matrix Partners, and others. The startup was in stealth mode until recently.

These case studies show that it is possible for startups to successfully operate in stealth mode.

Tips for building a successful stealth startup business

There are several tips for building a successful stealth startup. Here are a few of the most important ones:

1. Don’t share your plans with too many people. Keep your team small and tight-knit, and don’t discuss your plans with anyone who isn’t essential to the company.

2. Stay under the radar. Don’t try to attract too much attention to your company. Instead, focus on building a great product and let the buzz come naturally.

3. Be prepared to pivot. The landscape of the startup world can change rapidly, so you need to be prepared to make changes to your plans if necessary.

4. Keep your investors in the loop. Investors will want to know how your company is progressing, so make sure you keep them updated on your progress.

5. Be patient. Don’t try to rush your product to market. Instead, take the time to perfect it and make sure it’s ready for the public before you launch.

If you’re considering launching a stealth startup, these tips can help you be successful. However, it’s important to weigh the pros and cons carefully before making a final decision.

The future of stealth startups

The future of stealth startups is shrouded in secrecy.

However, there are a few things we can predict.

First, stealth mode will continue to be popular among startups. This is due to the fact that there are many advantages to staying under the radar. Startups can avoid competition, focus on product development, and raise money more easily.

Second, we can expect that investors will become more open to investing in startups that are in stealth mode. This is because they understand the benefits of operating in secrecy.

Finally, we can expect that the stigma surrounding stealth startups will begin to dissipate as people come to see the value in this type of operation.

Conclusion

So, should your startup be in stealth mode? It depends on your individual circumstances. If you feel that you need more time to perfect your product or if you’re worried about competition, then stealth mode may be the right choice for you.

However, keep in mind that it’s not always necessary to stay in stealth mode forever. Once you’re confident in your product and have a solid plan for marketing and sales, you can slowly start to reveal more about your company to the world.

What do you think? Should startups stay in stealth mode or come out of hiding once they’re ready to launch? What are your thoughts on stealth startups? Let us know.

FAQs: Everything you want to know about Stealth Startups

1. What is a stealth mode startup? A stealth mode startup refers to a new business that operates under secrecy and avoids revealing its full identity and workings to the public. It aims to bring a new product or service to the market without people knowing about it.

2. Why do startups choose to go into stealth mode? Startups opt for stealth mode for various reasons, including:

Reducing competition and the risk of idea theft.
Focusing on product development without distractions.
Easier fundraising from investors who are more willing to invest in early-stage companies.
Avoiding the stigma of failure if the startup doesn’t succeed.
Signaling to stakeholders that the startup is working on something disruptive and attracting talent.

3. What are the benefits of starting up in stealth mode? The advantages of a stealth mode startup include:

Protection of intellectual property and reducing the risk of idea theft.
Focusing on product development without marketing and sales pressures.
Increased attractiveness to investors at an early stage.
Opportunity to pivot without being labeled as a failure.
Attracting stakeholders who are intrigued by the secrecy and disruptive potential.

4. What are the disadvantages of stealth mode startups? Operating in stealth mode has some disadvantages, such as:

Difficulty in building buzz and generating interest in the product.
Missing out on valuable customer feedback and early adopter insights.
Some investors may view stealth mode negatively, considering it a sign of uncertainty or lack of progress.
Challenges in hiring employees due to limited information about the company.
Limited access to guidance and support from mentors, subject matter experts, and investors without sharing details.

5. When should a startup launch in stealth mode? Startups should consider the following factors when deciding to go into stealth mode:

Having a sense of product-market fit and wanting to stay ahead of competition.
Needing time to build new technology before bigger companies take advantage.
Having a truly disruptive product or service that can cause a revolution.
Being founded by experienced entrepreneurs with industry connections.
Being at an early stage of product development and aiming for perfection.

6. Can stealth mode startups raise venture capital? Yes, stealth mode startups can raise venture capital. VCs and investors are often interested in investing in early-stage companies that have not yet been exposed to the public, providing an opportunity to support and shape the startup’s growth.

7. What are some successful stealth mode startups? Several successful startups have operated in stealth mode before launching. Some examples include Basecamp, Slack, Pinterest, Palantir, Airbnb, Stripe, and more. These companies leveraged the benefits of secrecy to build strong foundations before entering the public domain.

8. What tips can help build a successful stealth startup? Some tips for building a successful stealth startup include:

Limiting sharing plans with only essential team members.
Staying under the radar and focusing on product development.
Being prepared to pivot if needed.
Keeping investors informed of progress.
Exercising patience to ensure a well-developed product before launch.

9. What does the future hold for stealth startups? The future of stealth startups is likely to remain popular due to the advantages it offers. Investors may become more open to supporting stealth mode startups, understanding the benefits of operating in secrecy. The stigma surrounding stealth startups is expected to decrease as people recognize their value.

10. What are the considerations for coming out of stealth mode? When considering coming out of stealth mode, startups should assess the following factors:

Product readiness: Ensure that the product is well-developed, tested, and ready for public release.
Marketing and sales strategy: Have a solid plan in place to create buzz, generate interest, and attract customers.
Competitive landscape: Evaluate the competition and determine if it’s advantageous to reveal the product at that point.
Funding and investor relations: Communicate with investors and stakeholders to ensure their support and alignment with the startup’s growth plans.
Intellectual property protection: Ensure appropriate patents, trademarks, or other forms of protection are in place to safeguard the innovation.

11. What are the alternatives to stealth mode for startups? While stealth mode is one approach, startups also have alternatives to consider:

Open development: Some startups embrace transparency and actively involve the community in the development process, seeking feedback and building a user base before launch.
Soft launch: Instead of complete secrecy, startups can opt for a soft launch strategy where they gradually release their product or service to a limited audience, allowing for early feedback and refinement.
Strategic partnerships: Collaborating with established companies or industry players can provide support, resources, and a platform for product launch without the need for complete secrecy.

12. How does stealth mode impact customer acquisition? Stealth mode can make customer acquisition challenging since the startup operates under secrecy. It limits opportunities for marketing and generating customer interest. However, once the startup decides to come out of stealth mode, it can leverage the element of surprise and create a buzz around its product or service, potentially attracting early adopters who are intrigued by the hidden nature of the startup.

13. Can stealth mode startups leverage social media and digital marketing? While the level of engagement may be limited, stealth mode startups can still leverage social media and digital marketing to some extent. They can create anticipation and curiosity by sharing teasers, industry insights, or relevant content without revealing too many specifics. This can help build a following and engage potential customers, investors, and talent discreetly.

14. Are there industries where stealth mode is more common? Stealth mode can be observed in various industries, but it is particularly prevalent in sectors with high competition and a strong focus on innovation and intellectual property protection. Industries such as technology, software development, biotechnology, and deep tech often see startups opting for stealth mode to safeguard their ideas and gain a competitive edge before entering the market.

15. How long do startups typically stay in stealth mode? The duration of stealth mode varies for each startup and depends on factors like product complexity, competitive landscape, and market readiness. Some startups may remain in stealth mode for a few months, while others may operate under secrecy for several years. The decision to come out of stealth mode is based on the startup’s assessment of its preparedness and strategic goals.

16. Can startups operating in stealth mode attract top talent? Attracting top talent to a startup in stealth mode can be challenging since potential employees have limited information about the company. However, stealth mode can also be intriguing and appealing to certain individuals who are drawn to the mystery and potential of working on a disruptive project. To attract top talent while in stealth mode, startups can employ strategies such as:

Highlighting the vision and mission: Clearly communicate the overarching goals and the problem the startup aims to solve. This can attract individuals who are passionate about the mission and excited to be part of something innovative.
Emphasizing the impact: Articulate the potential impact of the startup’s product or service on the industry or society. Talented individuals who are driven by making a difference may be more inclined to join a stealth startup with a compelling vision.
Leveraging personal networks: Founders and team members can tap into their personal networks and industry connections to identify and recruit top talent who may be interested in the opportunity, even without extensive public information.
Offering equity and incentives: Provide competitive compensation packages and equity options that align with the startup’s potential growth and success. This can motivate individuals to take a chance on a stealth mode startup.
Confidential discussions: Engage in confidential discussions with potential candidates, sharing insights about the startup’s vision, technology, and growth plans under non-disclosure agreements (NDAs). This can help build trust and attract individuals who are comfortable with a degree of secrecy.

17. How does being in stealth mode impact media coverage? Stealth mode startups generally have limited media coverage since they actively avoid public attention. Media outlets usually require substantial information and details about a company before featuring it in articles or news pieces. However, once a stealth startup decides to come out of stealth mode, it can strategically plan media announcements and press releases to generate buzz and gain media attention.

28. Are there any risks associated with operating in stealth mode? While there are potential benefits to operating in stealth mode, there are also risks to consider. Some of the risks include:

Missed opportunities for feedback: By operating in secrecy, startups may miss out on valuable feedback from potential customers and early adopters, which could be crucial for refining their product or service.
Difficulty in building awareness: Startups in stealth mode may find it challenging to generate awareness and build a customer base since they lack public exposure.
Limited credibility: Some stakeholders, including investors and customers, may question the credibility and readiness of a startup operating in secrecy, potentially impacting funding opportunities and customer adoption.
Talent acquisition challenges: Hiring top talent can be more difficult when operating in stealth mode since potential employees may be hesitant to join a company with limited public information.
Competitor advantage: If competitors launch similar products or services before a stealth startup comes out of secrecy, it can pose a risk to the startup’s market position and differentiation.

19. Is stealth mode suitable for all types of startups? Stealth mode may not be suitable for all startups and industries. It is generally more common to see tech-focused startups, particularly those involved in deep tech, operating in stealth mode. Startups in industries where intellectual property is a significant concern, such as biotechnology or hardware development, may also benefit from operating in stealth mode. However, startups in consumer-facing industries or those relying heavily on market validation and early customer feedback may find it more challenging to operate in stealth mode.

20. Are there any alternatives to operating in stealth mode? Yes, there are alternative approaches to operating in stealth mode. Startups can consider adopting a more transparent approach by practicing open innovation or engaging in early customer testing and feedback. This allows them to involve potential customers and stakeholders in the product development process while still maintaining some level of confidentiality. Crowdfunding platforms can also provide a way for startups to showcase their products or services to a select group of early adopters and secure funding without revealing all the details to the wider public.

What is a stealth startup and should your startup be in stealth mode?