Stealth Mode = Miss The Boat Mode

from the that-train-has-already-sailed dept

"Stealth Mode" is the name of a start-up strategy where the founding team develops their product and business in secret. The tactic is based on the fear that, if their idea were to get out, other companies would copy it, and the originators would face competitors. The use of Stealth Mode has swung in and out of fashion in Silicon Valley over the past decade, but was hottest during the tech bubble at the end of the last century. Back then, .com startups were so hot that investors would salivate over the latest stealthy startup, eager to throw some easy money at it. But whatever the fashion, with few exceptions, I think that running a startup in Stealth mode is short-sighted, arrogant, and counter-productive. Here's why:

  • Founders who want to operate in stealth are usually of the opinion that their idea is soooo very unique, that to share it would be to divulge the crown jewels. There are two reasons that is naive:
    1. Your idea is almost certainly not unique. Someone else has had the same idea, and if it's any good, someone else is working on developing it.
    2. You are going to have to share your idea at some point in order to sell it, so your secrecy is short-lived at best.

  • A consistent Techdirt posit is that execution is far more important than idea. Whether you reveal your idea or not, how you execute versus direct competitors and near substitutes will determine whether you succeed or not (see bullet 4).

  • If execution is important, a critical part of execution is networking, getting your idea out there, meeting the right partners, employees, VCs, Angels, channels, and early adopters. In fact, this professional networking is the core of Silicon Valley culture, and "Stealth" is the antithesis of that culture. Ask yourself: Which culture worked better over the years: Silicon Valley's open idea sharing, or Route 128's tight secrecy and control?

  • Stealth mode prevents the creation of any kind of buzz around your company. Early in a company's life, buzz among the tech community (VCs, executives, industry insiders) is very valuable. You want to be the first name that rolls off of someone's tongue when your startup sector is mentioned, like Admob was for mobile ads, Slingbox was for place-shifting, or Loopt was for social LBS. This gives you tremendous advantage in word-of-mouth mentions, as a "must check" comparable before a VC invests in a competitor, as a target for any large partner seeking to adopt similar technology, or a corporate M&A effort seeks to buy a sector leader.

  • Stealth mode prevents feedback from savvy friends, the tech community, beta adopters. It limits the fresh thinking, free advice, and diversity of ideas that go into product cycles.
Suffice to say that I have found that more times than not, stealth companies miss the boat. Their idea isn't that special, and some other company has grabbed all the advantages of being the First Mover long before the stealthy come out of hiding. There are, of course, exceptions, ex: ideas that take years of R&D, rock-star exec teams, ideas that truly are unique, & a few others.

Partly as the result of this kind of thinking, Stealth Mode is out of fashion these days. Most VCs refuse to even sign NDAs with startups, not wanting to don legal handcuffs, while being less interested in a company that is counting on secrecy as one of the tenets of their success.

Part 2 - Case In Point: Checkpoint 

I was reminded of the issue of stealth companies today when I read about CheckPoint at Wireless Week. CheckPoint is a startup that is in "Stealth Mode" and is building a mobile app for checking into retail stores, and then having the app suggest products to have a look at in that store. Wait... How is it that I can tell you what CheckPoint does if they are in Stealth? Well, I guess it's because stealth is such a lousy idea that the CEO himself revealed the company strategy to Wireless Week one month before coming out of stealth mode! Basically, with yesterday's Facebook's announcement that it is entering the location check-in sector, CheckPoint has realized that the party might be over before they even show up. They have missed out on the buzz grabbed by startups FourSquare and Gowalla as they dominated the sector before the giant Facebook stepped in to mop up.

CheckPoint's CEO tries to make the best of the situation by saying,

...[CheckPoint] has very little in common with them [FourSquare, Gowalla, Facebook] because they're primarily for social connections. CheckPoints is focused on tangible products and helping consumers connect with products that are interesting to them...There's no one really focusing on product in this space right now...

If he honestly thinks that, he really has been in hiding for too long! All of those Check-In services are clearly focused on driving product sales in the locations users visit. It's just that they are using your friends as the bait that makes the app sticky. First, get the bait, then move the product. CheckPoint's secret strategy is [shh] "First, push the in-store products, then offer discounts." It's like a scavenger hunt with discounts as the reward. I'm not saying it's a terrible idea, but I think the Facebook/FourSquare/Gowalla approach seems better.

Either way, CheckPoint's reaction to Facebook's sector entry is a cold reminder of the real threat for any startup: it's not that someone else will steal your idea - someone else probably already has it - nope, the real threat is that you will toil in obscurity as better-known and/or larger players execute on grabbing market share.



Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    out_of_the_blue, Aug 26th, 2010 @ 6:32pm

    And the answer is: Wall Street, and City of London.

    "Ask yourself: Which culture worked better over the years: Silicon Valley's open idea sharing, or Route 128's tight secrecy and control?"

    Wall Street and City of London are in full stealth mode, yet make out like bandits, literally. While I generally agree with your views, you keep omitting the herd of elephants in the room that are actively taking over the entire economy.

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    Bill Rosenblatt, Aug 26th, 2010 @ 6:49pm

    Silicon Valley vs. Route 128?

    I don't disagree with the ideas in this post, but the
    "west coast = free and open, east coast = secrecy and control" calculus is just plain boneheaded prejudice.

    Let's see:
    1) Where did the open source movement first gain momentum? OH, THAT'S RIGHT, with Richard Stallman, in CAMBRIDGE, MA.
    2) Ever sign an NDA with a Silicon Valley company?

    Come on. Give me a break.

     

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  3.  
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    Dazza (profile), Aug 26th, 2010 @ 7:28pm

    Copyright / Patent Laws

    The problem with many startups (especially in Australia) is the ridiculous copyright and patent laws of countries such as USA and the power of the corporates in manipulating these laws.
    In Australia, the average person CANNOT get a patent on software, or web app ideas etc. Its not part of Australian IP laws.
    If I come up with some ubeaut fantastic idea but don't have the resources or lawyers to protect it world wide with American and European patents etc, then the instance I show this in public, some bright spark patent trawler will steal it, and sue me for using it. (Or charge me fees for continuing to use a product I created?)
    I have to have a finished proven product before I can even attempt to protect it.
    Its basically a no win situation in some countries, hence the reason of the slow down in innovation in many fields.

     

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  4.  
    identicon
    Anonymous Coward, Aug 26th, 2010 @ 8:31pm

    Re: Copyright / Patent Laws

    but aren't patents supposed to encourage people not to be stealth by encouraging transparency?

     

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  5.  
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    Zacqary Adam Green (profile), Aug 26th, 2010 @ 9:10pm

    Re: Silicon Valley vs. Route 128?

    Does Richard Stallman really count as an entrepreneur, though? Business in the traditional sense seems like more of a mere logistical concern to him.

    That said, the definitions still ring true despite outliers on both sides. Apple's on the West Coast, for example.

     

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  6.  
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    Anonymous Coward, Aug 26th, 2010 @ 10:01pm

    Re: Re: Copyright / Patent Laws

    but aren't patents supposed to promote the progress of science and the arts for the public good?

    There fixed that for you :)

    (hope I got it close to correct - not a US'ian so never read it myself)

     

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  7.  
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    Suzanne Lainson (profile), Aug 26th, 2010 @ 10:08pm

    Where does Apple fit into this?

    Apple guards its ideas extremely tightly, but seems to be doing pretty well.

     

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  8.  
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    Suzanne Lainson (profile), Aug 26th, 2010 @ 10:09pm

    Re: Where does Apple fit into this?

    I reread the post. So it's only a bad strategy for start-ups?

     

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  9.  
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    DV Henkel-Wallace (profile), Aug 26th, 2010 @ 10:30pm

    There is a legitimate reason

    Which is that in the early days your story is probably not that coherent, as you struggle to figure out which features are important in your technology, what benefits match up with which market segments, what your unifying pitch it etc.

    So if you can flail around in secret, you can make a much better impression when you finally start talking....at which point of course you will continue to refine your message etc.

    That being said it's easy to stay in stealth too long, or suffer the problems you mentioned. But it should be acknowledged there is a legitimate reason.

     

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  10.  
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    Allen (profile), Aug 26th, 2010 @ 11:21pm

    Re: Where does Apple fit into this?

    Yeah, that worked out quite well with their antenna design...

     

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  11.  
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    Mike Masnick (profile), Aug 27th, 2010 @ 1:56am

    Re: Silicon Valley vs. Route 128?

    "west coast = free and open, east coast = secrecy and control" calculus is just plain boneheaded prejudice.


    If you follow the link, there's actually a TON of research on this, that show it goes way beyond prejudice.

    http://www.techdirt.com/articles/20071204/005038.shtml

    For backrgound, you might also want to read the book Regional Advantage:

    http://books.google.com/books?id=gnh2Rb1rcMIC&printsec=frontcover&dq=regional+ advantage&hl=en&ei=VH13TIKQGI-jnQfG6KmdCw&sa=X&oi=book_result&ct=result&resn um=1&ved=0CC0Q6AEwAA#v=onepage&q&f=false

    There's a lot more to it than "boneheaded prejudice."

    1) Where did the open source movement first gain momentum? OH, THAT'S RIGHT, with Richard Stallman, in CAMBRIDGE, MA.
    2) Ever sign an NDA with a Silicon Valley company?


    Ah yes, single anecdote.

    Look, no one said that there's NO sharing in Boston, or that everyone in Silicon Valley is open. So your claims miss the point.

    Come on. Give me a break.


    No. Give us a break. Your response is ridiculous Bill, and you know it.

     

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  12.  
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    Bill Rosenblatt, Aug 27th, 2010 @ 4:47am

    Re: Re: Silicon Valley vs. Route 128?

    Mike,

    a) The research you cite has to do with noncompetes and mobility. Totally different subject than "free and open."

    b) Single anecdote out of laziness on my part. Every one of the several stealth mode startups I have worked with in the past few years has been based in Silicon Valley, except for the two that were based in LA. The two not-very-stealthy ones were based in NYC and Iowa.

    If you're going to indulge in your usual brand of silicon valley bigotry, then maybe at least you should choose better examples such as taxonomy vs. folksonomy.

     

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  13.  
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    Chronno S. Trigger (profile), Aug 27th, 2010 @ 6:29am

    Re: Re: Where does Apple fit into this?

    Usually yes. When Apple was new, they were vary open*. When Microsoft was new, they were also vary open*, crushing Apple in the process. Apple is a big name now, they don't have to get their name out there, it already is.

    Apple also falls under a different rule. They fall under the hardcore fan rules. Ever seen an Apple fan defend their idol? I'll probably get a few in response to this post, so I'll have examples.

    * Open as in forthcoming with their ideas, not open source. I feel I need to make that distinction for at least one of the other posters.

     

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  14.  
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    jsf (profile), Aug 27th, 2010 @ 7:07am

    Re: There is a legitimate reason

    I agree with this. There are definitely times when stealth mode is appropriate. Not for every startup and the stealth window should usually end fairly early.

    Now if you are a master of PR you can use stealth or semi-stealth mode to your advantage, but you have to manage it very well. You usually only do this with a single product however, not your entire business. Such as Apple and the iPod and iPhone.

     

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  15.  
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    Bill Rosenblatt, Aug 27th, 2010 @ 7:46am

    Re: Re: Re: Silicon Valley vs. Route 128?

    At the same time, it would be unfair of me not to re-emphasize that your piece's main ideas are right on target. Especially the parts about "no one else could possibly have thought of our great idea" and that success is more a matter of perspiration (execution) than inspiration (ideas).

     

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  16.  
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    Chris Miller, Aug 27th, 2010 @ 9:40am

    I think they really miss the boat and web

    BY staying in such a bubble they must have missed ShopKick as well. Which already launched what they do

     

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  17.  
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    Mike Masnick (profile), Aug 27th, 2010 @ 10:04am

    Re: Re: Re: Silicon Valley vs. Route 128?

    a) The research you cite has to do with noncompetes and mobility. Totally different subject than "free and open."

    No, Annalee's research has to do with openness and sharing.

    The later research into noncompetes & mobility is a (rather successful, when you look at the details) explanation into *why* there's greater openness and sharing in CA.

     

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  18.  
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    Overtkill (profile), Aug 27th, 2010 @ 10:28am

    Stealth mode = Business as usual for more than 100 years.

    "The technology sector," -is relative to the era. In those terms, start-ups keeping an idea secret before release is nothing new. The same goes for corporations. We have been doing it for over a century. As far as failure to keep an idea secret in today's world, look no farther than the internet and today's culture. Today, people as a whole are far too willing to blab about anything instead of choosing one's words carefully. "Stealth mode" is just the late4st buzz term to describe when everyone at a given company should keep one's yap trap -shut about their jobs. Look at the defense industry for example. Way back it was considered a patriotic good deed not to tell anyone what you were working on at your job. Whereas people over the last 30 years have been increasingly loosed lipped about secrets. Again, that is just an example.

    Transparency has it advantages. Take Microsoft and its various "bread and butter" products like office and Windows 7. They have learned to be smart about it by making the world their testing department. The result, better software releases.

    Another commenter mentioned: "but aren't patents supposed to encourage people not to be stealth by encouraging transparency?"

    Transparency through patent in today's "Information age" (god I hate buzz words) is a given, when all a person has to do is search them by keyword on a website.

    It wasn't as easy just 20 years ago, let alone 30 - 100 years past when such things were conducted through a lawyer, on a local visit to a patent office if you were lucky to have one, or through snail mail. The result in the past was much the same that it would take months or greater to get an answer on your patent. Again, its relative to the era. My point? The state of things were much less organized and decentralized than today, as was the whole apparatus itself was just plain inefficient. :)

    To Mike: While I enjoy reading your articles, you tend to focus on patent and copyright far too much in my opinion. I do agree that perhaps you do so to point out the shenanigans and goings on. Maybe you should look around the tech industry for other stuff to write about?

    Thanks for reading. :)

     

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  19.  
    identicon
    Clouser, Aug 27th, 2010 @ 11:00am

    Go Stealth and Miss the Wealth

    You've hit the nail in the head again on this point, Mike.
    -Mike

     

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  20.  
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    Anonymous Coward, Aug 27th, 2010 @ 1:06pm

    Most of the stealth mode startups I've seen are starting something, they just have not figured out quite what they are starting. Starting with some vague ideas is more like it.

     

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  21.  
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    Derek Kerton (profile), Aug 30th, 2010 @ 10:52am

    Re: And the answer is: Wall Street, and City of London.

    The article was not about Wall Street-type investors. The article is about startup companies, and whether
    'obscurity' is a wise element for a business strategy.

    Surely, if you work in an industry that is fleecing the citizenry and offering little product in return, then doing so as stealthily as possible would be a great choice.

     

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  22.  
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    Derek Kerton (profile), Aug 30th, 2010 @ 11:00am

    Re: Re: Where does Apple fit into this?

    Suzanne,

    For big companies, the question of whether to disclose product plans or not is a far more complicated decision.
    - Can you generate buzz and suspense by NOT disclosing?
    - Can hinting augment the buzz?
    - Can you generate buzz by pre-announcing?
    - Can you deflate the opportunity of smaller competitors by pre-announcing?
    - Can you pre-announce even though you're not ready, on order to deflate the opp for others (FUD)?
    - Does pre-announcing kill the sales of your existing version products?
    - and many other factors.

    For startups, the question is far, far simpler. My article is saying that stealth is a bad strategy for MOST startups. There are just a few exceptions.

    The irony of the CheckPoint example is that this startup is in Stealth mode, but still chooses to act unstealthily, since they realize that their strategy of 'obscurity' has them missing the boat.

     

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  23.  
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    Derek Kerton (profile), Aug 30th, 2010 @ 11:16am

    Re: There is a legitimate reason

    DV, Your point is fair, but I still don't agree.

    You are suggesting that in the very early, formative months of a startup, they should not be running to every news outlet creating buzz. That's true. This would be way to early to start a PR effort.

    But outwardly broadcasting your message to the news media, to consumers, and to Wall Street is the extreme opposite of Stealth. There is a middle level of openness that startups should employ immediately. That is: talking to friends, consulting experts, forming Boards of Advisors and Directors, looking for Angel investors, getting advice, speaking with insiders, looking for talent, and lining up partners.

    You see, these are just the kind of interactions that help the startup "struggle to figure out which features are important in your technology, what benefits match up with which market segments, what your unifying pitch it etc."

    I've seen over a thousand startup pitches. It's pretty clear to me that the ideas that have been discussed openly have been hardened, have been honed to mitigate the negatives, and have been focused on the best opportunities. Those that have been shielded from feedback by Stealth Mode still need to go through that process, but have wasted valuable months struggling in what might be the wrong directions.

    Let me give you an example, without giving any names. I am Chairman of the Telecom Council of Silicon Valley. In this organization, we have regular meetings that put startups in front of investors. In one case, we had a startup presenting to a group of telco investors. The guy had been working on his company for about a year. His goal was to sell to telcos. He made his pitch, and during Q&A, ONE guy from ONE telco asked ONE question about an aspect of the startup that was a real hurdle for any telco partnerships. The entrepreneur wasn't aware of the issue, didn't have a good answer, and BOOM, there goes the opportunity with the 12 phone companies in the room. Entrepreneur had spent 12 months working towards partnering with telcos, when they would have nothing to do with him. He has since revised his strategy to work with the telco's vendors, which makes more sense. Had he chatted with more telco people, more openly in his first few months, he could have saved months of cash and time. And to be honest, I haven't seen that story played out once, but dozens of times.

     

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  24.  
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    Derek Kerton (profile), Aug 30th, 2010 @ 11:21am

    Re: Stealth mode = Business as usual for more than 100 years.

    Wow. The comment is all over the map. We're not discussing major firms like Microsoft, version releases for industry standard OSes, nor national defense Top Secrets! It's only about startup tech companies.

    Also, this article is not talking about patents and copyright. It's about an out-of-fashion startup strategy that should never have been in-fashion.

    The fact that you appear to be commenting on something different than the article at the top of this page makes me think that maybe you didn't read it. Also, Mike didn't write it.

     

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  25.  
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    Derek Kerton (profile), Aug 30th, 2010 @ 11:27am

    Re:

    True. In fact, even those that ARE sure of what they are starting almost always change that notion over time.

    But this, IMHO, is precisely what makes EARLY open discussions of the strategy so important. It is the early feedback and the diverse opinions heard that help the startup plot and navigate the best course. Startups that choose to benefit from this feedback LATE will waste time.

     

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