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:
- 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.
- 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.