Stealth Mode Is Bull$hit

A version of this article previously appeared in Inc.

A Wantrepreneur is a well-intentioned person who wants to be an entrepreneur. They enjoy discussing their startup ideas and revel in the positive social status afforded entrepreneurs. Unfortunately, they lack the skills, personality and risk profile to successfully start and operate a business. Not surprisingly, wantrepreneurs enjoy operating in perpetual stealth mode.

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Circa 1996, I ran into a former co-worker who had departed my then-current startup, Computer Motion (NASDAQ: RBOT, purchased by Intuitive Surgical), to join an Internet company. However, rather than proudly sporting swag issued by his new company, he was wearing a polo shirt embroidered with an Artemis Research logo.

Confused, I asked him about his shirt. He smiled broadly, leaned toward me and whispered, “That’s our codename, 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 bull$hit.

Stealth Mode = Alibi For Bad Marketing

Decades ago, when I was a kid with a dream at Wharton, I was repeatedly taught that companies should establish barriers to entry. One of the ways this could be accomplished was viaa first-mover advantage. When executed appropriately, first movers could create brand awareness, lock inkey industry stakeholders and subsequently achieve market dominance. This mindset led companies to raise huge amounts of money so they could outspend, and thus pummel their competitors via brute force.

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 customizedinfrastructure. Much has been written about the dramatic decrease in the costs required to launch today’s Internet startups, including THIS insightful piece by Mark Suster.

Open source software, cloud computing and infrastructure point-solutions have nearly eliminated capital-oriented barriers to entryand 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 featureor exploits a novel marketing channel, its competitors begin emulating the innovation.

Thus, 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-shirts.

Four Reasons To Avoid Stealth Mode

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

1) Slows down determination of the proper product / market fit

Startups that achieve sustainability largely do so by agilely assessing and reacting to market conditions more quickly than their competitors. Since a stealth company cannot be forthcoming with respect to its value prop, secrecyduring a company’s formative stages handicaps its ability to gather meaningful market feedback.

If you discuss your venture in a veiled, obtuse manner, you will reduce the quality of the market feedback and thus slow your venture’s ability to achieve a viable product / market fit.

2) Inhibits establishing 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 startup, you will fail.

Discussing your nascent venture with knowledgeable people will accelerate you company’s maturation. If you are not willing to discuss your venture, you will find it difficult to marshal the necessary resources, recruit investors and inspire employees.

Simply talking about your company is seldom risky. However, you must consider the capability of your audience (and their surrogates) to take advantage of your idea when deciding with whom to speak and how much detail to include in each discussion.

3) The inherent hubris taints a startup’s emerging culture

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) The intended targets are seldom fooled by covert activities

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 startup 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 limited circumstances when your pre-launch startup could benefit from a low profile, in the short-term:

  • 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 apreemptive announcement that could chill your ability to raise money, hire key employees, etc.

However, in each of these cases, be wary to not remain in stealth mode beyond the point at which the disadvantages outweigh the advantages.

WebTV Comes Out Of The Closet

image002My friend’s company was WebTV, which was in stealth mode for over a year. They justified this approach because they were building a hardware solution that required them to outsource manufacturing and establish relationship with Japanese television manufacturers (remember when those guys mattered?!)

At the time, keeping a low profile made some sense, as Microsoft had signaled that it was interested in expanding its dominance from desktop software to the Internet. Even though WebTV ultimately proved to be a flawed concept, Microsoft purchased the company for $503 million.

Despite WebTV’s well-timed, dot-com era exit,the hubris underlying the bogus swag, letterhead and building signage was an over-the-top waste of the company’s time, money, and focus that has no place in today’s lean startup landscape. Leave the cloak and dagger games to wantrepreneurs and operate your venture in perpetual anti-stealth mode.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about companies in stealth mode or that killer burrito I just ate. 

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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  • klausman

    ….and Saif said: There are 2 schools of thought. Pure social apps of course have to be public and not be stealth mode. Technology plays have a big advantage in being in stealth mode. We already know of two companies which got bought out. We personally know the CEO’s and I still don’t know what their companies do.

    They got bought out already besides getting funded initially all stealth. This post is bullshit to some degree. 😉

  • John Greathouse

    Hmmm… bullshit seems a harsh term in this context. Yes, it worked for WebTV. However, my point was that was a different time and that stealth mode can actually be a detriment in today’s less capital intensive world. Are you disagreeing with my premise that stealth mode is no longer as relevant / effective as it once was?

  • klausman

    Yes, it may be, but you called it out – with the header.! You drew first blood.

    But to your point, I agree. There are too many idiots out there, hedging and stealthing, that would otherwise have to be found out by lenghty VC interviews, before they can be found out. How else can you check your sanity, and test your theory, if you are perpetually in stealth? I’m not disagreeing with you just opening up the discussion scope more to invite more bull$shit.


    One of my buddies in Tarifa had this to say:
    This world is not open any more. Things don’t happen anymore, because of some inventors, hotshots have a good idea once in a while. Things happen if some very powerful people want things to happen. And they choose (or make someone choose) the winners making it happen. They kick adversaries out of business with money = power. Money, which wasn’t earned, but “made”.

    For critters like us, it’s luck and hard work which keeps us going. And unlike the moneymakers and manipulators, hotshots we have responsibilities and values to respect.
    Alexander

  • John Greathouse

    Truce! I think we are violently agreeing with each other! I built my career on the combination of “luck and hard work” and the last thing I ever considered myself to be is a “hotshot.”

    Cheers,

    John

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