Have you ever heard of Magic Leap?
It's one of the most promising startups in the Augmented Reality space.
In fact, they've raised more than $2.6 billion in 2010 from groups like Google and Alibaba. In 2018, the company was worth $4.5 billion, and most recently in May 2020, they raised another $350 million.
If you're sitting and wondering "who the f* are they" Google won't help you out as much. Magic Leap is secretive.
They don't like the press and prefer to hide their technology behind closed doors.
And THAT'S THE POINT of a stealth startup.
Stealth startups are companies that prefer to avoid public attention for as long as possible.
They do this to ensure the safety of their intellectual property until the product is ready for the market.
At first, the idea of a stealth startup might seem rather illogical.
After all, companies don't generally AVOID the press.
Brands everywhere are generally raving on about PR and mentions on social media.
But stealth mode is more powerful than you might presume.
There are more than a couple of use cases and benefits that come with your startup being under wraps.
So where is the benefit of going stealth?
Well, there are a few parts of the "startup success" equation that would make a stealth startup make sense.
Let's go over some of them in detail to understand why it's sometimes better for your company to NOT be noticed.
As mentioned earlier, most founders would JUMP at the opportunity for some PR.
It's not out of the oridnary that they want to get some press on their startup, especially in the early stages.
After all, there are multiple benefits of having press coverage.
It ensures that your brand has presence in the space. PR can also help you understand the sentiment of the public better. It can also help you get some early product buzz and traction prior to your launch.
All of these things can result in a better response from early-stage investors.
So why should YOU avoid getting some much needed press?
In the fast-paced world of today, being in the public eye CAN be a bad thing.
It adds extra pressure to the founders, employees, and investors alike and can muddle the vision of the company.
Finding yourself under the veil of secrecy ensures that your company has control over what the public can see.
This allows your business to have a sense of security and shape the narrative of your business prior to launch. Combined with a clear brand message, you'll be able to launch your product the way you've envisioned.
For most startups, especially SaaS businesses, it might sound a tad ridiculous. However, if you consider the case of Magic Leap, things start making more sense.
If their company, brand and product development wasn't as secretive, their AR approach would have been constantly judged due to the huge interest in the innovative industry.
By avoiding attention, the company is able to show investors only what truly matters - the technology and thus gain credibility and status BASED on their innovative approach.
It can be similar for other types of startups.
So, to sum up, avoiding the press allows you to do a couple of things.
That's why it's sometimes better to avoid the public eye until you are certain your product is ready for market.
I've talked to more than a few founders who were FRIGHTENED at the thought of someone stealing their product idea, making it better, and introducing it to market FASTER.
And at times those fears are well reasoned.
There are industries in which high competitiveness results in a harsh environment for entrepreneurs and startups.
However, most of the time, the fears have little to no basis in reality.
For example, some fear that, if you are trying to be "disruptive" vigilant industry giants can try and sabotage your product launch.
With deep pockets, who's to say that they won't develop a better product and release it to market faster?
There's a second scenario of someone stealing your idea.
While you are trying to polish out the details and kinks of your product, an outsourced team of developers can quickly develop it, release it, and gain traction faster than you.
Now, both of these cases ARE extremely unlikely.
The chance of someone STEALING your startup idea is ARGUABLY less than the chance of someone HAVING ALREADY started developing an extremely similar idea to yours in the first place.
However, that doesn't stop founders from living in a constant state of stress over the speed and proper execution of their idea.
I'm experiencing this myself on a daily basis.
My team and I are testing and developing new growth hacks almost every day and the thought of someone releasing the same awesome thing we've JUST come up with is scary.
To avoid this, we prefer going public with most of our tactics as soon as they are developed.
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It has helped me understand that IDEAS and TACTICS that work aren't necessarily the thing that would make or break your business.
However, DESPITE my understanding, the emotional attachment towards the "aha" moments we have is real.
It can blur our sensible judgment and push us towards bad business decisions.
That's why, especially if your startup falls in the category of a product that requires a heavy research and development process prior to its launch, it might be better to go stealth mode.
Operating under the veil of secrecy provides the owner with certain level-headedness that simply CAN'T be found in a normal startup environment.
You are able to properly control, judge and sensibly operate your development WITHOUT the fear of the constant rat race.
I've heard multiple times that working in a stealth startup is like being in a secret ZEN society, while the offices next door are running crazy and wild over vanity metrics.
And this can be true.
So going stealth-mode can actually help you make better judgements as a business owner.
All of these are beneficial to almost any startup, but are most likely to happen when your small business is in stealth-mode.
There's also the idea of a well-timed product release.
Arguably, one of the biggest factors in the launch of a startup, is the TIMING of the execution.
Before Facebook, we had MySpace and Friendster. Prior to YouTube, there was ShareYourWorld.
Yet, Facebook and YouTube are the startups that grew and became huge corporations.
It all comes down to timing.
In the above example, was YouTube innovative? No.
In fact, do you know what's crazy?
ShareYourWorld had the concept of being what YouTube IS today in 1997.
YouTube was a dating site in 2005.
Yet, YouTube hit the market at the right time with the right functionality. And that's what made it successful.
So here's how going stealth helps you with timing ... it allows you to EVALUATE the market opportunity better.
As founders, we often RUSH our products to market. This might be because of the lack of funding or because of the sheer excitement to SHARE what we've built out to the world.
However, most of the time, we TRY and RUSH products to market, because we want to be THE FIRST to do it.
As startup owners, we often have a crazy idea that's relatively new and we want to be the PIONEERS in the industry.
But as with the examples above, being the first doesn't always mean being the one that's successful.
Going stealth gives you the opportunity to make better judgments about WHEN your product should be released.
With a stealth startup, you'll be able to launch your product at the right time, when the product is TRULY ready for market.
And you won't have to worry about being a "pioneer" because no one would be able to steal your ideas.
Even if there are others who've already pushed their product to market, you'll be able to learn from them, rather than consider them "competitors" and try to one-up them in a phase where you should be focusing on delivering the best product to market.
Here are a few of the benefits of stealth startups related to the timing and strategy of your product launch.
It further provides you with enough time to polish out your strategy and ensure that your company runs smoothly prior to any publicity around your product.
There's also an argument to be made about secrecy and the retention of unique ideas under your control.
We live in a day and age of a constant flow and sharing of ideas.
In the digital age of globalization with 7 billion people across the world, it's not surprising to hear more than a few individuals having the same idea at the same time.
However, the perspective and realization of that idea is often what makes a business successful.
So, if people have access, understand the opportunity, and are able to build out a specific idea in the same perspective (and market) as you, you'll have more competitors and your chances for a successful launch would be slimmer.
Having a stealth startup will allow you to retain control over that idea and share it with the world only once you've had the chance to properly develop it through your vision and perspective.
So if you are just learning about stealth mode startups, chances are you'll already be EXCITED to go stealth.
However, stealth startups face far more risks than normal startups.
Granted, most of those risks are related to funding, but there's also the possibility of not being able to generate enough buzz for your company at launch.
Let's go over some of the most common challenges small businesses in stealth mode face in general.
One of the first things that's an obvious challenge with stealth startups is revenue generation.
Small businesses often have soft launch and beta test runs.
During these runs the companies usually start acquiring their first customers.
This kickstarts their revenue generation at an earlier stage compared to stealth-mode businesses.
However, operating in a secretive environment often means that you'll be unable to experiment with pre-launch customers.
The reasons for this boil down to two simple factors.
First, customers will be unaware of what your business does.
While some stealth startups successfully acquire users for closed alpha and beta tests, most of the time the sales process is extremely difficult and convoluted.
Especially with concerns to privacy and fears of disingenuous parties, unless you are able to run your stealth beta test in a local environment, chances are acquiring pre-launch customers will be a great hassle.
Yes, some would note that there would be founders who are interested in an "exclusive first look" at a product.
However, chances are you'll have to be extremely cautious about NDAs, test runs of your product and more.
Of course, most companies that have chosen this style of running their company are still doing product tests and some even generate revenue from their "alpha" and "beta" testers far before their official launch hits.
However normal companies that are just starting up are able to build out a stable revenue flow more easily based on their first couple of customers.
This leaves companies that try to operate in a covert manner with an unstable revenue for years.
At the end of the day, while you can acquire pre-launch customers, you'll have to have a solid legal team by your side to constantly come up with new NDA clauses and ensure your trade secrets are kept safe from prying eyes.
So to sum up, here are a few of the revenue generation challenges that stealth startups face.
Of course, revenue is not the only part of the picture.
One thing that most founders who choose to run a stealth startup don't realize is that it comes with far more difficulty, trust and reliability issues than what's found in a normal startup.
First, your own sense of trust towards the employees can change.
After all, if everything is so secretive, the notion of someone stealing your secrets becomes far more real.
Talking about the "startup" becomes a forbidden fruit and out of nowhere people start having trust issues.
Especially if the startup is bigger, you can see people siloing, ideas becoming more difficult to share between the siloed teams and a general stress-environment being created in the process.
The bigger problem is that this unnatural environment can continue after the startup has come out of stealth mode.
Look no further than "Theranos" and the documentary "The Inventor: Out for Blood in Silicon Valley" for a great example of how everything can collapse under secrecy.
Now, I understand that the failure of the company is FAR more complicated than just siloed secrecy, but it's still a great example of the psychological stressors that can arise in a stealth startup environment.
Employee stress is not the only challenge a stealth mode startup faces.
You'll also need to hire special personel that is more specialized. In particular, you'll need to seek out investment specialist that can work within the challenges of a stealth mode startup. An HR is also a must. In addition, your legal team has to be up to par.
All of these specialists can add up to the costs. Considering the fragility of an early stage startup, adding up to the costs is not exactly a thing you'd want in a startup.
The challenges are even greater when you consider that experts in different fields are also often reluctant to join a stealth-mode startup.
You'll see more than a few experts who WANT to know what they'll be working on PRIOR to joining a company.
This is often not possible when hiring within a stealth startup.
In addition, people will have to go through more than the usual amount of NDAs and documentation, which can further add stressors to the whole process.
To sum up, here are a few of the downsides related to your employees that you might face in a stealth-mode startup.
Now that we've discussed the internal employee factors, let's go over some of the external challenges you might face.
I've heard some experts argue that it's easier to get investments in a stealth mode startup.
After all, most investors rave about intellectual property and being concerned about that from the get go can help you stand out in the eyes of some important figures.
However, most of the time the story is rather different.
With an open market and investment rounds becoming more obvious, regular and distinct, investors are starting to have a higher standard of expectations related to small businesses.
This such as initial customer response, a test size customer base, existing revenue flow and a working version of the product are usually what can make or break a pitch.
Your startup invention has to be TRULY unique and distinct, if you want to gain investment traction when operating in stealth-mode.
Without any form of revenue flow, most stealth startups often rely heavily on funding.
And as it's arguably more difficult to GET funding, without having any sort of press covering your product, the downsides of a covert operation become more obvious.
Operating under secrecy means that almost always press conferences and startup fairs are a no-go zone, so finding the right investor almost always becomes far more tedious and arguably far more difficult.
Investors can also be far more wary and building trust becomes a more personal endeavor.
An investor either has to be far more involved and hands-on to understand your operations better or has to be comfortable NOT knowing a lot.
And most investors don't fall in that category, especially the ones looking to invest a smaller amount of money in a business that's just starting out.
So, here is the quick list of investor-related challenges you'll face when you decide to go stealth-mode.
Now, that isn't to say you WON'T find investors, if you play your cards right. However, the hand you've been dealt makes the game far harder.
Ah, the big one.
Last, but not least, we have to talk stealth startups, marketing and PR.
Even though being in the public eye can put pressure on your startup, PR is almost always a good thing.
After all, you want people in the industry to be talking about your product.
Pre-launch buzz is a huge part of almost any product launch plan.
Plus, it's there because it works!
However, when you operate in stealth, marketing and PR are no-go zones.
In growth marketing, we often talk a lot about funnels, quick implementation and iteration based on results.
With a stealth startup ALL of that is literary against the whole concept of operation.
Now, most small businesses that go the route of secrecy still plan out their product launch marketing strategy.
In fact, most of them do with a far more caution.
Yet, spending what could be years without ANY marketing often results in a company that's just looking shady.
While you might be personally excited to entice users with the idea of them not knowing what you do, chances are they won't have an interest unless it's something big.
Plus, there's also the negative impact of too much HYPE.
Remember Magic Leap, the company I mentioned in the beginning of this post?
Well, the initial hype about the technology they might be developing was so large that there's now a certain backlash and sentiment from the press that they just won't be AS good when they launch.
The whole idea of a stealth startup gets celebrated, because of the successful small businesses you hear about.
Business owners get excited about the idea of having a secrecy pre-buzz.
However, chances are, even if your product is unique, it might get unnoticed.
And with everything relying on an exciting product launch, things might go astray quickly.
In addition both normal and stealth-mode startups often have huge upticks in traffic on their launch day. Yet, this traffic quickly dwindles and the company realizes they still have to get back to age-old marketing tactics and aim for more stable growth.
So, here's a quick summary of the challenges related to marketing and PR that you will face if you decide to go stealth-mode with your small business.
Now, while all of these can be addressed, usually with a small startup you WANT to have LESS PR and Marketing challenges and not add to the list of existing ones.
Secrecy is only beneficial in certain industries and in very specific edge cases.
The rule of thumb is that if your industry is highly technical, competitive and specialized, stealth mode might be the better choice.
But if you are developing a service or a product that simply has a better USP than your competitors, it might be better for you to operate in a normal environment.
Ultimately, it's a decision you have to make.
Most of the time, stealth startups are retained for those who have stable investment opportunities.
Founders with close relationship with investors or those who can fund the startup themselves are both more inclined, but also more capable to make sure a stealth startup stays afloat for longer.
If this is your first rodeo and your product isn't the holy grail of your industry, you might want to sit back on the idea of going stealth.
But ultimately, it's still a decision that YOU have to make.
Now, I don't want you to get TOO excited about these success stories, but if you want to go stealth, might as well learn a thing or two from the best of the best.
That's why I decided to share this list of successful stealth startups and reasons of why they operate in stealth as a whole.
I've already mentioned them here, but with over $4.5 billion of alleged funding, it's hard to neglect them.
The patents related to the company all revolve around VR and AR products and the company was the talk of the town in the industry.
However, after a minor attempt at breaking stealth by inviting press to check out one of their products in 2018, the company's future doesn't seem so bright.
Receiving about $600K in funding Odin is a medical stealth-startup that allegedly specializes in therapeutic implants that are injected into a person's eye.
Their focus is related to novel therapeutics for diseases of the retina.
Found within a highly-competitive industry and developing a novel and promising product, it's no surprise that the company operates in stealth-mode.
With funding of around $640K, Meltz is a highly secretive company. According to CBI Insights it has patents for "processes for creating consumable liquid food or beverage product from frozen contents."
I can't help but wonder if this will turn into a Juicero fiasco, but being in the food space, chances are Meltz can be onto something that'll be found in every home.
What's even more interesting? They also have another patent filing that talks about an "apparatus for creating an extract from coffee or other extractable materials."
The company certainly has my attention, but no information on the status of the company can be found. After all, they are operating in stealth mode.
Andas is another stealth startup that's aimed at changing people's lives. However, they are one of the few disruptors who can ACTUALLY end up saving lives.
According to listings, Andas is "a developer of technology to communicate an accurate level of intoxication of pulmonary hypertension."
Some of their patents revolve around the use of graphene for detection of exhaled nitric oxide and ethanol levels.
Now, early indications show that their product might be some sort of device that detects your levels of intoxication and can send inforamtion to your phone.
This, for example, can be used to lock out people from using their vehicles when intoxicated.
Yet, with the worries surrounding data privacy, it's interesting to see the direction this company would take.
It's nevertheless exciting and the opportunities that reside within the patent filings of the company are certainly numerous.
Now, by now you should have a clear picture of what a stealth company is, the benefits of stealth-mode and which type of companies decide to go stealth.
The basic idea is that going under the vail of secrecy is certainly NOT for everyone.
It sounds exciting at first, but comes with an array of different challenges.
What's more, the benefits can quickly turn to downsides, if the timing is not right.
So, all in all, I would say that going stealth is certainly not for everyone.
But I would LOVE to hear your thoughts.
Have you ever come in contact with the stealth startup world? Ever been in one? Ever run one? Share your experience down in the comments section below. Can't wait to hear your thoughts.
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