Stealth mode is a period when a company keeps its brand, products, or services secretive before launching. It is a common practice among startups that want to avoid giving away any information about their business model, products, or services to their competitors.
Established companies may also employ this practice to keep some of their projects secret. Here is what you need to know about how stealth mode startups operate, and why they do it.
What is the meaning of stealth mode?
The meaning of stealth mode for businesses is to make sure that their staff is not forwarding the company data (especially the valuable information) to others. This prevents competitors from having any insights into the company’s business model, its products, or its services.
Here are some examples of stealth mode startups:
- Magic Leap (VR /AR products)
- Zoox (autonomous vehicles)
- Mist systems (wireless networks)
- Aquifi (3D imaging)
- Spinluanch (space industry)
The importance of stealth mode for early momentum
Employees often forward the company's confidential data to others for personal benefit. Examples of this are sending a company's intellectual property (IP) to their friends, competitors, or outside companies.
The employees may do this for personal benefit (selling company secrets, blackmailing the company to increase their salary, etc). The other reason could be less devious: sending know-how to a colleague.
The original sender may not realize that they are breaching the company's policies by forwarding the data.
What is the point of a stealth startup?
Stealth mode is used to protect a business's products, services, or business models from being replicated or improved upon by a competitor. It allows the company enough time to develop its competitive approach, and it also guarantees that its competitive advantages will remain when it is launched into the market.
In industries with a highly competitive landscape, it allows investors and founders of the startup to protect their business.
Intellectual property secrecy and protection
The importance of protecting intellectual property for early-stage companies can not be understated. Often disruptive companies entering a competitive market will have new technology that will remove the need for an existing product.
Stealth mode is important for most entrepreneurs and new businesses to implement because an existing business may have extra resources to steal and develop the product first. They might also be able to develop a better version of the product or service since they are established companies with a lot more access to capital.
Why are companies in stealth mode?
Companies go into stealth mode for different reasons, since it offers several advantages. Here are 5 reasons for stealth mode startups:
- Manage public image and utilize press coverage to build hype around the new ideas as a marketing strategy.
- The product is still a rough mockup and they want to work at their own pace to ensure a world-class product.
- They are still in the early stages and require more money to fund the new project or hire business teams.
- Test ideas to find the product-market fit. Companies can start testing by getting user feedback with a non-disclosure agreement. The new product is often labeled with a code name.
- Hide information and technology from other companies.
How to identify stealth mode startups:
- Non-disclosure agreements
- Avoiding public attention
- Hiding products and/or services from competitors
How do stealth startups work?
Stealth startups work similarly to most other projects except with a focus on the privacy of information.
Stealth startups tend to focus on technology, but not exclusively. If a startup has a potential product that needs a large upfront investment, stealth mode might be a good way to protect the large initial investment. In their early days, very stealthy startups usually have a parent company that is larger and has been around for a little bit, or they are funded by large private investors.
Meet investors, and attract more resources
Stealth startups often hold meetings with potential investors before their product is public. So they can hear their feedback and cut down on the risk for investors.
Investors are regularly shown potential products before their release, but this is usually behind closed doors and they cannot disclose this to the public. Most startups are based on developing the product and then utilizing this product to bring in money.
Stealth startups work in the exact opposite way. They go out and find the money first, and then build the product.
Focus on the finished product
Sharing prototypes and code names can be common among an early-stage startup. This is the biggest reason for beginning so stealthily. Startups don't want their competition to get an idea of what they are doing, so they stay silent during most of the developmental process.
Their competition is most likely developing a product in the same field, so this would be a big advantage for them if they could get an idea of how to beat them first.
Keeping everyone happy
It is very hard for a startup to be public with their initial meetings because the first thing they want to do is show their product off. But this would immediately give away their company. The solution? Keep everyone happy by having to do two different things at once.
Make the product worthwhile
Startups need to develop their product in such a way that it is worth all of this secrecy. Anything sub-par would not be accepted by future investors.
So they have to make something incredible. The stealth startup model was designed to keep everyone happy while operating in secrecy, and with that in mind, it has worked very well so far.
How long is stealth mode?
A company’s stealth mode will last until the product, service, or business is launched onto the market. This will include the period of time when development starts, and when the company is able to improve its products and services.
What does it mean to come out of stealth mode?
Coming out of stealth mode means that a startup or company is no longer keeping its product, service, or business model secretive.
Is stealth mode a good idea?
Stealth mode is a good idea when an industry is highly competitive. This allows businesses to protect their products, services, and business model from being replicated or improved upon by a close competitor.
Given the extremely high competition among businesses today, it has become an increasingly common way for startups to protect their business.
What is a stealth investment?
A stealth startup is a new technology company that has "gone stealth" by not revealing its product or service offering before the time it starts to raise capital from investors. Typically they are in stealth mode when they are in the very early days of development, before having a product prototype or demo.
It is at this time that stealth startups protect their intellectual property, typically via patents and trade secrets. Stealth investments are more popular in the VC (venture capital) world.
This is because publicly traded companies are required to share important information such as quarterly earnings and other financial statements. These companies are often much more well established and have press coverage about their company that does not fit with the modus operandi of a stealth-mode startup.
Can you find out anything about competitors in stealth mode?
A general summary description is often the most you can find out about a stealth-mode startup. A stealth mode startups' very nature is to be secretive before their new product is ready to be brought to market.
Press releases for a company in stealth mode can be rare and there won't be much news coverage surrounding the startup. Employees working for the startup may give a general answer as they are operating in such a way that ensures their company has the best position for the launch.
Stealth modes that are designed well will make it a difficult hurdle for curious competitors to discover their strategy and new product ideas. If a company has accepted investors, you may be able to network with other stakeholders to find information.
Analyzing a business in stealth mode
As you might imagine, analyzing a business in stealth mode can be difficult. You may not be able to discover exactly what makes them a potential investment, but you can search for red flags. Investors will have their ways of identifying a red flag.
Here are 4 red flags when investing in a stealth mode startup:
- The company is more of a “hobby” than it is an actual viable business.
- They wanted to be "disruptive" and instead of focusing on building a business, they decided to go right to fundraising and saw raising money as a way to "validate" their idea instead of building a business.
- There is no real traction.
- It's hard to scale.
Analyze the CEO if the start-up is in company stealth mode
The details of a stealth mode project can be difficult to find. Most stealth startups will have a CEO, and that is public information.
Deciding if the leadership of a company can be an effective way of learning more about the business. This can help reduce your failure rate while investing in a stealth startup.
Be cautious if the CEO has these traits:
- The CEO is the only person on the team with any sort of relevant experience.
- The CEO can't identify their weaknesses or areas where they need help
- The revenue has come solely from the CEO Be creative in your approach to gaining information on a total stealth-mode startup.
Here are some questions to ask yourself:
- Do you know someone at the stealth mode startup?
- Are there any prior projects that they worked on in the past?
- Go to LinkedIn and see if you can find any information.
- Does the CEO have a background in the field of the company?
- Do you know anyone who worked with the CEO in the past?
- Does the CEO understand their role or are they taking on too many responsibilities?
- Is the CEO an expert in one specific area of their business?
- Does the CEO understand how to fully utilize their team?
- Does the CEO have a detailed product roadmap that they are following?
Do stealth startups pay well?
Employees at a stealth startup can expect to earn a salary ranging from $80k to $150k a year. For people who are paid close to the high end of that range, stealth mode may be worth it. Because the speed of getting their stealth product to market is truly important.
As an investor, stealth startups can offer substantial returns. This is because they are investing at an early stage, allowing them to be large shareholders as the company grows in market cap.
There are risks however as stealth mode can be a long-winded process with startups taking between 3 to 5 years to get off the ground. Total stealth mode also makes it difficult for investors to do their due diligence and make the most accurate decision.
Conclusion: Stealth Mode Startups Summary
- Stealth mode is a period when a company keeps its brand, products, or services secretive before launching.
- It is a common practice among startups who want to avoid giving away any information about their business model to their competitors.
- Established companies may also employ this practice to keep some of their projects secret.
- Finding information about a stealth mode startup can be difficult but being creative in networking can help.
- They have the potential for high returns and lucrative salaries.