There is cutthroat competition in the startup industry. Many startups fail miserably at a significant rate. A content site for startup founders, Failory, states that 10% of new businesses fail in the first year. This statistic is astounding, and many business owners ultimately fail to surpass it.
Occasionally, people opt to form a startup that operates in a brief state of secrecy to protect a new product and to choose their own pace for development. This mode is referred to as stealth mode. The startup’s goal in this mode is to keep out of the public eye until it is ready to go public. This article talks about stealth startups, how they work, their pros and cons, and much more useful information that will benefit you.
We all are huge fans of Agatha Christie’s works or have at least heard about how great she was with mysteries. Turns out that mysteries are not just relevant in the fictional world, but the business world makes equal use of them.
What is a stealth startup?
Cambridge Dictionary defines ‘stealth’ as a movement that is quiet and careful in order not to be seen or heard. Stealth Startup, thus, naturally refers to a startup operated in a manner unknown to the public. Stealth mode is a brief period of secrecy that ends when the business decides to go public and becomes more noticeable, typically when the product is finished and prepared for release. Total stealth mode and inside-the-company stealth mode are the two types of stealth mode.
Employees and other stakeholders in the project are also subject to a confidentiality obligation. Many businesses that operate in this manner have non-disclosure agreements and other policies in place to safeguard the technology and ideas.
How do stealth startups work?
To prevent the disclosure of any information to the public, a stealth startup works discreetly. They collaborate with limited partners. A stealth startup runs on a transient identity, business, and revenue model. It typically keeps its name a secret from the general public. Just to test the theories or be ready before the launch, the business and revenue models are quite basic. Stealth startups function on three wheels:
- Non-Disclosure Agreements – The backbone of a stealth startup is a non-disclosure agreement. Everyone aware of the startup’s true identity, including partners, workers, and investors, must sign a non-disclosure agreement.
- Temporary Models – During the stealth period, a company often concentrates primarily on refining the model and internal structure. This includes enlisting more stakeholders and partners and working with a small number of early adopters to comprehend consumer behaviour and needs.
- Devoid of Marketing – Startups that operate in stealth avoid the public and media. They carry out tasks covertly so that no one understands what they are actually up to. Furthermore, it prevents the company from making unnecessary early investments in things like promotions, branding, and communication.
Pros and cons of stealth startup
Every coin has two sides, and just like that, a stealth startup also has its pros and cons. Knowing the pros and cons of a stealth startup will help you decide what you want from your startup.
Pros of stealth startup
Stealth startup launches have their benefits, such as:
- Protection of Intellectual Property – Working covertly and not drawing attention to the company’s activities or services allows the business plenty of time to develop the concept into a workable model, file for patent protection, and acquire ownership of it before someone tries to steal it. Being discreet can sometimes afford enough time and money to file a patent because it is a prolonged and expensive process.
- Provides a competitive edge – Startups frequently decide to operate in stealth mode to ensure that they create something exclusive that offers them a competitive edge in the market. Although it takes time, most businesses find it worthwhile.
- Controls the Media – The secrecy of a stealth startup enables one to disclose to the public just the most crucial details, such as investments and significant collaborations. This helps keep the media at bay since no one wants disclosure of details without permission.
Cons of stealth startup
Being unknown isn’t always the best course of action because it has drawbacks of its own:
- Limited Feedback – Customers only offer limited feedback because they don’t know much about what the business is doing. The founders have to put two and two together on their own while acting covertly.
- Complications in Finding The Perfect Market Fit – The firm must at least partially disclose to the public what it is doing and what it’s offering to find the correct market fit. Finding the correct market fit is challenging when a hurdle is added by being stealthy.
- Precludes Making Deals – Being covert arouses mistrust and frequently prevents deal-making because prospective investors and partners are typically hesitant to work with a stealth firm.
Why should businesses opt for stealth mode?
The majority of stealth firms may involve some risk, but they have a lot of potential appeals. We bring you three reasons for opting for a stealth startup.
- Hide new tech – Companies in the heavy industrial, pharmaceutical or cutting-edge industries most frequently use stealth mode to protect their technologies. Keeping your plans a secret may assist you in avoiding having new technology and innovations copied by rivals.
- Prepare for a grand debut – Build the climax, and then make a grand entry! To make a big sensation when you finally make an appearance is another reason for businesses to opt for stealth mode.
- Avoid distraction – Stealth mode can be the best option for you if you want to concentrate on your product rather than on sales and promotion. Being in stealth mode helps avoid distractions and lets you focus on developing the product.
When can you launch a stealth mode startup?
Now that you know the pros, cons, and reasons to launch a stealth startup, it’s time to decide when to launch it. You can start your stealth startup journey when:
- You have a market fit – Starting a stealth startup can be advantageous if your product or service has a strong market fit already. Keeping it secret can be helpful if you launch a product that enhances an existing product because you already know the market as the previous product defined it for you.
- Have disruptive startup – A very small number of goods and services can revolutionise an industry or alter the course of history. Make sure your product, like the Apple iPhone, is distinctive, fascinating, and immensely disruptive. If so, you should launch your startup in stealth mode right away.
Where can you run your stealth mode startup?
Protecting your existing capital is crucial if you don’t have enough money, to begin with. The most excellent place for your stealth startup to be established is in a coworking space rather than paying exorbitant prices for a standalone space or being bound by a lengthy lease. A flexible office setting provides you with everything you need to complete the task, including the tools, facilities, furniture, and amenities, allowing you to concentrate on your main project.
Best stealth mode startup examples
One successful stealth startup example is all you need for motivation, and here we have got not just one but five best stealth startup examples for you.
- Coda – Previously known as Krypton, this company was founded by former YouTube CEO Shishir Mehrotra. The company discreetly created its masterpiece that gave Excel a run for its money with a $400 million pre-launch worth.
- Velo 3d – One of the most well-funded stealth startups in Silicon Valley, Velo3D, raised $90 million while operating in stealth mode. The business, a metal 3d printer, ran covertly for the first four years of its existence. The business now owns patents for manufacturing equipment that creates metal components for the aerospace and medical sectors.
- Mist Systems – The former Cisco CTO (Chief Technology Officer) kept the details of his new venture a secret when he left in 2014 to launch it. This startup acquired $144 million in venture finance after making its public debut to enhance networking using artificial intelligence.
- Koverse – Koverse is an AI company founded in 2012 that leverages big data to assist businesses in developing new products and services. Jon Matsuo, who started his career at Stanford University’s Artificial Intelligence Lab, launched the business. Koverse remained secretive because of its customers as they didn’t want to talk about what they were doing, quotes Matsuo.
- Forge.ai – Forge.ai is a Cambridge-based company endeavoring to comprehend unstructured data, which comprises approximately 80% of all global data. After spending a year in stealth mode, Forge.AI debuted in early December 2018 with a noteworthy $11 million Series A investment.
Manage your startup with Eqvista!
Stealth startups have pros and cons, although the success of some businesses demonstrates that sometimes the advantages outweigh the disadvantages. Make sure you follow the necessary measures to validate your business idea if you choose to launch stealth mode startup. Manage your startup equity and valuation with Eqvista to become one of the successful stealth startup examples.