If you’re starting your own company, it’s essential that you understand what a stealth startup is and how you can use this business model when starting your own company.
This article will walk through everything you need to know about stealth mode startups and how they operate.
Keep reading to learn more!
A stealth startup is a company that works on a new product in secret until it is ready to launch. Keeping your idea hidden from prying eyes is not so easy and takes a ton of work. But there are some great advantages to launching as a stealth startup.
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What is a Stealth Startup?
A stealth startup is a company (a startup) that is kept in the shadows (stealth mode) until it's ready to launch. It's a business that wants to keep its identity secret. These startups go to great lengths to hide their activities.
So they don’t have to disclose information such as their investors and what they are working on until they are ready to launch.
Usually, this means that these companies operate with little-to-no media attention or official websites – and sometimes not even company names. The main reason for operating in secrecy is to keep competitors away from copying your product before you launch it to the world.
What does Startup mean to be in stealth mode?
Startups in stealth mode strive to keep their true agenda as secret as possible by using a variety of legal tactics. While regular startups seek the public limelight, stealth mode startups take the opposite approach and keep their information secret.
Types of Stealth Mode
In general, there are two types of stealth mode:
1) Total Stealth Mode
A startup operating in total stealth mode tries to keep everything as confidential as possible. It may mislead its purpose to the public to keep its actions secret. It may also maintain a website that does not display its personnel or location information.
Moreover, there are chances that it may even operate under a temporary name that hides its business field. If you are confused about whether or not to build a stealth mode startup, this is the kind of stealth mode you would operate under.
2) In-company Stealth Mode
In-company stealth mode is when an existing company tries to keep a new project or idea as secretive as possible until it’s time to launch.
For example, Microsoft has a long history of assigning code names to its various projects such as Chicago for Windows 95 and Longhorn for Windows Vista in order to maintain secrecy.
To prevent premature rejection of an idea or concept, in-company stealth mode keeps external and internal stakeholders at bay. A business running under in-company stealth mode may implement the following tactics to keep its activities confidential:
- Covert testing
- Creating a cover story
- Allowing for additional resources to keep secrecy
- Engaging informal sponsors
- Requiring project employees to sign an additional non-disclosure agreement (NDA)
As an entrepreneur starting out, you will probably not require this type of stealth mode until your company is preparing for its next release.
How are Stealth Startups different?
Startups that operate in stealth mode are not open about their products or services, nor do they make public announcements or seek the endorsement of any kind. In fact, the funding for stealth startups is done as secretively as possible.
Moreover, stealth startup founders can't draw attention to themselves or their companies.
How to find a Stealth Startup?
Startups in stealth mode are not easy to spot, but there are always signs. The websites and public material are often sparse in detail. But they get a lot of funding and a handful of successful investors. That’s usually a strong clue.
It is not usually possible to identify stealth startups, but venture capitalists are sometimes identified once you inspect their portfolios.
Venture capitalists are often compelled to disclose their investments. Checking their portfolios, you may discover companies with little information and long blank histories or companies with obscure names and sparse details. These all are clear clues.
However, you are unlikely to find such companies in new technology incubators or other organizations that encourage public participation. A stealth company strives to keep away from the limelight and avoid public attention.
Benefits of Stealth Startups
Here are some benefits of stealth startups:
No Early Attention
When your company is in stealth mode, you can avoid the immediate attention that accompanies announcing your product or service. This allows you to quietly develop your offering in private, without having to answer questions about when you'll be ready for launch or deal with prototypes being leaked.
Secured Intellectual Property
This is also critical for companies that have not yet secured their intellectual property from a legal perspective (e.g., those that have not registered their trademarks yet) or for products that are not yet ready.
The competition has the least time to react if the startup waits as long as possible to go public. During this time, the startup may establish a foothold with the audience, securing extra funding and more resources to build a new technology before revealing funding.
Drawbacks of Stealth Startups
So, what are the drawbacks of stealth mode startups?
Limits Customer Feedback
You are highly restricted in customer feedback. Since you cannot interact with the general public, how can you measure public responses or even determine the right market fit? This is a significant challenge, and one reason stealth startups seek experienced VCs that are capable of overcoming such pitfalls.
Limits Funding Options
Securing funding is the biggest hurdle in starting a stealth startup. At the same time, you can't disclose your products or services publicly, you lose a significant portion of the venture funding and investor markets.
This makes a lot of pressure on stealth startup founders to seek out private meetings, make a great first impression, and ultimately secure funding the old-fashioned way.
Limits Public Attention
You can't gain any “free” publicity. A stealth mode company must spend a lot of money on a massive reveal or large marketing campaign when it goes public. Public companies, on the other hand, can collect journalist attention, manage public opinion, and build a reputation over time.
When to launch a Stealth Startup?
You should launch your startup when you are ready in the following manners:
You already have a firm market fit
If you already have a firm market fit for your product or service, you may benefit from starting a stealth startup. If you are introducing a product that improves on (or is slightly different from) an existing product, you already know what the market is—the previous product defined it for you—so keeping it confidential can be advantageous.
You require time to work out new technology
It may take lots of time to perfect a heavily tech-driven product. If people found out what you were doing, larger companies with more resources might steal your idea, invest more money and manpower, and get it to market faster.
Operating in stealth mode gives you a leg up on your industry's major players. When you roll out your product, major companies will be forced to buy it rather than build it themselves.
You have a real disruptive startup
Very limited products cause a revolution in an industry or change the world. If you're having a tough time coming up with really disruptive brands, then have patience. And make sure that your product might be unique, interesting, and really disruptive like the Apple iPhone.
If it is, then by all means you are ready to launch your startup in stealth mode.
We hope this article has given you a better understanding of what it means when people talk about stealth startups versus regular ones.