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July 30, 2005

Stealth Mode: Pros and Cons

One of the topics that frequently comes up in venture capital is the relative importance of secrecy. 

Entrepreneurs are typically obsessed about keeping their “great ideas” secret — hence their obsession with NDAs and with Patent “Protection”.  It’s natural for entrepreneurs to overvalue the idea phase and undervalue the execution phase.   And it’s natural for VCs to overvalue the execution phase and undervalue the idea phase.  This is the dance we all know well.

Although secrecy can be important from time to time, the period of secrecy should be kept as short as possible.  The risk of probable faulty intellectual capital formation that results from isolating a team from real world feedback far outweighs the improbable benefits of secrecy

In general, full disclosure and vetting of ideas will strengthen, not weaken, a company’s position.

Apparently, this is not a consensus view, however — judging from a recent topical thread from the VC blogosphere. 

 

Stealth Mode — Cons

That said, Mark Fletcher, founder of Bloglines, wrote an interesting post on the relevance (or irrelevance) of Stealth Mode for Internet Start-ups in his Winged Pig blog. Written as a rant in response to Marc Andreesen’s “Stealth Mode Start-up” 24 Hour Laundry, it’s definitely worth reading the original post in its entirety (Stealth Start-Ups Suck). 

Stealth mode is when a company is operating in secret for some length of time before launching their product or service. In many industries, creating a new product or service takes significant time and effort. During this time, being in stealth mode may make a lot of sense.

But creating a new web service is not rocket science and does not take a lot of time or money. My rule of thumb is that it should take no more than 3 months to go from conception to launch of a new web service…

Why go fast? Many reasons:

  • First mover advantage is important.
  • There is no such thing as a unique idea. I guarantee that someone else has already thought of your wonderful web service, and is probably way ahead of you. Get over yourself.
  • It forces you to focus on the key functionality of the site.
  • Being perfect at launch is an impossible (and unnecessary and even probably detrimental) goal, so don't bother trying to achieve it. Ship early, ship often.
  • The sooner you get something out there, the sooner you'll start getting feedback from users.

Being a bit harshly axiomatic myself from time to time, I really like Mark’s Rule:

The success of a web service is inversely proportional to the secrecy that surrounded its development.

This is certainly consistent with my own experience and beliefs about best practices. 

 

Stealth Mode — Pros

However, Paul Kedrosky does not agree and posted an interesting response to Mark’s post on his Infectious Greed blog (Infectious Greed: Stealth Mode Startups Don't Suck).  Again, read the original, but on point —

It's sometimes good to be first. But many times (more?) it's not-so-good to be first. Look at the history of personal computer industry. Or hard-drives. Or more recently, look at web search tools. In the last case along we chewed through at least five companies, all of whom were in the market long before Google, before Google came along and swept up the market. Don't get so swept up in your urge for perceived primacy that you launch a product thinking that first-mover advantage is that big a deal. It isn't. [The Myth of First-Mover Advantage sounds like a good future topic for Sacred Cow Dung — cgm]

The reason why rational venture capitalists (and some rational entrepreneurs) go the stealth route isn't necessarily because they think they're the first ones to do technology X, Y, or Z. Sometimes that's the case, but more often it's because they see no need to prematurely advertise what they are doing. Reminding people about an emerging category in a marketplace flush with venture capital is dumb.

You can ship early and often to a highly-controlled list of users without exiting stealth. Semi companies do it, so do software and web services companies. Shipping early and often is great, but shipping early and often and wide is often just a way to piss off a lot of people quickly.

… You can get feedback just fine, thanks very much, without exiting stealth prematurely.

Comments to Paul’s response were also mostly pro — again, read the originals, but on point —

 Stealth should mean stealth, not coy. It means staying at home and working quietly, not hitting the bars and playing the tease and doing the flirt.

 One of the reasons companies stay "stealth" is because they haven't figure out their messaging yet. … it's important to get the message right at the start so that people don't get confused by frequent changes. Staying in stealth mode lets you do all the background work so that when you do go live, your message is clear and doesn't have to be changed a lot.

Jeff Clavier weighed in with the most balanced post (as per his usual thoughtful thoroughness) —

I have been browsing through the Slashdot thread on the topic, and there seems to be a bit of confusion around building 1) a startup in stealth mode and 2) being open and leveraging standards, 3) engaging with customers/users and 4) using a short/iterative production cycle.

I am advocating that not being stealth until the product is in some form of alpha or pre-alpha form is only applicable to a portion of the startups out there. These might be open source (Monty Widenius announced his intention to build an o/s SQL database to gather requirements, and co-development support), category creators or first movers (like Bloglines as a Web-based RSS readers "for the masses"), etc. Feel free to suggest any other "non stealth mode" candidate.

But I am totally for 2), 3), and 4) as characteristics of early stage startups.

However, Jeff Nolan weighed in with the following comments —

The stealth name thing really gets me though... the whole "we're so cool we're not going to tell you what we're doing and you'll want to know even more" attitude is lame. One of our early stage investments, T3Ci, was accused of being in stealth mode for a long time but anyone who wanted to know what they were doing we told 'em so it's kind of hard to say they were in super double secret stealth mode. Even the name was hardly creative, T3Ci means "The Tag Tracking Company"... there, the secret is out. Hardly as creative as "24 Hour Laundry" I will be the first to admit.

… the timeline and effort required to go from innovative idea to innovative product has shortened considerably, and in fact much of what it takes to develop a good service has little to do with some groundbreaking piece of code and more to do with refining, and more refining. It's still hard work and I really would not try to diminish it, but a lot of it comes from engaging your community early, not putting up black curtains. I don't know, maybe I'm talking out of my ass but it seems to me that there is always a hell of a lot more to be gained from being engaged than being shuttered, and if that's transparency then so be it. I can't think, off the top of my head, even one of these famous stealth companies that went on to greatness, can you? [emphasis added]

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Related Posts

Pro Stealth Mode

Con Stealth Mode

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Posted by cmayaud at 10:38 PM | Permalink| Comments (0)
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