Understanding Stealth Startups
Stealth startups are new companies that operate in secret in the early stages. To keep ideas protected while developing products or services, founders of stealth startups don’t reveal details about what they are working on right away.
In many cases, stealth startups stay in "stealth mode" so that competitors don't copy their ideas, and so they avoid too much hype and pressure before they are ready to launch. Once a stealth startup has a working product and is ready to go to market, it will "come out of stealth." Then, it will promote the company openly and try to scale quickly.
Staying stealthy at first allows startups to work on innovating without others watching too closely. The stealth startup strategy comes with advantages and disadvantages for those determined to fly under the radar.
Types of Stealth Modes
To understand the ‘why’ of starting in stealth mode, you should first understand the different types of stealth modes startups choose: total stealth mode and in-company stealth mode.
Total Stealth Mode
Total stealth mode is when a startup operates with the utmost secrecy, not revealing any details publicly about its work. In total steal mode, founders often do not share information on the product, technology, team members, or even the startup's existence. Everything is kept confidential within a very small, closed group.
This heightened stealth approach aims to protect intellectual property and maintain the element of surprise until launch. It allows the startup to develop something groundbreaking away from the industry radar. However, total stealth comes with heightened risks, as it relies on keeping everything internal.
In-Company Stealth Mode
In-company stealth mode refers to when a startup keeps its project hidden within its own company walls, but the company itself is known to exist. The startup will often have a generic company name and website, providing no real details on what they are working on. Even most employees in the company may not fully know the specifics. Typically, only the core founding team and essential staff are involved in the project.
In-company stealth mode provides more cover than full stealth but still allows the startup to work in secret and avoid revealing details prematurely. The stealth project can privately advance using the resources of the broader known company.
Benefits of Stealth Mode Startups
Now that we’ve covered what a stealth mode startup is and the difference between in-company and total stealth, it is important to understand why a founder might choose to operate in stealth mode.
Building in secret allows founders to assess the competition, create an MVP, and even possibly secure funding to launch a more finalized product. Compared to startups launching publicly, stealth startups can get a leg up on the competition without them knowing that it is happening.
Securing Intellectual Property
If you have private connections to investors, securing funding in stealth mode could mean a leg up on the competition. Rather than securing funding after launch, funded stealth startups can build to compete before their competitors know they are coming, strengthening their competitive advantage.
Building Mystery and Hype
A big launch is a great opportunity to get customers interested in your startup right away. Building in secret allows startups to control the build anticipation for their product or service and even start a waitlist to secure customers early on.
Avoiding Public Failure
It is no secret that more startups fail than succeed. If you are still validating your startup idea, starting off outside the public eye means avoiding a failure in the public square.
Plus, it could give you time to pivot your startup idea before launching if necessary.
The early stages of any startup are crucial to building a strong foundation for scale. By building in stealth mode, you are preserving your focus and setting you and your team up to dedicate precious time to creating value — distraction-free.
Cons of Stealth Mode
Choosing to start as a stealth startup has several advantages. However, it also comes with a variety of risks, from losing valuable feedback opportunities to being overlooked for fundraising.
If you plan to market to customers during the early stages of your startup, being in stealth mode may make that difficult. Unlike public startups, traditional marketing won’t be possible in stealth mode.
Therefore, you will need to dedicate time to target specific groups of customers strategically to protect your company as you build.
Limited Feedback Loop
Feedback is crucial to the success of any startup during its lifespan. During the early stages, it is especially important to find product-market fit. By launching in stealth mode, your startup will be limited in the feedback it can receive from outside sources, making it difficult to validate product market fit.
Whether it is from investors, customers, or potential hires, it is difficult to establish trust as a stealth-mode startup. Since it is difficult to find information about the company, investors will likely need to be found through private networks.
In terms of hiring, founders will need to hire carefully and slowly to maintain the barrier they have created, which could limit the company’s talent pool.
Increased Pressure on Launch
In stealth mode, launch is the crucial moment when your startup finally meets the public eye. This can be an extremely exciting time for your company; however, it can also mean increased pressure to ensure your launch is seamless.
Compared to the standard startup launch, a stealth-mode startup has already had a great deal of time and labor dedicated to building the company. Therefore, there is a lot more at stake, especially if you’ve already taken on investment.
Possibility of Being Overlooked
Being outside the public eye has benefits for startups looking to build in private. However, it can also mean being overlooked by investors and top talent who are looking for brand credibility before joining your startup.
To avoid being overlooked, you should either have a strong network before launching in stealth mode or be ready to build one carefully while starting your startup.
Stealth Startup Examples
Despite the risks involved, some companies have launched startups and projects successfully in stealth mode. These startups are examples of both in-company and total stealth mode.
Microsoft is notoriously known for in-company stealth projects and hiring. In fact, Windows 95 was developed under the codename Threshold before being released in 2015.
When Quiet Mind founder Mikey Goldman had the idea for the Original Weighted Pillow, he knew it would be an easy idea for more established competitors to replicate. Therefore, the founder launched in stealth mode until he was able to patent his product and bring it to market.
Coda, founded by Shishir Mehrotra, a former YouTube executive, was originally under the name Krypton before being released. When launched, the startup was already valued at $400 million.
After spending a year in stealth mode developing technology to organize unstructured data using AI, Forge.ai launched with an $11 million Series A round. The company was then acquired by FiscalNote.
Should Your Startup Go Stealth?
Choosing to build in stealth mode comes with benefits and drawbacks. Depending on the strength of your network and the amount of competition in your sector, launching in stealth mode may protect your intellectual property as well as defend you against the competition.
However, it is important to assess the risks involved, including limited feedback loops and lack of exposure for top talent and investors, before choosing to launch in stealth mode.
How long do startups stay in stealth?
Startups typically stay in stealth mode until their minimum viable product (MVP) is ready to go to market. This can vary depending on the company and any complications that may arise during the development process.
What is an example of a stealth mode startup?
Microsoft is a notorious example of an in-company stealth-mode startup. The company has a history of launching and developing projects under code names before releasing them to the public.
Coda is another example of a total stealth mode startup, developing their product under a different name before launching their startup in public. Since launch, they have achieved a $400 million pre-launch valuation.
Should I join a stealth startup?
Joining a stealth startup can have benefits and risks. As an employee of a stealth startup, you could be a part of an explosive innovation in your sector. However, with little information provided about your potential employer, you are taking a risk by joining their operation.
How do I find a stealth startup?
You can often find stealth startups by reviewing investors' portfolios, as many venture capitalists are required to disclose investment information.