What's a Stealth Mode Startup, And When Should You Consider Launching One
December 12, 2022
The startup world is incredibly competitive. In fact, the failure rates of most startups are very high. This figure is staggering and many entrepreneurs eventually find it impossible to overcome this fate.
Sometimes, to protect a new product and to set their own pace for development, people decide to launch a startup operating in a temporary state of secrecy.
This state is called stealth mode. In this mode, the startup aims to avoid the spotlight until it's ready to become public.
In this article, we will explain how it works, the reasons behind going into stealth mode, and the benefits as well as the challenges of operating this way.
What is a Stealth Mode Startup?
A stealth startup is a startup company operating in silent mode, in other words, avoiding public attention and announcements about its products.
Stealth mode is a temporary state of secrecy that ends when the company decides to become more visible and public, usually when the product is already developed and ready to launch.
The secrecy requirement also applies to the employees and other people connected to the project—many companies working this way have non-disclosure agreements and other rules to protect the technology and ideas.
There are two types of stealth mode: total stealth mode and in-company stealth mode.
Total stealth mode
A total stealth mode startup is a new company that starts and operates in secrecy until the launch. And it's not about just the public eye. Some companies would even go as far as not having any website or public profile during this stage. In contrast, other stealth startups simply avoid public announcements about their products and media attention.
In-company stealth mode
The term “in-company stealth mode” describes an existing business developing a new idea or product in secret. In this case, companies take various measures to keep that project a secret like dedicating human resources specifically to that project or using codenames for the new products.
Another difference between this and total stealth mode is that sometimes the development of a new product is also concealed internally, not only hidden from the public and the media.
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Although stealth startups stay away from the media, finding them is still possible. One of the best tools for that is our startup data. With it, investors can find founders of both new startups that are public and those in stealth mode.
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Reasons behind launching a stealth startup
Here are three common reasons why some people decide to launch a stealth startup:
- They have a unique idea that will disrupt the market. Therefore, they want to protect intellectual property as much as possible.
- The company is creating a solution or an upgrade to an existing product or service; therefore it doesn't need to find a market fit and doesn't want to alert the competitors.
- Product development is complicated and will take a lot of time.
The main difference between regular startups and stealth mode startups is the commitment to secrecy. Being a new company, a typical startup usually wants to be visible, build its reputation from the start, run marketing campaigns, see what reactions the product and the company is getting, and then look for funding opportunities.
Being in the public eye is in the very nature of a startup.
In comparison, most of these things are what a stealth mode company avoids in the project's early stages.
But is it worth it? Let's discuss the pros and cons of launching a stealth mode company.
Stealth mode startup benefits
Intellectual property protection
The main benefit of business operating in stealth mode is protecting intellectual property, which is especially important to those working with unique new projects.
Not having too much public information about the product prevents the idea from being copied and keeps it secret from the competitors.
Focus on the product
Stealth mode allows companies to set their own pace and launch when they are ready, without pressure from the outside.
Disclosing information about the project in the very early stages can also result in a premature dismissal of a good idea.
While it's essential to see what attention your product is getting, from client feedback to the media, it can be quite distracting and even demotivating. Not having to deal with it allows the teams to focus on the product's strategy and development.
Moreover, stealth mode startups don't need extra resources for marketing.
Control of public relations
When the startup is eventually ready to launch, it can start with a strategic campaign, manage its public image and build its reputation from scratch without a negative trail of public failures from the early stages of the project affecting it.
Stealth mode startup drawbacks
Lack of feedback
Keeping the product development secret makes testing and getting feedback harder. After all, even if the product seems to be in high demand, after you target customers, you might come to conclusion that the audience does not respond to it as expected.
Gathering feedback in the early stages makes it easier to decide what works and what doesn't. That's why stealth mode startups often rely on input and consultations with experts, stakeholders, investors or innovative testing methods.
Early feedback is a great help for companies still looking for the right market fit.
There are tools and methods for startups in stealth mode to test their products, however, it's not the same as being able to monitor the feedback they get organically.
Challenges attracting funding
The secrecy of stealth mode startups makes finding and attracting investors challenging. Usually, you can find a lot of information about a new startup. They have public websites, disclose funding information, show their teams, share feedback from customers, tell their story publicly, and more.
From the startup side, it's harder to approach and convince investors without client feedback or publicity. It's harder to discover these companies, determine if they are reliable, and do any research on them. All of these reasons limit their funding opportunities.
However, even though the process is more challenging, some projects operating in secret manage to secure impressive funding deals without public activities.
While stealth mode provides the benefit of being able to manage public image more easily, it also means that before the official launch and becoming more public, the company didn't attract much organic attention.
Because of this, the launch campaigns and the activities after the official launch, such as writing their own press releases and getting mentions in the press, require more resources and effort from the marketing and PR teams compared to those startups that gain attention and become known while still developing their products.
Stealth Startup Examples
Operating in stealth mode still doesn't guarantee that the business will remain secret. This year, Apple filed a lawsuit against a "stealth startup" for attempting to steal its chip technology secrets.
Stealth mode startup is not a new concept, and while it's not the right choice for every company, many startups find value in starting their journey this way. News about various companies launching with a bang after years of operating without attracting attention keeps coming all the time.
For example, just as I was writing this article, Lumirithmic, a 3D technology company, announced that they are exiting stealth mode after 2 years.
While some projects exiting stealth mode are relatively new and have just begun raising funding, others go from being secret to announcing their unicorn status.
Recently, Genomics, a California-based biotechnology company, exited stealth mode after operating in a temporary state of secrecy for 5 years. The company came out of stealth mode with a unicorn valuation.
Another unicorn company, Hailo technologies, exited stealth mode in 2018. The AI chip startup founded in Israel reached a $1 billion valuation after securing a $136M investment in 2021.
Although there are two sides to stealth mode, the success stories of some companies show that the benefits can outweigh the drawbacks.
When you are preparing to start an innovative business, it may help you to begin in stealth mode. This can give you an edge over the competition, help protect the products and services you are planning to provide to your customers, and ensure they receive an outstanding product.
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