What is a stealth Startup? What are the pros and cons?
Stealth startup is rarely talked about, and for a good reason. Stealth startups run in the shadows. Though it might sound sneaky and suspicious, stealth mode is a valid strategy for a startup.
What is a Stealth Startup?
A Stealth startup is a company that operates in “private” and avoids public attention. While many startups are trying to capture as much public attention as possible, stealth startups cover their plan from the public through a lot of legal protections and only publicize general information about their startup. Because of this, stealth startups did not do crowdfunding and focused on finding private investors instead. Startups’ stealth mode only happens temporarily (the first couple of years), and they will come up to the surface when they are ready.
Types of Startup Stealth Mode
- Total Stealth Mode: When a startup tries to not disclose any information about their company to the public or competitors. In this mode, a startup can even use a different name and mislead the public attention to cover their actual goals.
- In-company Stealth Mode: when a startup did not disclose any information about their new project/subsidiary before launching it.
Example of Stealth Startups
One of the famous examples is Siri. Siri started under “Stealth Company” and then rebranded as Siri. Before being launched, Siri used to be part of the SRI International Artificial Intelligence Center and later branched out as an independent company. Siri was released as an application for iOS in February 2010. Siri’s decision to remain in stealth mode is reasonable considering its advanced technology development took quite some time, so it is better to hide it from the competitors.
The Pros of Stealth Startup Strategy
1. Protect Intellectual Property from Competitors
Running in stealth mode is essential to protect the company’s idea from competitors. Developing a business idea takes a long time, and disclosing information about the prototype is risky. Other more established companies may steal the idea, create the product, and register the patent much faster.
2. Be Competitive
During the stealth mode, a company can observe the competitors and create competitive products. Beyond that, a stealth startup can also collect more funding from investors. After meticulous planning and development, a stealth startup can come out to the public and introduce its innovative product to the market.
3. Avoid Early Attention
Early attention can be a boomerang for a startup. Early attention comes with expectations from the public, and it pressures startups to launch their product as soon as possible. This is risky when the product is still premature. The public may have an adverse reaction to the product.
The Cons of Stealth Startup Strategy
1. Limit Funding Opportunity
Stealth mode limits the funding opportunity of a startup. Usually, a startup has various funding sources, either from Venture Capital (VC) or the public through crowdfunding. Since stealth startups avoid public attention, they can only seek funding from angel investors or Venture Capital (VC).
2. Less Feedback from Customers
Customer feedback is vital to finding a product-market fit. Companies can test their Minimum Viable Product (MVP) and evaluate the public reaction. However, since a stealth startup operates in “shadow”, there is less opportunity to test the prototype.
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