To Be or Not to Be: A Stealth Startup

With an increase in the number of startups operating in stealth mode in 2024, we break down the ins and outs of this secretive yet seductive technique 

If there’s one thing more difficult in the world of entrepreneurship than raising funds, it's raising funds for a top secret product that only a handful of individuals have access to. Convincing investors to participate in rounds is already challenging; add on a thick layer of secrecy around the product itself, and we’re talking a whole other ball game of difficulty. So then, what is all the fuss about? Why are startups seeking this operative method? And how do startups like SpaceX become titans of their industry from such a discrete starting point? 

What is stealth mode startup?

As the name suggests, a stealth startup is a startup that deliberately operates in a classified manner. This undercover style goes beyond just plain old secrecy, but is, in fact, a strategic method in today’s high pace and highly competitive market. We live in an attention economy where demand for novelty is higher than ever. So, when startups operate in stealth mode, they are able to keep their innovation in-house, prevent competitors from exploiting their ideas and concentrate on fine tuning their product(s) in a closely monitored environment. To make things even clearer, we can divide stealth mode into two types, total and in-company stealth mode.

Total stealth mode: A startup in total stealth mode operates in complete secrecy until they are ready to take a product to market.

In-company stealth mode:A company that already has an existing business, but is developing a new product in secret, is operating using in-company stealth mode.

What are the advantages of stealth mode for a startup?

As soon as a startup announces publicly their product development and the proverbial cat is out the bag, the pressure from market forces will just be round the corner. That's why operating in stealth mode can be advantageous. But it doesn’t end there. In fact, there are a plethora of reasons why startups are choosing this method; in general, the pros of entering stealth mode are:

• Competitive edge - Startups are innovative by nature, which means they're likely on the cutting edge of some sort of technology. By operating under the radar, startups protect intellectual property and delay competitors from copying or piggybacking on their ideas.
• Maintain focus - Without the fanfare of public and media attention, or the glamor of the startup bubble, the team can concentrate on the long-term vision and build a breakthrough product, without external prying eyes. With breathing space to refine or redesign, startups can develop truly disruptive products and set their own pace for its development.
• Optimize resources - Most businesses spend a fortune on PR and marketing, however, a very silver lining when operating in stealth mode is reduced spending in these areas, instead funneling capital into developing the perfect product. 
• Control the narrative - Operating in stealth mode isn’t just about gatekeeping technology or ideas, but it extends to controlling the perfect entry to market. With the right story at the right time, a startup can create an atmosphere of excitement and buzz that can directly influence its success.  
• Create exclusivity - For some VCs, highly confidential projects with potential are extraordinarily appealing. Creating intrigue and mystery around a project might just secure a startup their round of funding. 

What are the inconveniences of stealth mode for a startup?

Have you ever been building up a story to tell a friend that in your eyes was gut wrenchingly funny, and the moment the punch line drops it no longer seemed funny? Well, same-same but different: over hyping a startup not only isn’t funny, but can be catastrophic to the business. Let’s take a look at some other drawbacks of operating in stealth mode for a startup:

• Product development - If a startup is developing a product in a vacuum, it's possible that they over invest in particular features or solutions that don't accurately depict market trends or needs. This can prove suicidal for a company and has serious ramifications if a product swings this way.
• Marketing challenges - Branding has always played an important role in acquiring and maintaining a loyal customer base. With reduced public presence, stealth startups can significantly hinder product adoption and lose out on building credibility with potential customers. 
• Issues with fundraising - As mentioned above, some VCs are motivated by secretive startup operations, but for others, investing in a product with an unproven demand is a risk they’re just not willing to take. Finding capital for a startup which is unable to share information about its product can prove next to impossible.
• Difficult to attract talent - When job seekers are on the lookout for potential work, one way to discourage commitment is by sharing limited knowledge on the type of work involved. Without a solid brand, proving credibility to potential hires is challenging. 
• Limited access to the ecosystem - Networking is a huge part of the startup culture, where founders can connect and gain support from other entrepreneurs and investors. Operating in isolation reduces these sometimes game-changing interactions, along with all the other benefits of being integrated into a startup ecosystem.
• Regulation issues - In certain industries, tight regulatory frameworks can hinder the progress of stealth startups and unexpected product releases may be met with concern and backlash from regulatory bodies.
• Lack of feedback - One way that a startup knows it's headed in the right direction is by analyzing feedback from early adopters. This customer feedback identifies possible issues early on, critical for product development and growth. By keeping the work under wraps, stealth startups rely on assumptions and can lead to overshooting or missing the mark entirely - a very costly miscalculation!

How do startups operate in stealth mode?

Among the roster of successful stealth startups, we find companies like SpaceX and LinkedIn, proving that this strategy can pay off in an astronomical way (yes, pun intended!). For Elon Musk’s SpaceX, developing its groundbreaking rocket technology out of the public eye meant that when they finally broke the market, they had the innovative technology to catapult them into the lead. So then, if there are successful stealth startups, what is it like to be on the inside?

Raising Funds 

As expected, raising capital while in stealth mode can be a rather tricky and delicate mission. So, when it comes to finding the finances, startups tap into personal networks to build a trusted web of contacts, which usually leads to angel investors familiar with the risks associated with stealth startups. In addition to these risk tolerant investors, specialized VC funds that focus on stealth startups have a significant part to play in financial support.

Hiring a Team

Far from being a typical recruitment approach, assembling a team for a startup in stealth mode is highly covert. Not only must a team comprise talented individuals, but people who can also keep their progress to themselves. In fact, it's common practice for employees to sign an NDA. Finding a trustworthy and dedicated team is vital for any successful stealth startup, that's why building a solid network of personal and professional people is essential in finding talented and trustworthy experts. 

Is stealth mode the right option for my business?

Deciding on whether to operate in stealth mode is no easy task, when both pros and cons weigh in with convincing evidence. However, one way of answering this is to assess if you have a really strong reason to operate in stealth mode or not. If the answer is no, then it's likely it won’t be necessary, freeing up all the potential benefits of operating with a public profile. On the other hand, if your product is highly disruptive but requires steady development, operating as a stealth startup may be the best option. 

In the spirit of finding a happy medium, some startups opt for a semi-stealth approach, which pulls together benefits from both sides. This could mean limiting the amount of public information around the product and refraining from press releases.

Ultimately, stealth mode for startups is a double-aged sword. Founders must sincerely evaluate their particular industry, address the company’s goals and consider if the product itself will do better in stealth mode or not. Finding just the right balance between discretion and disclosure enables startups to secure funding for their stealth mode startup.