Staying Stealth

When I started angel investing, staying stealth seemed to be partially in vogue. There were still a lot of entrepreneurs who wanted to stay stealth and they would ask me to sign an NDA before talking about their startup. Unfortunately, I can't sign NDAs in my business; if I did, I would quickly not be able to talk to anyone! But the world seemed to move to a more open working relationship and those who really wanted to stay completely stealth seemed to dwindle in face of the hordes of startups who didn't care.

Staying stealth was also a barrier to many startups working in the consumer space. At one time, if you could get on Techcrunch, you'd find yourself instantly with 100K users within a week and things would take off from there. You wanted to get out there as fast and as broadly as possible so that users would know about you and come and try you out. More importantly, there were not as many startups back then; thus, competition was always a danger but the rate at which competitors popped up seemed manageable.

Lately, though, I have found myself advising at least two recent startups to now stay stealth as long as possible. While their stealthness wasn't during the fund raising or development process, I thought it was now a bad idea to announce themselves to the organizations that cover or announce startups and is normally read by other current and near current entrepreneurs. This is because now the world has changed: it is much easier with today's tools to create a startup, and since so many people want to become entrepreneurs today, the likelihood of somebody just copying you is much higher than ever before. Internationally, there are already teams working solely with the aim of copying US based startups and launching them in their local countries.

Today, in my search for startups, I try always to work with startups with no or very few competitors; it's one of the most basic concepts for investment selection and in today's climate, it is back to being one of the most important. But given the ease at which competitors pop up, it now benefits a startup to keep from announcing themselves to other potential entrepreneurs for as long as possible so that you can get a headstart on your operations, customer acquisition, product development, and dominance. This is much easier if you don't have the typical 5-10 guys who seem to suddenly pop up every time a startup with a new idea gets funded (Or think Groupon, who has HUNDREDS of competitors).

My new word is: stay stealth for as long as possible to the places where other entrepreneurs tread often; go public only because you have to in order to gain customers and in those places which reach the general populace, which unfortunately does contain entrepreneurs but you can't really do anything about that.

2 Comments

  • Martin Shen wrote: 07/23/2011 1:58 AM

    I think it really depends on the company and focus. In the consumer world, staying stealth can work if you are nearly 100% confident in your abilities to create a product without much testing. This is a very rare case.

    Another time to stay stealth is, as you mentioned, if you have few competitors... and want to keep it that way. I think that this too is a rare case as there tends to always be some form of competitor in the consumer space. In the consumer space, i think it's best to push forward and iterate continually to create a better product faster. Unless the funding is announced, a clone is unlikely to appear until the company crosses 100,000 users. By then, they have had enough user interaction and domain expertise to move faster than would-be clones. Furthermore, follow those clones and see what they are doing wrong/right.

    I believe someone will always copy you... keeping stealth is a temporary solution... I think you ultimately just have to learn from the copy cats and be ready to move quicker.

    Reply
    • David Shen wrote: 07/23/2011 7:33 PM

      Any startup needs to get noticed at some point by their customers. However, you have to avoid those places where other potential entrepreneurs tread. I think that major media outlets can be OK, since there is way too much news for people to read all of it. But getting talked about in the usual places like Techcrunch or SAI or even in Forbes can be dangerous as they are popular hunting grounds for entrepreneurs.

      But you make an interesting point - given today's world where so many, maybe too many, people want to become entrepreneurs, then launching a consumer product can be extremely tough without some other unassailable competitve advantage. Going out there with a copy-able product is only going to get you copied and you'll find yourself slicing up the population into ever smaller chunks until nobody can win big. However, if you can go out there by staying stealth to the popular entrepreneur media outlets and finding a way to get users without using popular media would be unique indeed. Then staying stealth as long as you can until you surprise the world by going public with already millions of users - that could give you an unassailable lead against any competitors.

      Reply

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