Wednesday, April 6, 2011

Is Stealth Mode Stupid?

A number of people I have spoken to recently have repeatedly pointed out that being stealthy is stupid for a startup.  In this post I argue for a more nuanced view - there are times (and types of companies) that you should talk about themselves a lot, and there are times (or types of products) that if possible, you should keep completely off the radar.

Arguments made against stealth mode and for talking openly about your startup
  • People will know how to help you.  When we were working on Mixer Lab's product, GeoAPI, talking about it openly led to introductions to potential customers and partners.  People knew what we were doing, were excited about it, and wanted to help.
  • Investors and potential employees will get into the hype.  It is easier to hire people and raise money on better terms if you are a well known startup.  Talking at events like TechCrunch disrupt helped Mixer Labs build that hype with the right community.  Hiten Shah, from KissMetrics, is an example of someone who has done a great job at brand building.
  • PR may be a way to acquire customers.  Hype often translates into articles, which for some businesses equates with customer acquisition.  Some companies use PR as the primary vehicle by which they grow.
  • Example: Foursquare.  Foursquare is a great example of a company that benefited from ongoing hype and PR.  PR helped to drive users, as well as significant awareness of the company leading to opportunities with media partners like Bravo and brands/shops for badges and mayor specials, and their establishment as the leader in location check-ins.  This in turn led to more hype so the cycle self-sustained.  In the Foursquare example, it made a lot of sense to talk very openly about the success the company was seeing.
Ways talking too much about your company can hurt you
  • You may create unnecessary competition.   
    • Example 1: GroupOn.  GroupOn was completely off the radar for its first year or so.  As a Chicago-based company, no one had any idea about who they were, or what they were doing.  Then GroupOn came to Silicon Valley, and spoke to a bunch of VCs about raising a round.  A number of these VCs told their portfolio companies or friends about GroupOn (and their amazing financial numbers), and a few months later there were a dozen GroupOn clones in Silicon Valley, including LivingSocial who pivoted into the space (and just raised $400 million to compete).  Given that GroupOn's primary customer acquisition vehicles are email lists, social media shares and SEM, having a lot of PR hype and other types of attention may not add much to customer or merchant acquisition relative to the cost of creating competitors.  Is GroupOn still the market leader through sheer execution?   Absolutely.  Would they have been better off with an extra year to innovate, gain share, and expand internationally?  Probably.
    • Example 2: Google.  While Google has a very open culture internally, externally Google has traditionally given very little away up front.  This worked to Google's benefit with AdWords and search marketing.  Search was seen as the unsexy, non-monetizable part of the web world.  Companies like Yahoo! and AOL actively outsourced their search businesses to focus on more important things.  In parallel, Google implemented their AdWords model and watched revenue grow at an astonishing rate.  Rather then rush to launch a press release with their financials and growth rates, Google kept the news VERY quite.  When the company went public, people were surprised by how big they had gotten.  I remember hearing Larry Page speak about this.  The way Larry put it was search was like a candy store.  All of Google's competitors were initially outside the candy store, looking for all the candy, while the Google guys were quietly in the candy store, eating their fill.  Being stealthy can help. 
  • You may give away your competitive advantage.  You should be selective in what you talk about.  Telling the world about the two things that are really driving sales for your company may expose the week spots competitors can use to gain an advantage.  Information is power.
But isn't it all about execution?
I think execution is absolutely key.  It is always necessary, but not always sufficient.  GroupOn and Google would not have won to this point without execution.  But personally, I would much rather not create the competition to begin with.  As a startup, life is hard enough already.  Creating competitors for no good reason other then "execution trumps all" seems like a bad strategy.  Should you be open about what you are working on?  I think the answer is "it depends".  Google was very open about its search engine and talking about its benefits, but initially quite quiet about AdWords.  This is the right mix of open and closed.  

What sorts of companies should hype things up?
All else being equal, I would err on the side of talking openly about what you are doing.  Early on at Mixer Labs, we tried to be stealthy and I don't think it helped us much (and may have hurt us).  That said:

If something is working at scale and you do not have any competition, and your expansion does not depend on PR/broad awareness, you should stay more stealthy.  Or, you can chose Google-style, to be stealthy about how well the business model is working, while hyping up the consumer side of the product which will benefit from all the attention without necessarily creating more competitors.

In contrast, if your growth depends on PR/awareness, the market is already competitive, and you are trying to break away from the pack, tooting your own horn and talking about your success can help a lot.  This is true of many consumer Internet companies whose growth is driven by PR/customer awareness or companies where establishing partnerships would benefit from the attention.

Thoughts?  Comments?  Examples of how stealth or hype helped or hurt a company?  Let me know!

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