Why Go Stealth When You Can Scare the Hell out of Your Competitors?

When is secrecy or “stealth mode” appropriate for an early stage startup? On one side, there are those that argue that ideas are a dime a dozen, it’s all about execution, and the benefits of gaining market feedback outweigh any risk of letting others know what you are up to.

On the other side are those who suggest that speed-to-market factors and proprietary technology approaches call for beginning in stealth posture. Chris Dixon says you shouldn’t keep your startup secret, Niel Robertson explains why Trada went stealth, and Seth Levine of Foundry Group lays out the pros and cons of both sides.

I think that both strategies have their place depending on the market and company development path. But let me be clear, as with many things in life, the real risk is doing either strategy half assed. Figure out whether your situation calls from openness or stealth, and then put the pedal to the floor in either case.

This post will explain how to steamroll your competition with what I call the “Radical Openness” strategy, and you can read about working in “Extreme Stealth” mode in Part 2.

 

Radical Openness

One of our portfolio companies is Quixly, they enable radical improvements in sales efficiency for medium sized logistics businesses by offering a simple set of APIs and packaged modules that connect their order entry systems to a range of mobile front ends and apps.

We sat down with the management team to look at their roll out plan and determined that they were a candidate for the “radical openness” approach. Others in the space understood the market need and the technology was not especially complex. We felt that an aggressive, “all in” approach was needed in order to assert dominance in the market, signal credibility to potential customers, and rattle competitors a bit.

Over the next month, Quixly launched the below billboard on 101 near the Burlingame exit as well as purchasing ads with similar messaging.

Within days, the sheer audacity of this approach rumbled through the Valley.

Competitors doubted their own business plans. Quixly’s suppliers and vendors backed off in their negotiations and partners rushed to ink deals with what was clearly going to be a winning company in this key space.

One founder of a competitor shuttered his company immediately and moved back in with his parents. He begged Cisco to give him back the middle management job he had left months earlier, which they did but with a 20% pay cut and a less desirable cube near an odorous vent from the kitchen.

The aggressive approach helped sow panic and discord among other competitors as well.  VCs with portfolio companies in the space saw the billboard, called emergency partner meetings and then dialed their CEOs for what must have been some unpleasant calls. An example is documented here:

VC:  “Do you realize what these guys are doing? They are NOT playing around.”

CEO: “I understand what you’re saying, but we’ve got our team in place, we’ve hit our milestones so far, and we have pilots with the two major customers we targeted. I’m not sure this should affect what we are doing.”

VC: “That’s your answer??!! These guys are serious. Do you really think you have the fire in your belly to deal with this? This is a knife fight, this is block-to-block urban warfare.”

CEO: “Uh, I don’t know…I guess we are…I thought we were in good shape…I don’t want anyone to get hurt.”

VC: “This is crazy. I do not want to throw good money after bad here, I’ve seen this movie before and I get paid to make the tough calls, we’re shutting you down and liquidating. Please get all the Aeron chairs out of the office and gathered in the center of the room so it’s easier for the movers to pick them up.”

Within a month, three key competitors had shut down or pivoted in panic to unrelated markets in which they quickly failed. Radical openness done right had served as an offensive competitive weapon.

Continue to Part 2 where I turn to how Extreme stealth is done.

 

Related Reading:

http://cdixon.org/2009/08/22/why-you-shouldnt-keep-your-startup-idea-secret/

http://www.trada.com/blog/the-stealth-mode-trada’s-position-on-staying-stealth/

http://www.sethlevine.com/wp/2008/02/to-stealth-or-not-to-stealth

 

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