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Stealth Startups, Get Over Yourselves: Nobody Cares About Your Secrets

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When Preetam Mukherjee started Marcellus.tv in March 2007, his company was one of the very few players in the professional online video hosting space. He believed he was building a killer product that would become a blockbuster and would compete handily with the one established player in the space, Brightcove. To ensure that he wouldn’t tip off any potential competitors, he went into “stealth mode”.  Secrecy was the key to success. He would not even tell his close friends what he was building until his product was complete (after all, who can you trust these days?). Then he would send Mike Arrington an email, get a TechCrunch feature and watch fame and fortune beat a path to his door.

But as happens to nearly all secretive startups like Marcellus, the blockbuster never materialized, and the attention never came. When Marcellus did come out of stealth in September 2008, there were many online video platforms available, most of which had better features than Marcellus. Preetam got his TechCrunch mention and experienced a huge spike in traffic for a few days. But when the dust settled, he found himself back in obscurity. Moreover, it was like having a really bad hangover—his product didn’t entirely meet customer needs and no one seemed to care.

As I’ll tell you later, Preetam’s story does have a happier ending, but that’s not how it is for most startups. That’s the problem with stealth. Startup guru, Eric Ries says one or two of every 10 companies he meets have what he calls a “stealth-disease”. They are too afraid to show something imperfect to the world or are afraid that a competitor will steal their idea. And they think that when they launch their product will make front-page news and grant them blockbuster success. Wasn’t it Ralph Waldo Emerson who wrote, “Build a better mousetrap and the world will beat a path to your door”?

Well, Emerson was wrong. The harsh reality is that even if you did build a better mousetrap, no one would find you. To be known, you have to have a great story and tell it to the right people. And to build a great product, you need to get all the feedback you can from potential customers, marketing experts, venture capitalists, lawyers and accountants.

When you’re starting up, you usually have a great idea and think you know what your customers need. But your customers don’t even know what they need—they know what they don’t like and think they know what they want—but they don’t know what they need. Customers will ultimately buy only those things they really need – no matter how good your product or sales pitch.

Learning what a customer needs is an iterative process.  You try something, get feedback.  Both you and your customer learn more and you try again. You keep doing this until you have something which is so compelling that the customer will pay money to have it—that’s when you know you have a killer product. But you can’t get feedback if you’re in stealth. You only have yourself to talk to.

Most entrepreneurs say they are in stealth because they are worried about competitors stealing their ideas. This can be a risk if you have such a simple idea that just by hearing it, someone can replicate it. If this is the case, then you do have a lot to worry about. But even in this case, what will ultimately make the difference between success and failure isn’t your idea but your ability to execute and dominate your market very fast. You need a superb management team including top notch marketing and sales staff, great industry connections, and deep-pocked investors. You aren’t going to get any of these things by staying locked up in your basement.

If you’re competing with the big guys and are worried about them stealing your ideas, it’s the same story—it boils down to execution. As Eric Ries says, “If a startup can’t innovate faster than a much larger competitor, stealth isn’t going to make the difference —they’re toast”.  It may also be that fear of big companies is overblown: those who have worked for one know that it’s incredibly hard to get a manager at a big company to do something new, even if your goal is to give your ideas away.

What about the big PR moment? This is also not so simple. To get beyond a TechCrunch launch feature, you need to build a relationship with journalists and analysts. They need to speak to your customers and learn what they think of you. They want to see detailed market analysis and to gain a deep understanding of why this market is important. Beyond press mentions, PR is about relationships. If you want to get quoted, you need to be an easy source—be accessible, willing to give information on background, and don’t expect to be quoted.

There is no linear ROI in PR, which can be hard for techies to understand. It’s all about relationships and patience. Once you are mentioned in one publication, then it becomes much easier to leverage that into other coverage because you have a stamp of approval. But make no mistake, PR is a never ending process. One TechCrunch article may be a good beginning but it is never sufficient to ensure the success of a company. So all that time you spend in stealth not talking to journalists is time your competition has to build a strong relationship with the media while you sit around admiring yourself in the mirror.

In a few rare instances, stealth may make some sense. Celebrity involvement is one example pointed out to me by Mike Butorin, founder of Projec.to and Song.ly. If Ashton Kutcher is launching a company, then operating in public may actually distract the engineers from their jobs to the point that nothing gets done due to the media circus that ensues. Another good reason to be in stealth is if a company is built around a technology or idea that it hopes to patent but has not yet filed. In that case, stealth protects the intellectual property and the future of the company by raising high barriers to entry in the future. But these types of examples represent the tiny minority of startups. Most startups use ideas that others have had and will live or die based on how well they execute on those ideas.

So how did things turn out for Marcellus.tv and Preetam? They managed to recover from stealth-disease but only barely. After launch, Marcellus.tv spent a year in a closed beta, performing rapid-fire iteration based on regular feedback from early customers. Marcellus launched out of beta as a white-label video hosting and streaming service in August 2009 and was one of many in the space. But the company managed to keep prices at rock-bottom levels through smart usage of cloud computing. The sales team worked the phones and existing customers both to get feedback and leads. Word spread and the customer base grew. They expect to be profitable early next year. The company never developed a PR juggernaut but having loyal customers willing to recommend the service to others has thus far overcome that weak spot. Preetam’s parting shot to me was quite clear. “To hell with stealth,” he wrote in an email. Words to live—or die—by.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa.

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