From the April 2001 issue of Entrepreneur

Brian Sommer could have easily had his company written about in high-profile publications, lured world-class employees and set up meetings with deep-pocketed investors. Instead, the CEO of IQ4hire Inc. in Chicago flatly refused to answer reporters' questions for months, kept his job openings quiet and rebuffed venture capitalists who wanted to know what he was up to.

"Loose lips sink ships," Sommer says, explaining why he chose to operate his 40-person company in stealth mode for nearly six months. Specifically, Sommer feared that if word got out about his project to build an employment database to help large corporations find IT service providers, eager competitors would swarm in before sales got off the ground. Sommer also wanted to wait until he had the envisioned product perfected and patented.

Stealth mode is an increasingly popular operating style for companies that are incubating promising products or services. It often combines a genuine attempt at top secrecy with a paradoxical effort to generate buzz by appearing mysterious. "It's basically turning your company into a teaser campaign," explains Kevin Jones, an analyst and expert on B2B e-commerce companies at technology research firm Jupiter Communications.

Among the best-known recent cases of successful stealth is Transmeta Corp., a Santa Clara, California, company that kept its plans secret for five years, despite intense scrutiny, before unveiling its low-power computer processing chip in January 2000. Four months after its hotly anticipated announcement, Transmeta had raised $88 million from a list of blue-chip technology corporations and went public in a $273 million offering seven months after that-not bad for a company reporting 1999 sales of just $5.1 million.

Clearly, stealth can be an effective way to attract investor attention. It's even more important for getting a jump on imitators. "If you can get enough of your product built and keep a lid of secrecy on it," says Sommer, "you can build and bring to market a powerful image that no one else can compare to."

Neither Seen Nor Heard

Using stealth has been a common practice in business for a long time. "It's a new name for an old idea," says Howard Stevenson, a business administration professor at Harvard Business School in Cambridge, Massachusetts. For instance, he notes, well-known real estate developers like Donald Trump often secretly buy options on tracts of land when they're trying to assemble parcels for projects. Stealth has an eminently practical purpose in those cases. "If everyone knew who it was," observes Stevenson, "the prices would go up."

Stealth is also the way to go when you want to get a technical jump on your competitors. Companies go into stealth mode when they need time to develop prototypes or obtain patents on new technologies. If you don't keep what you're up to a secret, Sommer explains, bigger rivals can pull the rug out from under you by loudly trumpeting their plan to do the same thing. "They can visionware you to death, and they have the dollars to do it," he warns.

Stealth is most important when being first to market is a significant advantage-especially when it's the only advantage a business has. That's one reason the strategy is so popular among Internet entrepreneurs, where even the most original business concepts often can be, and have been, quickly duplicated by rivals. "[During the Internet boom], there wasn't a sustainable advantage," explains Stevenson, "other than being first and trying to capture the territory."

Quietly Scheming

Being stealthy involves more than just not saying anything. It actually requires a fairly formal set of tactics and strategies. For instance, Sommer says IQ4Hire placed special emphasis on strictly controlling the media and the public's access to employees. Sommer was a well-known software analyst at leading trend-tracking companies before becoming an entrepreneur, and software industry journalists and conference promoters showed acute interest in his activities. In his situation, in which members of his company scoped out trade shows where people were seeking IT professionals, "the most important thing you have to have is clear procedures about who will speak to the media and what kinds of events you will speak at."

Even when reporters aren't prowling around, stealthy firms typically require everyone privy to secrets to sign confidentiality or nondisclosure agreements. Investors, partners, suppliers, customers, prospects, employees and even job applicants may be asked to promise in writing that they won't reveal anything they learn about company activities. Unfortunately, nondisclosure agreements are sometimes difficult to enforce in court. And some people simply won't sign them. Venture capitalists, Sommer says, routinely declined to initial his confidentiality agreements, forcing him to seek money from individuals and corporations willing to agree to secrecy. "If you're trying to raise money in stealth mode," he says, "you've got a problem."

Stealthy strategies can get quite involved. For instance, many companies in stealth mode operate under a code name designed to throw the inquisitive off track. If your secrets are extremely sensitive, take extra care to physically secure them, keeping computers and files under lock and key, and even shredding your trash. That's not as paranoid as it sounds. Last year, Oracle CEO Larry Ellison admitted to hiring detectives to ransack Microsoft's garbage in an attempt to learn its archrival's strategies.

Stealth is not a risk- or cost-free strategy. Being stealthy can cost you customers, employees, partners and sales. You may have to pass on media interviews, meetings with investors and other opportunities that may be scarce later.

Stealth works best when you have a built-in ability to generate attention when you choose to. Most stealth successes involve very well-known people, such as Transmeta's Linus Torvalds, inventor of Linux, and Groove Networks' Ray Ozzie, creator of Lotus Notes. When these famous figures joined start-ups, inquisitiveness about what they were up to was intense. Without similar built-in interest in your company, you run the risk of remaining obscure even after you unveil your creation. "What if they don't take the bait?" asks Jones. "It can fall flat and be really clumsy."

Worth Shouting About?

Stealth has been popular in recent years in part because it was acceptable to Internet-crazed investors who were willing and even eager to accept ill-defined business models as viable investment opportunities. "You evade rational analysis of pluses and minuses with this," explains Jones. "It's a Wizard of Oz kind of thing. It keeps them from looking at the man behind the curtain."

In a more sober business environment, stealth may retreat to the shadows of business strategy. Or its recent successes may lead more businesses to employ it as a proven tool for getting underway without divulging the goal.

Sommer figures stealth mode made the difference between flying high and fizzling out for him. As proof, he says, several would-be rivals found themselves so far behind IQ4Hire that they signed up as partners and abandoned plans to bring their own offerings to the field. "We absolutely got more than a six-month jump on competitors," Sommer says. "It was a perfect end result."


Mark Henricks is an Austin, Texas, writer who specializes in business topics and has written for Entrepreneur for 11 years.

Contact Sources