When Silence is Golden

I had a friend ask me "why would a company ever want to be in 'stealth mode'? Isn't it important for the company and their products to get known ASAP?"

  

While it is only natural for an entrepreneur to want to tout the value and promise of his idea, sometimes that can be counterproductive to his long term success and even make raising money more difficult. Take the case of the wind farm developer. He has to lock down his options on use of the land before he can get any financing. The louder and longer he talks in the community around the site, the harder and more expensive those rights will be.

A similar case can be made on the technology venture front as well. I was at a major trade show some while back and a bootstrapped new company (which I'll cleverly call NewCo) had made a big commitment to exhibiting at the show.  It was touting a very innovative product for sale to utilities to help them meet some vexing environmental requirements at a very reasonable price.  As a cleantech investor, I was interested in learning more about the company behind the product.

If you are old enough to remember Tom Peters's book "In Search of Excellence" you'll also recall his advice to practice "Ready, Fire, Aim" execution of ideas.  The underlying premise of which was that companies tend to over-analyze their moves rather than making an educated guess, get it in the market and adjust from there.

This start-up was more following the execution plan of "Fire, Fire, Fire."  The show floor had every alpha and beta product they could box up.  Getting samples to the handful of utilities who showed real interest was taxing production capabilities. They did however, generate a lot of booth traffic with the product including inquiries from prospective competitors.  

Some of those prospective competitors even came back to the booth multiple times to talk to the young engineers who were flattered to have such attention and intelligent questions asked about their creation.

While I'm pretty sure there were some utilities who signed up to test the product, I haven't seen any word of purchase commitments and it's probably too early to expect them.  Also with development times as they are I still don't know if new, competing products are being feverishly engineered by more well-established companies in the field.  Nonetheless I was struck by this idea.  What if NewCo had taken a different approach?

Dream with me, for a moment if you will.  What if NewCo were able to quietly identify the types of utilities that would have a natural inclination to try their product?  They might also quietly strike up product evaluation arrangements. By taking on the prospects in a more controlled fashion, they could allocate scarce production units to the most promising utilities all the while keeping their financial "burn rate" under tight control.

When the Pacific Gas and Electric or other marquee utility is ready to put up the big purchase order, it is time to prepare the PR blitz. It's also a great time to get get serious with the venture capital community.  

On that well-planned day, NewCo announces its product, a big name launch customer and a war chest of money to build out production capabilities and its sales force.  The prospective competitors are saying to themselves "where the hell did these guys come from?" and berating their R&D staff for not having developed it first.

As long as NewCo can build on this early momentum and continue to land customers, the existing players can only try to play catch up until one of them finally says "we can't continue to let this growth opportunity elude us.  We have to buy NewCo out."

And that, ladies and gentlemen, is how entrepreneurs make money in the cleantech game.

Comments

[Finance Dissertation]

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