Public vs. Stealth Operations
When launching a new life science research business, product line or product, either within an existing company or as an entirely new startup company, the question often arises as to whether one should initiate operations in “stealth mode,” and if so, for how long. This is especially true when a new platform technology with potential broad utility is involved. The alternative is to be transparent with the public from the start about the vision and objectives of the new venture, attempting to raise awareness and stake a claim.
I’ve recently had discussions with several CEOs about which approach is preferable. A related question is whether or not to develop early partnerships under which technology access is provided to another party, either broadly or in some narrowly defined manner. Yet another related question is whether to develop products enabling “research use only” customers to work with the core technology, or to limit access such that your company can be the only one to develop applications of the underlying technology, or to use it in the course of new product development.
In my opinion it’s not a matter of which approach is right or wrong so much as understanding the benefits and risks associated with each, and then choosing the one that leadership feels is most likely to result in a successful outcome. My natural inclination is to operate with public awareness rather than in stealth mode, and to leverage external partnerships to enhance time to market and facilitate adoption. Nonetheless, there are certain times when I’ve been convinced that secrecy and very tight control of technology access was preferable.
When deciding which approach to pursue and for how long, some of the pros and cons to consider include the following (as examples; not an exhaustive list):
Operating Openly and Selling Products as Soon and Broadly as Possible
Pros:
1. Early Market Penetration:
By launching early, the company can quickly establish a presence in the market, gaining first-mover advantage. This can be particularly beneficial in a rapidly evolving field where being first to market can translate into significant market share.
2. Revenue Generation:
Revenue generated from early sales can be reinvested into further product development, scaling operations, or funding additional R&D. This can reduce reliance on external funding and improve cash flow.
3. Customer Feedback:
Engaging with customers early provides valuable feedback that can be used to iterate and improve the product. This real-world data can help identify any unforeseen issues or unmet needs, guiding future development. What’s more, you have the ability to know who’s buying product and what they are using it for, which can help in focusing your commercial efforts, and in decisions around new product development. In addition, by developing close relationships with early customers you can access key opinion leaders (KOLs) who may participate on a scientific advisory board, or a major study, or an early access program (generating publications and presentations).
4. Brand Recognition and Market Presence:
Launching early helps build brand recognition and establishes the company as a player in the industry. This can attract partnerships, collaborations, and future investment, as well as increase customer trust and loyalty. Early traction with customers, and publication in peer reviewed journals, provides evidence for investors that your technology is real and interest is growing. It provides validation that the technology serves a need (and better than others!). It also provides evidence for investors that specific market opportunities you want to focus on are worth pursuing.
5. Competitive Edge:
Early entry into the market can deter competitors from entering the same space or developing similar technologies. It can also allow the company to set industry standards or benchmarks.
Cons:
1. Unoptimized Product:
Launching too early might mean that the product is not fully optimized, leading to potential performance issues or customer dissatisfaction. This could damage the company’s reputation and lead to negative reviews, impacting long-term success.
2. Higher Support and Development Costs:
An unrefined product might require more customer support and frequent updates or fixes, which can be costly and resource-intensive. This could divert focus from developing new products or improving existing ones.
3. Diluted Focus:
Selling broadly without a clear target market might spread resources too thin, making it difficult to effectively serve any one market. This could lead to a lack of differentiation and a weaker value proposition in competitive markets.
4. IP Risks:
Early exposure of the technology might increase the risk of intellectual property theft or competitors reverse-engineering the product. This is especially concerning if the IP is not fully protected or if the market is highly competitive.
5. Regulatory and Compliance Issues:
If the product is not fully compliant with regulatory standards, launching early could lead to legal challenges, fines, or recalls. This is particularly critical in the life sciences sector, where regulatory compliance is stringent.
Operating in Stealth Mode and Delaying Sales Until the Product is Fully Optimized and Target Markets are Chosen
Pros:
1. Product Optimization:
Operating in stealth mode allows the company to fully optimize the product, ensuring it meets high-performance standards and customer expectations. This reduces the risk of negative feedback and increases the likelihood of success upon launch.
2. Targeted Market Strategy:
By taking the time to identify and understand specific target markets, the company can tailor its product and marketing strategies to better meet the needs of those markets. This can lead to higher customer satisfaction and stronger market penetration.
3. Stronger IP Protection:
Stealth mode provides more time to secure intellectual property rights, reducing the risk of competitors copying the technology. A well-protected IP portfolio can be a significant competitive advantage.
4. Controlled Launch:
A controlled, well-timed launch allows the company to build anticipation and create a strong initial impact. This can be leveraged in marketing and PR efforts to maximize visibility and sales.
5. Reduced Risk of Reputational Damage:
By waiting until the product is fully optimized, the company reduces the risk of launching a subpar product that could damage its reputation. This careful approach helps build trust and credibility in the market.
Cons:
1. Missed Market Opportunities:
Delaying the launch might mean missing out on early market opportunities, especially if competitors enter the market first. This could lead to a loss of potential customers and market share.
2. No Early Revenue:
Operating in stealth mode delays revenue generation, which could strain financial resources, especially if the company is reliant on external funding or has high R&D costs.
3. Risk of Becoming Obsolete:
In rapidly evolving markets, waiting too long could result in the technology becoming outdated or less relevant by the time it is launched. Competitors may develop superior or more advanced solutions during the stealth period.
4. Increased Costs:
Maintaining operations in stealth mode without generating revenue can be costly. The company must sustain development, protect IP, and support ongoing R&D without the financial benefits of sales.
5. Potential Loss of Talent:
Prolonged stealth mode might lead to internal challenges, such as employee turnover due to lack of visibility, recognition, or the slower pace of product commercialization. Talented employees might seek opportunities in more dynamic environments. Sometimes operating in stealth mode can lead to creation of an internal culture that is more secretive and siloed, which can also drive some people away.
6. Fundraising challenges
Unless backed early by investors with deep pockets, it may be difficult to convince new investors to join in along the way. The absence of early traction with key customers, or compelling data that has been peer reviewed and published, may make fundraising more difficult.
Conclusion
The choice between developing novel life science research products while generating public awareness (and selling them as soon and broadly as possible), or operating in stealth mode until product optimization and market targeting are achieved, depends on various factors. Some of these include the maturity of the technology, the competitive landscape, available resources, and the company’s long-term strategic goals. Company leadership must weigh the trade-offs carefully to determine the approach that best aligns with their objectives, also considering market conditions. The decision is likely to be highly dependent on the unique attributes of the business opportunity, as well as the experience and preferences of the leadership team.
Lastly, it should also be recognized that the decision need not be all-or-none. There are hybrid strategies which can be created, such as holding most of the information about a new technology tightly, but still choosing to work with a single or limited number of partner(s) in one or more narrowly defined field(s). What’s more, it’s not uncommon to start out in stealth mode for some limited period of time before transitioning to a more public approach. The big question is when.