Chapter Ten
The Shadow Warrior

IT’S HARD TO BELIEVE THAT WE’VE COME THIS FAR WITHOUT DESCRIBING the one skill that clearly distinguished the ninja warrior, stealth. As a twentieth-century Japanese historian described it, “So-called ninjutsu techniques . . . have the aims of ensuring that one’s opponent does not know of one’s existence, and for which there was special training.”1 It was this ability to hide, to seemingly disappear, to surprise, that set the ninja apart from other warriors and martial arts fighters. In my tae kwon do experience, I learned how to punch, block, kick, balance, and maneuver, but I have no idea how to move about unseen. Yet this skill is the one that has survived the ages to define our culture’s superficial understanding of ninjas. If you know nothing else about these ancient warriors, it’s a good bet that you at least know that they operated in stealth—after all, what else was their black outfit for?

In reality, it’s unlikely the ninja ever wore the all-black costume of Hollywood imaginations. Moreover, the ninja’s stealth skills were not solely based on hiding. There are numerous accounts of ninjas operating in full view of their enemies, but in disguise or camouflage. So while the ninja’s stealth skills included staying hidden, they also included deception: tricking your opponent into not recognizing a ruse. According to Barton Whaley, a leading expert of military-political deception, every deception is composed of dissimulation and simulation; dissimulation is covert and hides or at least obscures the truth, whereas simulation is overt and presents a false picture.2 The feudal Japanese ninja was a master at both dissimulation and simulation. In either case, his enemies would not know he was there until it was too late. I have two favorite examples of such stealth, both quite different from my usual focus on private enterprise and applied-technology innovations.

Innovation Yesterday, but Not Today

MY FIRST EXAMPLE OCCURRED ALMOST SEVENTY YEARS AGO, ended World War II, and changed the world forever. It is the amazing story of the development of the atomic bomb, an unprecedented effort by the U.S military, civilian scientists and engineers, and many industrial firms from 1942 to 1945, code-named the Manhattan Project. Spread out at sites across the United States and eventually employing over a hundred thousand people, the massive project had to integrate diverse innovations in basic sciences, applied technologies, industrial processes, and aeronautics. Every site required very high levels of security and secrecy, but it was the effective concealment of the two main sites that best illustrates both ninja dissimulation and simulation. The primary scientific site in the bleak and remote desert town of Los Alamos, New Mexico, under the direction of J. Robert Oppenheimer, was built in record time from almost nothing into a small city covering fifty-four thousand acres and housing about six thousand scientists. The primary military site in the equally bleak and remote town of Wendover, Utah, was the world’s largest gunnery and bombing range, covered 1.8 million acres, and was home to about twenty-five hundred airmen under the commands of two of the U.S. Army Air Forces’ most accomplished officers, Colonel Paul Tibbets, who was responsible for the bombing missions, and Colonel Clifford Heflin, who led the base operations and ballistics testing of the bombs. As one example, all flights between the military airfields closest to Los Alamos and Wendover always landed at an interim military airfield before flying on to either of those destinations, which prevented flight plans from showing any direct connection between the two sites.

Although it later was discovered that spies for the Soviet Union (an uneasy ally at the time) stole our nuclear technology at Los Alamos, it took them four more years to test their first bomb, and our principal enemies during the war, Germany and Japan, never knew about, much less penetrated, either site. In fact, because all aspects of the project were smothered in secrecy and isolated from every other aspect, all but a handful of top military and civilian personnel ever knew what the endgame was. Even Vice President Harry Truman didn’t learn about the project until he became president in April 1945, only four months before the bombs were dropped.

As sober and serious as the Manhattan Project success story is, my other favorite stealth example is lighthearted and somewhat playful. In the early 1960s, Walt Disney had his company secretly purchase forty-seven square miles of mid-Florida swampland where the only sign of human life was the nearby sleepy town of Orlando. Disney had watched in shock and dismay as his first amusement park project, Disneyland, in Anaheim, California, was quickly surrounded and all but hidden among other businesses looking for a cut of the dollars being spent by hordes of tourists flocking to Disneyland. Walt vowed that before he built another amusement park, he would ensure that it would be a “world” unto itself. And, along with his brother Roy, who had a great head for business, Walt knew he had to forestall the possibility of land speculators learning of his plans and cheaply buying selected, well-placed tracts of land before Disney could get to them and then extorting exorbitant prices for the plots. So Disney, using a very small team, set up a host of dummy corporations to purchase the otherwise useless land, and by the time the Orlando Sentinel newspaper caught wind of what was going on, it was too late. Disney had successfully purchased enough land to form a buffer around his new park, which he named, appropriately, Walt Disney World. The first of several attractions opened in 1971, triggering the region’s explosive growth, to the point that once-sleepy Orlando is now the most visited city in America.

The stories of the Manhattan Project and Disney World fit my view of the best of stealth innovation, which I will define in a moment. But I offer them first because I doubt either project would be quite as successful now. In today’s world, stealth on these broad scales would have to contend with instant and ubiquitous communications, far fewer isolated locations, and seemingly less rigorous loyalties and ethics. In short, I think that attempted stealth innovation at the highest levels offers at least as many risks as opportunities.

Although stealth was a critical component of the ninja’s skill set, I believe it is not as critical to successful innovation today.

Innovation Today, Maybe Not Tomorrow

I SUPPOSE EVERY HUMAN ORGANIZATION HAS SECRETS OF SOME sort, but not every organization attempts innovation. So, how should we understand and distinguish “stealth innovation”? Well, it has to start with distinguishing innovation itself, which several thinkers, beginning with Professor Clayton Christensen of Harvard Business School, have been analyzing for the last twenty years. Let’s recall the three principal types of business innovation I mentioned in the introduction:

• Evolutionary: an improvement in an established market that competitors and customers generally expect to happen.

• Revolutionary: an improvement in an established market that competitors and customers generally do not expect to happen.

• Disruptive: an improvement that is generally unexpected by customers and competitors, serves a new set of customer values, and ultimately creates a new market that competitors scramble to understand and adapt to. If any innovation warrants stealth development, it’s probably this type.3

Innovations can move between categories over time. For example, although faster computer chips may today be merely evolutionary, I would say the first computer chip was disruptive.

With these categories in mind, “stealth innovation” is when an enterprise gains an advantage on its competition with an innovation that is unexpected, creates a new market or an important new market segment, and shifts the innovation development focus of an entire industry. In these rare cases, stealth is a top priority because you want to lead the disruption, not be the victim of it. Just recognize that your innovation drives the need for stealth, not vice versa. There are far too many downsides to stealth maneuvers to attempt employing them with every innovation.

Unexpected and Unwelcome

IN MY THIRTY YEARS IN THE CONSUMER ELECTRONICS INDUSTRY, I’ve had a front-row seat to watch and contemplate the explosive growth and change of one of the world’s most dynamic and innovative industries. To me, it’s clear that, when not constrained by misguided government rules and regulations, highly talented businesspeople in most industries will regularly emerge to lead innovation, discovering new ways to better serve current customers and to create new customers. If the innovation begins to achieve some market success, with customers choosing it rather than competitive offerings, some competitors will react by matching the innovation or bettering it, whereas other competitors will find they can’t keep up and instead look to other markets or simply fade away. Business casualties happen—via creative destruction—but in the best of circumstances, innovation begets more innovation and both customers and the industry in general benefit.

The danger facing every competitor in innovative industries, of course, is that although innovation in general is expected, it is not easy to predict and prepare for what is specifically coming next, especially in fast-changing, technology-based industries. Innovation is never dormant, but where free enterprise is allowed to flourish, innovators will thrive as well, and the pace and impact of innovation likely will increase. Think back to what I wrote about the dominance of the vinyl record or VCR. Both held on for decades before being supplanted by better technologies. Now no one expects most of today’s electronic devices and platforms to last even to the end of this decade.

Even though many extremely bright minds are thinking about the future of the very same market, totally unexpected innovations happen. Sometimes it’s because everyone is temporarily looking elsewhere; sometimes it’s the result of an unexpected, serendipitous technical discovery; and sometimes it’s because people just aren’t paying close attention.

But occasionally it’s because everyone has overlooked an innovation that was deliberately hidden until the very last moment before it hit the market. This doesn’t happen very often, but that type of development strategy is talked about enough to have earned a special moniker: stealth mode.

Unfortunately, talk of innovating in stealth mode has come to mean one particular strategy: that nothing about the innovation is revealed until the moment it is introduced into its market, supposedly taking competitors completely by surprise, quickly capturing customers, and grabbing a dominant market share before competitors can fully react. It sounds terribly exciting, but in my experience that tactic is difficult, risky, and rare, so I’ll try to provide a more balanced perspective.

Leakage, Now and Forever?

IWOULD BE REMISS IF I DIDN’T COMMENT ON THE NOTION THAT, FOR certain large firms and some federal agencies, stealth projects and programs are relatively easy to pursue and achieve. I believe that in this day and age, the U.S. government, much less a private company, wouldn’t be able to keep secret for long a project whose scale was on par with that of the Manhattan Project. Stealth in any enterprise is exceedingly difficult to achieve, given all the moving parts inherent in any innovation worth keeping secret, not to mention the now-irresistible motivation to leak confidential information.

But while complete stealth is difficult to achieve, it is undoubtedly true that some level of secrecy and confidentiality is necessary in every industry, from birth facilities to mortuaries, from high tech to no tech, because every company has some amount of confidential information. And, as corporate espionage has become an increasingly urgent problem, it is almost impossible to overstate the need for thoroughly effective safeguards for such information. But at the same time, I believe that most innovative processes invariably will have leaks, with sources ranging from incautious employees to vulnerable communication systems, to the need for primary market research with potential customers to help guide the direction of innovation.

In addition, each of the various types of innovation presents other, unique security challenges. For example, technology development itself, the basic application of science to solve problems, tends to thrive more in environments that are open to contrary opinions, which are difficult to generate solely within a single firm. Similarly, new products, new services, new designs, and even new business models may require outside vendors to be involved in order to become 100 percent complete, and those vendors might have to be engaged earlier rather than later in the innovation process. In fact, although a firm’s particular innovation process might be proprietary, participating scientists, engineers, marketers, and executives change jobs every day and bring their learning with them, regardless of nondisclosure agreements.

In this regard, I’d like to venture a cautionary observation about Apple’s innovation process, which may be the best in the tech industry. As reported by Walter Isaacson in his recent biography of Steve Jobs, it’s apparently true that Apple has a top-secret inner sanctum, with tinted windows, a heavy-duty door, and two guards; it’s an office presided over by Jonathan Ive, Apple’s brilliant senior vice president of industrial design, and holds a pipeline of several years’ worth of potential new products that Jobs himself worked on.4 But I often read Apple’s annual reports, and one particular statement recently caught my attention:

“The Company’s business strategy leverages its unique [emphasis added] ability to design and develop its own operating systems, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative design.”5

In a 2012 interview, Mr. Ive elaborated on Apple’s innovation process when he said, “We try to develop products that seem somehow inevitable, that leave you with the sense that that’s the only possible solution that makes sense.”6 This sense of the inevitable strikes me as being an important ingredient in Apple’s “secret sauce” for success, yet I can’t help but wonder if part of that recipe walks out the door every night. Indeed, in 2010, the then-secret iPhone 4 was found left at a bar, disguised to look like a previous model. The ruse didn’t work.7

In any event, for all the above reasons, I’m skeptical that it’s possible to maintain a totally secret stealth mode up until the moment of releasing an innovation and then also go on to thoroughly defeat your competitors within days, weeks, or even several months. But I do believe in more modest versions of stealth mode innovation, including for new products, services, and business models. The breadth of possibilities is too broad to catalog, but I’ll offer some examples.

Amazon, Once More

PRETTY MUCH EVERYTHING I COULD SAY IN THIS BOOK ABOUT JEFF Bezos and Amazon has been said in other chapters, but you won’t be surprised that, as I write this, Amazon is actively pursuing what I’ll call a “semi-stealthy” innovation. According to a report in the Financial Times (London), Amazon is steadily expanding its U.S. warehouse network in order to put product inventories close enough to large markets to provide same-day delivery.8 I describe this development as semi-stealthy because at the time I’m writing, I’m not aware that the company has made any formal announcement of such a strategy. Yet the story quotes an Amazon competitor as saying, “Amazon’s business model has changed from being a remote seller without a physical presence in most states to a company that—through distribution centres and delivery lockers and the things it’s doing to get close to customers—has a physical presence in lots of places.”

Why this news strikes me as a particularly good example of stealth used properly is because Amazon’s competitors—namely, any e-commerce merchant these days—seem to be stuck in a constant waiting pattern to learn what Amazon is going to do next; then they mimic it. With its development of Amazon Prime—a subscription service that provides users with more discounts and expedited delivery—Amazon pushed the rest of the e-commerce world to embrace next-day delivery. Now, because of Amazon, e-commerce merchants have to answer this question from consumers: “Why can’t you deliver it tomorrow? Amazon can.” It must be frustrating at the very least.

The Financial Times article ups the ante because it appears as if Amazon might be moving to a nonsubscription next-day delivery model, which puts further stress on its competitors. Just when e-commerce retailers are putting in place their own VIP next-day packages, Amazon is moving beyond them yet again. Or are they? Remember, stealth isn’t just about keeping something hidden; it’s also about keeping your competitors guessing about what they think they’re seeing and in what direction you’re actually going.

Amazon is America’s, and the world’s, “horse of many colors,” to borrow an apt description from an iconic movie, and it has been adroitly displaying each of its many colors, for the most part, very successfully. Yet, as I write this, there are repeated questions about Amazon’s ability to generate consistent profits in the face of the costs of innovating in so many different ways. But I’m not an investment adviser.

Mobile Mania

WITH ALL THE DYNAMISM OF TECHNOLOGY-DRIVEN INDUSTRIES, many have decades-long stories of growth, retrenchment, acquisitions, divestitures, triumphs, failures, and whirlwind changes in management. But to my mind, nothing quite illustrates the repeated impact of stealth innovation better than the story of mobile telephones. And that tale cannot be told without beginning with two of the CEA’s longtime members, AT&T Inc. and Motorola Mobility Inc. Although the first “mobile” telephone was actually a telephone installed in an automobile back in 1946, I tend to date the beginning to 1973, when the first handheld mobile phone was produced by Motorola, which had been in a stealthy development race with the Bell Laboratories unit of AT&T. The breakthrough was technically exciting but commercially stymied, not least because mobile phones of course require wireless networks over which to operate—and those networks were few and far between.

Then, in the 1980s, two major events occurred that began to open the market: The U.S. Justice Department broke up AT&T by limiting it to handling long-distance calls and divesting its local telephone operations into seven independent companies, which were nicknamed Baby Bells; and almost simultaneously the Federal Communications Commission limited to two the number of wireless network providers in each city, with each Baby Bell automatically receiving one of the licenses for the cities in its region. Now the Baby Bells (and other, non-Bell local telcos) had the incentive to build out their networks and begin to look for ways to create a truly nationwide system. The process was messy and required a lot of stealth horse-trading to bring our mobile system to the point where it is today.

Additionally, the Baby Bells, having been part of a monopoly for virtually all their lives, were still learning what it took to successfully manage their semi-new companies in an increasingly competitive market. Encouraging top management to forget about the comfortable world of monopoly and learn about the frightening world of competition took a bit of finesse and skill—some might call it stealth. Such is the rigid “thinking” of monopolists.

Finally, after much strategic and operational turmoil, the networks grew to support reasonably user-friendly mobile phone service, and then the market began to really take off. Mobile devices have evolved into today’s smart phones in tandem with the evolution of wireless networks, which went from analog cellular (known as 1G) to digital cellular (2G) to mobile broadband data (3G) to mobile ultrabroadband Internet access (4G) to . . . well, I won’t try to predict what’s coming next except to say that it will probably be exciting. Along with these technical advances, several companies that were once part of the old AT&T were reacquired, and in the process probably recaptured operational efficiencies that shouldn’t have been broken up in the first place. In other changes, whereas once almost all U.S. telephones were made by another unit of AT&T, there are now more than a dozen mobile phone manufacturers, still including Motorola Mobility. And in early 2012, Apple became the third-largest mobile phone manufacturer in the world after only five years in the market.

Looking back, among the things I like about this story is that it shows that the spirit of stealth innovation need not be limited to development of products, services, and business models, but also can be useful in mergers and acquisitions, and in gently educating older generations about new technological realities. Our wireless network—though far from ideal—grew organically, but it was also the result of all that grunt work and stealth moves to get it off the ground.

Stealth Start-ups

EARLY-STAGE COMPANIES FACE SPECIAL DEVELOPMENTAL ISSUES that stealth mode seems to conflict with. For example, stealth mode, with all its secrecy, makes it more difficult for a new, unknown company to attract top-level employees and strategic partners; to arrange for beta and reference customers; to secure funding from professional sources (angels, venture capital firms, and corporate venture funds); and to build potentially vital networks. And from what I’ve seen lately, stealth mode doesn’t seem to be as popular among start-ups as it once was. In any event, a while back I came across a story about the firm Transmeta, and it seems to have positive and negative lessons for stealth mode start-ups.

Transmeta was organized and began developing a low-power computer processing chip around 1985. It managed to stay mostly under the radar until mid-1997, when it put up a website with only this short statement: “This website is not yet here.” This created a stir in the start-up world and apparently brought Transmeta some greater attention, although little or nothing was yet revealed about their technology. Then, in November 1999, the company posted another message on its minimal website, but this one said quite a lot:

Yes, there is a secret message, and this is it: Transmeta’s policy has been to remain silent about its plans until it had something to demonstrate to the world. On January 19, 2000, Transmeta is going to announce and demonstrate what Crusoe processors can do.

Simultaneously, all of the details will go up on this Web site for everyone on the Internet to see. Crusoe will be cool hardware and software for mobile applications. Crusoe will be unconventional, which is why we wanted to let you know in advance to come look at the entire Web site in January, so that you can get the full story and have access to all of the real details as soon as they are available.9

I’m no expert in computer chips, but Transmeta apparently had something that promised to be very special, because only five months after that January 2000 information release, it raised $88 million in private funding, and seven months after that (one year after revealing its chip) Transmeta went public in a $273 million offering, despite having achieved only $5 million in sales the previous year.10 It certainly seemed like the company’s stealth mode strategy was paying off. But that’s not the end of the story.

From that point on, things got complicated, so I’ll try to summarize it by saying Transmeta’s chips proved to not be as good as expected and apparently never achieved profitability; the company later restructured into being an intellectual property company selling technology to other chip makers. In late 2008, Transmeta was acquired by a digital video processor company called Novafora. In early 2009, Transmeta’s patent portfolio was acquired by an intellectual property company, and in July 2009 Novafora went out of business. I suspect that operating in stealth mode for its first five years may have contributed to Transmeta’s problems (e.g., did it sufficiently vet its technology with outside experts?), but I’ll never know for sure.

In the end, Transmeta both profited handsomely and suffered greatly from its stealth skills. Had the chip performed as well as the sneaky advertising campaign, then maybe we would be admiring how Transmeta surpassed Intel as the industry’s top chip manufacturer. But Transmeta seems to have grievously erred in thinking that stealth itself is a substitute for a compelling product. As I said earlier, any decision to wrap your innovation inside a stealth-level package first requires that your innovation be irresistible to customers.

But compared to many other stealth-obsessed firms, Transmeta was fairly successful. I recently came across a press release from a company I hadn’t heard of that has a technology I don’t entirely fathom. Nevertheless, the press release seems to well illustrate the fixation on stealth packaging to the detriment of clear thinking about your innovation and about smart communication with important constituencies. The company will remain anonymous and I’ve summarized the press release into what I hope are readily readable bullets:

• Headline: “[COMPANY] comes out of stealth mode.”

• The product has been in development for eighteen months and “came through the research & development efforts of serial entrepreneurs, technologists, and co-founders.”

• “The product enables users to mashup data from any source, slice and dice data, build ad hoc reports, publish dynamic dashboards, and collaborate among stake holders to make informed decisions.”

• “The venture has flown under the radar until this week when [CEO] gained an angel round of funding to quickly expand [COMPANY] and its market reach.”

• “We were tasked with a very complex challenge of innovating a cloud based analytics solution that can be used by everyone, must be implemented in less than 30 days, affordable to everyone, yet scale for Big Data . . . [so we] had to use a radical approach to design an innovative instant analytics technology stack that can support high volume data mash ups from any source, provide real-time responses to ad-hoc queries and scale massively and horizontally in commodity hardware.”11

The above is what the company’s communications team chose to highlight in the press release. It’s not until the last two paragraphs that non-techie readers (including potential investors) get a sense of what’s actually going on there:

Businesses of all sizes are now competing in a world flooded with information. The winners will be the ones that can make the most sense from all the data mashed up together . . . and do it the fastest . . . Analytics is not just for large companies anymore. Small companies need to analyze data too . . . it is imperative to implement a metrics based management system, whereby proactive decisions are made based on meaningful and relevant data. [COMPANY] provides the platform and foundation through a plug and play analytics solution that can be implemented rapidly at a fraction of the cost . . . is ideal for any organization, department, analyst that wants to manage performance and optimize operations through business analytics.

Finally, we get a sense of the problem the firm is trying to solve and why its innovation may offer customers a unique value compared to competitive solutions. Again, I’m not offering any judgments about the company, its overall team, or its innovation. I merely want to point out that the writer thought it important to first say the company had been in stealth mode development; that the writer apparently thought his primary audience would be composed of analyst-level workers and not other important constituencies such as financial executives and potential investors; that the writer seems to believe it would be compelling to know the company has been flying under the radar, in stealth mode; and so on. It seems to me that the writer is so excited to report on the company’s stealth mode and all the wondrous things its product can do, she’s apparently forgotten the firm’s elevator pitch, the short statement that explains why its product is a “must have.” As Abraham Lincoln once said about a certain speaker, “[he could] compress the most words into the smallest ideas of any man I ever met.”12

To Stealth or Not to Stealth

THE ABILITY TO OPERATE IN STEALTH WAS AN ESSENTIAL SKILL FOR the ancient ninja. It all but defined his status as a superior class of warrior. But my purpose in this chapter was to show why stealth mode development, although potentially valuable, is difficult to undertake, not necessarily an essential skill for a ninja innovator, and a potential snare for the unwary. Stealth is a form of secrecy, but not all appropriate secrecy requires stealth, and not all innovations will benefit from stealth. Moreover, although I have no empirical data to prove it, I believe the most successful innovators, like the most successful ninjas, develop a sixth sense, an instinct if you will, about the level of secrecy and stealth that fosters the best result, measured of course by success against the competition. They understand that the strength of innovation is, almost by definition, a product of its times.

You may notice that I do not suggest relying on our patent system as an alternative, or strong complement, to secrecy and stealth, first because I’m neither a patent lawyer nor a patent expert, but also because I’m increasingly worried that our system is weakening, if not already seriously broken. To be clear, I have no doubt patents and patent applications can be solid protection, but I am not able to describe how one can know this with certainty in advance, before the inevitable challenges and horse-trading have run their course. Maybe I’m unduly pessimistic.

In the end, I lean toward Peter Drucker’s view that your company’s primary purpose is to create customers, and that this is primarily driven by good general management, marketing, and innovation. He didn’t seem to worry much about doing it stealthily.