The Startup Scarlet Letter

Claiming your product will revolutionize the industry? Dissing your competitors? Comparing yourself to Steve Jobs? If you don't live up to your own hype, you might end up permanently scarring your business. Take it from Color's Bill Nguyen and Blockbuster's Jim Keyes.

"I have a phrase which is massively inappropriate, but I'm happy to use it," said Bill Nguyen, discussing Instagram. "They're just mice nuts—and I mean that in the most kind, polite way I possibly can."

That was Nguyen last March, comparing Instagram to rodent testicles—in the kindest way possible—as he promoted his new startup, Color, which was set for launch later that month. Of course, Instagram would go on to become one of the world's fastest-growing social networks, and it's in the process of being bought for $1 billion by Facebook, a service Nguyen called "broken" and predicted wouldn't survive the post-PC era. Color, meanwhile, is on what appears to be its third pivot—earlier this week, the startup was touting a new partnership with Verizon.

In hindsight, Nguyen's story is a cautionary tale for any company founder trying to strike a balance between hyping a product and over-criticizing the competition. An immediate red flag, for example, involves hailing a product as revolutionary, when it turns out not to revolutionize, or comparing yourself to Steve Jobs when your product or service has yet to disrupt several industries across several decades, as the Apple founder's did. In the worst cases, failing to live up to hype can cause a founder or company to get tagged with what we'll call a startup scarlet letter.

Almost every article about Color from now on, no matter what happens to the company, will inevitably mention its turbulent history, overhyped technology, and absurd funding of $41 million. Just this week, the blogosphere referred to Color as "cursed," an "overfunded" startup known for its "disastrous" and "infamous" launch. Past articles have been even harsher, calling Color a flop with a "pathetic 30,000 daily users."

The inescapable descriptions make it that much harder for Color (and any other startup stamped with a similar scarlet letter) to reboot successfully.

You Say You Want A Revolution

Startups fail and pivot all the time. Just look at Rovio, which struck out 51 times over eight years and nearly went bankrupt before creating Angry Birds. Even Instagram pivoted, having started as a convoluted app with game mechanics called Burbn. But Rovio's and Instagram's failures simply became part of their triumphant struggle to overcome obstacles.

What makes Color different? Color's failures have become a spectacle for the technorati that drips with schadenfreude. Much of this can be chalked up to Nguyen, a flamboyant CEO if there ever was one, who is as hyperbolic as he is provocative. In our initial conversation, he promised a revolution before Color even had a single user. Kevin Systrom—humble, with a zen-like calm—didn't predict he'd change the world of photography or take down Flickr back when his app first launched. He even welcomed visitors to Instagram's humble first office, a cramped space with maybe three or four employees. Systrom was just happy to talk photo filters.

During Color's early days, on the other hand, Nguyen criticized Facebook, Foursquare, and Instagram; bragged about his 22,000-square-foot office space complete with two floors and a half-pipe ("I went straight dot-com"); boasted of buying Color and Colour.com for $425,000 ("It's one of the perks of having done multiple startups: You can buy all the vowels"); and evangelized that Color would do to Groupon what Google did to Yahoo.

But none of his predictions came to fruition. So why should we believe him the next time he has a "revolutionary" product to hawk? It made it all the more difficult to take Color's future pivots—or Nguyen's next startup—seriously.

The Personality Pivot

Pivots are not just about products but about presentation and personality. During a chat last week, Nguyen appeared to have mellowed since his first Color tour. At a restaurant in New York, as Nguyen stabbed a fork into a plate of fruit, he talked cheerfully about his competition and humbly about Color's financial future. "I think what Instagram did was really innovative," Nguyen said. Asked about Color's business model, he added, "I've never really thought about the money part—I never have."

The problem is that he seems unaware of the remarks he put on record just a year ago. "When you think about the filters, people are still trying to capture highlight reel moments," he said last March, dumping again on Instagram. "But no one sees life through filters: I never see life in that perfect sepia moment, and I don't see things in black and white." And for someone who supposedly never has money on his mind, Nguyen boasted quite a bit about how much money Color would be making last year. "We plan on making money. Lots of it. Hand over fist," Nguyen said then. "As Steve Jobs would say, 'We plan to wheel in wheelbarrows of cash at the front door.'"

(Plus, later in our conversation last week, he added, "We could've stayed at Apple and done better financially than Kevin did with Instagram.")

It's an issue that plagued Blockbuster during its struggles to escape looming bankruptcy. Then-CEO Jim Keyes spent much of his time blasting Netflix: making fun of Netflix's accessibility on the Wii ("[With Blockbuster] I don’t have to figure out how to get it from my Nintendo machine to the screen. I know I can do it, but I don’t want to—it makes my head hurt to think about it!"); insulting Netflix's streaming catalog ("Listen, Paul Blart: Mall Cop? Yes, you can see it on Netflix—it's only a year old"); and even denying that Netflix was a cause for the company's financial woes ("I don’t know where that comes from"). Keyes compared himself to Steve Jobs, and called Blockbuster On Demand the equivalent of the iMac.

This, of course, was difficult to swallow. And it made any sane person extremely skeptical about any future pivot in product and personality. So even when Blockbuster released a new mobile app, it was easy for many to dismiss. Especially when the company's digital chief said, as the company's shares hovered around 30 cents, "We're strategically better positioned than almost anybody out there...never in my wildest dreams would I have aimed this high."

Those Who Don't Study History

Last week, I asked Nguyen what it meant that Color now seemed to be stuck with this startup scarlet letter. "It's just not useful—there's nothing for me to do with it," he says. "If there was something I could do with it, we would address it more cleanly, but there really isn't."

"I am amazed by the fascination with it," he adds, chuckling.

Perhaps he's learned something from the past. When he discussed Viddy, the startup that just hit 30 million users and closed a $30 million funding round, and that's arguably one of Color's main competitors, Nguyen actually seemed happy for the startup's success.

But the positive vibes only lasted so long before history began to repeat itself. 

"When I look at the things that are happening in video right now, they're not really making video better," Nguyen said. "The things that are out there in the marketplace, they just kind of rip off Instagram's idea and add it on top of video.... We'll let other people worry about filters and celebrities and things like that. We're just going to try to build the future."

Pretty soon, humility left the conversation. "Hopefully, in a year, you're going to look at this product like, 'You know what? I can't believe I used to take photos,'" Nguyen said of Color's live video-sharing features. "Today, it's a visual Twitter. But I don't want to do tweets. I really want to create the Iliad."

Was he aware of the fate of Achilles?

"You know," Nguyen said, letting out a big laugh. "We're good survivors." 

[Image: Flickr user Jeffrey L. Cohen]

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