If Lucas Buick’s company Hipstamatic is on the verge of bankruptcy, you couldn’t tell by the dinner spread. It’s mid-September and we’re at the Isola restaurant in the Mondrian Soho, an expensive hotel-cum-lounge where you’re never quite sure you’re wearing the right style of Warby Parkers. Under the airy space’s glass ceiling and sparkling chandeliers, Buick and “director of fun” Mario Estrada knock back espresso martinis and old-fashioneds, while digging into tuna and pine nut crudos and fennel sausage pizza with herbed ricotta–delicious fare just begging to be photographed, filtered, and shared with friends.
“This is it. We’re clearly falling apart,” says Buick, laughing. “If this is the last supper, then I wish we had a bigger table.”
Despite a rough couple of weeks, the Hipstamatic cofounder and CEO is in good spirits. In late July, over lobsters and bottles of Prosecco, Buick told me he wanted Hipstamatic, a $1.99 photo app that takes analog-style photographs on your iPhone, to become the “Kodak for the digital era.” He envisioned a time when his company could be the industry leader for selling digital lenses, films, and flashes, as well as providing third-party camera and printing services.
But then just 16 days later, Buick laid off five of his employees, roughly half the company’s workforce, including its entire developer team and social media and office managers. The decision sparked a swath of bad press and ex-employee backlash, and led many to question the San Francisco-based startup’s viability. “Suddenly I was getting calls from friends asking, ‘Do you still have a job?'” Estrada recalls. “We’re going bankrupt? When did all this happen?”
“It got a little ugly,” admits Buick, who turns 30 this week. With a doughy face and ginger scruff, the former graphic designer carries a soft, seemingly happy-go-lucky demeanor, which juxtaposes his otherwise serious look: black G-Star jacket, black shirt, and black-framed glasses. “I didn’t even like coming to work,” he says. “When you’re the guy who built the company and you don’t even want to work there yourself, something just isn’t right.”
Hipstamatic’s journey over the past year has been tumultuous, to say the least. As Fast Company has learned from speaking to more than a dozen players involved, Hipstamatic has wrestled with ever-growing social competition, internal tensions, and a lack of product vision–not to mention juggling acquisition interest and worsening term sheets in a post-Facebook IPO world.
But what the startup has most struggled with is remaining relevant in an unforgiving app market dominated by one of the hottest spaces in tech: photos. Photos are considered the killer app of any platform, web or mobile. They’re the driving force behind Facebook’s social success, and the reason for its blockbuster acquisition of mobile photo-sharing app Instagram, which recently surpassed Twitter in U.S. smartphone engagement. They’re why Marissa Mayer is said to be rethinking Flickr as she takes up the reins at Yahoo; why Google recently bought Snapseed; and why a slew of hot Internet startups from Tumblr to Pinterest to Camera+ have gained popularity. Even Apple introduced photo-stream sharing capabilities in its latest version of iOS.
Hipstamatic was one of the first startups to crack the photo formula in the mobile space–then it watched similar services gain ground and eventually blaze by. The company’s experience proves that no startup can rest on its laurels in the age of the iPhone, when the time between innovation and disruption is ever shortening, and when IPOs and fast exits are valued over establishing long-term viable businesses. And perhaps most significantly, Hipstamatic proves that no modern startup can ignore the siren call of social, even if at its own peril.
In October 2010, Hipstamatic was booming. Its business model of selling in-app digital lenses and films, which effectively turned your iPhone into an old-school Polaroid camera, was attracting millions of users and millions of dollars in revenue, especially from its fast-growing community of shutterbugs in industries ranging from fashion to media. Soon, Apple would name Hipstamatic the app of the year; not long after, The New York Times’ Damon Winter would win a prestigious photography award for a series of Hipstamatic photos he took on assignment in Afghanistan.
So on Oct. 6, when an ex-Googler named Kevin Systrom launched a photo-sharing service called Instagram, there was no way of knowing that it would mark the beginning of the end of Hipstamatic’s honeymoon. Like Hipstamatic, the iPhone app enabled users to add vintage-era filters to photographs, but there were two key differences: Instagram was free and inherently social; Hipstamatic was not. If Hipstamatic was the camera utility used to enhance your photos, then Instagram was the network where you’d share those photos.
By March of 2011, when Hipstamatic hired its new designer, Laura Polkus, Instagram had already rocketed to 2.2 million users, and was growing by 130,000 users per week. But Polkus says the team largely ignored Instagram. “There wasn’t a whole lot of attention paid there,” says Polkus, who was later let go. “The conversation internally was, ‘Well, we’re completely different. They are a social network, and we are not. Who cares what’s going on with them? We’ll just continue to do what we do.’ But from the public’s perspective, that’s obviously not the way things were seen.”
“As Instagram started to build, everyone was like, ‘You guys should do this or that,'” recalls Buick, who was hesitant to enter the social game at first. “That’s not what we wanted to build.”
It was impossible for Buick to ignore the temptation of social, however. Despite Buick’s resistance toward changing Hipstamatic’s direction, the company embarked on a series of toe-in-the-water attempts at social. The first was Family Album, which launched in the summer of 2011, a product that enabled users to create and co-curate photo albums together. The other, D Series, was an app that aimed to capture a retro, disposable camera experience on the iPhone. Friends could purchase various packs of digital cameras together for 99 cents, and take and share up to 24 shots per roll–before having to buy another pack of cameras. “It was definitely a reaction to the social photography wave,” Polkus says. “The products were in response to people saying, ‘Okay, well we can take pictures, but how do other people see them without using Instagram?’”
“It was more or less a veiled attempt to take on Instagram, without being blatant about it,” says Stuart Norrie, then a UI designer at Hipstamatic.
Both products flopped. Family Album was incredibly confusing, especially compared to the simplicity of sharing on Instagram or Facebook. (Wrote one reviewer, “One of the biggest problems for Hipstamatic‘s Family Album is understanding what it is.”) When D Series went live in December of 2011, after months of work, the team was excited to introduce a new product before the Christmas break. “But on the day of the launch, we were there until midnight because there were so many complaints and tweaks needed,” recalls Polkus, who was monitoring the social feeds for the company at that time. “The thing I remember is all the people who were so enraged, so angry that they had to pay for these disposable cameras but were only getting a limited amount of pictures. They just kept calling us greedy. Everyone had this pit in their stomachs like, ‘Oh fuck.’”
Whereas Hipstamatic’s user base has peaked at roughly 4 million active users, by January 2012, Instagram had blossomed to 15 million users, who were sharing an average of 60 photos per second. It was clear how much had changed in so little time: Apple gave its app-of-the-year prize to Instagram. By then, in fact, one of the top tags on Instagram was “#Hipstamatic,” indicating a large amount of users were snapping images on Hipstamatic but sharing them on Instagram.
The massive growth of Instagram’s platform only brought more attention to Hipstamatic from outside companies, which were looking to capitalize on the explosion of mobile photo sharing. A knowledgeable source says Facebook expressed “quite a bit” of interest in working with Hipstamatic. (Facebook declined to comment.) When Instagram originally launched, sources say Dave Morin reached out to Buick to work together on Path, his private mobile social network, to collaborate on products. (Path confirms the company did discuss partnering with Hipstamatic, but denies the discussions were related to Instagram’s launch.)
And in late January of 2012, multiple sources confirm that Jessica Verrilli, who works in strategy and corporate development at Twitter, got in touch with Buick regarding a potential acquisition. The two met at Sightglass Coffee in SOMA, outside Hipstamatic’s office. One source says no terms were discussed then, while other sources tell Fast Company that Buick said he wasn’t interested in being acquired. (It wouldn’t be the last time Twitter reached out to express interest in Hipstamatic.) Both Hipstamatic and Twitter declined to comment on this matter.
At that time, the bootstrapped startup’s business was still growing at a fast clip, despite its lack of social capabilities. One former employee recalls leaving for dinner after the company released a new pack of photo filters; by the time he had returned an hour later, the release had already generated high five-figure sales, not an uncommon amount, says the source, who estimates the company has 100,000 core users who “will buy almost anything.” (Hipstamatic declined to comment on specific sales figures.)
But Buick was starting to consider a larger role for Hipstamatic in the social world. “It was right after the launch of D Series–Lucas seemed burnt out, but he was like, ‘I want to make another app,’” recalls Sam Soffes, a former iOS engineer at the company, who would later have a dustup with Buick. “We were sitting around and when I asked him what he wanted to make, he was like, ‘I don’t know. I want to kill Instagram.’”
Hipstamatic denies that Buick ever said he wanted to “kill Instagram.” Buick specifies, “We’ve never really tried to compete with Instagram.”
For a startup that prides itself on the originality and creativity of its users, Hipstamatic spent much of 2012 chasing many other companies’ ideas. It was, in the most regrettable ways, becoming Kodak. Like the once venerable brand, which failed to keep pace with industry changes during the 1990s, Hipstamatic was struggling to adapt to the daily chaos and external pressures of the social app world. “I can honestly say that there was a lot of talk about Instagram, Path, and social,” Buick says of his company’s internal discussions. “Ultimately, that’s what shifted our focus away from who we really are.”
It had arrived at a crossroads that many other startups inevitably encounter: Hipstamatic had to pivot. So in February of 2012, an engineer started work on a project internally called CS9, which would expand Hipstamatic’s filters to video, similar to the 18-month-old service Viddy, which is often called the Instagram of video. (According to Buick, the idea was on the “product list for two years,” but only kicked into gear again in February.) Around that time, another team began developing a prototype web service and iPhone app codenamed Timeline. (“It was a horrible name,” acknowledges one former employee. “I was confused by it so much I begged them to rename it internally just so I could keep up with the differences between Facebook Timeline and our Timeline app.”) Timeline would aggregate photos from a user’s fragmented social networks, pulling images from Instagram, Tumblr, and Twitter into one unified stream; the team also had plans to add Facebook photos and implement cross-network interactions for commenting and liking.
Also on the docket was Hipstamatic Classic, the internal name for the new version of the original photo app, which would have more mainstream, point-and-shoot-camera-like functionality. (The social app would assume the Hipstamatic branding, or possibly be called Hipstamatic Next, sources say, though nothing was ever finalized.) “They wanted to make a Camera+ killer–it was actually described in those terms,” says Jonathan Wight, a former engineer at the company, referring to the popular camera app that had become one of the top-selling photography services on iTunes.
(Molli Sullivan, Hipstamatic’s director of communications, disputes Wight’s recollection. “There were no conversations around app killers–there was nothing around any type of killing of other companies,” she says. “When we looked at the competitive landscape, we would have discussions around other companies, but it was never malicious. That’s not what the conversations were like.” However, at least one other source says it wasn’t uncommon to refer to the product as a “Camera+ killer.”)
In March, Hipstamatic held a demo for Timeline and a companywide meeting about the product. Buick distributed questionnaires to employees afterward to gather feedback about the prototype, but their feelings had already become evident at the meeting. “Once you attached Timeline to a camera app, it became Instagram,” Wight says. “During the meeting everyone was like, ‘You know this is Instagram, right?’ It was voiced several times: ‘This sounds a lot like Instagram.'”
One former developer, who was also present in the meeting, recalls, “People raised concerns that it didn’t offer anything more than an Instagram feed of photos, and that we would basically be mimicking all the functionality that Instagram already had.”
“At the beginning of the meeting, Lucas was very vocal and upbeat, but the second that was said–that it was basically just a version of Instagram–he immediately shut down, became quiet, and seemed pissed off,” says Stuart Norrie, the former designer. “It was very clear those comments touched a nerve.”
Sullivan confirms the meeting took place, but clarifies, “There were a lot of questions about [Timeline]. We were testing a lot of different technology. I wouldn’t put so much focus on Instagram–it wouldn’t be right to focus entirely on comparing things to Instagram. While Instagram may have been mentioned, there were other companies [mentioned]. When you’re looking at the competitive landscape, more than one company comes up.”
Indeed, by that time, rather than viewing Instagram as a competitor needing to be challenged, Buick had actually decided to partner with Instagram. He and Instagram CEO Kevin Systrom, who Buick refers to as his “best frenemy,” had been in talks for weeks over ways to team up. (The two are friendly and get drinks together every so often. Says Buick, “I’m a whisky drinker, though not quite as hardcore a whisky drinker as Kevin is.”) In late March, the companies unveiled an exclusive partnership that would allow Hipstamatic photos to be seamlessly shared on Instagram’s network with one click. “When we launched, it was all about Facebook, Flickr, and Twitter, and now we’re seeing a huge shift in our user base toward Instagram,” Buick told me at the time.
The partnership provided additional exposure to Hipstamatic on Instagram’s platform. By then, Instagram boasted 27 million users, while Hipstamatic had peaked at roughly 4 million active users.
But what the partnership most demonstrated was the powerful social pull that Instagram wielded. “We started to see how many people were sharing to Instagram, and I think [Buick] felt like he was missing out on all that,” says Soffes.
Then, just 19 days later, Facebook CEO Mark Zuckerberg announced that Facebook would be acquiring Instagram for $1 billion. “People were shocked,” says the former developer. “[Creative director] Aravind [Kaimal] was upset.”
“I was sitting next to Jon [Wight] who just said aloud, ‘Oh, Facebook bought Instagram?’ I think it was [CTO] Ryan [Dorshorst] who was like, ‘No way–that’s a joke.’ We all thought it was a headline on The Onion,” recalls Laura Polkus, the former designer. “Then we saw Mark’s blog post. And it was like, ‘Wait, one billion? Like, a billion dollars? What? What does that mean for us? Does that mean that [Instagram] won?’” The team spent most of that April morning reading stories about the acquisition.
Buick was on a plane landing in New York from London when he heard the news. He sent Systrom a congratulatory note, but otherwise didn’t return to Hipstamatic’s headquarters for several days. “It was never our goal to be acquired,” explains Buick, who adds that, if anything, he was happy for Systrom. “We weren’t building that type of company.”
“He didn’t have much of an outward reaction. He was more like, ‘Well, that’s fine; we didn’t want to be bought,’” confirms Polkus. “At least that’s what he told us, regardless if it’s true. I mean, I don’t know who wouldn’t want a billion dollars. It would’ve gone through my head if I was in his position: Why not us?”
Lucas Buick was shopping at Uniqlo when he received a phone call. It was mid-April, not long after Facebook had announced it would be acquiring Instagram. (Some sources say it was on the day of the announcement.) The call Buick received, it turned out, was from Twitter, which again expressed interest in acquiring Hipstamatic, sources say. Before Facebook beat it to the punch, Twitter was reportedly interested in purchasing Instagram in order to bolster photo sharing on its network. Perhaps Hipstamatic wasn’t such a bad secondary option. Buick entertained the idea, sources say, but never seriously considered it. (Hipstamatic and Twitter declined to comment on this matter.)
By that point, the Hipstamatic team already had enough on its plate without potential acquisition offers. Outside CS9, Timeline, and Hipstamatic Classic, multiple sources say the company was juggling an ever-growing number of projects, including a physical Hipstamatic camera. “There were plans to do a photography field guide, a bunch of community initiatives, and always talk of physical products,” says one source. “I guess none of that really happened. Products would get shelved, ideas would get thrown away, and new things would take their place.”
In the spring of 2012, for example, after both Timeline and CS9 had died, another social idea started to take priority: The Hipstamatic team began work on a new product that Buick says was a cross “between Tumblr and Instagram.” It would be a private social network, like Path, designed to share the photographs you still find yourself inefficiently sending to friends via email or text or showing them in person. (The sharing feature was internally called PhotoMail, sources say.) As Buick explains, “It all comes down to brunch. After some shit goes down on Saturday night, there’s always the great iPhone swap over brunch. These are photos that you don’t want on Facebook but you want your friends to have.”
But nearly all involved say the experience never came together in any coherent way. “They wanted it to be everything: to be Camera+; to be Path; to be Pinterest,” the former employee says. “It was kind of like the new [group photo-sharing] Flock app–that’s pretty much what we wanted to do.” Even “director of fun” Mario Estrada, who is still with the company, admits, “None of us could really identify it. We kept on talking about the elevator pitch to describe what the product was. The product never really made complete sense.”
Despite the internal confusion, Buick knew that if his company were to seriously compete in social, it would need to raise a round of funding. Hipstamatic’s pivot toward social would be a huge risk for the company. In order to scale a private social network and achieve viral growth numbers, Hipstamatic would have to become a free service, Buick explains, which would upend its business model and cut off its revenue stream. Buick also had hoped to triple the size of the startup’s team. Over the summer, he set out on a financing tour to meet with as many investors as possible, in hopes of raising between $15 million and $20 million.
“We didn’t need money to operate the type of business that we had,” Buick says. “What we needed money for was scaling the social network–to build another fucking social network.”
“At a company meeting they announced they were going after VC money, which we thought was kind of strange because we had a good amount of money coming in. Well, supposedly. I didn’t get to see the financials,” Wight recalls. “I started to wonder if the financial situation was worse than I thought. When they decided to go for venture capital money, that’s when things went a little bit crazy.”
As the summer progressed, multiple sources say Hipstamatic’s product plans only became more complicated. “Whenever Lucas came in, he would have another crazy idea,” says Wight. At one point, the team started experimenting with a Zynga-like virtual goods store where users could purchase Hipstamatic credits that could be spent on individual photo filters. “The idea was you’d go to this store and spend $1 to get 50 credits,” Wight recalls. “I had very strong objections because it was basically relying on the end users being dumb to get more money out of them.”
The team also explored the concept of digital galleries, which were going to be akin to Pinterest pinboards but for Hipstamatic photos, so users could start their own galleries and list their favorite pictures. Another idea involved situation-specific filters: say, a filter for night photography, or for taking pictures of food.
Sources say the product kept changing from week to week, with little or no concrete direction from higher-ups. Says the former developer, “There was a lot of direction change–a lot of, ‘We’re going to do this! No! We’re going to do that instead! No, that doesn’t matter; this matters now!'”
“We didn’t know what we were supposed to keep adding to this social app without getting any feedback,” the former employee explains. “At a certain point, we would come to work and just talk for hours. They kept pushing everything off, and it got to the point where by the end, we were just twiddling our thumbs trying to find stuff to do.”
Hipstamatic disputes this characterization of the company. When asked about the startup’s seemingly haphazard product roadmap, Buick says, “I feel like we’re reliving our whiteboards here.”
“It’s just not true that there was a new idea every single week,” says Molli Sullivan, the company’s spokesperson. “Absolutely, we would whiteboard. Everyone would talk and throw ideas out about what the product could look like. But to lay this out like Lucas and [CTO] Ryan [Dorshorst] were changing their minds every other week is not accurate, and it’s not fair to what the process was like.”
Stuart Norrie, the former designer, describes a different atmosphere at the company. “There were 9 billion ideas on the table and nobody was saying what to do,” he says. “They didn’t really know what their next move was, and it was very apparent that they were paralyzed in making decisions. They were constantly switching back and forth. I’d ask them for feedback and they would never have an answer. They’d be like, ‘We’ll talk about it next week.’ I’m like, ‘But it’s only Tuesday! What am I supposed to do?’ It was the most unproductive time of my life, and I’m including grade school.”
As if the company didn’t already have enough projects in the pipeline, in June of 2012, Hipstamatic released yet another side project called Snap Magazine. Snap was an iPad magazine that would give Hipstamatic an editorial voice, and enable the company to highlight exemplary user photography as well as potentially push advertising and in-app purchases down the road.
In a sea of stop-and-go projects, Snap Magazine somehow turned out to be a big success. Its first several issues over the summer received more than 100,000 downloads, and Apple would eventually feature Snap on billboards and in an iPad commercial.
But despite the external success of the product, internally, tension had reached a boiling point, and demonstrated Buick’s growing disconnect with Hipstamatic’s developers, in terms of both product development and company direction. The tension spoke to a larger divide between the company’s designers and engineers, an obstacle that most startups face at some point. As Buick tells me, his founding team, which was composed mostly of designers, “never operated [Hipstamatic] as a software company. As we started building that type of company, we ended up with really talented engineers who were not used to our creative process. There was tension. There was separation on the teams.”
The “teams” that Buick describes can be divvied up into two groups: the new hires, composed mostly of the development team, and the members of the founding team, who call themselves the “Wolfpack,” a likely reference to the film The Hangover. The “Wolfpack” includes Buick, Dorshurst, Mario Estrada, and creative director Aravind Kaimal, most of whom were friends from the University of Wisconsin at Stevens Point. The “Wolfpack” became a source of resentment for the new hires, who felt the clique created unnecessary splintering within the small startup. “It was not a well-loved term by nonmembers of this group because it felt divisive and, for some, just further evidence that there was an in- and out-crowd within the company,” says the former developer.
“I shit you not: They’d actually be like, ‘Wolfpack is going to lunch,’ or ‘Wolfpack just got back from Vegas,’” recalls Norrie. “It was like, good god.” Another source confirms that it was common for the founding team to say, “I want it to just be a Wolfpack thing this weekend.”
The tension between the “Wolfpack” and other hires reached a breaking point during the development of Snap. At the time, the team was discussing whether to build an in-house solution for the magazine or to outsource it to Adobe’s publishing platform. The latter solution, which is used by publishers such as Condé Nast and Fast Company, would allow the company to quickly get to market, but it would also cost upward of $75,000 for an annual license. Hipstamatic’s team could build its own publishing platform, but in one watershed meeting, Buick directly questioned whether his developers could even build the product themselves.
The discussion became heated, and a war of words erupted between Buick and Sam Soffes, the former iOS engineer, who argued he could build a solution that was just as good as or better than Adobe’s platform. “It was a big argument right in the big open area of the office,” recalls Wight.
Music was blaring through the headphones worn by Laura Polkus and Stuart Norrie when the two heard shouting between Buick and Soffes. “My music was really loud but I started hearing raised voices, so I sent an IM to Laura and was like, ‘Are you hearing this?’” Norrie recalls. “I hit pause and all of sudden F-bombs were dropping like it’s D-Day.”
“I remember I was like, ‘You’re completely wrong. I can pull up graphs on my computer and show you how much faster we can build it,'” Soffes recalls. “And he goes, ‘I got two graphs for you.’ And then he gave me the finger in both hands.”
“The double bird,” Polkus recalls.
“The entire company basically saw the CEO of this company give the double finger to a developer,” Wight says. “It wasn’t in jest either. It was, ‘I’m angry, so fuck off.’ Lucas walked out. That pretty much sums up the company for me. You just don’t do that as the CEO.”
Buick acknowledges that the argument took place, but says he wanted to go with Adobe’s platform only because there “were not enough engineering resources to go around.” Buick also clarifies that he hadn’t realized how expensive it would be to use Adobe’s platform yet. “I mean, I certainly feel bad about it,” he adds, referring to the exchange. “I don’t feel like an adult about what I did, but it happens. Shit happens. Let’s move on.”
Of course, it’s far from uncommon for tensions to spill over in any environment where strong-willed personalities tend to prevail. But the tenseness of the relationship between designers and engineers at Hipstamatic was palpable, ex-employees say. In fact, Soffes left Hipstamatic not long after his argument with Buick.
The quarrel also highlighted bigger issues simmering within the company regarding its overall vision. To Buick, Snap Magazine was an opportunity to further cultivate its growing photography community, in industries ranging from fashion to media. It was part of his strategy to make Hipstamatic a “lifestyle brand,” as he calls it.
But others inside the organization felt that idea made little sense. To some, between D Series and Family Album, two past, semi-social products soon to be discontinued; Timeline and CS9, which were both killed; and ongoing plans to make a social app, remake its camera app, and develop potential hardware products–in addition to Snap Magazine and two other previously released photo products called Incredibooth and Swankolab–Buick’s referral to Hipstamatic as a “lifestyle brand” was simply wishy-washy jargon meant to mask the company’s floundering product strategy. “They kept pitching us, ‘We’re a lifestyle brand,’ whatever the fuck that means,” says the former employee. “We didn’t know what to do because there was no direction. It was a bunch of art school kids that didn’t know how to run a software company.”
“Most of my time was trying to convince the development team of what the lifestyle brand was, and then trying to convince the lifestyle people what the development team was doing,” acknowledges Buick. “Ultimately, we never got on the same page.
“We may have been a lifestyle brand,” says Wight, “but we also make software. And we had to get serious about making software. We had the loosest, most disorganized plan I have ever seen–there weren’t even regular developer meetings. We needed someone who could lead the development team.”
“Very clearly there was a growing disconnect between the teams. It’s a company of designers versus guys who are engineers, so it’s not always easy to speak the same language. Did we experiment with a lot of different ideas over the course of the last year? Absolutely,” says Sullivan, the company’s spokesperson. “These engineers are very used to a certain structure or company or schedule, and maybe that wasn’t quite aligned with the vision we had.”
Says the former developer, “Hipstamatic needed to transition to a software company, but it failed to do that.”
If it’s common wisdom for founders to heed the call of social, then Hipstamatic proves that every founder should be wary of conventional Silicon Valley wisdom. Social for Hipstamatic was a siren song, and its turbulent journey over the last year only demonstrates the oft-overlooked dangers of pivots, especially ill-conceived ones that damage a startup’s core business so deeply that no amount of venture capital can repair it.
Throughout the summer of 2012, Buick says he and his cofounders took meetings with investors, hoping to raise the company’s first round of funding. But the team could never find the right terms, Buick says, partly because of Facebook’s bungled IPO. “We went down this path one other time, and the term sheets have gotten worse since the Facebook IPO, just from what we’ve seen,” Buick says.
The other issue, ironically, was Hipstamatic’s bottom-line, Buick says. While startups with no revenue can often drum up seemingly arbitrarily high valuations, Hipstamatic was plagued by its own market success. Instagram had generated no revenue since it launched, yet sold at a market valuation of roughly $1 billion. Hipstamatic didn’t have the same “advantage.” According to Inc. magazine, the self-funded startup pulled in $10 million last year, and was on track to more than double its revenue in 2012. “For us, raising money was always super awkward because we made money,” Buick says. “It fucked everything up and we’d get a different valuation. Like, ‘Oh you have numbers? Well, I’m going to put the X here and the Y here, and this is what you’re worth.’ It’s like, ‘No, no, no, we don’t make money! I lied!'”
“They thought raising VC money would be really easy–that they’d basically be picking money off trees,” says Jonathan Wight, the former engineer. “Every few weeks we’d get an update, and it would be, ‘Oh it’s a lot harder than we thought,’ or, ‘The terms aren’t what we want.’ Blah blah blah.”
Fast Company reached out to a slew of top-tier VCs but was unable to find one who had met with or even looked at the company. Two of the VCs surmised the startup would have a very difficult time raising money after the Instagram acquisition. “Another billion-dollar photo-sharing exit is hard to imagine. The category is over and done with, and I’d be surprised if they can even raise,” says one of the topflight VCs.
The investor agrees that general market sentiment for social media investments is down because of Zynga’s and Facebook’s declining market caps. However, the VC disagrees with Buick’s argument that having revenue would hurt its chances to raise funding. “The real problem is that Hipstamatic is perceived as a copycat that desires to be Instagram, and VCs don’t want to be in a me-too deal,” the investor says. “Having revenue absolutely won’t hurt; if anything, it helps, though the idea and market size matter much more.”
At that point, however, Hipstamatic’s biggest problem was finding the right idea, regardless of the size of its market or revenue. And its development team back in San Francisco felt completely disconnected from whatever the founders were planning. “They were gone for weeks and were impossible to reach,” says the former employee. “Apparently they were meeting with VCs, but I don’t know. We were just trying to ship this new product that was already behind. The original goal was to ship it when the new iPhone came out, but there was no fucking way we could do it. All we had was what we hacked together for them to demo to VCs.” (Hipstamatic denies that its cofounders were impossible to reach during this time.)
By the time the “Wolfpack,” the self-appointed nickname for the company founders, decided to offer other members of the team stock in the company, many had already lost faith, multiple sources say. “All of us were like, ‘Dude, you’re never going to IPO,’” recalls Stuart Norrie, the former designer.
In late July, Buick and his cofounders went to New York, which Wight says felt like the “last chance to get VC money.” (Hipstamatic denies that it was the company’s last chance for VC funding. It’s also worth noting that I had met with the team during their visit, and none of the products herein described were mentioned at that meeting. Buick was focused more then on ways to work Hipstamatic into third-party services.) When the team returned, however, there was no news of a round being raised. “Nothing was said. It was like, ‘Well, I guess we didn’t get any money,'” Wight recalls. “I confronted Lucas about it and he said, ‘Yeah, we didn’t find any terms that we liked, but we have something in China.’ It was kind of obvious then that they weren’t going to get VC funding.”
Wight also says he pressed Buick on whether they could still go ahead with the social product without raising capital. “Lucas said, ‘Yeah, we’re going to mortgage [Hipstamatic’s] building if we need to,'” Wight recalls. “He actually said, ‘Our backup plan is to mortgage the building.’ At that point, all my alarm bells went off. It was obvious that something crazy was going on. As far as I could tell, they were running out of money. That was about a week or two before the layoffs.”
Hipstamatic says that it’s simply not true that the company considered mortgaging the building as an option. Hipstamatic also denies that anyone ever indicated the company was prepared to go forward with the social product without raising a round of funding.
If Hipstamatic’s product roadmap seemed slapdash, the rapidly evolving landscape of the photography space was only making its business even more chaotic. By mid-August, Instagram was racing toward 100 million users, in part due to the app’s successful launch on Android. Viddy, arguably the model for CS9, Hipstamatic’s squashed video product, had raised a $30 million round at a reported $370 million valuation. Path, Dave Morin’s private social network, had raised $40 million at a reported $250 million valuation. Camera+, its camera app competitor, was nearing 9 million users, more than double Hipstamatic’s user base, and would soon launch on the iPad. And Tumblr, Pinterest, and any number of other white-hot startups, which arguably served as inspiration for Hipstamatic’s social products, were flying into the upper-echelon of Silicon Valley superstardom.
But even in such a hectic time for the company, Buick was starting consider yet another pivot for Hipstamatic. Pivots, Eric Ries’ term for a change in company direction, are usually reserved to describe companies that have made successful shift in focus: Instagram, for example, is famous for pivoting away from its unsuccessful, complicated earlier iteration, called Burbn, which included a host of random features, such as game mechanics and future check-ins. Pivots are also used to designate startups that have lost focus, as was the case with Color, the proximity based photo-sharing app, which has become a punch line in the Valley for a startup desperately spiraling in all different directions.
But Hipstamatic never truly pivoted. If anything, it lurched. The startup performed a series of missteps throughout 2012 that snowballed and left the company stagnant by the summer’s end.
In further violation of Ries’s revered business principles, Hipstamatic seemed almost incapable of putting out a minimum viable product: most every prototype product was either killed or not given the attention it needed to get to market.
Worse yet, the company was not run like a lean startup. The company’s headquarters, for example, a wide brick building on Langton Street in SOMA called the “Haus of Hipstamatic,” cost roughly $1 million. Additionally, the cofounders decided to renovate the building’s rooftop with deck and minibar, an upgrade that cost at least $800,000, explains Sam Soffes, the former engineer, who says he saw an invoice for the construction. “Lucas told me the stain for the deck had been imported from Belgium, and I was like, ‘Dude, there’s a Home Depot in Daly City–we could’ve just gotten it for way less than you paid to have that shit imported form Belgium!'” recalls Norrie. (Hipstamatic confirmed the cost of the building, but declined to confirm the cost of rooftop construction.)
Parties at company headquarters were frequent. As Buick once told me, “Our entire lifestyle is built on the philosophy that work and play are one.”
“It felt like a bloody frat house,” says Wight, who says he was told the company’s alcohol budget was $20,000. “I’ve never worked at a startup with an alcohol budget. People would be getting drunk at night and end up sleeping on the floor of the company. I think Lucas wanted a certain amount of rock n’ roll there.”
(Buick denies that the company had an alcohol budget, though he adds, “I mean, if we did have one, I’d be curious what it would be.” Buick also clarifies that, with all parties thrown–for product launches, say, or app updates–he always considered whether they’d generate short-term income or long-term revenue. Molli Sullivan, the director of communications, says that much of the money spent on parties and other “fun events” was designed for team building.)
“We had a ton of parties–maybe that’s what they meant by having a ‘lifestyle brand,'” says the former developer, referring to Buick’s company motto.
So while Hipstamatic was still generating revenue, it’s perhaps no surprise why some employees started to wonder if the company was speeding toward bankruptcy. Employees were not privy to the startup’s earnings; they only knew of revenue figures that had been reported by the press. When it became clear the company was not going to raise a round of funding, some started to think the worst. “I inferred that they were running out of money–that they had just gone through money way too quickly,” says the former employee. “You’ve seen the office–it’s really expensive. They all have really lavish lifestyles. I figured they were seeking out funding because they needed more runway to keep the ship afloat.”
The truth according to Buick is, by mid-August, the company had several different options. Buick could’ve continued down the path toward social and raised a round of funding at less-than-pleasing terms. He also could’ve sold the company. (“We can’t comment on who [we could’ve sold to], but it just seemed like a shitty option–it felt like giving up to cash in a check and buy a boat,” Buick says.) Or he could’ve pivoted backward, scaled down the company’s ambitions, and refocused on Hipstamatic’s original photo app.
After much deliberation, Buick says he went with the last option. (Also in early August, one of the company’s iOS developers quit voluntarily, which helped reinforce Buick’s decision, he acknowledges.)
Over dinner in mid-August, Buick presented the plan of scaling back to several other founding members of the startup. “From the time we decided to pull the trigger to the time we executed was about 48 hours,” Buick says.
On Aug. 16, the company began laying off employees, either in the office, over the phone, or over coffee. Employees were (not surprisingly) unhappy when they were told the news. “Yeah, I got my pink slip, or plaid slip, whatever hipster term you want to call it,” says the former employee.
At the Mondrian Soho in mid-September, over dinner and drinks, Buick appears genuinely unfazed by the internal drama at Hipstamatic and the way it negatively spilled into the press after employees were let go. Later, when I ask Buick whether Hipstamatic is going bankrupt, he immediately responds, “No, we are not.” And even when I press him about the startup’s runway and burn-rate, he retorts with a giggle, “You’re using startup terms that we’ve never internally used. I mean, I’ve heard burn-rate and runway, but let me say this: I have no idea what our burn rate is. I have no idea how long our runway is.”
Throughout our dinner, Buick’s general nonchalance gave the impression that the layoffs were not a financial decision, regardless of whether they actually were or not. (The company’s spokesperson says the company is not running out of money, and explains the layoffs had nothing to do with “paying the bills.”)
“The honest truth is I took a lot of bad advice and started building stuff we weren’t passionate about,” he says. “That whole product development was all about how to make money and maximize users, and we were focusing on the shit that we didn’t really care about. We started focusing on money and talking to a whole different scene, and we started to lose touch with our community–the photographers, for example, who totally got ignored for a year. I don’t know what the trigger was but the honest truth was we hadn’t shipped anything, and that drove me nuts. And what we were building was still so far away from being available that I didn’t even like coming to work.”
Ex-employees can’t speak fast enough to list off the many problems that plagued the company: a lack of transparency, an incoherent product roadmap, and so forth. Almost every source I spoke was offended that Buick would say the layoffs were due to not shipping products—the ex-employees chalk up the dearth of shipped products to the company’s poor leadership. And many sources place the blame on the ever-mounting disconnect between the cofounders and new hires, who say they were not given the agency to push new developments forward. (At least three sources I spoke with said the cofounders had a “death grip” on the original Hipstamatic app, for example, and only gave developers read-only access to the service for much of their time at the company.)
While one could certainly argue Hipstamatic had many original ideas, Hipstamatic’s central problem was execution—and it was a problem that worsened as the team’s cohesion deteriorated. The startup could not act as a functional whole.
When I ask Buick what went wrong, he reflects for a moment, and answers, “I think we totally got caught up in the San Francisco bubble. If you don’t leave enough, you forget that not everyone has an iPhone, and not everyone reads TechCrunch. The rest of the world doesn’t care about that stuff. The San Francisco bubble is a sounding board for the same idea heard over and over in a thousand different ways. We fell into that, and it led to a lot of frustration and wasted time and resources. So we took a left turn.”
Adds Buick, “We should coin this the unpivot.”
Stuart Norrie, the former designer, summarizes the company’s issues most eloquently: “In this industry, it’s inevitable that you’re going to pivot. You should be expected to be switching direction at a moment’s notice. But not weekly–not changing direction completely every week. They were trying to become Camera+ and Instagram, and that’s a losing battle. It’s suicide to take them on. And if you focus too much on your competitors, you’re going to lose sight of your own business, and that’s what really happened.”
He continues, “The biggest problem with Hipstamatic is that [Lucas] didn’t focus on Hipstamatic. What did Instagram do when lightning struck? They did nothing but focus on Instagram. What happened when Hipstamatic got successful? They made [separate products such as] Swankolab, Incredibooth, D Series, Family Album, Snap Magazine, and splintered off in so many different directions. They lost sight from the very beginning, and it still makes me sad because it was a golden opportunity to make something really amazing.”
Other members of the team echo Norrie’s sentiment. Says one former employee, “The people I worked with at Hipstamatic were the best people I’ve ever worked with.”
Buick agrees. “It sucked,” he says. “We’ve let people go before but it was always justified because they weren’t doing their work. This had nothing to do with that. They were all really awesome and talented. What we did was build a Ferrari and we didn’t know how to drive stick. So we had this awesome machine that wasn’t able to perform like it should. We built the wrong type of team to solve the wrong kind of problem.”
Finishing up his second or third old-fashioned at the Mondrian Soho, Buick transitions away from the past to talk about Hipstamatic’s future. As he takes me through the roadmap, I can’t help but be intrigued by what he and the company might have to offer–if the surviving team can even pull it off. All the while, a song by a French pop band blares over the restaurant’s sound system. Then, later, another song by the same group. Then a third in the course of an hour. The band is Phoenix, the name for the mythical firebird that rises from its own ashes–not that anyone catches the heavy-handed, trite symbolism. Says Buick, “This fall we’re launching a bunch of stuff…”
[Image: Flickr user Jim]