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#DigitalSkeptic: How Action Camera Maker Contour Failed, and How It Comes Back

Stocks in this article: SNE GOOG NKE

PROVO, Utah (TheStreet) -- Jason Green has learned just how tough the computer hardware business has become.

"Our big problem was we were a hardware company in a software town," said the chief technology officer for action and sports camera maker Contour as we shared a new-Utah fusion lunch of bacon sushi and tuna salad served in martini glasses.

Green, along with his boss, Chief Executive Danny Lysenko, kindly sat down with me for a surprisingly frank lunch here in Contour's hometown about the company's odyssey of going from No. 7 on the Inc. 500 list for America's Fastest Growing Companies in 2011 to bankruptcy by August -- and then to a new and far smaller Contour this year, looking for a toehold in the fast-growing market for wearable sports and helmet cameras dominated by the likes of GoPro, BulletHD and Sony (SNE).

"Certainly, we could we have done a better job of getting the message out. One year I think GoPro raised $20 million and we raised $2 million," Green said. "But I felt over and over that we were trying to explain ourselves in an investing climate where software is king."

Green and Lysenko's tale of the penalty pure hardware companies such as Contour pay in today's software-mad world is sobering investor stuff. On the face of it, there's not a thing this hardware startup did not do right.

The roots of Contour go all the way back to 2003, when Green worked with co-founder Marc Barros to win a $20,000 entrepreneurship prize at the University of Washington. That early fame put the start-up in position to ride the wearable device and action helmet camera wave -- a wave that led directly to San Mateo, Calif.-based GoPro announcing an IPO earlier in February on rumors of $1 billion in annual sales.

No question, Contour was thick in the action-cam mix. It grew to more than 60 employees, rivaled GoPro for sales for several years and boasted rich features such as HD video, solid audio quality and excellent design and manufacturing. And the media ate it up: Time, Men's Journal and Outside all loved the unit. Yahoo! Finance quoted then-CEO Barros that as late as March 2012 the company was on track to generate $50 million in sales that year.

In our rapidly changing Information Age, though, even all that upside was not enough to keep Contour afloat.

Great hardware is no longer enough

As Lysenko and Green explained it, behind the fast-growing sales were capital constraints in producing cameras at large scale, which led to the need for more money -- which turned out to be harder and harder to scare up. "We could not get in front of investors that seemed to get what we were doing," Green said.

Contour also faced intense sales and marketing pressure from rivals such as GoPro, Barros said. "We built distribution first instead of brand," he said. "That resulted in a lower-margin business than our competitor, which they fed right back into marketing, which was their strategic strength."

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