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

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."

Either way, by 2012, cash reserves had dwindled and current Chief Marketing Officer James Harrison says Barros was replaced by an interim CEO, Steve Moore. By last year, creditors sent the operation into receivership, at which point an original investor, Clarke Capital, bought the remains of the business from the court-appointed receiver. Lysenko was recruited from Apple to reboot the operation.

"What I learned was, it's really expensive to scale a real product," Green said. "And that was just not what anybody seemed to understood."

Investors most certainly owe it to themselves to see how easy it is to wind up in Green's position by doing what I did and getting hold of a Contour+2 ($299). They will see for themselves just how durable, rugged and well-realized this product is. Besides being an excellent video recording device, it's packaged beautifully and offers none of the invasive creep factor found with other wearable electronics such as Google  (GOOG) Glass or the Nike  (NKE) Fuel Band.

Yes, there are issues: Contour's imaging software is odd, and it takes time to figure out how to actually photograph and process the mass of video recorded. But essentially, for just $300, a customer gets a fully realized self-recording appliance that enables him or her to do something fundamentally new: capture one's life in real time.

But even for all that, the sad fact is that Contour could not find the fresh funds it needed to back its growth. Contour had to fade to black.

A leaner, meaner Contour

As Lysenko explained it, the new, leaner meaner Contour is trimmed back to 10 employees and will concentrate on rebuilding its business slowly with its best former customers. "I don't see us changing the product dramatically," he said. "The GoPro IPO validates the action-cam market as a billion-dollar global business. My plan is to go out and find our share of it."

But as I walked Lysenko and Green to their car after our meal, I got the feeling there's a deeper investor lesson lurking in Contour's action-cam misadventures. Never mind the millions being raised on Kickstarter or Indiegogo for fancy new gadgets; selling real hardware in these unreal software days has never been more difficult.

"Am I partially responsible for not getting this product right? Absolutely," Green said. "But what I learned is that for all our success, it's not easy to find backers who get how the real world of making something real works."

"Hardware is a really hard story to tell."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

If you liked this article you might like

5 Things You Should Know About Tech Giant Nvidia

5 Things You Should Know About Tech Giant Nvidia

These Stocks Are Showing Resiliency Amid the Market Selloff

These Stocks Are Showing Resiliency Amid the Market Selloff

Stocks Slide and Amazon's Profit Soars - 5 Things You Must Know

Stocks Slide and Amazon's Profit Soars - 5 Things You Must Know

Amazon, Apple and Everything Else You Need to Know Before You Trade Friday

Amazon, Apple and Everything Else You Need to Know Before You Trade Friday

AMD's Results and Guidance Provide Reasons for Cautious Optimism

AMD's Results and Guidance Provide Reasons for Cautious Optimism