Bye Bye, Bill: How Nguyen Doomed Color from the Start

By Sarah Lacy , written on September 28, 2012

From The News Desk

So CEO and co-founder Bill Nguyen has reportedly checked out at Color.


The most common response I got when I Tweeted our post on the news earlier: Wait, Color is still around?

You can point to a lot of things that doomed Color. But the biggest one was Nguyen's utter lack of understanding about what had changed about building a Silicon Valley company since  he started his more successful companies in 1999 and 2000.

It may seem obvious that things change in a place that's predicated on startups and innovation. I mean, we're not that old as an ecosystem and how many companies here are even doing anything remotely involving Silicon anymore?

But as much as we pay attention to the shifts in the people and the technology and the companies, not as much attention gets paid to how much the way of doing business in the Valley also changes from cycle to cycle. Fundraising amounts, valuations and the desire to go "fat" or go "lean" tend to come in and out of vogue along with the economic cycles. But other things change permanently.

And when he set out to launch Color, Nguyen didn't get that. Worse: According to sources he didn't listen when more in-touch people tried to explain it to him.

Launches aren't everything, but Color could not have had a worse one. Nguyen articulated a huge vision that swayed some journalists into a wait-and-see attitude but the vision wasn't reflected anywhere in the actual product. What it put out there was one of a million photosharing sites with a horrible UI. And worse: The company came out trumpeting it'd raised $41 million before it had a single user. The factoid that made nearly every headline:  Nguyen crowed that Sequoia found the idea so bold that they put in double the money they put into their initial investment in Google.

That was a bizarre comparison to make, and it clearly came from the company given the consistency of the message. Color was a completely different kind of company started in a different time and a different industry. Why on earth would that be relevant to compare its funding amount to Google's?

There was only one reason to lead with that instead of the product: Because Nguyen had launched his previous companies in a very different time when the size of your series A was what mattered. The Internet was still relatively new and the number of people on it was comparatively small. Winning was seen as a race to get as many resources as possible, buy a pricey domain, do as splashy a launch as possible and do whatever marketing you needed to land-grab users.

That fundamentally changed in the Web 2.0 era, mostly because the entire economics of how you build a company had changed. The costs were far lower, so raising money for the sake of a gaudy press release had given way to the luxury of raising less and retaining control.

The marketing game changed too. First mover advantage was no longer valued. Commercials only worked once you have a successful product and a solid user base and are looking to grow well beyond it. The way you build a company is to raise a modest round, get a minimum viable product, push it out, and iterate like hell until people use it or pivot and try again.

People no longer get told what products to use in a Web 2.0 era, they use them and spread them to their friends if they're good. Color wasn't-- as was evidenced by its two star rating. Money and grand articulations of a vision can't shortcut that. The Web has become too crowded and users are too smart.

This is a lesson Web 1.0 veterans who started new companies this go-round learned early on. I remember when Max Levchin was launching Slide. At PayPal they'd concocted a clever method of paying users $20 to refer a friend, and the product spread rapidly -- and it was cheaper than how other companies were grabbing users back then. With Slide, he was struck by how his pedigree, his experience, his team, his cash -- none of this could force adoption. There was no trick the way there was in the late 1990s. "You just can't force users to get up off their asses and use your product," he told me in exasperation at the time.

Nguyen's launch plan made even less sense given he was launching a photosharing app -- an insanely crowded space, where the quality of the product and whether your friends were using it were the only two things that mattered to users. And Color had neither of those.

For contrast, look at the company who won this space: Instagram. Founder Kevin Systrom raised a small amount in the beginning, hired a tiny staff and had a straightforward and simple vision. It was the anti-Color in strategy, style, product, CEO and, ultimately, adoption and exit.

Nguyen couldn't work the press the way he expected and didn't get the late 1990s style headlines he craved. And when users tried the product out -- after reading nothing but how much money he'd raised and how Sequoia thought this would be bigger than Google-- they laughed and used social media to one-up each other with the jokes. The company just got trounced.

And Nguyen didn't know enough about how the media game worked anymore to ever take control of the narrative again. Quick high level defections of co-founder Peter Pham and DJ Patil only made the company look more doomed, and this bizarre pervy commercial only made the company look more out-of-touch. Color was mostly known by the users it courted as a meme about an epic flop, and when people got bored of it, they just moved on to more interesting memes.

Now that Nguyen is out-- or at least never showing up and vacationing while he takes a paycheck-- it doesn't offer much hope the company will amount to much. Early spin that "This team alone could be worth $41 million!" seem silly now that the founders and that early talent has mostly bailed. These companies are outgrowths of the founders for better or worse. Without a compelling product (still), a grand vision that has mostly proven to be vaporware, and scant users, Color is still just another Delaware corporation with a lot of cash in the bank.

I spoke with a close friend of Nguyen's in the aftermath of that launch. I explained why I thought the strategy was so out of touch. This person just shook his head and went on an exhausted screed about how he tried to explain that to Nguyen before launch until he was blue in the face. But Nguyen had launched companies before, and he thought he knew better, this person said.

There's a strange contradiction in the Valley where investors say they crave the experience of a serial entrepreneur but also want the fresh eyes of a young entrepreneur in touch with the users of today. There are plenty of examples of each being successful, but you can't have both in a single founder. For either to work, a founder needs to realize those inherent limitations and listen to people around him to compensate for them. The best young founders do that by surrounding themselves with savvy investors and mentors. Sometimes the know-it-all serial entrepreneurs need to do the reverse.