In Search Of The Perfect Wave
In July, Scott Blum scheduled a conference call between top executives of his Internet incubator, ThinkTank, and one of its incubatees, Enfrastructure. But it wasn't to discuss financing or the business plan or even Enfrastructure's late-September launch. No, Blum had something entirely different in mind: ping-pong. He was planning a best-of-five "deathmatch" between ThinkTank and Enfrastructure, and he wanted to hammer out a list of chores that the losing team would have to perform. One week after the match, Blum smiled broadly as he walked past the ThinkTank reception desk and spotted Enfrastructure co-founder Scott Johnstone answering the phones. "They lost," Blum explained, "so he has to be our receptionist for the day."
For Blum, 36, taking competitiveness to an extreme has been an essential part of life. It first surfaced in the pool, where, at the age of 8, he became a champion swimmer. He made just as big a splash in the national consciousness three years ago when he started Web superstore buy.com. The upstart sparked instant controversy with its initial plan to charge less for most of its merchandise than it cost. Now he's hoping to churn out dozens of successes through ThinkTank. He opened his flagship incubator in Aliso Viejo, Calif., in October and plans to open branches in Denver, Seattle, and Berkeley, Calif., in the coming year. "I'm passionate about helping entrepreneurs get to the next level," he says.
But when it comes to fulfilling his ambitions, Blum faces Web-size challenges. Turning a fistful of ideas into viable businesses won't be easy. A 1996 run-in with the Securities & Exchange Commission over accounting irregularities at his second company, Pinnacle Micro Inc., left Blum with credibility problems that he's still trying to shake. Buy.com, which was a standout when Blum first introduced it, hasn't been able to make a profit--even though it now charges market-rate prices for most merchandise. What's more, there's a glut of incubators, with about 350 new ones in the past year. "Some of them will succeed--especially those that are run by people with golden Rolodexes and a lot of experience raising good companies. Some won't," says Dinah Adkins, executive director of the National Business Incubation Assn. With Blum's blotted track record, the odds seemed to be stacked against him.
Blum isn't intimidated. He's driven to win. Although he was showered with love and attention as an only, adopted child, Blum says a nagging sense of insecurity constantly compels him to prove himself. Since childhood, he has had a hard time settling for anything less than first place. It's the same whether he's closing a million-dollar deal or playing ping-pong.
Jock execs. In fact, he's so sure that he can make ThinkTank one of the survivors that he sank $40 million of his own money into it, and he's providing $2 million of seed funding to each of the incubatees. Of the 14 companies in the incubator so far, none has generated anything resembling the buzz that buy.com did in its early days, and few are first-movers in their markets. That isn't quelling Blum's eagerness to branch out.
At ThinkTank, entrepreneurs work in cubicles meant to encourage the free exchange of ideas, and they share a marketing department, human resources professionals, and other startup aids. Blum dreams up most of the ideas for his companies, which include BuyNow Inc., which builds e-commerce sites; eFederal.com, a purchasing site for government agencies; and Flashcards.com, an online greeting-card provider. Each new incubator site will have a specialty. While his Aliso Viejo branch spawns consumer and business Web properties, the Denver incubator will develop communications companies, Seattle will focus on software, and Berkeley on hardware.
Recruiting top managers is key. Blum favors job candidates who were once star athletes and who seem to have the right instincts for the startup game. Example: Rick Robinson, chief executive of eJets, a ThinkTank startup that provides services for execs chartering jets, was a swimmer on Blum's childhood team. Big-company experience is less important. "Resumes aren't worth the paper they're printed on," declares Blum, who calls himself a natural-born salesman. "If someone excelled at sports, that's interesting to me."
Blum's salesmanship shtick has worked pretty well so far. A community college dropout with no technology training, Blum convinced big-name backer Softbank Venture Capital to invest $225 million in buy.com. His plan: to attract customers by initially selling everything below cost, drive revenues through advertising, and keep costs down by outsourcing fulfillment.
Blum was wise enough to know when it was time to hand over command to somebody else. In early 1999, when he felt buy.com had grown too big for him to manage, he persuaded Gregory J. Hawkins to come in as CEO. Blum is frank in admitting that he has neither the desire nor the operational knack to run a big company. "I'm not good in a 1,000-person company," he says. "I have to be able to talk to the receptionist, to the guy in the warehouse--to make sure my vision gets passed down."
Besides, he just can't stop being an entrepreneur. Blum is constantly dreaming up new concepts for Web companies. Once, while surfing with a friend, Blum started grousing about the hassles he had encountered chartering planes. Later that day, he bought the domain name eJets for $25,000. Within a couple of months, he had hired a CEO and launched the site. "He's coming up with ideas all the time. I'm, like, `Scott, calm down. How many companies do you want?"' says Brad Allen, CEO of eFederal.
For all his ideas, there's still a huge question mark on whether Blum will be able to generate a string of winners. Buy.com has stumbled miserably. The company has raised prices, and margins have improved, but profitability remains elusive. The company has lost $120 million on $760 million in sales in the past 12 months, and the stock has plummeted from a Feb. 8 high of $35.44 a share to just below $3.
These are troubled times for business incubators, too. In response to the depressed market for initial public offerings, pioneering incubator idealab! has delayed its planned offering. Over the past 12 months, Net holding company CMGI Inc., which operates an incubator, lost $556 million. The era when valuable dot-coms could be produced like so many sausages is long gone, says Jon Goodman, who runs the University of Southern California's non-profit Internet incubator. Of Blum's claims that ThinkTank will beat the odds, Goodman says simply: "Silly him."
"Boot boy." Even Blum's greatest supporters seem to have lost some of their faith. Softbank, which has seen the value of its investment in buy.com drop 50%, appears to be approaching Blum's latest venture far more cautiously. So far, among the ThinkTank startups, it has backed only BuyNow, and with just $6 million at that. None of which has shaken Blum's self-confidence. He's certain that at least a few of his ThinkTank ideas will become successes. "We want to score home runs, but all I need is a single or a triple," he says.
Blum was never one for self-doubt. Born in San Jose, Calif., he was adopted as a baby by Bill, a salesman for Hewlett-Packard Co., and Nell, a homemaker. Blum was hyperactive, so they put him in a swim class at 5, hoping it would be a good outlet for his endless energy. "He really took to it," says Bill Blum. Blum won his first national junior championship at 8, and went on to collect a barrelful of national medals. At 16, he burned out. "I'd put so much pressure on myself before a race, I'd actually get sick," he says. Once he got his driver's license, he quit.
Instead, Blum channeled his energy into making trouble. In his junior year at Mission Viejo High School in Southern California, he Krazy Glued the locks of the school, shutting it down for two days. He disrupted a pep rally and drove the principal's golf cart into the swimming pool when the principal tried to break up a fight between Blum and another kid. "My wife and I set a record for attending parent-teacher conferences," jokes his father. Eventually Blum was kicked out. So his parents sent him to live with friends and complete high school in Englewood, Colo.
It wasn't until he returned to Southern California after graduation that Blum began to find himself. He took a stab at community college for one year and he held a string of odd jobs, including selling women's shoes at Nordstrom Inc. Within three months, at age 19, he was the top salesman. He did it by pushing expensive boots. "My nickname was Boot Boy," he says. Then, while upgrading an old Apple computer as a class assignment, he came up with the idea of selling memory modules. With $17,000 he borrowed from his dad, he launched MicroBanks in 1985, at the tender age of 21. Just two years later he sold the company to San Diego's Sentron Technology for $2.5 million.
His second company didn't produce such a happy ending. He and his father launched Pinnacle Micro and began marketing optical disk drives. With his father as CEO, Blum headed the sales team, increasing the revenues 50% a year. But in 1996, it all came crashing down when the SEC charged the company with illegally accounting for sales of products in one quarter that were not shipped until the following quarter. Blum didn't have to admit wrongdoing, but in 1996 he left Pinnacle, which has since filed for Chapter 11 bankruptcy protection. That blunder could have destroyed Blum's career, but colleagues say he learned from the experience and is more cautious now. Still, the incident hangs over his head. "Maybe there will be an occasional banker who won't want to be involved with one of my companies," Blum says.
Blum doesn't let his problems distract him. He's betting his riches on making another entrepreneur's dreams come true. "It's all about new ideas, new excitement, new challenges," he says. "Seeing people succeed makes me happy." Faced with the hurdles of a spotty track record, a hostile market for dot-coms, and an overcrowded field of incubators, he'll have to paddle hard to keep ThinkTank from sinking.