At 36, Scott Blum already is a tech industry veteran with a string of entrepreneurial hits and misses on his record. He founded OC memory maker Microbanks Unlimited and in 1987 started Rancho Santa Margarita-based optical disc drive maker Pinnacle Micro Inc. with his father. Accounting practices at the company brought a shareholder suit and scrutiny from the Securities and Exchange Commission; Blum settled with the SEC without admitting wrongdoing.
Blum left Pinnacle Micro in 1995 with enough money to create the far bigger buy.com Inc. Though he still owns 47% of the online retailer, he has parted ways with the company to create technology incubator ThinkTank.com and more recently, Enfrastructure Inc., a startup that has the backing of IBM Corp., Microsoft Corp., Arthur Andersen and other heavy hitters. Blum recently talked with the Business Journal’s Ken Spencer Brown about that venture, buy.com and the dot-com sector.
Could you describe the difference between Enfrastructure and what you’re doing with ThinkTank?
There are huge differences between an incubator and Enfrastructure. Enfrastructure just provides business infrastructure: facilities, bandwidth, computers, software, telephones, everything you need to run your business. That’s all it does. Incubators provide guidance, tutelage, education, capital and a lot of hand-holding,Enfrastructure doesn’t provide any of that.
Why would a mature company need something like Enfrastructure?
I’ll give you some examples. Ten years ago, every single company had its own data center. You had your servers in a small data room, and then suddenly companies like Exodus (Communications Inc.) showed up, and you outsourced that because it wasn’t part of your core business. They could do better and they were more cost-effective.
The same thing is true of business infrastructure. Why are companies reinventing the wheel every single day when they start up? They have to put phone systems in, buy bandwidth, have a data center, buy storage, get computers, integrate the software, put accounting in. We’ve done all that for them.
We think that 10 years from now, any company,whether small or Fortune 500,will be outsourcing its infrastructure to somebody. We’re going to change how people do business.
Still, Enfrastructure’s offerings seem to go beyond what most businesses are asking for. Take the onsite gym or 24-hour cafeteria.
We tried to build an environment that was for the employees. Take a simple thing like dry cleaning: it’s very difficult today to find time, either in the morning or in the afternoon, to drop of your dry cleaning. So we brought that to the employees instead. I don’t have to do that personally, but we tried to look at employees. We built a world-class gym; it’s got a sauna, massage therapy, aerobics rooms, spinning rooms,it’s better than 24 Hour Fitness.
It’s definitely not a moneymaker for us, because it eats up a lot of real estate,the one we built in the new facility is around 10,000 square feet. But again, we want to build something that’s never been built before.
Was it difficult raising so much money for Enfrastructure in light of current tech sector woes?
Thank God Enfrastructure’s not a dot-com company, or we would have never raised that kind of capital. It’s been challenging. But since Enfrastructure is a solid idea, we were able to raise almost $200 million, which is not easy to come by these days.
How are things going at ThinkTank, particularly in light of the dot-com collapse?
I would call it more of a washout, because it got rid of some of the bad companies and hopefully the good ones will survive. But we don’t focus on the traditional dot-com, anyway. We have a lot of infrastructure, a lot of services and technology companies. We have 14 companies: three of them we’ve sold, and for large amounts of money (eJets, BuyMedical and Fax.com). All of them got sold for their technology, not because of their dot-com relationship. They had some core technology or software application that was needed in the marketplace.
I learned from buy.com that there’s only going to be so many winners in the traditional e-commerce dot-com space. We’ve really focused our efforts at ThinkTank to be more of a technology leader and to invent some technologies along with the company. We haven’t had any failures, and we’ve had some singles and some doubles. But we have yet to hit a home run. I think Enfrastructure is a home run, BuyNow.com is a home run and eFederal is a home run.
How many runs would it take for you to consider yourself successful?
I just enjoy being an entrepreneur and helping other people be entrepreneurs. I think I’m going to be doing this the rest of my life. So I don’t know if it’s a number of successes; what we want to make sure we have is no failures. We want everyone to get a hit, and no one to strike out.
I want to make sure these guys are doing stuff that’s additive to the marketplace and not being a me-too or just another bookseller on the Internet.
Looking at buy.com’s struggle for profitability as an outsider, how would you rate the company’s chances?
The company still has the best business model in the marketplace. They’re going through the same thing (Dell Computer Corp. founder and direct-sales pioneer) Michael Dell went through for many years. Compaq had quite a lead on Dell, and Compaq had the old reseller network. For 15 years, Compaq turned up its nose at Michael Dell, until this year, when he shipped more PCs than Compaq did.
Buy.com and Amazon have the same thing going on. Amazon got all the hype and recognition. They’ve built all kinds of huge bricks-and-mortar warehouses and spent tons of money. Buy.com took a newer approach and went virtual by partnering with (suppliers) for fulfillment. Buy.com’s business model is superior, and they will turn a profit quicker than Amazon. But a lot of people have put money behind Amazon, and it’s going to take time to prove (buy.com’s model.) Buy.com needs to execute the model and when they do, they’ll prove to a lot of people they should have been investing in buy.com over the long run. They’re going to prove a lot of people wrong.
How is buy.com executing so far?
So far, they’ve done what they said they’re going to do, and that’s the most important thing. As long as they hit their numbers and show that they’re going in the right direction toward profitability, I have no complaints. If that changed, I’d be very verbal about it. I have a huge stake in the company.
Do you ever wish you were back at the helm?
I love what I do, helping companies get off the ground. I don’t need to work anymore.
How will other dot-coms fare over the next year?
For some particular reason, and I don’t know why, people think there’s some difference between the New Economy and the Old Economy. I used to run an Old Economy company, and the only difference I see is the pressure to grow quicker is more important in the New Economy. An earlier company I ran took 10 years to get to $100 million, growing 50% per year,and that was really good. But in a New Economy world, you have to do $100 million your first year.
If 99% of companies have (traditionally) failed in their first year, why would it be any different because you’ve put a “dot-com” next to it? Economics are the same, struggles to run a business are the same, and successful business models are the same. I think 99% of the dot-coms are going to go out of business. Nothing has changed. There’s been undue attention to the sector and too much money that has chased these companies. It was a gold rush,a lot of money, a lot of greed,and a lot of these people are getting burned for it.
Many articles written about you mention your brushes with the Securities and Exchange Commission. Does that reputation hinder you?
The only difficulty is in that people keep bringing it up. I learned a lesson: I was involved in a company that did something wrong. I wish I wasn’t there, and I wish it didn’t happen. I admitted my mistake in watching this thing happen and letting it happen.
But I hate for it to continue surfacing, because I would hope after seven years of working hard it would go away. I assure you that I’ve learned my lesson. The people around me understand that I was young and made a mistake. It won’t happen again.
What would you be doing if you weren’t an entrepreneur?
I’d probably be a teacher. The thing I enjoy the most is educating people, either through my past screw-ups or just passing on my knowledge. I love motivating people or just brainstorming with them.
What has kept you in Orange County?
I’m totally anti-Silicon Valley. I wouldn’t want to be in that rat race. Orange County has a great lifestyle, very loyal employees, and a good, moral group of people. I could afford to move my business anywhere, but I wouldn’t want to be anywhere else in the world.
What we do need is more Broadcoms. Broadcom is an icon for business, and I think we could use 50 more in Orange County.
