A Risk Taker’s Biggest Gamble

At 36, the man best known for founding online superstore Buy.com Inc. has started four companies, made three fortunes, lost two and emerged as one of the pivotal players in the Southland’s technology industry.

Despite a resume that features enough failure and controversy to curb a more timid person’s appetite for risk, Scott Blum keeps upping the ante--and persuading some of the industry’s most respected names to gamble on him.

Blum’s current project is his most grandiose yet: creating a national chain of incubators-cum-training-centers for tech entrepreneurs, with the first campus slated to open in November in south Orange County.

Now called Enfrastructure, he hopes the venture could give Idealab in Pasadena a run for its money and boost Orange County’s efforts to become a tech hub--if it ever gets off the drawing board.

“I have more faith in Enfrastructure than I did in Buy.com,” Blum said. “There’s not a big venture-capital community in Orange County. [Irvine-based computer chip developer] Broadcom is by far the biggest success, but we need 20 of them because the Bay Area has 50.”

So far, after more than six months of whispers and maneuvering, Enfrastructure still exists mostly in theory. But the buzz about it speaks volumes about Blum’s growing industry profile--and skill at self-promotion.

“It’s sort of like Donald Trump,” said Scott Russell, a general partner at Softbank Corp., the giant Japanese investment company that owns a chunk of Buy.com. “One minute he’s brilliant, the other he’s aggravating. He always wants to build the biggest building.”

Trump has his tower.

Blum is piecing together a low-slung, suburban empire in Aliso Viejo’s hills. The epicenter is at ThinkTank.com, the venture-capital company he plunked down next door to Buy.com last year after relinquishing day-to-day control of the nation’s fifth-largest electronic retailer.

Buy.com’s public offering in February briefly made Blum one of Orange County’s billionaires, but he’s had little time for ticker-watching as the market soured on Internet businesses, reducing his paper fortune from almost $1.9 billion to about $314 million.

Prowling his office, Blum is palpably impatient.

As you talk, he breaks in with staccato yah, yah, yahs, already knowing where you’re headed, already knowing what his response will be. His business attention span is similar, as compressed as a Zip disk, as fleet as the BMW motorcycle displayed in ThinkTank’s reception area.

A big, white board hangs on one wall, covered with the names of embryonic “dot-coms”: EJets.com. Buymedical.com. Fax.com. Just a few of the hundreds of business concepts that swirl through Blum’s mind like guitar riffs.

“He’s an idea machine,” said Greg Hawkins, Blum’s replacement at the helm of Buy.com. “It’s like trying to take a drink out of a fire hydrant.”

Enfrastructure, formerly called EDevelopments Inc., is special, though, Blum says.

With partner James Watson, a former executive at Newport Beach real estate developer Koll Co., Blum has envisioned a college-like setting for businesses. Tech start-ups would move into ready-made wired environments surrounded by restaurants, shops and on-site services to help with everything from accounting to tax law.

“[Enfrastructure] is, by far, my loftiest goal,” Blum said. “I’m an entrepreneur, and I want to help other entrepreneurs succeed.”

The venture has stumbled somewhat out of the gate. Executives initially said they would unveil the business in February, but it still hasn’t happened. After setting its sights on 42 acres of expensive real estate in Irvine, the company scaled back its plan and leased a smaller Aliso Viejo space.

“It’s either going to be the biggest flop in America or the biggest success,” he said cheerily.

Out of the Pool, Into Hot Water

Blum’s first lessons about winning and losing came in the swimming pool, where he began racing seriously at 5 and became a national champion at 8. His family moved from San Jose, where his father had worked as an engineer and marketing executive for Hewlett-Packard Co., to Orange County partly so that Scott could join the elite Mission Viejo Nadadores swim club.

But Blum quit swimming when he was 16 and, after that, his life spun a bit out of control.

He was kicked out of Mission Viejo High in his junior year for driving the principal’s golf cart into the school pool. His parents sent him to live with family friends outside Denver, where he buckled down and earned his diploma.

When he returned to Southern California, he sold shoes at Nordstrom’s, parked cars at the Ritz-Carlton resort and attended Saddleback College, pecking away at a never-completed associate’s degree without a goal in sight.

But a professor’s challenge to upgrade antiquated Apple computers led Blum to find a way to replicate expensive gear at one-eighth the price. Using that idea and $17,000 borrowed from his father, he founded MicroBanks to sell memory modules for Apple computers.

Two years later, the 23-year-old college dropout sold the company for $2.5 million--most of which, he admits, he blew on a house and BMWs for himself and his parents.

Blum used the remainder--about $650,000--to go into business with his father, William, setting up Pinnacle Micro Inc. as a marketer of data-storage devices. The senior Blum served as chief executive, Scott as marketing chief.

Through much of the early 1990s, Pinnacle soared as demand grew for products that allowed computers to handle huge files of text and video images.

But in 1995, the wholesaler made a strategic blunder by attempting to produce its own technology. It did not have the resources to keep up with industry behemoths such as Sony Corp. and Hitachi, however, and the black ink turned blood red.

Making matters worse, the company’s auditors resigned, alleging Pinnacle had recorded $2 million in the wrong quarters in a desperate attempt to meet sales targets. Shareholders sued and the Securities and Exchange Commission investigated, accusing the company and Scott Blum of violations.

Blum still calls Pinnacle’s accounting mess his worst mistake. He blames another officer and said he did not report the violations out of personal loyalty.

Ultimately, the company paid $2.3 million in cash and stock to settle with stockholders. The Blums left in 1996 after a management shake-up. William Blum subsequently returned as chairman and chief executive.

The company and Scott Blum settled with the SEC in October 1997, admitting no wrongdoing but agreeing to abide by securities laws in the future. The company’s fortunes never revived: It recently filed for Chapter 11 bankruptcy protection.

Pinnacle’s crash could have been a confidence-rattling setback. To this day, Blum remains damaged goods to some on Wall Street, which is one reason he brought in Hawkins before Buy.com’s initial public offering and why his stock is held in a nonvoting trust overseen by others, giving him no fiduciary control of his brainchild.

Blum’s Confidence Wins Over Investors

But former Apple Computer Inc. Chief Executive John Sculley met Blum shortly after the Pinnacle debacle at a board meeting of a Silicon Valley Internet company and came away marveling at his self-assurance.

“I listened to him for about eight straight hours, and my impression was, here’s a guy I could learn a lot from,” Sculley said.

Sculley became a convert--and an investor in Blum’s next big idea. So did former PepsiCo Inc. Chief Executive Donald Kendall.

“He didn’t deny he’d made a mistake,” Sculley said. “Don Kendall came to the same conclusion--that this was a mistake any young person could make and that Scott understood going forward that he wasn’t going to be able to do anything that wasn’t above board. . . . We became convinced that the guy did have character.”

The business Blum began in 1996, known first as BuyComp Inc., had a simple premise. It would sell computer products online, guaranteeing “the lowest prices on Earth.” Using proprietary technology that tracked competitors’ rates, BuyComp undercut them by 10% or more, selling at or below cost.

“Sam Walton invented the business model,” Blum said. “I basically adapted it to the Internet.”

The company exploded off the launch pad, generating $1 million a day in sales before it was a year old. Changing its name to Buy.com, it expanded into other product categories, from books to music to golf gear.

Though the company was losing money on every sale, Blum convinced Softbank, known for backing top-tier Internet companies such as Yahoo Inc. and E-Trade Group Inc., to buy a stake in Buy.com.

Even with Softbank’s imprimatur, Blum’s approach met with almost unanimous skepticism from analysts: Many predicted the company’s slash-and-churn discounting would not only kill it but force other e-tailers down a path toward self-destruction.

The company also became notorious for poor service. Customers accused it of bait-and-switch tactics after it failed to fulfill orders for a monitor accidentally advertised on its Web site at an absurd discount.

As the company prepared to go public, even Blum realized he needed to bring in a professional management team.

He also realized he was cut out to conceptualize companies, not run them over the long haul.

“The first two years are the fun part,” Blum said. “Once it’s cranking, it doesn’t need a swift kick. It doesn’t need me.”

In ThinkTank, which he funded with $20 million from his own pocket and $200 million from Softbank, Blum has boiled down to its purest form his passion for birthing businesses.

It is a productive kind of insecurity that compels him to look for what’s wrong in tech companies and for ways to fix it, Blum admits.

“Insecure people want attention; they want material items,” he said. “Insecure people make better entrepreneurs. I’m financially secure but mentally not secure. I still want to prove people wrong.”

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THE BLUM FILE

Scott Blum

THINKTANK.COM

(Aliso Viejo)

Position: Founder and owner, 1999-present

Business: Venture capital firm and incubator

Financing: $20 million from Blum, $200 million from Softbank Corp.

BUY.COM INC.

(Aliso Viejo)

Position: Founder and president, 1996-1999

Business: Internet superstore

Financing: $1 million from Blum. Other investors include former Apple Chief Executive John Sculley, former PepsiCo Chief Executive Donald Kendall and Japanese investment firm Softbank Corp.

PINNACLE MICRO INC.

(Rancho Santa Margarita)

Position: Executive vice president and co-founder, 1987-1996

Business: Reseller of optical storage devices

Financing: $650,000 from Blum. Company filed bankruptcy petition in April.

MICROBANKS

(Orange County)

Position: Founder and president, 1985-1987

Business: Reseller of memory modules for Apple computers

Financing: $17,000 borrowed from father. Sold for $2.5 million.