I keep thinking back on the launch of Bug Labs, which was about the best product launch I’ve seen in recent memory, at least from a startup you’ve never heard of. They ended up going on to win one of CNET’s best of show at the Consumer Electronics Show last year and have done very well since.

You might not have seen that launch, but that’s because they did something OTHER than launch at a big conference.

What did they do?

1. They got intimate. Had dinner with four people. (Seesmic, by the way, launched when the CEO brought a bottle of wine over my house and he forgot to tell me that it was off the record).
2. They told a story. “Why is gadget design so hard?”
3. They involved and listened. “What would you like to build if you had a widget that snapped together like a Lego kit?”
4. They shipped a product that was interesting and useful and reflected market feedback. (Many of the ideas we gave them are now shipping modules).

But contrast that with all the companies you’ll hear about over the next day or two thanks to the Demo conference.

Quick, can you name a single company from last year’s Demo? I can’t. Here’s the list. Are you using any? I looked through the list and can’t think of one except for Evri and Symantec, both companies that didn’t launch specifically at Demo.

So, what is the difference between a story and a launch?

Well, look at how Jeremy Toeman’s company, Stage Two Consulting, helped Bug Labs launch.

Did they throw a big press conference? No.

Did they send out a stupid press release? No. (Jeremy never sends out press releases that I can remember).

Did they pay $18,000 to the Demo conference to get on stage (every company you’ll hear about this week did that)? No.

Did they bug Mike Arrington until he’d write about their company in Techcrunch? No.

He invited a handful of people he liked, trusted, and knew would be interested in a new kind of gadget, and had dinner with us.

At the dinner did we see the product? No. The CEO, Peter Semmelhack, talked to us and showed us a few blocks of wood and told us a story. “What if you could build different electronics by snapping together pieces like legos?” I remember him asking.

I remember Dave Winer and Ryan Block being at that dinner. Then he asked the group of us “what would you like to do with such a widget?”

It was a product launch I hadn’t seen before or since.

What did that do?

1. It was intimate so we got to know Peter, the CEO, in such a way now that if I see him walking in SF I always stop and say hi. If he called me to tell me that a new version is coming out I’d take his call and his number is already programmed on my cell phone.
2. It let us know a story about how the product was developed. One that I am using years later here. Free PR. It all starts with stories.
3. It made us feel emotionally connected with the product in a way I don’t feel for many other products.

So why doesn’t that happen anymore? Well, look at the launch of Democrasoft which will happen tomorrow. The Demo folks told them not to talk with press until Sunday night and threatened that they would be kicked off the stage if word leaked. Luckily a friend was helping them with PR and got me in touch early enough so I could get a video done (I sat down with the CEO on Friday afternoon and I had to drive four hours to go and see them.

But do I have video of any of the other Demo companies? Nope. Do I care about any of the others? Will I try their products? Will you? Will you be watching at work tomorrow to pitch after pitch? I doubt it and even if you will you won’t get much beyond the pitch.

Look at the video I filmed with Democrasoft’s CEO. It is 17 minutes long. They didn’t pay me a thing to film it. They are paying $18,000 to give a six-minute pitch at Demo tomorrow. You really going to learn anything useful in six minutes? I don’t. I have spent hours with BugLabs’ CEO and company employees and even I know only a very small fraction of how to use their product that I should know.

So, how did the startup event business kill a great demo?

1. They tell PR people that they better not leak or suffer real consequences. It’s not only Demo that does this, by the way. So does Techcrunch and other events. That keeps them from talking.
2. Because of the “no leaks” policy you won’t be able to pre-tell bloggers and Twitterers and journalists anything real about your company.
3. Because of the “no leaks” policy you won’t be able to let same photograph or video your product.

What does that do?

1. It keeps a really good story from getting out. Why? Because I need a few days to do a “pro” video. Note that the one I’m including here is NOT a “pro” video. Compare the quality of it to the ones we do over on building43 with two cameras, pro microphones, tripods, and editing where we overlay demo video on top of the interview. For instance, look at this video with Clicker, an online TV guide.
2. It keeps us from comparing notes. This afternoon I called both Mike Arrington, founder of Techcrunch, and Louis Gray, guy who got me into FriendFeed and well-known tech blogger, just to see if anything coming out this week was on their radar screen. Neither was pre-briefed on companies coming out so we weren’t able to compare notes. That means a really great company won’t receive the hype it deserves and might even be ignored. Why? Because if you give an exclusive to another site I might decide that you already got enough coverage and since you don’t think I’m that important I’ll think you aren’t that important. It isn’t fair, but Techcrunch actually has institutionalized this policy and won’t cover companies if they aren’t given a fair shot at “first look” coverage. I agree with their stance.
3. It keeps you from letting us talk to customers or potential customers about you. Think about it. If you give us a week or two we’ll call up your potential customers and learn a lot more about how they like or dislike you. That makes for better blogs. In fact, some companies even are prepared inside the demo format to get around this. CitySourced, during its TC50 demo, brought a customer up on stage as part of its demo. I thought that was genius and it almost helped them win the entire contest.

Anyway, why don’t we have interesting product launches anymore? Blame the demo conferences. Good luck with that $18,000 spend. Oh, and if you want to launch your company you can do what Democrasoft did: call me. +1-425-205-1921 or see you at the YCombinator Launch Event on Tuesday.

Oh, and to the PR person who told Democrasoft that I couldn’t keep my mouth shut until the embargo ended at 9:01 p.m. tonight, here’s the proof you are wrong. Congrats Democrasoft and I’m looking forward to using your audience-feedback-and-collaboration tool on this blog in the future.

UPDATE: sure enough as of 9:22 p.m., 21 minutes after the embargo ended, only VentureBeat covered the companies (VentureBeat runs the Demo Conference). Techcrunch and Mashable (both more important blogs for startups) didn’t cover the companies.

UPDATE2: does this matter? Well, the Google Buzz team didn’t show their service to anyone outside of Google. That turned what should have been a good launch into a disaster. We could have warned them about some of the issues they faced in first week. But they didn’t ask. The PR advice they got was wrong and actually hurt them.