Hmm. I'd look at his sperm count first and make sure it is ok. Hopefully he also does not have very small testicles.
I would exercise him a lot before a breeding. Wear him out a little bit. Then try him on a sweet mare who will put up with his trying. If he does enter the mare and since he's small, have someone strong behind him to keep him in if possible. It sounds really as though he's just inexperienced. However, it could be that his previous owners couldn't get him to breed either. Since he's already a senior stallion, I doubt they would have kept him for a long time and not tried to breed him.
Failing all else, you might try AI with him if his sperm count checks out. And failing all that, you might consider gelding him and starting a stallion hunt again. There are tons of super ones for sale.
I like your Blue Sky by-the-way.