Try squirting a spoonful of engine oil in the cyl. Sometimes the rings need some oil to seal good for the intial startup.
Mike

1)LOSE the starting fluid (ether) - good way to trash your new engine. Use rattlecan carb cleaner instead.
2) Reconfirm all electrical re-hooked back up as original - no shortcuts.
3) verify fuel filter is OEM and installed in correct flow direction.
4) pull ignition wire off plug and disconnect fuel line at carb. use catch container. have assistant crank engine with cl/brake fully depressed, 1/2 throttle, no choke, PTO sw off. If good flow of fuel, hook fuel line and ignition wire back up.
5) Remove air cleaner. Wih assistant cranking engine as above, spray several shots of carb cleaner directly into carb throat. If engine pops and tries to start, you still have a fuel delivery problem., If not, an igntion or mechanical problem.
6) fuel problem - remove carb. disassemble, soak overnite in liquid carb cleaner. using magnifying glass and stiff small dia brass wire, probe all component orifices - blow out with rattlecan carb cleaner and compressed air. Rebuild using rebuild kit - use only new gaskets and float valve seats.
7) ignition/mechanical problems: due to the multiple possible causes involved, best to get the engine model/type numbers; go to the kohler engine website; download the specific engine service manual you will need.

I tried the oil in the cylinder but that didn't help. It is getting fuel and fire. I just realized it doesn't have compression because I can't tell any difference in compression with the spark plug in or out. How could that be with a brand new short block.

It must have a valve issue because that is all that was not replaced. The valves are either not seating or they are out of time.

If the valves aren't in time w/ the crankshaft you'll have to take it back. When you say "shortblock", do you mean one that came w/ crank,piston rod and camshaft or do you mean just a bare block?
Mike