The Start-up Factory

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Relieved of such drudgery, some CEOs have actually held focus groups on their second day of operations. Says Steve Damron, CEO of Idealab's EntertainNet: "If I hadn't been with Idealab, I would have put in a lot more time working with lawyers, working on names and trademarks, working on incorporation papers, working on a logo." As it was, he was working on the creative element--building a prototype of his Web interface, for instance--just a few weeks after his first discussion with Gross.

If the whole concept seems a tad quixotic, if not outright flaky, consider Gross's track record. As an enterprising 12-year-old in Encino, Calif., he noticed that the corner drugstore sold candy for 9¢ while the Sav-On around the corner sold it for 7¢. Spotting a classic arbitrage opportunity, Gross soon had a network of salespeople wringing profit from the spread. Those proceeds he plowed right into his next venture, Solar Devices, which sold $25,000 worth of cardboard-and-tinfoil parabolic dishes and plans through ads in Popular Mechanics. That money, in turn, covered his first year's tuition at Caltech, where he promptly founded a stereo-equipment maker, GNP Inc., that grew fast enough to land on the Inc. 500 in 1982 and 1985. Next he and his brother started tinkering with Lotus 1-2-3 and invented a way to make the spreadsheet obey simple commands. So impressed was Lotus founder Mitchell Kapor that he bought their company for $10 million. In 1991 Gross founded Knowledge Adventure; he sold it three months ago to CUC International for approximately $100 million. Spielberg, the man whose 1993 dinosaur epic, Jurassic Park, remains the highest-grossing film of all time, calls him "my favorite investment." He adds, "I've also made a lot of money with him."

Still, who's to say that Gross can replicate the company-building process with machinelike regularity? Some venerated names are betting he can. "There are very few examples of entrepreneurs who have started more than one successful company--it's really hard to think of any that have had two big hits," says legendary venture capitalist Ben Rosen (think Lotus and Compaq). "Bill has a chance of having a dozen hits. I think in five years' time Bill Gross will be as much of a household name as any household name in technology, even though today he's barely known outside of a very small circle."

Idealab represents more than just Gross's quirky attempt to create his dream job. It's his effort to shape everything he's learned about company building--what he calls his "50,000 nuggets of business experience"--into a mold for stamping out new companies efficiently.

His basic premise is that to nurture start-ups to adulthood better and faster, it takes a village--a village of interdependent yet nominally independent companies, all built around a core base of knowledge. Idealab strives to whisk its offspring through their infancy not by showering them with cash but by leveraging the village's shared creative and technical know-how. "We really don't think of ourselves as venture capital," says Gross. "We're creative capital. The money we bring is incidental."

Idealab's structure resists simple categorization. Like a business incubator, it provides shared office space and administrative services for its brood. Like a venture-capital firm, it provides seed funding and takes a minority equity stake in the companies. Like a think tank, it brainstorms on technology applications that could form the basis for new products. And like a parent company, it takes a substantial role in overseeing the operations of its subsidiaries.

Yet its assembly line is actually quite simple. Gross keeps a voluminous inventory of one raw material, ideas, in his cranium. People, the other raw material, are shipped in from the outside: Gross recruits CEO-caliber executives and hands each of them a promising business idea. Then the factory--Idealab's core staff of 15--helps them construct businesses around the ideas. It furnishes them with a little seed money (no more than $250,000 per company), the prefab company structure, and expert assistance with design, marketing, and just about everything else. Off the end of the assembly line roll dozens of small, fast-moving, "incredibly highly focused" enterprises, according to Gross. Idealab retains a minority equity stake ranging from 25% to 49% in them.

Because Idealab itself has no revenues, its operating cash comes from a $5-million stash put up by 10 investors, who include Spielberg, actor Michael ("Greed is good") Douglas, Rosen, and Gross himself. Gross hopes Idealab will ultimately perpetuate itself venture-capital-style: just a couple of smash hits from its portfolio--an initial public offering or an acquisition--"and that will fund us basically forever," he says.

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