Then, in 1994, a 10-member team within Knowledge Adventure developed a technology for building three-dimensional environments on a computer screen. It was neat stuff: one application turned the standard text-based Internet chat room into a lush 3-D castle, where chatters could step into the bodies of animated characters and explore from room to room. But the team soon began fighting the rest of the company for resources. "It got to a point where there was dissonance between that group and the rest of the company," says Gross.
Some colleagues finally persuaded Gross to spin the unit off into a separate company, with Knowledge Adventure retaining a 20% equity stake and access to the 3-D technology. "I did it reluctantly," says Gross. " Very reluctantly. I thought the technology was so valuable that I wanted to have it internal to Knowledge Adventure."
Within a year the spin-off, Worlds Inc., grew almost as large as Knowledge Adventure itself. Instead of owning 100% of a $5-million business, Knowledge Adventure now owned 20% of a $77-million business. "There's no way that kind of exponential growth could have happened inside Knowledge Adventure," says Gross. Plus, spinning off Worlds allowed Knowledge Adventure to return to its original, narrower mission--a strategy that propelled it from the number 15 to the number 3 spot in the industry in just over a year. "It all came down to one thing: focus," says Gross, who now embraces the concept with almost fanatical devotion. "You can make an incredible product, but if you can't clearly communicate to the customers where the product's benefit is, it's not going to do any good."
Each of Idealab's businesses stands to benefit from its ability to focus on a specific mission. (For examples, see "The Freshman Class," below.) And Gross is set free, able to be as unfocused as he pleases. "I can run around like a hummingbird, plugging my ideas into multiple, highly focused companies," he says gleefully. "For me the clincher was this: I have ideas all the time. My satisfaction is gauged by the percentage of them that turn into reality. I found that by relinquishing control, a higher net percentage of what I visualize in my brain is seeing the light of day."
"The first few months of a start-up are analogous to the first few nanoseconds in the birth of a star," says Steve Glenn, CEO of PeopleLink, an Idealab company that helps Web users link up. "Whatever happens during that short period will determine your permanent trajectory. So if you're freed up from the administrative stuff, you can focus on aiming that trajectory as high as possible."
That obsession with quickness rests at the core of Gross's theory about how companies will prevail in knowledge-based industries. His starting assumption is that the principle of economies of scale--that a company needs to get big to reduce its unit production costs--doesn't apply to Internet companies. That's because the incremental cost of distributing one more electronic page of information is always zero, or close to it. Without the need to achieve scale rapidly, as with the equipment-intensive manufacturing businesses of old, his argument goes, Internet companies don't require the same vast sums of start-up money. Rather, says Gross, "the key competitive weapons in this new era are intelligence and speed--not money. And intelligence and speed make a huge difference."
By intelligence, Gross means the ability to assemble the right group of creative talents. Speed he defines as "not just the ability to move fast--although the ability to move fast is its end result. Speed is the ability to execute without making mistakes," he continues, his words flying out as if someone had punched his fast-forward button. "And our infrastructure--the shared knowledge we have in Idealab--enables a start-up to avoid so many Internet mistakes that it can do in four and a half months what would take another Internet start-up nine months to do."
Much of the time savings stem from the fact that Idealab companies don't have to build everything from scratch. One group of engineers, for instance, is developing a compression technology that will make all the companies' Web sites load at twice the normal speed. "A single Internet start-up could not invest in technology like that," says Gross, "because aside from not having the skill, you wouldn't have the time or the money. But Idealab can afford it because it's going to be leveraged across 19 companies."
Another Idealab team spent two months and $50,000 comparing various databases, sparing subsequent start-ups that chore. "It's not even the cost that matters," adds Gross. "The $50,000 was nothing. It's the time. You can get more money, but you can't get more time." Echoes Glenn, "In a gold-rush market, where there are stakes to be claimed, one or two months can be the difference." The core Idealab staff thus serves as a sort of pit crew to put companies swiftly on track and get them accelerating toward the marketplace. "It's really a kick start," says Glenn.
And then, Idealab companies share talent--of a caliber that would be unaffordable to them as individual entities. There's input from such marquee names as Spielberg and Rosen (who is also chairman of Compaq). Tom Hughes, the former creative director of Apple Computer (his last three supervisors were Apple cofounder Steve Jobs, Kapor, and Polaroid's Edwin Land), designs all the logos and user interfaces. When tiny EntertainNet needed a logo, Hughes whipped off a dozen or so samples, which he posted on the Web for Gross and EntertainNet's Damron to review. After a vigorous E-mail exchange, Damron settled on a design that Gross claimed would bring EntertainNet a higher valuation. The total time elapsed: two weeks.
