The Start-up Factory

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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.

Besides swapping intelligence, Idealab companies share servers, high-speed digital phone lines, health plans, legal and accounting services, travel planning, and focus-group facilities. "I'm trying to factor out all the common business problems and put them in Idealab," says Gross, "and leave in the individual companies just those things that are uniquely related to their businesses."

Idealab also greases the skids for later-round funding: no sooner had PeopleLink taken corporeal form last April than Gross was working the venture-capital wires to rustle up interest. Not only does that free up the CEOs from begging for more money, but an Idealab affiliation helps assure venture capitalists that a company has its business fundamentals down pat. "If this were a stand-alone company," notes Savannah Brentnall, chief operating officer of Intranetics, a developer of off-the-shelf intranets, "venture capitalists would say, 'Who the hell are you, and why should we listen to you?' Instead they say, 'Tell us more.' "

Why, then, doesn't Gross just lump all 19 start-ups into one big entity? "Because I believe there's actually a diseconomy of scale when it comes to creativity," Gross responds. "It's worse to be bigger." The best way to motivate managers, he has preached since the success of the Worlds spin-off, is to give them control of an entrepreneurial venture and a stake in its upside. Mixing everything into one pot, he warns, blurs the focus and dulls the edge. "You just get so much more out of people when they come in to work each day feeling that they have a real effect on what happens," says Gross, who requires all employees to buy some stock. "The world is coming to believe that individual empowered entrepreneurs generate way more value per unit of time, for their investors and themselves, than people under a big corporate umbrella."

With Idealab, Gross is thus reaching for that Holy Grail of modern business: an organization that harnesses both the power of a big company and the nimbleness of a small one.

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