The Knitting Factory's growth, like the music the company has championed, hasn't always proceeded harmoniously

Bassist Kim Gordon stands maybe three inches tall in her strappy-sandaled feet. Her tiny hands move almost imperceptibly. The left clamps onto a fret crossing the neck of her electric guitar. The right takes a drumstick to the strings of the instrument's belly: shcrape, shcrape, shcrape. Wood pets steel. The audio is muffled yet dissonant, like the amplified sound of someone removing lint.

No, this is not some Lilliputian's flashback of a bad trip at the local Laundromat. It's an Internet cybercast of the postpunk/noise band Sonic Youth from the archives of the Knitting Factory (#90), in New York City. Sonic Youth is one of hundreds of jazz and rock vanguardists that have played their mind-bending, often earsplitting new music at the downtown nightclub over the past 12 years. "The Knitting Factory was the first nightclub [in New York City in the 1980s] that specialized in esoteric improvised music," says guitarist Gary Lucas, who played with Captain Beefheart and the Magic Band before he began his solo career--at the Knitting Factory--in 1988. "The place was a regular happening scene."

It is also, surprisingly, home to a wildly growing business--thanks to the perspicacity of its 37-year-old cofounder and CEO, Michael Dorf. Leaning on the giant wooden spool he calls a desk, Dorf, in baggy shorts and rubber clogs, doesn't look the part of an empire builder. And that's not what he set out to be in 1987, when he and two partners opened the doors of the original Knitting Factory--a 2,000-square-foot "dump" (Dorf's word) in the East Village that offered hummus, medicinal teas, and scattered multigenre shows--with $30,000 he'd scraped together. (The club moved to trendy TriBeCa in 1994; it's now a 15,000-square-foot structure that plunges 25 feet below street level and has four stages wired for recording and for shooting cybercasts to the Web, three bars, and a 24-track digital recording studio.) But when artists from the so-called downtown music scene began clamoring to perform there, Dorf saw an opportunity to "brand" his tiny fringe-music venue. That strategy helped him build the Knitting Factory into an entertainment conglomerate.

"The Knitting Factory represents a certain type of musical sound," says Dorf. And more. The brand is built on an entire cultural zeitgeist. Walk into the new club, just around the block from Dorf's office, and you'll see that culture expressed in hybrid instrument sculptures (a guitar made from a chair back and a scythe, for instance), framed moth-eaten sweaters (a vestige from the first location), and, along the walls of one space, canvases sporting blood, lard, and cat claws. "More than likely, you don't know the names of the artists who are there," says Dorf. "But just as people buy Pillsbury because they trust that brand, people go to the Knitting Factory because they trust that what we've curated is something that they want."

The club's programming is "the critical source of content for everything we do," says Dorf, who calls the club "an incubator, a developer, a media lab." It has encompassed everything from the "outside" sounds of avant-garde jazz (produced by the likes of altoist John Zorn, trumpeter Steven Bernstein, and pianist Wayne Horvitz) to the sharp-edged, intelligent lyrics of alternative-rock (bands like Soul Coughing, the Pixies, and They Might Be Giants). Dorf has used the club as the A&R division of his record label, Knitting Factory Records, and as the supplier of talent for worldwide tours, annual jazz festivals, and a nationally syndicated radio show .

Dorf has recently attracted substantial new investments, including $650,000 from Leslie/Linton Entertainment Inc. and $4.2 million from New York City­based private investment firm the Argentum Group. With the money, he plans to open new clubs (one in Los Angeles in January, one in Berlin next summer) that will be networked to New York for videoconferencing and Internet transmission. Dorf also hopes to create the jazz portal on the Internet, jazzE.com. It's a presence that will make KnitMedia, the holding company Dorf formed in November, "the branded Yahoo of jazz music," says Leslie/Linton president Joe Cohen hopefully. "So when people want anything about jazz music--whether to listen, watch, or buy--they will find our Web site."

Dorf shifts a foot to the seat of his chair and gesticulates rapidly when he talks about the connected-club idea. "Like Disney was great at doing with its theme parks so you got to experience the brand live--meeting Mickey Mouse, for instance, when you're five years old, and now you're a Mickey fan for life--we're doing the same thing," he says, looking as animated as the legendary cartoon character he's describing. "We're getting people to be sort of indoctrinated in this connected-club experience. Then, when they go home, hopefully they're going to connect to the Knitting Factory Web site to get back to that hip downtown culture. That community is more than a zip code. It's a philosophy."