358 ENTREPRENEURSHIP
Hatching Success Stories
Bill Gross started out as a serial entrepre-
neur. In high school he founded a firm that
sold kits to make solar energy products.
While he was a student at the California
Institute of Technology, he developed a loud-
speaker that he and his brother patented and
sold as GNP (yes, for Gross National
Product) Loudspeakers. After graduation
Gross and his brother started another compa-
ny to market a software add-on for the Lotus
1-2-3 spreadsheet. That company chalked
up $1 million in sales and was eventually sold
to Lotus for $10 million.
Then in 1996 Gross traded consecutive
projects for simultaneous ventures when he
founded Idealab. The company was the first
tech incubator, an enterprise dedicated to
bringing what Gross calls “products and serv-
ices [which] change the way people think, live
and work,” to market. Working with capital
contributed by 400 shareholders, including
Compaq co-founder Ben Rosen and actor
Michael Douglas, Idealab funded ideas with
up to $250,000 in seed money. The incuba-
tor set up a subsidiary for each venture, hired
a staff, and solicited additional funding from
outside investors. The new businesses oper-
ated from Idealab’s office, utilizing the incuba-
tor’s human resources, financial, and public
relations services.
At one point in the late 1990s Idealab was
supporting as many as 50 fledgling dot-com
companies. Some of those new ventures
were resounding successes: eToys was one
of the pioneers of e-commerce, CitySearch
was the first to promote online community
directories, and GoTo.com introduced the
concept of paid Internet search. GoTo.com,
which became Overture Services, was ulti-
mately sold to Google for $1.6 billion.
But in 2001 Idealab ran into problems
when the dot-com bubble burst. The incuba-
tor lost $800 million dollars and had to closeoffices and lay off more than half its employ-
ees. Some disgruntled backers sued to
reclaim their investment. Gross, shaken by
the experience, said, “We had to completely
reevaluate what we were going to be, what
we were going to stand for, what kind of com-
panies we wanted to make.” Idealab board
member Howard Morgan adds, “For all of us,
especially Bill, it was a managerial growing
up.”
Today Idealab is launching new ventures
at a slower and more careful pace, concen-
trating on just 16 companies with a diverse
range of products, including software, hard-
ware, and Web businesses. But the compa-
nies are just as innovative as before. In fact,
Gross says Idealab is concentrating on “big,
impactful [sic], change-the-world companies.”
These include Energy Innovations, which cre-
ated a solar collector that harnesses 25 times
the power of a traditional solar panel at one-
quarter of the cost, and Evolution Robotics,
which developed vision-recognition software
than can automatically scan grocery carts at
supermarkets. Other companies are crafting
two-person hybrid cars with revolutionary
Stirling engines, developing cell phones that
don’t need towers, and creating a new kind of
Internet search engine. Idealab’s most suc-
cessful start-up is currently Internet Brands,
formerly CarsDirect, a company that sells
cars and mortgages on the Web. Internet
Brands is generating $300 million in annual
sales, and four of Idealab’s other ventures
are also profitable.
Gross is committed to taking care of his
investors this time. “I want Idealab to be a
way better investment for them than had they
invested in the stock markets,” he says.
SOURCE: Adapted from Nadira A. Hira, “Idealab
Reloaded,” Fortune, September 5, 2005: 143; http://www.idea
lab.com.STREET STORY 9.3