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Prepared for the September 13, 2000 edition of U.S. 1 Newspaper.
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Incubator Plus: It’s the Idealab
Entrepreneurs tend to overvalue their ideas, says Andrew
B. Zimmerman, COO of Idealab in New York (www.idealab.com). “An
idea and a subway
token will get you uptown,” he says. The four-year-old Idealab
(with a hip logo that spells the name with a lower case i and an
exclamation
point at the end) creates, builds and operates companies in the
interactive
communications business and has a treasure trove of its own ideas.
“We have a backlog of our own, and for every company we start
up, we test three,” says Zimmerman.
Entrepreneurs who bring your ideas to Zimmerman — be forewarned
that Idealab may already have one similar to yours. Yet it still might
want you for its management team. You would end up as head of a
company
in the Idealab incubator and reap the benefits from its considerable
resources.
Zimmerman keynotes the Venture Association of New Jersey’s Business
Incubator & Technology Showcase on Monday, September 18, at noon at
the Westin Hotel in Morristown. Incubator exhibits will be open from
10 a.m. to 5 p.m. Randy Harmon’s 9 a.m. workshop, “Launching
a Technology-Based Business in New Jersey,” covers technology
commercialization and business development plus sources of assistance
available to entrepreneurs. “Angel Investing — How To Get
Your Wings” is at 4 p.m. Cost: $40 for each of the workshops,
$60 for the luncheon and exhibits, and $15 for just the exhibits.
For reservations call Clara Stricchiola at 973-631-5680 (or
E-mail: clara@vanj.com).
Jay Trien, president of Venture Association of New Jersey (VANJ),
and his cohorts in the New Jersey Business Incubation Network designed
the showcase to let corporate executives rub shoulders with
entrepreneurs
in the state’s incubators in a casual atmosphere. The VANJ is a large
monthly forum for entrepreneurs, investors, and service providers
that can also be useful for executives seeking new positions and
professionals
hoping to provide services to young companies and corporations.
Zimmerman grew up in Harrisburg, Pennsylvania, where his father was
a carpenter and his mother a secretary. He graduated from Haverford
College in 1975, did a year of graduate study in Europe on a Thomas
J. Watson fellowship, and has a master’s degree from New York
University.
In 1986 he co-founded Reach Networks, an early Internet company that
was bought by US Web. In 1993 he co-authored one of the earliest and
most comprehensive studies of consumer demand for 19 interactive
services
in the home, everything from entertainment to financial services.
Contrary to what was being predicted at that time, he forecast a five
to six-year wait for online shopping to be very popular.
In 1995 Zimmerman co-authored the first in-depth study of how the
new media industry would affect Manhattan’s economy and thus helped
to position the just-developing Silicon Alley. For Coopers & Lybrand,
and then for Pricewaterhouse Coopers, he led consulting practices
for information, communications, and entertainment, and most recently
was global leader of the E-business consulting practice. Zimmerman
was recruited for Idealab by long-time friend and Idealab officer
Robert Kavner. Zimmerman turned down an opportunity to work in
California,
but said yes when Idealab opened a New York office last March
(idealab.com).
“At Idealab we are very opportunistic,” says Zimmerman.
“Unlike
venture capitalists and investors, we don’t position ourselves in
any particular category.” In picking incubator companies, the
firm looks for three characteristics:
Unmet customer need, whether business to business orbusinessto consumer.A big enough idea so the company can grow to be very big,not a niche business that will not grow.A counter intuitive business model. “If you have abusiness model that raises eyebrows and commit to it, you have alongerperiod of time before it raises competition. Business models thatseem outrageous today turn out to be very effective.”Examples of business models that Idealab pioneered do seemobviousand common today. Four years ago, selling on the Internet in 1996was a new idea. Two years ago, giving away a service or even acomputerto get targeted advertising and demographics was new, but now NetZeroand 3PC have plenty of competitors. “Now everyone is offeringa free ISP,” says Zimmerman, “but we were first.” Eighteenmonths ago, says Zimmerman, no one thought you could sell a $40,000car on the Net. Now Detroit is doing it. He also says idealab wasthe first to think of commercializing an entire domain name —it bought the rights to a universal domain name (a dotcom suffix)from an island.Among idealab’s three dozen companies are www.PayMyBills.com (justsoldto Princeton’s www.Paytrust.com), seven firms that have gone public(including www.NetZero.comwww.GoTo.comwww.eMachines.comwww.centra.comand www.eToys.com), and a company thatlooks very similar to aPrincetonstartup, MakeUsAnOffer.com, one called MakeAnOffer.com, billedas “a better way for everyone to buy and sell anything on theInternet.”Idealab sets great store on new business models, and even its ownbusiness model raises eyebrows. It positions itself to fill thefundinggap that everyone in the “new business business” complainsabout — the gap between a very young company with not much moneyand one that is big enough to attract venture capital. For such”adolescent”firms, finding funding can be a murky business.Incubators generally provide tenant companies with facilities(laboratory,office, and manufacturing space), shared office services, professionalbusiness counseling and critical linkages to research and technologyresources at university and technology business centers. Idealab doesprovide all these traditional services but seeks to have much moreinput than usual. “By no means do I mean to be arrogant, but wewant to dramatically influence the development of the company,”says Zimmerman. “We don’t want to be `a person on the board,’we want the entrepreneurs to be in with us, to have our culture andour communication, to use the way we brainstorm, the way we morphcompanies, and the way we develop prototypes and change them.”The majority of Idealab’s companies are generated internally.”Mostof the ideas are napkins (business plans written at dinner on anapkin),not even business plans,” he says. Some do come fromentrepreneurs.”We are really hiring a person. We say to them, `We see that youhave a passion — or an interesting twist — and are reallysmart and competent and can pull it off.’” When the entrepreneurputs a company in the Idealab incubator, he or she gets lots offundingand advice but a limited amount of equity.Nevertheless, Zimmerman insists that Idealab is not greedy. “Westart with 100 percent and then hand out options, first to management,and then to investors.” Early on in the company’s development,even before the company really needs money, Idealab calls in theventurecapitalists. “We want cash, but we also want external validation.We may think it’s a great idea, but maybe the outside world doesn’t.Other incubators I have talked to are just beginning to learn that,even though you have the cash, you should expose your idea to thehealthy skepticism of an investor.””We are providing an organized window for innovation. That’s goodeven for the venture capital community. It `front-ends’ theirprocess,”says Zimmerman. “If we continue to prosper, and other companieslike us proliferate, that would be great for America.”The best news for entrepreneurs? The looniest idea won’t get laughedat. Says Zimmerman: “We’re not the kind of company that saysno.”— Barbara FoxPrevious StoryNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
