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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 or

business

to 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 a

business model that raises eyebrows and commit to it, you have a

longer

period of time before it raises competition. Business models that

seem outrageous today turn out to be very effective."

Examples of business models that Idealab pioneered do seem

obvious

and common today. Four years ago, selling on the Internet in 1996

was a new idea. Two years ago, giving away a service or even a

computer

to get targeted advertising and demographics was new, but now NetZero

and 3PC have plenty of competitors. "Now everyone is offering

a free ISP," says Zimmerman, "but we were first." Eighteen

months ago, says Zimmerman, no one thought you could sell a $40,000

car on the Net. Now Detroit is doing it. He also says idealab was

the 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 (just

sold

to Princeton’s www.Paytrust.com), seven firms that have gone public

(including www.NetZero.com

www.GoTo.com

www.eMachines.com

www.centra.com

and www.eToys.com), and a company that

looks very similar to a

Princeton

startup, MakeUsAnOffer.com, one called MakeAnOffer.com, billed

as "a better way for everyone to buy and sell anything on the

Internet."

Idealab sets great store on new business models, and even its own

business model raises eyebrows. It positions itself to fill the

funding

gap that everyone in the "new business business" complains

about — the gap between a very young company with not much money

and 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, professional

business counseling and critical linkages to research and technology

resources at university and technology business centers. Idealab does

provide all these traditional services but seeks to have much more

input than usual. "By no means do I mean to be arrogant, but we

want 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 and

our communication, to use the way we brainstorm, the way we morph

companies, and the way we develop prototypes and change them."

The majority of Idealab’s companies are generated internally.

"Most

of the ideas are napkins (business plans written at dinner on a

napkin),

not even business plans," he says. Some do come from

entrepreneurs.

"We are really hiring a person. We say to them, `We see that you

have a passion — or an interesting twist — and are really

smart and competent and can pull it off.’" When the entrepreneur

puts a company in the Idealab incubator, he or she gets lots of

funding

and advice but a limited amount of equity.

Nevertheless, Zimmerman insists that Idealab is not greedy. "We

start 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 the

venture

capitalists. "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 the

healthy skepticism of an investor."

"We are providing an organized window for innovation. That’s good

even for the venture capital community. It `front-ends’ their

process,"

says Zimmerman. "If we continue to prosper, and other companies

like us proliferate, that would be great for America."

The best news for entrepreneurs? The looniest idea won’t get laughed

at. Says Zimmerman: "We’re not the kind of company that says

no."

— Barbara Fox


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