In its first three years of operation, Idealab was recruiting entrepreneurs to its incubators who had business experience rather than internet experience. An incubator is a company that offers business programs designed to offer support in the successful development of entrepreneurial companies through office help, accounting and legal assistance and in turn the incubator is compensated by receiving an ownership interest from the company. When the company grows to a point where it can venture and launch into its own, it detaches itself from the incubator company and lists its share on the stock market and the incubator company reinvests its money in another entrepreneurial company. Entrepreneurs benefit from this kind of relationship through help with business basics like setting up networking activities and a high – speed internet access in the company. This is the first step in the incubation process to develop the entrepreneurial company. Later the incubator company helps with marketing assistance and the entrepreneur benefits from in setting up accounting and financial management service. Idealab was able to provide entrepreneur companies with means of accessing bank loans and funds using the idealab resources as collateral. Idealab was able to link the entrepreneur companies to higher education resources where they learnt how to manage their business well before launching on the stock market. These incubator services help entrepreneurs to learn how properly to run their business with guidance from the incubator company through comprehensive business training programs. The training programs helps to minimize most of the risk that new businesses encounter in their first year of incorporation, thus they are able to follow up a guideline provided by the incubator company which has a lot of resources and experience on the matter. Entrepreneur companies benefit by mentorship programs which incorporate advisory boards and a link to strategic partners who help to form management teams. They are able to set up new technological commercialization assistance at the office space provided by the incubator company (‘’planning for electronic commerce’’ 511).
Idealab through its founder Gross, devised a new strategy that would surpass the company initial purpose as an incubator company. The strategy was to combine with the existing incubator companies to compete with Amazon.com. What idealab did was a strategic error led by fast venturing and it proved suicidal to the operation of the company. The management failed to plan well and this resulted in a worse execution of strategy and as a result the company was unable to raise enough funds for this exercise. A sudden change of strategy and purpose for the company needed venture sponsors who understood the market characteristics and had prior experience on the matter. What idealab did was to venture in an already competitive market with big players like Amazon.com. This type of business move was a high risk one and idealab got into it by targeting to compete with an already established company like Amazon.com. Idealab and its incubator company partners failed to raise enough fund and derive better business strategies that would see them establish and grow like a new business does under better and clear business plans or strategy. It failed to understand its competitor by undermining established Amazon.com and it almost led to its collapse and loss in business coupled with a lot of capital constraints ((‘’planning for electronic commerce’’ 512-513).
In 2003 Gross decided to devote Idealab company resources to develop internally generated ideas as a focus to internal growth for its operations. This was a well thought strategy that would help Idealab to launch back into the market after most of its capital sponsors withdrew their capital which almost led to the collapse of Idealab. The company withdrew its purpose to provide incubator service to new establishing companies but chose to remain with its initial number of online businesses. The move helped Idealab to focus most of its funds to internally generated ideas, a smart move that has led to resurgence of the capital value of the company to around $800 million. The company has succeeded in establishing itself better and stronger through internal growth with less out-sourcing which has reduced the expenses of the company significantly. The management established a growth plan that would see the company succeed in the second wave of electronic commerce as reflected by the company capital value of about $800 million. The growth strategy also resulted to firing more than two third of its employees a move that led to reduction in company expenses through wages and salary payments (‘’planning for electronic commerce’’ 522-523).