How to Speed Up Your Startup

How to Hatch a Company

The founders of the nascent companies that are sprouting up at Internet incubator eHatchery -- companies such as FigLeaves, Simply Collectible, TradeUps.com, and VetExchange -- have one pressing objective in mind: to save time; to squeeze it, compress it, maximize it; to launch their companies at a faster pace than all of the all-nighters and sweat equity in the world could make possible. John McCallum, 30, cofounder of Vet-Exchange, an online service that aims to help veterinarians operate their practices, estimates that his company is about four months further along than it would have been without the incubator's help. FigLeaves, another Web-based company, shifted its focus from bargain shopping to retail sales of intimate apparel after just a month at the incubator. Founder and CEO Ari Straus, 31, guesses that without eHatchery, his company would have taken six months just to realize that it needed to switch its focus. And, he adds, eHatchery cut the company's business plan from nine months, "which we already thought was fast," down to three. "Without eHatchery, it would have taken us an extra six months to get to where we are today."

Time is money -- literally. FigLeaves, VetExchange, and other eHatchery companies give up as much as 50% of their equity in return for, at most, $250,000 of capital. But they're really paying for all of the connections, skills, services, facilities, and technology that eHatchery offers -- resources that they believe will get their products and services to market, and their business plans in front of venture capitalists, faster than any other route.

Welcome to the latest self-reinforcing wonder of the Web. Incubators might just be the fastest-growing startups on the Web. Indeed, eHatchery is a second-generation Internet incubator, an operation modeled on Bill Gross's idealab! -- the incubator based in Pasadena, California that's famous for such successes as CitySearch, eToys, and GoTo.com. In a move that can only be adequately described as the incubation of an incubator by an incubator, idealab! has both taught and invested in eHatchery. And Jeff Levy, eHatchery 's founder, president, and CEO, is himself a second-generation Internet entrepreneur, having cofounded RelevantKnowledge, an Internet-audience measurement firm that was acquired by Media Metrix in 1998.

EHatchery, which opened its doors last August, is a laboratory model of what an Internet entrepreneur might do to maximize his or her time. "EHatchery equals speed," says Levy, 36. He remembers the ramp-up phase at RelevantKnowledge, when he focused on details such as phone systems and IT installation and office space and furniture and long-distance carriers -- practically everything but his actual business. "For the first three, four, five months, I spent approximately 80% of my time on administrative stuff," says Levy. The process of raising the first round of capital was also arduous and slow. Back in 1996, the founders of RelevantKnowledge spent six months raising their first round of capital, roughly $925,000 (in $10,000 and $25,000 increments). Taking that long will put you out of business today. "If it takes you six months to raise startup money, you're almost sure to be dead in the water," says Levy.

EHatchery does make seed investments in all of the companies that it incubates, but money is the least of what it provides. "Investors' hard work ends when they write a check," says Levy. "Our hard work begins when we write a check."

On day one, the early-stage company's handful of team members move into eHatchery's 25,000-square-foot, two-story office. Complete with Herman Miller Aeron chairs, the space has more in common with a trendy LA ad agency than with the proverbial startup garage. All legal, finance, accounting, HR, administrative, and operations functions are immediately handed off to eHatchery's in-house team, which comprises about 40 full-time staffers, including 6 key leaders such as COO Bill Wallace and director of marketing David Berney. EHatchery's staff far outnumbers that of any of the startups, and it maintains a higher level of talent than a new company could attract on its own. "Just by walking through the door, you double or triple your management team," says McCallum. "And you really get to focus on your job."

Call it "in-sourcing" -- tapping skills and functions that are essential (but secondary) to the mission of the organization and that are provided by a team that sits just a few feet away. About half of the eHatchery team is made up of engineers who have developed the incubator's technology platform, called Hatchware -- an open-source e-commerce product that can be tailored to fit each company's Web site. Since roughly 75% of the Hatchware code can be reused, eHatchery doesn't have to build each site from scratch. Given how hard it is to recruit IT talent these days, the on-site engineering staff is a serious boost of acceleration. "Every new company that comes through here is going to take advantage of what the previous companies have built," says McCallum, noting that the team is modifying the architecture previously built for FigLeaves to create a product for his company, VetExchange.