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Robin Smith was lounging in the tub, half-hearing the radio, considering his future. He had been without full-time work for three months -- ever since leaving his job as senior art director at the London branch of Leo Burnett. He loved the advertising business, but not the ad-agency business. Agencies, he felt, were overstaffed and unwieldy. Slow and expensive, they survived by maintaining client relationships, rather than by nurturing innovation. Too many ideas were lost amid too much paper shuffling.

As the bathwater cooled, Smith returned to an idea that he'd been mulling over for weeks: Why not build a virtual agency -- a flexible organization that would be dedicated to generating strategic and creative solutions for clients? Instead of running a shop full of employees, why not contract work out to small, ad hoc teams that would offer the best available talent for any given project? Each team would work directly for a client. Its only product would be its ideas.

"I believed that this was the way to the future," Smith recalls. "But I also thought that it was insanity -- that no one would listen to it." Then he focused on the BBC interview being broadcast on the radio. Dee Hock, the founder of Visa International, was discussing his vision of a "chaordic" organization -- a loosely organized confederation designed to enhance both focus and flexibility. Smith thought, "If that worked for Visa's business, why wouldn't it work for the ad business?"

Next, Smith phoned his friend Steven Hess, who, at age 27, was one of the youngest planning directors in the history of Burnett. Their conversation resembled the famous call from Steve Jobs to John Sculley, during which Jobs asked, "Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?" Was Hess satisfied with a meteoric career in an established organization, or did he want to help reinvent an industry?

Nearly two years later, Host Universal Ltd., with offices in central London, is thriving on chaos. Smith, 38, and Hess, now 30, have built a network of 35 creative professionals -- writers, art directors, producers, designers -- and, from that pool, they have fashioned idea teams for 80 projects. Companies such as Kellogg, the Body Shop, and British Telecom pay team members directly for each project. Host collects 20% off the top -- Hess and Smith's reward for finding clients and matching them up with a team of professionals.

"We wanted to create an organization that values people's thoughts," says Hess, who provides a cerebral counterpoint to Smith's edginess. Instead of doing business in terms of cost per unit, Host measures value per unit. Rather than seeking out strategic suppliers, it forms creative alliances. "We create links between people. We give people the chance to create great ideas very quickly with other great people."

The virtual model rips apart the dynamics that traditionally operate at big ad agencies. Since Host's teams are hired and paid on a project-by-project basis, rather than on an annual retainer, it is the project that defines the client relationship -- and not the other way around. And since planners and creative people address client needs simultaneously, there's no division between analysis ("What is the problem?") and strategy ("What is the campaign?"). From the start, team members work on the entire project, rather than just focusing on an assigned specialty.