@LARGE
No-obligation incubation

By Scott Kirsner, Globe Staff, 5/22/2000

Alex Kleiner and Ted Gramer never roomed together when they attended MIT's Sloan School of Management two years ago. But their businesses are roomies now. It's an arrangement that defies the logic of capitalism, but it just might prove more successful than any other kind of Internet incubator.

Kleiner is the president of Frictionless Commerce, a company that sprang from the MIT Media Lab. Frictionless's product helps buyers make purchasing decisions online, and it's in use at Computer.com and Lycos.

In the fall of 1998, when Frictionless had only five employees, it was in desperate need of office space but hadn't yet attracted financing.

Kleiner had done a summer internship at Netscape the previous year with Deborah Frieze, one of the founders of a Harvard Business School start-up, Zefer. Zefer had just secured its first-round funding and leased some space near South Station, and Frieze and the other Zefer founders invited Kleiner and his cohorts to set up shop in their offices. The catch? There was no catch. Frictionless used Zefer's fridge, phones, desks, and conference room for six weeks.

''It was really useful to have a place to bring investors that wasn't my basement,'' Kleiner says.

What was Zefer's motivation? The Web development firm did create the Frictionless logo and build its first-generation Web site, but Kleiner says, ''I think their motivation was primarily altruistic.''

Zefer didn't ask Kleiner to pay rent or hand over a slice of equity in Frictionless. It did, however, introduce Kleiner to the Harvard Business School community, and give him advice. Since then, the two companies have referred business to each other.

''The guys at Zefer said, `One day, you'll be in a position to help someone else,''' Kleiner recalls.

Kleiner found himself in that position this spring. Frictionless had grown to 85 people, and the company had built a healthy customer list and a moved into a full floor of bright, modern office space in Kendall Square.

Kleiner's friend from B-school, Ted Gramer, was planning to take a leave of absence from his job at Mercer Management Consulting to try to start a Net business. Gramer's idea was to create an online exchange for large landscaping companies, enabling them to buy supplies more cheaply and use Web-based applications to manage their businesses. The working name was Totally Green. One of the first people Gramer consulted was Kleiner.

Gramer's biggest problem sounded familiar: He had no place to rest his laptop. ''We wanted to be in Cambridge to attract talent, but we didn't have the funding,'' says Gramer, a Walpole native. ''We were looking all over for space, but we learned we'd have to pay a six-month deposit and sign a two- or three-year lease.''

Start-ups such as Totally Green hire in intense, unpredictable bursts, and Gramer worried that he'd be constrained by too small a space or burdened by an office that was too large.

One option was to shack up with one of the area's Internet incubators, like I-Group Hotbank in the Back Bay or Cambridge Incubator, just down the street from Frictionless in Kendall Square. But in return for office space, support services, and some level of guidance and connection-making, those incubators typically ask for as much as 50 percent of the equity in a start-up, which didn't appeal at all to Gramer.

Sticking around at Mercer and starting the business there wasn't really an option. Though Mercer would like to help its entrepreneurial employees start companies, there's no formal program in place yet.

Mercer vice chairman Jim Down says the firm is open to employees' business ideas, but would likely want to start them as wholly-owned - or majority-owned - pieces of the Mercer empire. That's not so appealing for ambitious entrepreneurs like Gramer and Totally Green CFO Norman DeGreve, who is also on a three-month leave from Mercer. (Their position is enviable; if the start-up doesn't fly by late June they can have their old jobs back.)

Frictionless presented the most attractive option. The company had an empty corner of its 20,000-square-foot office, and Kleiner happily offered it to Gramer. No rent, no equity.

''One of my goals was always to be in a position where we could help someone else,'' Kleiner says.

So today, Totally Green's three founders occupy a row of three cubicles next to the Frictionless kitchen-gameroom. They use the phones and conference rooms. Since Frictionless is about a year and a half older than Totally Green, Gramer and his partners can watch how Frictionless does things like form partnerships, recruit employees, and build a solid technical infrastructure.

''I'll be playing foosball with Alex and the other founders of Frictionless, just talking about the challenges of an 80-person company. It's just great to have their perspective,'' Gramer says.

Kleiner isn't in the least bit pompous or self-important about what he's doing. ''We're not trying to mentor them,'' he says, ''but we're happy to point out some of the pitfalls that we encountered.''

Already, Totally Green is moving fast. It's closing in on $1 million in seed funding (no pun intended) from Environmental Industries, one of the nation's biggest landscaping companies. It's on the verge of acquiring a small software company. It's developing a new name and brand identity. And it's planning to launch late this year.

And, perhaps, after Totally Green finds its legs - and its own office space - it will return the favor. It's a great cycle to perpetuate, and it'd be nice to see more companies pick up on this idea.

But even if it doesn't charge rent, couldn't it at least take a percent of equity, just in case it winds up incubating the next Akamai or Sycamore?

''Taking equity would feel wrong to me,'' Kleiner says. ''If you view this as a repeated game, then all sorts of unexpected things come back to benefit you in ways you don't expect. My philosophy is that you take the handful that you're given, and leave an armful for everyone else.''

Scott Kirsner is a Boston writer and a contributing editor at Wired, Fast Company, and Boston Magazine.