Brothers From Another Planet Four rabbis. One Internet incubator. So, who won?
By Joshua Hyatt

(FORTUNE Magazine) – It sounds like the setup for a lame joke: So there are these four rabbis, right? And they walk into an Internet incubator, and one says to the other, "This you call a business?" And the second looks at him and says,...Wait. Before I go any further--you haven't heard this one, have you? Trust me, you haven't. Of all the unlikely stories Internet mania has produced, the tale of the Gniwisch (pronounced any way you can possibly manage) clan comes closest to answering the era's most cosmic query: If you had arrived from another planet and landed at the epicenter of the Internet revolution, what would you have made of it?

The Gniwisches--brothers (and rabbis) Shmuel, Mayer, and Pinny, along with brother-in-law Moshe Krasnanski--actually hail from Montreal, where their parents own a jewelry manufacturing business. But as online entrepreneurs, they found their mindset was a mismatch of intergalactic proportions for the eyeball-grabbing, market-share-swiping strategy of Idealab, the big-spending Internet incubator they ended up being part of. In the end their unwillingness to comply with that ethos is what kept their dot-com afloat. "My boys always paid attention to the bottom line," says their proud father, Isaac (who is also, of course, a rabbi).

He's especially proud because he's the one who never stopped reminding his offspring of what he knew to be true: A businessman is someone who buys at a certain amount and sells at a profit. When his sons tried to explain that such reasoning was outdated, recalls Mayer, he said, "Internet, shminternet. If you go on this way, you'll die like the rest of them." In fact, they almost did. And even though sales reached about $10 million last year, he still tells them, "Don't listen to me, and you'll see what happens," recalls Julie, his 59-year-old wife.

Then again, nobody could have anticipated the trajectory of the Gniwisches' venture.

In May 1999 eldest brother Shmuel got the notion to start an online jewelry e-tailer after overdosing on William Shatner ads for blaring from his car radio. Since the company his mother founded, Delmar International, supplied mass-market retailers with affordable jewelry, he knew he'd have ready access to supply without the overhead of inventory. "I really knew nothing about the Internet," confesses the 36-year-old. "We were just schleppers sitting here in Montreal."

Not for long they weren't. In September 1999, just as he was launching, Shmuel read in Business 2.0 about Bill Gross, the founder of Idealab, the high-profile Internet incubator whose progeny included eToys (now defunct) and (now Overture Services). Looking for money, he shot off an e-mail to Gross, who took all of 30 seconds to respond. On Nov. 3 the Gniwisches met with Gross in a Ritz-Carlton suite in Pasadena, where Idealab is based. Gross sat on the floor, rattling off questions and reeling off ideas. "He has his whole Bill shtick, and he was drilling us like we had never been drilled before," recalls Mayer. "It was like being in a racecar with your head sticking out the window and your face peeling off. But we're very hard to impress." There's a price tag for everything, however. When Gross offered $7 million for about 60% of was averaging $30,000 a month in sales--the Gniwisch boys suddenly didn't mind being around him so much. In fact, in accordance with his wishes they moved their families (pop. 23) to Los Angeles in January 2000. On Idealab's dollar, they inhabited $5,000-a-month mansions in Hancock Park, an elegant neighborhood where the Gettys once lived. "I wasn't terribly happy about the move," says Julie, now a grandmother of 35 grandchildren. "But I felt that if Mr. Gross had an interest in us, we must be doing something good. And I never wanted to hold my children back."

Soon Pinny, who had been the most skeptical of the bunch--"He was always asking, 'What is Idealab going to do for us? Why should we go with them?'" Mayer recalls--was negotiating with agents to sign on a celebrity spokesperson. "I wanted Warren Beatty's wife, the actress from American Beauty," Pinny confides, admitting that he's since forgotten the name of Annette Bening. "Here I was meeting with agents, and I'm a little schnook rabbi. It was a dizzying, world-turning world, like a tornado."

At least one highly influential family member stayed firmly grounded. Isaac, 60, insisted that the company had been renamed in May 2000--needed to make money from each transaction. "I always stressed the bottom line, but the thinking of that period was that you didn't worry about it," recalls the former printing entrepreneur, who serves as Delmar's CFO. "So I kept saying, 'What's happening to the bottom line?' And they kept saying that the guys who run the company don't worry about the bottom line at this point. I figure, so maybe they think they know better."

But once their sons had settled into the Idealab pod--Gross sat in the middle of his inventory of startups, gazing upon them from behind a plexiglass wall--their folks paid them a visit. "Walking around, I saw there were all these young, beatnik-looking kids with jeans and earrings on," says Julie, who uses her maiden name, Schwartz, in her role as's jewelry design director to avoid annoying the retailers to whom Delmar sells jewelry. "Stuck in the middle of this place were my boys. They looked more like a rabbinical seminary than an Internet startup company."

After absorbing the scene, she and her husband met with Gross. "My husband said, 'Mr. Gross, take it easy,'" says Julie, describing Isaac's tete-a-tete with Gross (who declined, through a spokesperson, to be interviewed for this article). "He looked at my husband like he had just fallen off the moon or something. He had just raised about $1 billion. Still, he's a very nice man, and I think we set him straight on a lot of things."

Not enough things, apparently. As B2C companies--that's "business to consumer," for those who have tried to forget--fell out of favor, so did Idealab. Gross' grand plan to roll and some of his other e-tail ventures into a mega-Web retailing site soon shifted. Instead, in October 2000, despite the two-year commitment to backing it that the Gniwisches say Gross made, he shuttered the project. "We were left with our underwear on in the middle of the street," says Mayer. "We had to run for cover." They negotiated their return to Montreal with their business intact, though it had run up $600,000 in debt.

No small matter, to be sure, but the Gniwisches--thanks to the persistence of their in-house Internet guru--knew exactly what they needed to do. "Their business wasn't about eyeballs. It was about people buying stuff," says Stephanie Streeter, who formerly served as chief operating officer of Idealab's headquarters office. "They had a real business mentality. When they did a promotion, they did it not to get eyeballs but to get sales." In fact, Isaac had devised one of's earliest promotions, which involved selling pearls for $4.95--a $2 loss, even though Shmuel "negotiated hard with my father" when he bought them--but garnering 170,000 prospective customers. "It was the cheapest way of getting customers, and it was very practical," Isaac notes. Add-on sales, Streeter says, made up for any deficit.

They've since designed a financing program--90% of their purchases are under $500--and devised a discount offer to lure back customers who visit their site but don't buy anything. In 2001, amassed a "nice profit," according to Shmuel. "We're operating the business the way it is supposed to be operated: without any dreams and without any visionary issues," he boasts. "Some people go to school to learn what not to do. At Idealab, we learned how not to be." Of course, their father could have told them that all along. "Look, everybody was in dreamland for a while," Isaac says. "All balloons look good when they have air in them."