Seattle-based Flexcar, an urban car-sharing company, this week merged with its rival, Zipcar, based in Cambridge, Mass., the nation's largest company in the field. The name of Flexcar goes away, and the head of Zipcar, former Boeing engineer Scott Griffith, becomes the CEO of the merged companies. But Steve Case, founder of AOL and purchaser of Flexcar two years ago, will be the largest shareholder of the merged companies, so the Flexcar mystique will definitely continue.

Flexcar is a classic Seattle startup story, one more illustration of this region's knack for spotting disruptive new ideas and starting companies that mushroom. In this case, the key individual was Neil Peterson, a man who has had a significant impact on this region as former director of Metro. He's the guy who muscled through the downtown bus tunnel, which opened in 1990 after a massive disruption of downtown streets.

The tunnel coincided with a major boom in downtown office construction, and the two factors of tunnel and construction impacts caused a new name for the central business district: "Downtown Beirut." Shortly after getting agreement on this highly debated project, Peterson left to take jobs heading transit districts in Los Angeles and elsewhere.

As Peterson relates the story of Flexcar, which he started in January 2000, he got the idea from his many tours of Europe, whence he regularly imported bright ideas to American cities, such as the infamous bus tunnel, dual gas-electric buses, and articulated (bend in the middle) buses. He observed the idea of cars you can rent by the hour, when needed, in Europe in the early 1990s and filed the idea away.

Meanwhile, Metro on its own had got the idea, too, and had done some feasibility studies. The innovative agency was talking with the car rental giants, such as Hertz and Avis and Enterprise, hoping to get them to bid on a request-for-proposal document. The big companies wouldn't bite. By serendipity, recalls Peterson, he got together with his old colleagues at Metro and soon formed Flexcar to become the sole bidder on the RFP. He put up family money and got some angel investors to start the company; later Honda became a significant institutional investor. Peterson, who always has lots of irons in the entrepreneurial fire, soon passed the CEO position to Lance Ayrault, son of Dan Ayrault, the widely admired head of Lakeside School for many years. New management took over when Flexcar was sold in 2005 to Revolution, an investment firm owned by ex-AOL chairman Steve Case.

"That's how innovation occurs," says Peterson of his market-changing idea. "It won't come from the behemoths," though they may eventually adapt or buy up the innovator. The rental car companies may finally be coming around to the market, which has been doubling each year for the past three years for Zipcar. Flexcar in Seattle claims 20,000 members. Members pay a monthly fee, which gets them access when they need it to cars parked all around the city, which are then used for relatively modest hourly rates. Not only are the large rental car companies starting to offer hourly rentals, but U-Haul has begun a pilot program, as well.

Peterson is happy about the merger, since it will increase the presence of the idea in other cities and give his former company more ability to compete against the bestirred car-rental giants. He does, however, lament the loss of the excellent brand name, Flexcar. He's bullish about the basic idea still, saying that "every trend is going this way – sustainability, the rising price of oil, the movement back to the cities, global warming."

And he's on to his next new venture, starting a nonprofit called Edge Foundation to help kids with ADHD. He now divides his time between a Seattle houseboat and a home in Palm Desert, Calif. He's also working on a book and plans to go back and hike the treacherous Vancouver Island Coast, where he narrowly escaped with his life when he and his hiking party were caught by a massive rogue wave. Like many go-go Seattle entrepreneurs, Peterson is not easily discouraged by big challenges.