Eric Schmidt was Executive Chairman of Google’s parent company, Alphabet, Inc. From 2001 to 2011 he was CEO of Google. Previously, he was CEO of Novell and before that a long-time executive at Sun Microsystems.
Notes:
HOFFMAN: Amit eventually built a tool that accurately predicts how much revenue the company had at any given time, down to the second. Pranks and productivity tend to blend together at Google, which is why Eric doesn’t dwell on the question of why Amit moved in to begin with.
HOFFMAN: I would argue that a dash of insubordination is the secret ingredient to Google’s success. Ideas emerge organically through conversations like the one Eric and Amit had in their cramped executive suite. There’s only one way to keep those unruly conversations going. You let them unfold chaotically, anywhere and everywhere across the organization. And you listen for what bubbles up. If you want your company to innovate, your job is to manage the chaos.
HOFFMAN: If you want an innovative company, your job is to manage the chaos. Managing chaos may sound like a contradiction in terms. Shouldn’t it be the opposite? Isn’t the manager’s job to wring order out of chaos? Not always.
If you want to invent something new, or reinvent something at a spectacular order of magnitude, you have to suppress management. Let your employees pursue wild ideas that may raise your eyebrows. It’s not for you to judge whether their ideas are good or bad. It’s for your employees to prove it through freewheeling experimentation.
I wanted to talk to Eric Schmidt about this, because he pushes the anti-management philosophy to its outer limits—as CEO of Google, and now as chairman of the parent company, Alphabet. He’s an unlikely proponent of chaos, because he came to Google from a company that nearly crashed due to lax management. Before Google, he was CEO of the software company Novell.
SCHMIDT: My friend said, “You need a distraction. And if you’re flying planes, you won’t be able to think of anything else.” It was the best advice ever. I eventually figured out it made a big difference, shockingly to me—because in aviation, they teach you to make rapid decisions, and they, over and over again: “Decide, decide, decide.” It’s better to make a decision and just accept the consequences. And that discipline helped me in the hard times when I was at Novell in a real hard core turnaround.
So I approached aviation the same way I approached the company, which was trying to figure out how it actually worked. And once you figured it out, if it’s a well-defined system, it has a certain logic and a certain beauty in it.
SCHMIDT: —Two young men. They had my bio all on the wall, and they had food on the table in front of them. I thought, “This is very odd.” And they proceeded to spend an hour and a half grilling me about what I was doing at Novell, and deciding that it was foolish—that the products we were building made no sense. And I, of course, provided a blistering counterattack. And as I left that day, I realized that I hadn’t had such a good conversation in years. And that was the moment I knew this was a special company.
MARGARET HEFFERNAN: Any CEO worth their salt is starved for argument and debate, so I’m not incredibly surprised by Schmidt’s response—because one of the big problems with power is that most people won’t argue with you if you’re in a powerful position.
They mostly try to second guess you. They try to figure out, “What is it you want me to say?” And of course that’s no use at all, because being told what you think you want to hear doesn’t give you any options. You’re kind of stuck in your own head.
HOFFMAN: You have to be able to butt heads. But there’s an art to disagreeing well. High-speed, high-IQ conversations often have the rhythm of “point / counterpoint.” That’s how you move across the intellectual space quickly—I say something, and you say, “Well, actually, this part of what you’re saying isn’t quite right. Here’s the better version.”
Some people naturally excel at this kind of conversation. For others, it takes practice. Technical people, for example, usually need to learn that you don’t have to start the conversation with, “You’re wrong,” or, “That’s the stupidest idea I’ve ever heard.” Far better, you can say, “That’s interesting. But here’s a challenge to that point of view.” And if you do it that way, you frequently make more progress, because then people are less hung up on whether “I’m right,” or whether “I’m wrong,” and stay focused on the idea.
HOFFMAN: And that’s exactly what Eric thought when his team suggested a radical new way to set prices on advertisements. What I’m about to describe may sound crazy to you—and it sounded that way to Eric, too. Eric’s team made an argument for a type of auction, in which bidders name their price, without seeing competing offers. The highest bidder wins, but only has to pay the second highest bid. This is effective because it allows bidders to go high, knowing they will only pay true market value. And there are plenty of academic papers explaining why this type of auction would actually work wonders on revenue. But companies rarely put it into practice.
SCHMIDT: And as we pushed this thing through, we turned it on, but we had no data analytics, because no one had bothered to get that working yet. And we went into full crisis mode for a week, meeting every day at 4:00 to try to figure out what to do. At the end of the week, we realized we were making far more money, and we were able to go from there.
It was that moment that I realized that both this team was magical, but also that the scale of the search ads opportunity was immensely larger than even we had thought.
HOFFMAN: Notice how Eric is stunned by the success that emerged out of this chaos—he calls it “magical.” And to harness this magic in an organization, you have to understand where ideas come from—not just from individuals, but from networks of people. And this runs contrary to the popular myth about innovation. We tend to tell the heroic story of innovation.
This is a story that credits a single inventor: the founder, the creator. A genius has an idea. Everyone else executes on the idea. And then everyone waits for the genius to have another idea.
But that’s a false story of innovation, and it breaks in at least two ways. First, while it’s true that some people are much better at idea generation than others, it’s always better to have a number of people working on ideas simultaneously. The best idea may come from person #89. And you can’t always predict where the good ideas will come from.
And second, very rarely do ideas spring perfectly formed, like Athena from the brow of Zeus. To turn a good instinct into a good idea, you have to talk to a lot of smart people, and ask them for feedback and criticism. So having networks both within and outside the company to improve on ideas is key to success.
MARK PINCUS: And the lesson from Tribe that came resoundingly out for me— and still stands out—is that as entrepreneurs, part of the journey that we’re on is learning how to separate our winning instincts from our losing ideas. I think as a rule of thumb, if you’re a good entrepreneur, you can assume that your instincts are right 95% of the time, and your ideas might be right 25% of the time.
I’ll try anything, and I’ll kill anything, and I’ll kill it quickly. And I’m not going to let killing an idea kill a winning instinct. And so that was a really core idea that I’m still thinking about, and learning as an entrepreneur. And I can see it playing out so often in people’s companies.
SCHMIDT: The most important thing to do is to have quick decisions—and you’ll make some mistakes, but you need decision-making. We ultimately adopted a model of a staff meeting on Monday, a business meeting on Wednesday, and a product meeting on Friday, and this was organized so that people could travel in the right ways. And the agenda was, everybody knew which meeting the decisions were made at—and so as long as you could wait a week, you knew you would get a hearing on your deal.
I cannot tell you how many people have told me that at Google, decisions are made today quickly, in almost every case, even at our current scale. And that’s a legacy of that decision. Most large corporations have too many lawyers, too many decision-makers, unclear owners, and things congeal—they occur very slowly. But some of the greatest things happen very quickly. We made the decision to purchase YouTube in about 10 days—incredibly historic decision—because we were ready, people were focused, we had a board meeting—we wanted to get it done.
So I always tell people, somebody is running your company. What are they doing? Why don’t they just make this decision? Even if it’s the wrong decision, a quick decision is better in almost every case.
HOFFMAN: This meant empowering engineers, and keeping management in check. For instance, product leaders can draw in as many engineers as they’d like on any given project, so long as they can convince engineers to join their team.
I’ve talked to other managers at Google who are frustrated with this, because they argue: “We agree that my project is strategic. Why don’t you just assign some engineers to me?” And the answer is, “No, no—you have to persuade the engineers that your project’s a good one to work on. And then, by the way, you can have all of the engineers that you can persuade to work on that project.” And that’s central to Google’s culture for making progress.
Eric took this idea one step further. He granted employees the freedom not only to choose their projects, but openly defy their managers along the way. Google famously instituted a rule that any employee could devote 20% of their workweek to any project they’d like.
20% time was, in some ways, a logical extension of Google’s graduate school culture. Managers, like research advisors, can set timetables and budgets for experimentation. But the staff, like the “students,” pick the research agenda.
HOFFMAN: As Eric says, many of the products people know best—Gmail, Google Maps, Google News, AdSense—grew out of ideas generated by employees, during this 20% time. But why, exactly, does it work?
HOFFMAN: The tendency of high-performing employees to use their 20% time productively is the well-documented genius of the program. But there’s also a hidden genius of 20% time. It allows reasonable employees to defy unreasonable managers. And this institutionalized defiance can help balance the power, and keep high-performing employees engaged during challenging times.
HOFFMAN: So step one of managing the chaotic process of invention is allowing ideas and conversations to flow freely in an organization. Step two is making quick decisions on what’s working, and what isn’t. But step three is even harder: deciding the precise moment you should scale that idea to the world. And this requires an explosive change of pace.
HOFFMAN: I want to offer a note of caution here. I would never advise an entrepreneur to blindly copy Google’s rules and announce to their teams, “Okay, you all get free meals, 20% time, and the freedom to camp out in the CEO’s office. Now: start innovating.” That’s not a recipe for managed chaos so much as plain old chaos. As Eric said, you have to see your organization as a complex system that operates by a logic and beauty of its own.
You have to understand how your staff operates as a network. And you’ll never build this network simply by announcing playful rules. You have to first recruit the right people who tend to swap ideas and tackle challenges together. To effectively manage the chaos, you have to hire people who thrive under chaotic circumstances.
SCHMIDT: So the company was getting very large, very quickly. And I had suggested to Larry and Sergey that there was a problem with what I called “glue people.” And glue people are very nice people who sit between functions, and help either side, but don’t themselves add a lot of value. And I thought, “These are nice people, but we don’t really need them. We can have these groups talking directly.” And Larry looked at me and says, “We could solve this problem, if you would just review all the hiring.” And I said, “Larry, we can’t look at all the hiring.” He said, “Sure we can.”
So the company, of course, invented a number of hiring algorithms, which are used throughout the industry today. Many of them include pretty aggressive hiring interviews from peers, asking people to do work, and so forth. Ultimately, the judgment has a lot to do with whether the person is interesting or not. And so we would, for example, take a position that we want to hire rocket scientists, because rocket scientists are inherently interesting. And in sales, we love to hire Olympians. Or Super Bowl winners, or football players—because of the discipline that they had in their lives as young people—men and women—to get to that point indicated that an extra set of discipline.
SCHMIDT: So today I would suggest that—and this has since been confirmed by many studies—that persistence is the single biggest predictor of future success. And so we would look for persistence. And the second thing was curiosity. What do you care about? The combination of persistence and curiosity is a very good predictor of employee success in a knowledge economy.
SCHMIDT: The most interesting thing about cows is that they organize themselves north and south, and they do that north and south because of the magnetic resonance inside their cow brains. How was this discovered? Because of Google Maps.