Eric Schmidt explains how Alphabet will emulate Berkshire Hathaway and Warren Buffett

Berkshire 2.0
Berkshire 2.0
Image: Reuters/Yuri Gripas
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When Google announced it was dramatically changing its structure to form a conglomerate called Alphabet, many thought immediately of Warren Buffett’s long-lived and hugely profitable Berkshire Hathaway.

Berkshire Hathaway has a similar holding company structure to the one Alphabet is taking, and the same commitment to independent management of individual businesses. Google founder Larry Page’s own affinity for Buffett is well-documented (paywall), and dates back to the company’s now iconic pre-IPO letter to potential shareholders.

Of course, there are some obvious differences between the firms, most notably that the portfolio companies at Alphabet will be financially dependent on the core Google business for years to come.

But in a recent Q&A in a Stanford University class on “Technology-enabled Blitzscaling” led by Linkedin Founder Reid Hoffman and other tech luminaries, Alphabet chairman Eric Schmidt confirmed that the company is emulating Buffett, and explained a bit more about what that means:

“Alphabet is an attempt to build a holding company like Berkshire Hathaway out of an existing operating company,” said Schmidt. “It’s never been done before.”

Perhaps Alphabet’s most notable attempt to emulate Berkshire is its decision to give absolute autonomy to the CEOs who run subsidiary companies, a practice at the core of Buffett’s management style.

“We’re trying to push the Alphabet companies to be separate companies, not divisions,” Schmidt said.

More autonomy allows these businesses to develop independence and identity. It’s also an opportunity to develop the Alphabet’s most promising talent into CEOs, instead of reporting up the chain.

“John, who is going to run our cars business, wants to work on this stuff 24/7,” Schmidt said, by way of example. “He is going to be the CEO, and bear the downside and the upside, and that’s what he wants.”

To figure out Alphabet’s structure, Schmidt added, he actually traveled with Larry Page and Sergey Brin to visit the Oracle of Omaha for in-person advice.

The full Q&A is here.