- Google founders Larry Page and Sergey Brin stepped down as heads of Alphabet this week.
- The pair had the idea for Alphabet — a holding company that houses Google, DeepMind, Waymo, and other businesses — while visiting Warren Buffett more than 10 years ago.
- “The genesis of Alphabet is a meeting that Larry and Sergey and I had about a decade ago where we flew — technically, I flew them, shocking — to Omaha, and we visited Warren Buffett,” former Google CEO Eric Schmidt said at Alphabet’s annual meeting in 2017.
- Following Berkshire Hathaway’s formula of trusting managers to run its businesses, Alphabet built a “corporate scaling mechanism that we’ve never seen in the world,” Schmidt said.
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Google founders Larry Page and Sergey Brin stepped down as heads of Alphabet this week. They had the idea for the holding company — created in 2015 to house Google, DeepMind, Waymo, and other businesses — while visiting Warren Buffett more than 10 years ago.
“The genesis of Alphabet is a meeting that Larry and Sergey and I had about a decade ago where we flew — technically, I flew them, shocking — to Omaha, and we visited Warren Buffett,” Google’s former CEO, Eric Schmidt, told the crowd at Alphabet’s annual meeting in 2017.
“I remember sitting on, I think, the 14th floor and being struck by the extraordinary success of his model,” Schmidt continued. “He had figured out a problem that had bedeviled all of us in our industry for years, which was how to establish scalability, right?
“He had a particular formula, which was the independence of the companies, strong CEOs, independent operation, and strong branding of those corporations,” Schmidt added. Following the famed investor’s example, Alphabet built a “corporate scaling mechanism that we’ve never seen in the world,” he said.
Buffett’s Berkshire Hathaway owns dozens of businesses including Geico, Dairy Queen, and See’s Candies. The so-called Oracle of Omaha trusts managers to run the companies with minimal oversight, freeing him to focus on the big picture and smartly allocate capital across the conglomerate.
Alphabet’s bosses drew a few distinctions between their company’s structure and its inspiration.
Berkshire has largely avoided the tech sector and focused on proven, profitable companies with competitive advantages, such as Coca-Cola. In contrast, Alphabet has invested in self-driving cars, smart contact lenses, solar-powered drones, internet-beaming hot air balloons, and other high-risk “moonshots.”
“It’s different types of businesses than in the Berkshire family of companies,” finance chief Ruth Porat told an analyst at the annual meeting in 2017.
Another analyst asked whether Alphabet’s management team took up a single floor like Berkshire’s top brass.
“It’s maybe a quarter of a floor,” legal boss David Drummond replied. “Ruth and I visited the headquarters several months ago in Omaha, and we realized that our Alphabet staff was actually much, much smaller than Berkshire Hathaway’s.”
Page and Brin have taken pages out of Buffett’s book before. In Google’s IPO prospectus in 2004, the pair included a section titled “Letter from the Founders: ‘An Owner’s Manual’ for Google’s Shareholders.”
In a footnote, they wrote: “Much of this was inspired by Warren Buffett’s essays in his annual reports and his ‘An Owner’s Manual’ to Berkshire Hathaway shareholders.”