How Google Works

by Eric Schmidt

At Google, our users are the people who use our products, while our customers are the companies that buy our advertising and license our technology. There are rarely conflicts between the two, but when there are, our bias is toward the user.

innovation often happens when people are working in “Pasteur’s Quadrant,”

if you want to create a car that gets 10 percent better mileage, you just have to tweak the current design, but if you want to get one that gets five hundred miles per gallon, you need to start over. Just the thought process—How would I start over?—can spur ideas that were previously not considered.

Big bets often have a greater chance for success by virtue of their size: The company can’t afford to fail. On the other hand, when you make a bunch of smaller bets, none of which are life threatening, you can end up with mediocrity.

powerful tool for attracting and retaining smart creatives.

One of the companies tells you that they like to try to make things 10X better, while the other settles for 10 percent improvement. Which one will you choose?

First, a good OKR marries the big-picture objective with a highly measurable key result.

in—a good OKR should be a stretch to achieve, and hitting 100 percent on all OKRs should be practically unattainable.

a score of 70 percent on a well-constructed OKR is often better than 100 percent on a lesser one.

Third, most everyone does them.

Fourth, they are scored, but this scoring isn’t used for anything and isn’t even tracked.

honestly. Fifth, OKRs are not comprehensive; they are reserved for areas that need special focus and objectives that won’t be reached without some extra oomph. Business-as-usual stuff doesn’t need OKRs. As your venture grows, the most important OKRs shift from individuals to teams.

Competitors are everywhere in the Internet Century, and chasing them (as we noted earlier) is the fastest path to mediocrity.

They know where they need to go and don’t have time to worry about the competition.

70/20/10 became our rule for resource allocation: 70 percent of resources dedicated to the core business, 20 percent on emerging, and 10 percent on new.

As the cofounder, Larry could have assigned a team of engineers to the problem and given them a nice budget. Instead he got a digital camera, rigged it to a tripod, and set the contraption up on a table in his office. He pointed the camera down at the table, turned on a metronome to pace his movements, and started snapping pictures while Marissa Mayer turned the pages. Based on this crude prototype, they were able to estimate what it took to digitize a book, and made some calculations that the audacious project was indeed feasible. Google Books was born. (Sergey later employed a similar approach to see if Google’s Street View project was feasible. He took a drive around town with a camera and snapped a photo every few seconds. He showed off the pictures in Eric’s next staff meeting to rally support for what is now called Street View. Today Street View covers over five million miles of roads.)

“The human race built most nobly when limitations were greatest.”

In fact, 20 percent time is more like 120 percent time, since it often occurs on nights and weekends. But it can also be stored up and used all at

they aren’t supposed to work on. It helps bring to life the Steve Jobs maxim that “you have to be run by ideas, not hierarchy.”

Coming up with an idea is pretty easy. Getting a few of your colleagues to join your project and add their 20 percent time to your 20 percent time is a lot harder.

The most valuable result of 20 percent time isn’t the products and features that get created, it’s the things that people learn when they try something new.

20 percent time may be the best educational program a company can have.

When Eric asked Larry how many engineers he thought the company should have, Larry’s response was: “A million.”

Steve Jobs told the Macintosh team that “real artists ship.”192 New ideas are never perfect right out of the chute, and you don’t have time to wait until they get there. Create a product, ship it, see how it does, design and implement improvements, and push it back out. Ship and iterate. The companies that are the fastest at this process will win.

First, at the corporate level, most innovative new things look like small opportunities to a large company. They are hardly worth the time and effort, especially since their success is far from certain. And at an individual level, people within big companies aren’t rewarded for taking risks, but are penalized for failure. The individual payoff is asymmetrical, so the rational person opts for

We know, because we’ve been there. After all, you are reading a book by a couple of guys who were among the last Googlers to ditch their BlackBerrys and Outlook email boxes.

Clayton Christensen: “I keep my attention on the questions I need to ask so I can catch the issues of the future.”)

the hardest question for Sun was what would happen to Sun’s business when the Wintel price-performance finally surpassed Sun’s.

What would the company do when the advantage to which it owed most of its success and profitability was gone?

In ongoing companies there are always hard questions, and they often don’t get asked because there aren’t any good answers and that makes people uncomfortable. But this is precisely why they should be asked—to keep the team uncomfortable.

Larry Page often says that the job of a CEO is not only to think about the core business, but also the future; most companies fail because they get too comfortable doing what they have always done, making only incremental changes. And that is especially fatal today, when technology-driven change is rampant.

So forgo conventional wisdom, crank up that imagination, and ask yourself what could happen in your industry in the next five years. What could change most quickly, and what will not change at all? Then once you have an idea of what the future could hold, here are some more hard questions to consider.

How would a very smart, well-capitalized competitor attack the company’s core business? How could it take advantage of digital platforms to exploit weaknesses or skim off the most profitable customer segments? What is the company doing to disrupt its own business? Is cannibalization or revenue loss a frequent reason to kill off potential innovation? Is there an opportunity to build a platform that can offer increasing returns and value as usage grows?

Do company leaders use your products regularly? Do they love them? Would they give them to a spouse as a gift? (This obviously isn’t applicable in a lot of cases, but it’s a powerful thought experiment.) Do your customers love your products? Or are they locked in by other factors that might evaporate in the future? If they weren’t locked in at all, what would happen? (Interesting corollary to this question: If you forced your product people to make it easy for customers to ditch your product for a co...

When you go through your pipeline of upcoming new major products and features, what percentage of them are built on unique technical insights? How many product people are on the senior leadership team? Does the company aggressively reward and promote th...

Is hiring a top priority at the C-suite level? Do top executives actually spend time on it? Among your stronger employees, ho...

Do your decision-making processes lead to the best decisions, or the most acceptable ones?

But this brings up one more hard question: Are you in the right place to attract the best smart creatives?

Do I go to the smart creatives, or find a way to get them to come to me?

We see most big problems as information problems, which means that with enough data and the ability to crunch it, virtually any challenge facing humanity today can be solved.

information is costly to produce but cheap to reproduce.

So if you create information that can help solve a problem and contribute that information to a platform where it can be shared (or help create the platform), you will enable many others to use that valuable information at low or no cost.

The Watt steam engine was developed in 1763 but it took the better part of two hundred years before the railroads transformed Kansas City from the trailhead of the cattle drive to a metropolis with a livestock exchange.