How Google Inc Works: 10 Insights From One of the World’s Greatest Companies

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WASHINGTON, DC — Shares of Google (NASDAQ: GOOGL.US) , which are up an impressive 1,191% since their trading debut a decade ago, have performed extremely well for investors. According to The Wall Street Journal, the stock was the 11th best performer from the S&P 500 in the 10 years after Google’s IPO in August 2004.

What was the secret of Google’s remarkable success? Eric Schmidt and Jonathan Rosenberg, in their new book How Google Works, argue that it was Google’s ability to attract and empower “smart creatives” that ultimately allowed the company to accomplish amazing things. Smart creatives, according to the Google executives, are those employees who “work hard and are willing to question the status quo and attack things differently.”

It’s difficult to argue with Google’s track record as a public company, and identifying future Googles could be a pretty lucrative pursuit for business-focused investors. How Google Works makes this pursuit much easier for all of us by showing what successful companies of the future might look like. Here are 10 insights from the book that I found to be particularly helpful.

1. “Every company needs a ‘Don’t be evil,’ a cultural lodestar that shines over all management layers, product plans, and office politics.”
The “don’t be evil” slogan was coined by two engineers early in Google’s history. Even today, an engineer can bring a meeting to a halt by declaring a particular product or initiative “evil.” Stakeholders will then be forced to consider if the initiative in question is consistent with the company’s values.

Schmidt and Rosenberg believe that culture “is the most important thing” to consider when forming a company, and that “don’t be evil” is central to Google’s culture. The best cultures, according to the authors, will always be aspirational.

2. “The best products had achieved their success based on technical factors, not business ones, whereas the less stellar ones lacked technical distinction.”
This important insight resulted from a review of Google’s product line in 2009. The company has learned over the years that flatlining products (iGoogle, Desktop, Notebook, Health, Reader, etc.) were the ones that “lacked underlying technical insights from the outset.” In order to avoid that pitfall, the authors write, “Find the geeks, find the stuff, and that’s where you’ll find the technical insights you need to drive success.”

3. “Scaling needs to be a core part of your foundation. Competition is much more intense and competitive advantages don’t last long, so you have to have a ‘grow big fast’ strategy.”
Schmidt and Rosenberg argue that the days of growing big slowly and methodically are over. Instead, they suggest that companies need to grow “very quickly and globally” in the Internet century.

The reason for this is that platforms, not products are the key to success, and the best leaders “will be the ones who know how to create and quickly grow platforms.” Netflix, for movies, and Spotify, for music, are just a couple of the successful platforms the authors note as examples.

4. ” … we focused on search because it was something we felt we were better at than anyone else. So in those early days of the Internet, while these leaders of the industry were busy tending to their business of building Internet portals, Google search got better and better at providing great answers for users.”
Like a lot of business books, the authors make a persuasive case for the power of focus. They point out that Google inadvertently followed the advice of the strategy expert Michael Porter, who writes, “An effective strategy for achieving above-average results can be to specialize on a tightly constrained group of products … “

5. “Smart coaches know that no amount of strategy can substitute for talent, and that is as true in business as it is on the field. Scouting is like shaving: If you don’t do it every day, it shows.”
Hiring is one area in particular in which Google sets itself apart from other companies. Every “Googler” makes it his or her priority to hire the best possible people. And the senior leadership are expected to become more — not less – engaged in the process.

6. “We want to hire the best minds available, because we believe there is a big difference between people who are great and those who are good, and we will do everything we can to separate the two.”
The authors are unapologetic in their intellectual elitism. They want the smartest people possible, and they work hard to attract and retain those people.

7. “If you are the hiring manager or one of the interviewers, it isn’t sufficient to express an opinion; you need to support it with data.”
Google hiring managers are sticklers for data as part of the process. They don’t want interviewers going with “their gut” or “instincts.” Every opinion about a candidate has to be supported with data or empirical observations. And the more details, the better.

This is something Daniel Kahneman, author of Thinking, Fast and Slow, recommends as well. He has found that interviewers are far too confident in their intuition and provide too much weight to their impressions.

8. “Think about your ideal job, not today but five years from now. Where do you want to be? What do you want to do? How much do you want to make? Write down the job description: If you saw this job on a website, what would the posting look like? Now fast forward four or five years and assume you are in that job. What does your five-years-from-now-resume look like? What’s the path you took from now to then to get to your best place?”
A lot of young people ask Schmidt and Rosenberg for career advice, and this is what they tell them. The authors have found that a lot of folks don’t put enough effort into career development, and that all of us need to work harder imagining our future.

9. “One of the most transformative developments of the Internet Century is the ability to quantify almost any aspect of business. Decisions once based on subjective opinion and anecdotal evidence now rely primarily on data.”
Each Google conference room, according to the authors, has two projectors: one for meeting notes and the other for data. Each meeting starts with data, and Googlers try to convince each other by saying “Let me show you.” This emphasis on the importance of data is one of the most distinctive features of the company’s culture.

10. “So the question to ask isn’t what will be true, but what could be true. Asking what will be true entails making a prediction, which is folly in a fast-moving world. Asking what could be true entails imagination: What thing that is unimaginable when abiding by conventional wisdom is in fact imaginable?”
I think this is a very helpful way of thinking about the future. Predicting the future is silly — political pundits and Wall Street analysts show us that every day. Imagining the future, however, seems like a very worthwhile and potentially profitable endeavor.

 Could self-driving vehicles work? Or what about flying people to Mars? The companies that are capable of imagining our future will surely have a huge advantage over their uncreative rivals. And those investors who can identify the smart, creative companies should do very, very well, as Google’s performance has shown over the past decade.

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John Reeves owns shares of Google (A shares) and Google (C shares). The Motley Fool UK owns shares of Google.