Why Every Star Business Should Eventually Become Like Berkshire Hathaway

Google started out as a search company. They did better than anybody's wildest expectations. With the free cash flows and the smart people on their rolls, they've been getting into many different areas. Some of these are successes (like Gmail.) Others are failures.

But here's the problem.

With every success of a non-search item, Google looks less and less like a Search company (well-differentiated) and more and more like a technology company (undifferentiated.) With every failure, Google's sheen of invincibility becomes a little muddied. Competitors begin to think that Google can be defeated. Eventually, somebody will challenge Google's core business.

What could the alternative have been?

Google succeeds in search. Google then uses the funds being generated to set up a separate investment fund with a separate brand name and identity. This fund backs ideas that Google employees come up with in their 20% time. Each of these ideas (after they pass through an initial evaluation and vetting phase) are set up as separate new companies with distinct non-Google brand identities. The companies will share resources including employee time, some common departments (such as HR, payroll, accounting, procurement etc.) and will need to become survive or thrive on their own or die within a set time frame.

The advantage of this method is that even if one day Google's core search business dies, the investment fund will have backed one or two big businesses that will continue to throw up enough cash.

Every star business will eventually come up with opportunities that are worth pursuing. The trick is to avoid diluting the company's core positioning and do it under a separate brand name. Setting up a Berkshire Hathaway like business structure is one way to do this.