The Pirate Building
You cannot harvest and hunt in the same room — put the disruptors in a different building with different rules
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 90%
Schmidt's answer to whether a team can innovate while still running the day job: there are almost no examples of doing both simultaneously in the same building. The incentives are different, and a disruptor who has to follow the incumbent's rules cannot move at the pace required. His canonical case is Steve Jobs putting the small Macintosh team in a little building next to the big one on Bandley Drive in Cupertino and flying a pirate flag over it. It caused real resentment inside Apple — and it was still the right call, because the Mac established the user interface that eventually made the iPhone possible.
Origin
Schmidt watched the same dynamic from the other side at Google: an incumbent Google Video team constrained by Google's rules lost to YouTube, an outsider that could move at any pace, and Google ended up buying them.
Core principles
- 01Harvesting and hunting are different jobs and cannot be done by the same people at once.
- 02The disruptor must be exempt from the incumbent's rules to move fast enough.
- 03Internal resentment is a real and acceptable cost of the separation.
- 04Big companies lose to startups not on money but on speed of decision.
How to run it
- 1
Separate the team physically and structurally
Move the disruptive team into a different building with a different P&L and different reporting.
Pro tip Jobs literally flew a pirate flag over the Macintosh building to mark the separation.
Watch out Expect resentment from the main building — the founder-level conviction to absorb it is what makes it work.
- 2
Exempt them from the incumbent's rules
Explicitly release the new team from the operating constraints that govern the core business.
Watch out If you are going to be a pirate and a disruptor, you cannot be held to the same rules — half-measures produce a slow team with a flag.
- 3
Own the people about to kill your business model
Deliberately house the effort that would disrupt you, rather than leaving it to be built by a startup elsewhere.
Pro tip Bartlett's observation: what Apple did smartly was own the people who were about to kill their own business model.
Watch out This is extremely hard for non-founder CEOs — a board of smart people rarely approves killing two years of profitability on a bet.
- 4
Name a single entrepreneurial owner
Put one entrepreneurial person in charge of the small business, as Google learned to do.
Pro tip Larry Page's line was that it will not happen unless there is an owner who is going to drive it.
In the wild
Jobs put a very small Macintosh team in a little building beside the main one in Cupertino and raised a pirate flag over it, creating open resentment inside Apple.
→ The Mac established the user interface lineage that eventually produced the iPhone — the right call in revenue and product terms.
Schmidt was proud of Google Video until his general counsel showed him YouTube; the incumbent team was constrained by Google's traditional rules while YouTube could work at any pace.
→ YouTube out-executed the incumbent; Google ultimately acquired them and won the resulting lawsuits.
Schmidt notes a board did approve exactly the kind of profitability-killing bet he describes — Zuckerberg's heavy VR spending, alongside heavy investment in Instagram, WhatsApp and the AI systems powering them.
→ The VR bet produced little, but the parallel AI investment made Meta a significant AI leader — a founder-only move, almost impossible with a hired CEO.
Common mistakes
Asking one team to play both roles
The incentives for harvesting and hunting conflict, so the day job always wins and the disruptive work never ships.
Is it for you?
Best for
Established companies that can see the technology shift that will disrupt them.
Not ideal for
Small teams without the headcount to staff a genuinely separate unit.
From the transcript
“there are almost no examples of doing it simultaneously in the same building”
“you can't get people to play two roles the incentives are different if you're going to be a pirate and a disruptor you don't have…”
From the episode
Ex Google CEO: AI Is Creating Deadly Viruses! If We See This, We Must Turn Off AI! They Leaked Our Secrets At Google!
Eric Schmidt