
Why Valve? Or, what do we need corporations for.. - liquid_x
http://blogs.valvesoftware.com/economics/why-valve-or-what-do-we-need-corporations-for-and-how-does-valves-management-structure-fit-into-todays-corporate-world/
======
grellas
It is a dubious proposition, in my view, that a "boss-less" company can or
should replace the traditional hierarchical corporation of today as the
normative form of business organization.

Here are my reasons for saying this:

For all of the economist's sagacity that the author has and evidently brings
to this piece, the author's underlying case against modern hierarchical
corporations seems to boil down to a populist analysis that is not so much a
proof as a set of ill-developed assertions.

The author claims (a) that hierarchical managements lead to "corporate
serfdom" and to "Soviet-like" dominance within the framework of the
corporation itself, thereby crushing creativity and wasting resources, (b)
that all this is made by possible by "toxic finance," and (c) that it is all
"co-dependent with political structures that are losing democratic legitimacy
fast."

Corporate serfdom? Toxic finance? Co-dependent on illegitimate political
structures? This lumps every early-stage startup with every mega-corporation
that has ever existed and, in effect, calls them all illegitimate. And _that_
is a political assumption about "corporations" in the abstract, not an
empirical analysis, because it cannot possibly be defended as an empirical
analysis. Is it serfdom to join a YC company as a founder or an employee? Is
YC a toxic funder? If the answer to both is no, does all this change once
startups get bigger? How about a startup that purports to offer a different
form of corporate culture ala Google? Are there serfs working at Google? Is
their funding toxic? Or does this just apply to a Walmart or a Standard Oil or
other mega-corporation that does not specifically do creative work in the tech
field? Does hierarchical management consist of simply having the normal forms
of corporate government - a board of directors and corporate officers - or
does it come about only when people are given authority to hire and fire, to
supervise the employment of others, and to direct them in what to do in their
jobs? Is this all good, efficient, and respectful of human talent and
creativity when the organization is small but soulless and deadening and even
"Soviet-like" only when the corporation becomes large? If there is such a
distinction, where is that line crossed? And does this mean that the corporate
form is _not_ innately evil but that a large organization of whatever type,
organized hierarchically in its management structure, is what brings in the
evil.

What, then, does Valve offer that makes it different? It too is a corporation.
It is privately owned by a few persons who have had the luxury of screening
all employees so as to hire only very bright, highly self-motivated persons to
do predominantly creative forms of work. Working with such employees, Valve
has been able to build a successful model by which these bright, motivated
employees get to choose 100% of their projects and have complete freedom on
how they manage their own time and on what results they seek to achieve. It
all sounds like an amazing work environment but how many businesses get to
focus in this way on creative forms of work or get to screen carefully to make
sure they only hire self-motivated employees? And how many businesses have the
luxury of doing this without needing to raise outside capital through their
early stages? Moreover (and the author himself raises this point), to what
extent can this scale? Can such a model work if the company grows a
thousandfold and suddenly has 40,000 employees? Of course, the model
inevitably breaks down at some point along the way because the environment in
which the Valve employees currently function is highly unusual if not unique.

Unless human nature should radically change owing to technological progress (a
dubious assumption in my view), we can continue to expect that, in any large
group, there will always be those who fail to carry their weight, those who
seek to take advantage, those who are incompetent, and those who are plain bad
actors making life difficult for those around them or trying to cheat the
company or steal from it or whatever. A hands-off management that lets all
such persons do whatever they want will very quickly find itself immersed in
problems and, ultimately, some mechanism needs to be put in place by which
employees are managed, are disciplined, are rewarded, are redeployed, etc. in
ways that conform to the goals of the organization and not necessarily with
those of each individual actor within that organization.

Every form of business organization needs people with a vision to set its
model and its goals and to direct people and resources in a way that maximizes
the opportunities of successfully reaching those goals. In some situations,
some or even all of the impetus for this can come from those who work in
common without an overriding authority. Those situations, though, are by
definition highly unusual at best. Valve may be one of them and even then it
has to managed at some level even by its benign oligarchs who own it. And,
even if technological progress could someday supplant the need for
corporations, this piece does not make the case for how that will ever be
possible. It is, then, an intriguing piece (with thought-provoking elements)
but suggestive and incomplete at best in its main argument about Valve and
marred by populist assumptions in its broader themes about corporations
generally.

Yes, this is written from the standpoint of a startup business lawyer who has
dealt with corporate forms of organization for some three decades now. This
may give my views an inevitable bias in that direction but it also gives me a
close familiarity with how such corporate forms work. From that perspective,
what the author says just doesn't ring true. Business organizations generally
aren't places where free-flowing creativity will hold sway above all else. The
Valve model may be great but I just don't see it being made broadly applicable
to the vast majority of businesses as they operate today or as I can even
conceive of them operating in the future.

~~~
einhverfr
I think that bossless firms can and will replace traditional hierarchies in
many areas. However the two are more different in their limitations than they
are the same. Bossless systems are _not_ drop-in replacements for hierarchical
systems.

If you look at bossless firms that are successful, they come in sizes ranging
from GitHub at founding to WL Gore (3B in revenue, 30k employees). Scale in
terms of firm size is not an issue. However every one of these companies, is
narrowly focused. Every one has a narrow mission. There is no way to replace
Microsoft or Dupont with a single bossless organization any more than Gore has
replaced Dupont. The scale limitation for bossless organizations is that of
bredth of focus. Without a narrow focus, whether it is a specific kind of
plastic or video games, there is nothing to organize around. Without this,
there cannot be spontaneous order.

A way to think about this would be the difference between agriculture and
permaculture. Large firms of today are like giant factory farms. They are
highly ordered by human standards, but in so doing, the complexity cost is
high and so productivity is reduced. In a permacultural environment, the scale
may be smaller, the order is organic rather than artificial (curves instead of
straight lines, multiple species together instead of monocultures, etc), but
they are more productive with fewer human inputs. The complexity cost is low.

A bossless organization that works well does so because it channels human
nature in the right directions. As William Gore, founder of WL Gore, said,
every successful organization has a lattice structure, which may or may not be
aligned with its hierarchy.

It is true that these organizations have two major challenges, namely hiring
and firing, but these are not problems which don't admit of solutions. The
solutions are just different than they are in a hierarchical model.

I do think that bossless organizations will rise up and take over large
sections of the economy, but if they do they will be smaller than the
companies they are replacing. We will have a more just economy in large part
because it will be dominated by a larger number of players and hence it will
be more competitive. Ecosystems will win out over machines in the end ;-)

~~~
zem
i hadn't heard of wl gore. thanks for the pointer, they look like a very
interesting case study.

~~~
einhverfr
I got their number of employees wrong. They "only" employ 9000 or so.

You may not have heard of them but I am sure you have heard of at least one of
their products: Gore-Tex(R).

------
cs702
Great article. Anyone who has worked for a large, established corporation
knows from personal experience that internally they are a lot like the Soviet
Union, with a hierarchical structure of bureaucrats and their apparatchiks
making decisions for everyone at the company.

Despite having grown to around 400 employees, Valve is evidently not like
that. The author, Yanis Varoufakis, makes a compelling case that future
companies may look more like it than like the traditional hierarchical
corporations of today.

\--

PS. As someone who regularly reads the author's economics blog at
<http://yanisvaroufakis.eu>, finding him on Valve's corporate blog was the
source of quite a bit of cognitive dissonance for me. ("What the...? Why is
Varoufakis showing up on Valve's corporate blog?" was my immediate thought.) I
had to do multiple double-takes before it dawned on me that, yes, he somehow
works at Valve!

~~~
ralfn
One has to wonder why "large" companies even exist in the first place. Why a
building full of freelancers could not do the exact same thing.

And then it dawned on me: Valve is providing a "firewall" to unfair
competition, financial insecurity, brand awereness, and legal risks. And then
it just gets out of the way.

Maybe, the pure existence of large corporations, is a sign of capitalism
failing. Being large should not give an advantage: yet it allows for a
reportaire of anti-competitive behavior.

Maybe they should do a nation wide experiment, in smaller country: what
happens if you take away the legal standing of all "companies" and
"employment". What if all economic relationships can only exist between
individuals?

Im not suggesting its some kind of magic bullet, i just wonder how competitive
it would be. Will such a system adapt (to changes in the market) and optimize
(cutting out middlemans) more quickly? Will it be truly bottom-up?

~~~
seiji
Take a look at <http://en.wikipedia.org/wiki/The_Nature_of_the_Firm>

_Given that "production could be carried on without any organization [that is,
firm] at all", Coase asks, why and under what conditions should we expect
firms to emerge? Since modern firms can only emerge when an entrepreneur of
some sort begins to hire people, Coase's analysis proceeds by considering the
conditions under which it makes sense for an entrepreneur to seek hired help
instead of contracting out for some particular task._

~~~
ralfn
Would it be fair to say that "costs of transactions" are in some part due to
government bureacracy and taxing?

And could it be, that certain structures are less optimal (profitable) for the
single "firm", but more optimal for the economy as awhole. Could there even be
a distinction?

~~~
Evbn
Yes. When members of a firm create value for each other, they don't pay sales
tax. It is huge unfair advantage for large firms.

There is also the huge savings where teams have an executive authority to
settle disputes and prevent them from trying to rip each other off with unfair
contracts and nonpaid bills.

~~~
zeroonetwothree
In the US services aren't taxed. Most internal value created is in the form of
services (e.g., IT). Most companies don't have their own internal computer
production facility, for instance.

Your second point makes sense. There are usually much lower coordination costs
for internal agreements.

~~~
Evbn
in the US, I pay sales tax to the people who do repair work on my house and
who fix my dad's computer, and for the software I get from Apple engineers,
all of which are not taxed within a firm.

<http://dor.wa.gov/content/findtaxesandrates/retailsalestax/>

"Similarly, when a business purchases a retailing service for its own use, it
must pay sales tax on the purchase." "

~~~
einhverfr
I have always interpreted
<http://apps.leg.wa.gov/wac/default.aspx?cite=458-20-155> regarding computer
repair as the idea that if I am replacing a piece of faulty hardware that I
must charge sales tax for the attached service, but if I am merely cleaning
off viruses, that this is a professional service and therefore not subject to
sales tax. I have not been able to find a clear authority for this however,
and it isn't clear as to whether hooking up and configuring an external modem
that the customer bought from someone else is taxable.

Repair however is a problematic term. A lawyer might be involved in sending a
letter threatening action of a problem is not repaired but that service is not
taxable itself.

In Washington State, professional services not directly tied to an improvement
of tangible property are not generally taxable. So landsacping and lawn care
is generally taxable, but open source software development is not (since it is
not a sale of a license, or a one-of-a-kind development aimed at one customer
only).

------
Spooky23
Capitalism doesn't require corporations. Corporations insulate capital from
liability.

In the early 1800's in the US, you needed a act of the state legislature to
form a corporation. This was difficult and came with other baggage (putting
politicians on payroll, etc) so many more businesses were partnerships. Being
a partner means that as you invest, you gain more equity AND more liability.
It also means that governance becomes difficult as the partnership grows. As
the industrial revolution brought about massive, more capital intensive
businesses (railroads, steel, etc), the corporation become necessary to
function.

If Hacker News was around in 1880, we'd be talking about corporate bureaucracy
as a great innovation. It made sense.

I think what you're really seeing with Valve is a sort of modern partnership.
I've seen similar sounding small businesses (farms, mostly) where running of
the business is more consensus-driven or there is a "spontaneous" hierarchy
that develops over time.

~~~
snowwrestler
There's not really much of a connection between the ownership structure--
corporation vs. partnership--and the management structure of a company. In
Valve's case it is probably organized as a corporation, but it actually has
only a few owners. It could easily be organized as partnership. Either way,
what makes it special is that the employees (who are not owners) are allowed
to self-organize. But that could happen under any ownership structure.

------
mhartl
I appreciate the insight in the OP, but I'm frustrated by the imprecise use of
language. Valve _is_ hierarchical. The hierarchy is simply informal and
spontaneous based on the attributes of individual team members. (The OP hints
at the distinction with the occasional modification " _authoritarian_
hierarchy", but this line is often blurred.) In addition, the notion that
Valve is "bossless" is disingenuous. For every person at Valve, there is some
other person (or persons) who can fire him. If you worked at Valve, that
person could in principle tell you what to do. That he doesn't have to is a
product of the kind of people who work at Valve, not any radical innovation in
corporate structure. Although its organization may be relatively _flat_ ,
Valve is strictly hierarchical by any sensible definition of the term.

Valve's model reminds me of the old Costco vs. Walmart debates. Costco, we are
told, get lots more productivity out of its workers by treating them well—good
pay, generous benefits, etc.—while Walmart suffers by comparison. What this
analysis ignores is that the _people_ are different. Costco has discovered
that it can thrive by compensating disciplined, productive people well. Google
does the same. Apparently so does Valve. But not all people have such
discipline or high productive capacity—you couldn't just swap all Costco
employees for the same number of Walmart employees and expect to get the same
results, any more than you could with Google or Valve. The miracle of Walmart
(or one of them, at least) is that they manage to thrive using the labor of
people whose productivity is often marginal by the standards of Costco or
Valve. Arguably, that is even more impressive, and perhaps more laudable.
Unsurprisingly, Walmart's corporate structure is very un-Valve-like.

~~~
dgreensp
Indeed, every person is different, and every job is different. Corporations
already create a huge diversity of jobs that can't be equated across
companies. I can hire 100 programmers and say "your job description is to do
whatever you want," and there is nothing inherently anti-capitalist or post-
capitalist about my company. If I can make it productive by virtue of cultural
and social pressures alone rather than bossing people around, that's great.

As the OP points out himself, corporations are "islands" as far as the larger
economic system. There aren't really inherent constraints on how you organize
them internally. There are handed-down "best practices" for management that
are probably long overdue for rethinking; for example, perhaps the notion of
today's "boss" or middle manager will come to seem antiquated. But no company
runs like a free market. The OP spends a lot of time identifying "traditional
capitalist corporation" with bosses and hierarchy in order to paint Valve as
less capitalist, but really it is just less "bossist."

To say Valve is "more radical" than a co-op with distributed ownership is
ridiculous, and misses Valve's own hierarchy (as my parent points out). Owning
and running a company is not just a matter of telling people what to do. It
includes hiring and firing, leading through culture and other channels, making
executive decisions and generally keeping the lights on. As a Valve employee,
can you fire the janitor if he isn't doing a good job? If the building is hit
by a tornado, is it your responsibility to get it rebuilt and eat the cost?
Being an owner isn't all peaches and gravy.

Could you decide you want a non-wheelie desk or to telecommute full-time from
the beach? Hopefully you don't want to. Could the owner decrease your
compensation or relocate the company offices to Kalamazoo? Hopefully he
doesn't want to.

The best management is invisible.

~~~
kasbah
"You can do as you will but not will as you will"

------
crazygringo
So there are two things that remain unclear from this analysis:

1) Moving between Valve projects may be like a "market" where the "buzz"
around a project is like its "price"... but then the analogy breaks down,
because in a real market, you'd have to pay to be on the hot team.

But at Valve you don't, so in this case, why doesn't everyone just drop their
project and move to the hottest, most interesting team? Obviously in real life
not _everyone_ will, but if a team only needs 5 people, and 50 people want to
join, who determines who really joins? Well, the project manager will have to
choose, and now we're just back to managers choosing. Or am I missing
something?

2) There's a lot of grunt work in software development. Bugfixes to maintain a
year-old product, writing documentation, etc. If nobody wants to do the grunt
work, then who does it? Because there's usually more grunt work than people
who want to do it. Everyone wants to work on the new exciting sexy stuff, but
that's not always what generates revenue and pays people's salaries.

~~~
ChuckMcM
This culture was pretty active at Google and it had some interesting
downsides. The fact was that people were recognized for shipping and not for
'finishing' and so a lot of shipped but unfinished things clogged things up.
When a bazillion people were being hired, new hires would be dumped on a
project as their 'starter' project, and the smart ones would figure out it was
a dead end and move on quickly to either their own project or one that was
about to ship.

During the crisis in 2009 when hiring froze, and the new hires dried up, this
became unsustainable and folks had to be 'incented' to work on less glamorous
jobs. Really good project managers made a group feel good and the community
aspects kept people around, but they hadn't solved the problem before I left.

I would expect that for games or anything which has a relatively short life
after being shipped, you could extend this sort of thing for a long time.

~~~
mattrjacobs
I'm interested in the distinction you draw between shipping and finishing.
Care to elaborate on what that meant in a Google context?

~~~
ChuckMcM
Vertically integrated web based businesses like Google have a tremendous
advantage that comes from being able to prototype something and then instantly
have it available to all customers with a simple push [1] out to production.

There were of course different levels of thing, Gmail was a 'big' thing,
updates to the calculator one box, were 'small' things. But everything has a
certain amount of technical debt [2] associated with it. This was especially
true of infrastructure changes as there were often many subsystems that might
be affected in one way or another and each of them usually had some sort of
'porting' effort to get with the program as it were.

"Shipping" was getting something running in production without having it be
kicked out by SRE [3]. "Finishing" was having everything that was affected by
the change that had been in production before shipping fixed and/or updated to
run with the new system. As with most large systems I've had exposure too
there is a big chunk of obvious stuff that is affected and then it
asymptotically approaches zero. People seemed to start leaving at the 3dB [4]
point.

[1] "pushing" is the process whereby a new capability is delivered into the
production clusters that are customer facing.

[2] "technical debt" is the requirement that additional work is going to be
required later (the debt) to resolve issues that aren't show stoppers
initially.

[3] SRE see "The Roads must Roll" by Robert Heinlen.

[4] "3dB" is 3 decibels. In engineering or control systems the 3dB point is
where the signal has been reduced in strength by 1/2. Also known as the
'cutoff' point for a filter.

------
bryanlarsen
In many ways, I think that a worker's cooperative is a much better legal
structure for a software firm than a corporation.

I assume that Valve generously grants stock options to its employees, like
most other Silicon Valley firms. This, combined with its interesting
management structure, makes Valve a worker's cooperative in practice but not
by law.

I suspect that if Valve lived in a jurisdiction with legal protections for
worker's cooperative, that it would be one.

~~~
bryanlarsen
If I would have finished reading to the end before commenting, I would have
had my questions answered. Valve does not grant ownership to employees.
However, excess profits are distributed to employees for the most part, which
does make Valve a de facto worker's cooperative.

Yanis does discuss the standard arguments against a worker's coop:
malfeasance, access to capital, and scalability.

I grew up in an area (Saskatchewan), where for a long time the largest
"company" was a cooperative. Access to capital is probably the main reason why
Silicon Valley firms are not worker's cooperatives. But that can be solved by
granting worker's cooperatives the same legal privileges as corporations.
Instead of selling shares, they sell "bonds" which do not pay interest but
instead pay a fraction of profit. This is in practice no different than buying
insubordinated shares, like those sold by Facebook or Google. Such shares do
not give you a "proper" shareholder vote, voting shares are held by the
founders.

~~~
bryanlarsen
missed the edit window. It's "subordinated shares", not "insubordinated
shares".

------
jacques_chester
Valve is a single data point.

A single data point that has several massively profitable ventures feeding its
bottom line.

I'd be wary of drawing sweeping conclusions about political economy from a
single example.

~~~
BadassFractal
I think this is a key point. While the Steam cash cow is generating enormous
profits, they have a lot of freedom to experiment. They have an almost
complete monopoly of the digital game download world. It's to some extent
reminiscent of the freedom that Google had early on when they were absolutely
dominating search, and they weren't trying too hard to attack other fields.

It remains to be seen if that's the only reason why their current structure is
working, but that's at the very least a valid hypothesis.

~~~
jacques_chester
Just about any system works in times of great plenty. The real test of Valve's
model will be when things aren't so good.

------
alenox
Something about this article reminds me of a post-scarcity future star trek
paradise where everyone works on whatever gives them joy. At Valve, your basic
needs are taken care of (a paycheck, healthcare, etc), and you produce the
things you love to produce. If this works on the level of a firm, would it
work on the level of a whole society?

~~~
sageikosa
How about the Star Trek: TNG episode with the game that directly accessed the
pleasure centers of the brain, and everyone quickly became addicted to
throwing little virtual chips into little virtual holes...except for Wil
Wheaton!

~~~
alenox
I bet that episode is ripe with animated gif fodder. They always got that
weird self-satisfied look on their face when they were playing.

~~~
mikecarlucci
I hope someone creates a version of that game for Google Glass. Or a Glass
parody video acting out similar poses.

------
codexon
There is a serious flaw with this model. The flaw is that no one wants to fix
anything because fixing things is boring and usually results in lower peer
reviews than building a new feature or game.

Anyone who has daily exposure to Valve's infrastructure will notice the flaws.

\- Credit card breach
[http://www.theregister.co.uk/2011/11/13/steam_confirms_credi...](http://www.theregister.co.uk/2011/11/13/steam_confirms_credit_card_database_attacked/)
ending up in foolish security measures like encrypting your password with RSA
in javascript on top of SSL.

\- Power outage of a single datacenter leads to Steam going down.
[http://kotaku.com/5884430/power-outage-knocked-out-valve-
ste...](http://kotaku.com/5884430/power-outage-knocked-out-valve-steam-all-
services-being-restored-%5Bupdate%5D)

\- Weekly unplanned outages of Steam Community and the Valve master server.

\- Crashes and game breaking updates in nearly every TF2 patch.
[http://www.mail-
archive.com/hlds@list.valvesoftware.com/inde...](http://www.mail-
archive.com/hlds@list.valvesoftware.com/index.html)

This interview from Gabe shows that he knows there is a problem with this, but
he doesn't realize how bad it is:

Newell: A lot of times people will want to complain. The first time somebody
complains, you say, “Okay, fix it.” You just say, “I don’t know what you
expect to happen now, but you’ve just given yourself a job.”

Fries: Does that train them to complain less or to fix things more?

Newell: If you hired the right person, it trains them to fix stuff. If you
hired the wrong person, they’ll say, “Oh, this is mean.”

~~~
hammersend
"The flaw is that no one wants to fix anything because fixing things is
boring"

I've always thought this was the funniest thing as I relish digging into a
piece of open source software that I love to use and fixing little flaws. Just
this morning I wrote a patch for guake the drop down terminal that allows the
width to be resized on the fly as it was broken on Unity in Ubuntu 12.04. The
sense of accomplishment at taking a piece of broken software and making it
"right" is phenomenal for me. I guess different strokes for different folks.

~~~
codexon
When your job is on the line due to stack ranking your opinion may change.

~~~
technomancy
From what I've read Valve's use of stack ranking is for compensation bonuses
only, not about who to fire.

~~~
codexon
That's what they say, but what do you think really happens when you are
consistently rated lower than your peers?

~~~
Evbn
You get paid less than you deserve but still more than you would get in most
other less profitable firms? No one wants to fire the guy who takes out the
garbage every day, literally or metaphorically.

~~~
codexon
When times are tough the guy who does the most menial tasks gets fired first
and replaced with someone cheaper.

The thing about being the guy who fixes software, is that no one will hear
about it if you are doing a good job at it.

~~~
barrkel
I don't buy it. That's not what I've seen.

If you're fixing software, you're either fixing your own bugs or someone
else's bugs. There's bug tracking software; these metrics are visible. If
you're fixing your own code, you're also adding functionality (presumably you
wrote the code you're fixing). If you're helping to fix other people's code,
they will notice. People talk.

I've personally seen almost an entire team disbanded, the work outsourced. The
people kept? The guys who fixed things, who made sure it shipped at the end.

~~~
codexon
You can see bug fixes on a tracker sure. But how many lines of code is that
going to be compared to a new feature or game?

------
guelo
Awesome read. It's hard to find accessible well-reasoned anti-capitalist
literature outside of fringe radical contexts. Although, as he himself admits,
holding up Valve as the ideal model for post-capitalist society seems like a
bridge too far.

~~~
smsm42
It's also hard to find well-reasoned anti-mathematics literature or well-
reasoned anti-genetics literature or well-reasoned anti-vaccination literature
or well-reasoned anti-industry literature outside of the radical fringe. For
the same reasons, probably - there just aren't much of persuasive arguments
that weren't thoroughly disproved by both theory and practice.

Valve is an interesting experiment in self-organisation, but I don't see how
it's in any way anti-capitalist, unless one thinks capitalism is identical to
Goldman Sachs. It is not. Capitalism is about freedom to pursue every option
and to succeed and fail independently. It is completely wrong to assume
capitalism mandates some kind of specific company structure - on the contrary,
the whole point of it is to organize the economy and the society in a way that
you can try any organisation and structure (or no structure at all, if you
prefer) and let the evolutionary processes to lead the ones that are more
successful and adaptive to survive, while wasteful and ineffective perish
(yes, I know in reality it's not ideal at all, other factors often intervene
and screw up the picture, but that is the basic idea). If it turns out Valve
model is superior and brings immense success, people start to follow it and
there will be hundreds and thousands of companies built like that. If it turns
out it's not as great as it looks, Valve followers will fail and nobody would
do it anymore. In both cases, it is entirely what capitalism is about!

------
aero142
Does this flat structure apply to the entire company? Who cleans the floors,
does QA, decides when to release a product, does the accounting, waters the
plants, answers support calls? Can all of these people move their desks or is
it only the developers that are free to move within development to development
related tasks? If the accountant decided that they wanted to do art design,
would they do so and then likely be evaluated by their peers and possibly
fired(assuming that they are not a talented art designer in addition to being
good with the books)?

~~~
laserDinosaur
I suggest reading this previous blog post:
[http://blogs.valvesoftware.com/abrash/valve-how-i-got-
here-w...](http://blogs.valvesoftware.com/abrash/valve-how-i-got-here-what-
its-like-and-what-im-doing-2/)

------
wtvanhest
Valve is a "hit business" meaning that they need to produce hits to be
profitable. In the short run they have been successful, but over the long run,
they may run in to problems and if it does, this business model will look
foolish (rightly or wrongly).

The reason, I and others on HN don't like BigCo, is because we feel stifled,
but that doesn't mean that it isn't the most efficient business model.

~~~
angersock
Valve has moved quite far beyond "hit business". Consider how much commerce
happens on Steam, and what their cut of that action is. They're really more of
a distribution service with a sideline in game development to keep honest.

Also, re: BigCo--that also doesn't mean that it _is_ the most efficient
business model.

~~~
wtvanhest
Sorry, I was ignorent about their distribution service. I completely forgot
they did that.

Thanks for the correction.

~~~
angersock
No worries! :)

------
yochaigal
This article was absolutely fascinating, in particular because it compared
traditional worker co-ops with Valve's unusual horizontal-style organization.
I'm a former worker-owner at a tech startup (we were organized exactly as he
described traditional co-ops, basically we all owned the firm but were
hierarchical) and based on my experiences there I think the only way a truly
spontaneous structure such as Valve' could work is in the high-tech or
"professional" sector; I think the average person (especially those lacking
college education) has a very difficult time deciding how to best be
productive. I'm not saying they couldn't co-own a business - on the contrary,
I think it is the way many businesses should be run! But a strict managerial
structure is essential in organization differently-minded individuals (in my
experience).

------
stcredzero
Corporations reduce the transaction costs between many actors, allowing large
projects to be done with greater economic efficiency. This is also true for
Valve. For a company their size, my guess is that they've found a much better
way of collaborating efficiently than hierarchies.

~~~
ricardobeat
Reduce? The larger the corporation, the larger the overhead introduced, and
less efficient it becomes for intellectual work. Your thinking only applies to
manufacturing.

~~~
stcredzero
Well, note that the size of Think Tanks is a lot smaller than the auto
companies. However, there are still some things to be gained from the pool of
talent at Valve. Gearing up a new team doesn't involve hiring. There's no
paperwork. There's a lot of communicating (a good thing) and moving some
desks.

------
larrys
"Yanis Varoufakis is an academic economist, an author, and a prominent
contributor to the debates on the recent economic crises in Europe and the
United States. Born in Athens, 1961, he moved to England to read Mathematics
and Statistics and holds a PhD in Economics from the University of Essex. He
is currently Professor of Economic Theory at the University of Athens and
Visiting Professor at the Lyndon B. Johnson Graduate School of Public Affairs
at the University of Texas at Austin. His previous academic appointments
include the Universities of Essex, East Anglia, Cambridge, Sydney and Glasgow.
His books include:"

Let me boil this down a bit.

Heads in the clouds. So using Valve, with it's particular product (games) and
it's type of employee (young) we are going to construct an argument that ends
in:

"and it so happens that it constitutes the reason why I am personally excited
to be part of Valve: The current system of corporate governance is bunk.
Capitalist corporations are on the way to certain extinction. Replete with
hierarchies that are exceedingly wasteful of human talent and energies,
intertwined with toxic finance, co-dependent with political structures that
are losing democratic legitimacy fast, a form of post-capitalist,
decentralised corporation will, sooner or later, emerge."

One wonders if people who write things such as Yanis, well, if they've every
done anything outside the academic world and pure theory relying on what
appears to be on the surface well written arguments that would probably go
over the head of Sam Walton or Warren Buffett.

~~~
jacobquick
valve's people aren't very young, mostly they hire senior people. the
narbacular drop kids were an exception.

~~~
Schwolop
Indeed. I know several young developers and designers whom any games company
worth its salt would hire on the spot (and actually, they're all employed by
such) who have "come back and talk to us in two years time" memos from Valve.
They don't just want great people, they want great people who can self-direct.

------
Tycho
This reminds me of Iain M Bank's _Player of Games_ in which the hero finds a
winning strategy in an elaborate StarCraft style board game by decentralising
the production and strength of his ranks, so that his territory was a sprawl
of self sufficient mini-empires. I think Banks meant it as an allegory for
Islamic/Persian/Asian empires being eventually swept aside by Western
civilisation, but it seems relevant here.

However one factor I generally find missing in a lot of economic analyses is
that no matter how 'feudal' or 'hierarchical' an organisation may be, workers
choose whether to work there or not. The classic characteristic of soviet
states was that you couldn't leave even if you wanted to...

------
clarnet
Someone that is somehow renegade is Pierre-Joseph Proudhon. And it's quite
possible that his thought is way better fitted here.

Of course, he's another non-authority thinker but with a quite different
perspective and way to think the world, the society and men.

Take some of your time at gutenberg.org: \- What is Property? by P.-J.
Proudhon <http://www.gutenberg.org/ebooks/360> \- System of Economical
Contradictions; or, the Philosophy of Misery by P.-J. Proudhon
<http://www.gutenberg.org/ebooks/444>

------
ianbishop
Valve's organizational structure has always been of great interest to me from
an idealistic point of view. There have been a lot of articles written
recently that cover nearly all aspects of this interest-based economy for
developers, artists and so on. Other companies, such as Github, seem to have
adapted similar models.

Regardless of the article though, one detail always seems to slip past me. Who
answers the phones?

~~~
saraid216
The person who was called?

------
casca
If anyone is interested in hearing more from Ronald Coase (and you should be),
he was on the excellent Econtalk Podcast earlier in the year:
<http://www.econtalk.org/archives/_featuring/ronald_coase/>

The topic is "Coase on Externalities, the Firm, and the State of Economics",
well worth the time if this topic interests you.

------
onitica
I just did a quick skim of the article, and call me naive if you want, but in
the theory of spontaneous order why is Valve necessary? Obviously, the time
and labour of Valve's employees is worth more than what Valve is paying them,
otherwise Valve would not be turning a profit. I'm assuming that employees
really have 100% work time for their projects as you claim. Then in essence
Valve is providing facilities and connections (to other smart employees) in
return for the lion's share of the labour profit. Is that really worth it for
the employees? Once they have the connections wouldn't it benefit them more to
split off their own companies, in a co-op horizontally structured company?

Don't get me wrong, I think traditional corporate structures are often
abominations and I think Valve is a great company. It just seems to me that if
you take the spontaneous order philosophy to the extreme than corporations in
general just become unnecessary overhead.

~~~
meric
Economic profit is a function of land, labor and capital. Taking out profit
from labor still leaves the other two; You still need shareholders to finance
the initial purchase of land and capital, and the shareholders still demands
compensation for risk.

The corporation becomes unnecessary overhead if the company is owned by the
employees, but then you have issues of what happens to the equity when an
employee retires, and thus having an employee become a shareholder.

I think the word I'm looking for is a collective, and looking into the past,
despite Valve I still don't think it works. The very idea has caused the
deaths of millions of people implementing it.

I think Valve is a great idea; the idea being, the employees of the company
get to decide everything in the company besides a few hard rules. Example:

Rule 1: shareholders get 50% of the profit.

Employees can decide how much is spent on profit-sharing schemes and salary
versus how much to save for the company, to invest in new equipment, whilst
following the rule. Employees dictate all aspects of business strategy.

Failure to abide the rule simply ends in the shareholders dissolving the
corporation.

Ideologically it doesn't differ much from corporations you see today. The CEO,
an employee, typically has free rein over the company until he does something
really stupid, in which case he gets fired by the board. This "new idea" is
simply making a hierarchical organisation a horizontal one, i.e. all employees
are now co-CEO's. You still have leaders but they are distinguished neither by
status or wealth.

~~~
meric
It's a long comment so I'm breaking to a second reply.

A horizontal company to a hierarchical one is akin to a group of amoeba
compared to an animal.

As a group of amoeba grow, it simply splits into multiple groups. An animal
will grow very big, much bigger than any single group of amoeba, but it is
vulnerable. Stab it and it dies; once the central nervous system is dead, all
other cells will die off eventually. You can't stab a group of amoeba. To kill
amoeba you have to kill every single individual one.

Large companies today are much more likely to make mergers and acquisitions
than to make divestments. Divestments are only made when a group within the
company appears to be unlike any other. I think horizontal companies are more
likely than large companies to make divestments. The only other horizontal
company I know of, Semco, is an example that is evidence supporting this; it
is a company controlled only by employees. At times it has split off its
services as separate companies, with the separated companies remaining
horizontal, and most of them are very profitable.

[http://en.wikipedia.org/wiki/Ricardo_Semler#Semco_1990.E2.80...](http://en.wikipedia.org/wiki/Ricardo_Semler#Semco_1990.E2.80.932004)

~~~
maxerickson
W. L. Gore is a fairly well known example of a more horizontally structured
company.

Some conglomerates, like Berkshire Hathaway, also eschew structure, at least
to some extent.

------
guscost
Valve sounds like it might be the only other company I'd ever want to work
for.

------
aytekin
There are some activities that always needs to be taken care of in time. Such
as customer support. I wonder how do they do those tasks. If there are no
excepted level of work, some tasks might go undone.

~~~
saraid216
This is the mild version of the "If there wasn't a God and a Bible and a Hell,
we'd all kill and steal from each other all the time" argument.

1) People do exist who _like_ to do customer work and _want_ to do customer
work. If they're sought out and given internal support--and it's not really
that hard to convince decent engineers to provide that on their own initiative
--they will handle it fine. Same goes for things like office management.

2) If some tasks go undone, it's because no one was interested in producing a
finished, polished version of the product into which those tasks contribute.
If no one is interested, then the product is far less likely to be worth
producing.

~~~
aytekin
I am one of those people. I like helping our customers. But, liking something
and working on something when you feel like it is very different than having a
consistent support response time of 15 minutes.

~~~
saraid216
Does Valve make a promise of having a consistent support response time of 15
minutes?

~~~
aytekin
That's just an example of a task which would be difficult to implement without
any management.

~~~
saraid216
1) Sounds like a challenge.

2) Then maybe that's a good reason not to do it.

------
AndrewDucker
Fascinating stuff! I am very curious as to whether Valve is scalable to either
very large companies, or companies composed of mere mortals.

------
InternetPerson
Does anyone else hear the sabers?

There seems to be a lot of noise about Valve these days. Some examples: the
"Windows 8 is going to be a catastrophe" thing; the "we're hiring super elite
Linux developers" thing; the "our engine is faster on Linux?!" thing; and now
this navel-gazing self-congratulatory gobbledygook.

Sudden Clarity Clarence asks, "Is Windows 8 going to have an app store? Could
that be a threat to Steam? Is all this noise just saber-rattling?"

~~~
engtech
Valve's statements about Windows 8 usability were mirrored by Blizzard.

The source engine is faster under OpenGL _on Windows as well_ , not just
Linux. So It's an OpenGL vs Direct3D debate, not Windows vs Linux.

"Is all this noise just saber-rattling?"

All this noise is branding/promotion of the Valve brand, and would likely be
going on even without Windows 8.

But I agree that Windows 8 will likely try to copy Apple's iTunes success and
that Valve needs diversify.

I'm hoping they do a console running Linux at some point.

~~~
InternetPerson
Thanks for not calling my comment "crap".

"Valve's statements about Windows 8 usability were mirrored by Blizzard."

Might Blizzard not feel similarly threatened by Windows 8?

"So It's an OpenGL vs Direct3D debate"

I slightly misspoke, but the example still holds: an attack on Direct3D is an
attack on Microsoft. (Do I need to back that up? Could anyone conceivably
disagree?)

"All this noise is branding/promotion of the Valve brand, and would likely be
going on even without Windows 8."

Good point, and I agree. But what would it be like if Windows wasn't pushing
an app store? Would they still be calling their main platform a "catastrophe"?
(Maybe, maybe not.)

So I guess I should have asked, "How much does Valve fear a Windows app
store?" And also, "Doesn't it kinda seem like Valve is attacking Microsoft?"

Sometimes it seems like "Hooray for Valve/Steam/Gabe" are three of the
internet's favorite topics. I get the impression that the Venn diagram of
people who love memes and people who love Valve probably looks like a circle.

How does Valve manage to get so much love from the internet? Sometimes I think
they must have a small team dedicated to feeding social news sites. For
example, "Hey look guys, a new Team Fortress comic!" Or, "Here's some fancy
talk about how enlightened we are! P.S.: Give us your money."

Aren't there better-loved companies that receive much less internet-love?

According to the internet, Valve is not just a company, it's a hero. And Valve
clearly feeds this idea. For example, this very article. Valve doesn't just
want your money, it wants your love.

Is this dangerous? Is this effective? How much does internet-love translate to
real dollars?

------
sopooneo
Whales are big and fleas are small. The optimum size of an organi(sm|zaton)
depends on environment and niche.

------
inopinatus
tl;dr synopsis of this management style:

* Hire great people,

* Give them goals and the resources they need, and

* Get the hell out of their way.

------
michaelochurch
I really, really hope Valve succeeds and gets this vision through. It sounds
like a great company.

His insight about corporations being Soviet in nature is spot-on. Corporatism
is neither capitalism nor socialism, but a hybrid system to give a well-
connected elite (~0.5%) the best of both systems and the other 99.5% the worst
of both worlds. Look at air travel; that's about as Soviet an experience as
one gets, but the pricing is aggressively and mean-spiritedly capitalistic. Or
consider suburbia as a microcosm. The rich live in places like the Hamptons
and have both rural and urban amenities, while the poor live in depressed,
polluted exurbs that combine the worst of city and country life.

What Valve sounds like to me is a post-scarcity capitalistic model where
there's still inequality of results (as, IMO, there should be) but there isn't
pain or poverty.

In our current world where there is a lot of scarcity (even though it's
outmoded and artificial in the US) people work a certain way, and give up too
much power, because the alternative is risk of economic misery. In a post-
scarcity world with more of a safety net, people probably would "wheel their
desks" to other projects, companies, and opportunities (or split their time
among more than one, rather than lingering in this undiversified full-time
thing) more freely. That's what we're starting to see in technology, as the
demand for programmers increases and the stigma against changing jobs
frequently (assuming there's upward progress and learning) goes away.

------
jebblue
Valve's move to Linux was inspiring. He referenced Marx, I'm now starting to
wonder about their wisdom in general. Why can't they just make a great game
platform and stay out of politics.

~~~
angersock
You're an idiot if you take a completely reasonable assessment of various
economic theories as "politics". This article is an exploration of where
Valve's corporate structure and soul fit into the spectrum of ways to interact
in a market.

Don't let the names of leading thinkers in a field scare you off because of
some bullshit brainwashing.

