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Valve Software—the company behind the Half-Life, Counter-Strike, and Portal video game series—released its employee handbook to the public because, according to Valve co-founder Gabe Newell, somebody asked. “I’d mentioned the handbook on a podcast and one of the listeners contacted us and said, ‘Hey, can I get a copy?’ So [designer] Greg Coomer sent him a copy and all of a sudden, it got posted online,” he says. The handbook attracted a lot of attention because, in addition to offering company massage rooms and free food, Valve has a unique corporate structure rarely seen at such a large company: Valve has 300 employees but no managers or bosses at all. Newell talked to Bloomberg Businessweek about his company’s environment and how it works.
Why did you create a workplace with no managers?
I was at Microsoft (MSFT) for 13 years and one of the things I did was go out and talk to customers. I ended up being exposed to a bunch of different organizations that had very different process models. As a result, I ended up thinking about organizational choices more than I probably would otherwise. It became pretty obvious that different types of organizations were good at different kinds of things.
“What was so shocking to me was that Windows was the second highest usage application in the U.S. The number one application was Doom,” Newell explained. To him, this was a revelation. “It was a 12-person company in the suburbs of Texas that didn’t even distribute through retail, it distributed through bulletin boards and other pre-Internet mechanisms … Microsoft was hiring 500-people sales teams and this entire company was 12 people, yet it [id Software] had created the most widely distributed software in the world.”
When we started Valve [in 1996], we thought about what the company needed to be good at. We realized that here, our job was to create things that hadn’t existed before. Managers are good at institutionalizing procedures, but in our line of work that’s not always good. Sometimes the skills in one generation of product are irrelevant to the skills in another generation. Our industry is in such technological, design, and artistic flux that we need somebody who can recognize that. It’s pretty rare for someone to be in a lead role on two consecutive projects.
Why is that?
The terminology we use internally is “individual” and “group” contribution skills. A group contributor’s job is to help other people be more productive, and in doing that you sacrifice some of your own productivity. It’s a higher-stress job and you get interrupted a lot more. People will do that for one project. They’ll say, “I really want to do this game,” and everyone will say, “Ha, ha, ha, you’re stuck with it now.” At the end of the project they’re like, “Gee, that was really interesting, but I want to go back and work individually on the next thing.” Some of the highest-compensated people at the company are relatively pure individual contributors.
Was there a specific company that inspired Valve’s model?
At Microsoft, we had very little visibility into the actions of our customers. You know how a lot of computers came with Microsoft Office pre-installed? There was concern among people who were working on Microsoft Office that people would buy computers and reformat their hard drives and install MS-DOS instead of Windows. So we said, “Well, let’s go look at what our customers have on their PCs.” We weren’t going to just ask them. It was a really expensive thing to do. The good news that came out of that was that I think at the time, 20 million people in the U.S. were using Windows.
But what was so shocking to me was that Windows was the second-highest-usage application in the U.S. The No. 1 application was Doom, a shareware program that hadn’t been created by any of the powerhouse software companies. It was a 12-person company in the suburbs of Texas that didn’t even distribute through retail; it distributed through bulletin boards and other pre-Internet mechanisms. To me, that was a lightning bolt. Microsoft was hiring 500-people sales teams and this entire company was 12 people, yet it had created the most widely distributed software in the world. There was a sea change coming.
Today at Valve, we don’t have that traditional marketing or sales organization. Each developer’s responsible for thinking about how to measure and optimize customer satisfaction.
And this is actually more efficient?
Well, you need the right people. Instead of looking for the cheapest people to do a job, we sort of joke that we look for the most expensive. Take someone like Jeremy Bennett, who was working in the film industry on the Lord of the Rings trilogy and King Kong—he was something like the fourth person on the credits to King Kong—and who’s insanely good at what he does. If we put him at Valve, we’ve taken away studio overhead, he doesn’t have to go to meetings anymore, there’s no PR agency to sit between him and our customers. We’ll be more efficient at taking advantage of his skills.
As a result, when Newell started Valve in 1996, he and his co-founder Mike Harrington focused on hiring the best possible employees rather than providing a ton of oversight for average employees. Newell believes this strategy allows Valve to successfully operate without the same strict structure of other studios. This formula usually works … except for one time when it totally didn’t.
“On Half-Life 2, one of the engineers made a bunch of really bad decisions,” Newell explained. “There was no monitoring system along the way so it took us about six months longer than it should have for us to catch it. It cost everyone on the team a whole bunch of extra work.” Perhaps two or three engineers made even more really bad decisions after that, explaining why Half-Life 2: Episode 3 seemingly disappeared into the ether? Probably not, but we like to bring up Episode 3 as often as we can.