Interviews

Valve Software: How a company became more profitable per head than Apple or Google

5 min read

09 October 2015

Learning to create leaders in your company is an incredibly valuable skill. Billion-dollar software company Valve has managed to do this better than most. Here's how.

We’re all familiar with leadership workshops and seminars, aimed at teaching leadership skills to employees and managers alike. This can boost the impact of individual employees within a company, giving them the means and motivation to lead those around them. 

However, most companies have traditional organisational structures that may not be the most conducive for staff to be leaders. 

Individuals with good leadership skills can often be wasted in environments that do not have a culture that inspires people to flourish as independent thinkers and doers. By rethinking some of our assumptions about formal leadership structures, we can develop organisations where every member of staff truly contributes and innovates.

A good case study is that of Valve. Valve is a software company most famous for the Half Life series, and more significantly, the Steam digital video game marketplace. They are widely regarded as one of the most innovative software developers around, popularising the digital marketplace concept years before Apple developed the App Store. So what makes the company so special?

300 employees but no managers

Take a look at Valve’s employee handbook. To summarise briefly, Valve utilises a more-or-less flat organisational structure. 

There are three hundred employees, but no managers. Employees are free to lead their own projects, hire people, and are given the means to join whichever projects they think are worthy of their time (their desks have wheels). You’d think this would result in chaos, but Valve brings in revenues of billions – making them more profitable per head than Google and Apple

What can this radical model teach us about creating an environment that generates leaders? 

Well, firstly, there’s an important lesson about hiring and recruitment. Gabe Newell, co-founder of Valve, says that instead of “looking for the cheapest people to do a job, we look for the most expensive”. 

The success of Valve’s model relies heavily upon recruiting experts in the field, and giving them the maximum freedom possible to do what they think is best. Instead of hiring experts and sticking them in one corner to do one set of tasks very well, you can hire them to lead and innovate within your company as if they were entrepreneurs in their own business. Breaking down creative and organisational restrictions can therefore allow you to take full advantage of someone’s skills.

Secondly, it encourages us to rethink our idea of management. As mentioned, Valve do not have a formal management structure. Instead, they classify employees in terms of their contribution skills. 

If someone is really creatively invested in a project, they will tend to utilise group contribution skills – i.e. helping other people to be more productive. However, they have the freedom to then go back to working on a different project on an individual basis. Newell argues that “Each developer is responsible for thinking about how to measure and optimise customer satisfaction.”

Keep structures in place

Of course, this doesn’t mean we have to abolish all management structures. As Newell admits, Valve’s model is very specific to the type of company they want to be: a highly creative enterprise that develops entirely new things. However, it encourages us to reconsider the fluidity of these structures. 

As one Valve employee puts it: “The fact that we’re not managed by people and we’re not managing people and you’re able to formulate your own ideas and work with whoever it is to come up with a project or feature – that’s empowering. … It’s a community of respect and the best idea wins no matter who it comes from, whether they’ve been at Valve for a year or founded it.”

By utilising a more informal structure, you encourage – in fact, force – people within a company to devise creative solutions and truly innovate. If it’s a good enough idea, then other people will naturally get onboard. 

What this teaches us, then, is that an environment that encourages good leadership can be much more powerful than merely hiring good individual leaders. All it takes is transparency, the best of the best, and dialogue.

David Falzani is president of Sainsbury Management Fellows.