A Billion-Dollar Company Without Bosses

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Good morning! It's Thursday, August 31st- Today we are examining Valve, a company that owns a 75% share of the global video game market and somehow functions without any management hierarchy. Let’s figure out how they pull it off!

THE FEATURE

A Billion-Dollar Company Without Bosses

Gabe Newell is the founder of Valve, a video game studio that also owns the video game marketplace Steam.

A recent Bloomberg forecast estimated the videogame entrepreneur’s net worth to be $7.91B due to his 50.1% stake in Valve. However, considering the private company generated $13B in total revenue last year, that valuation may be quite an understatement.

While those revenue numbers are impressive, it’s more impressive that Valve pulls it off using a flat corporate structure with no job titles or management teams.

So, Who is Gabe Newell and What is Valve?

Gabe Newell went to Harvard but dropped out in 1983 to work at Microsoft where he produced the first three versions of the Windows Operating Systems.

After 13 years, he cashed out his Microsoft stock options to build his video game studio Valve with a mission to “create things that hadn’t existed before.” To circumvent the video game industry, Newell created Steam as a digital distribution service for the games he developed.

Newell quickly realized that there was a hunger in the gaming community for a digital marketplace that allowed any developer to publish video games. So, he opened Steam up to small and large creators alike, quickly making it the largest video game distributor with a 75% share of the global video game market.

Valve’s $13B in annual revenue comes from three sources:

• Videogames: Valve’s initial games were industry sensations with titles like Half-Life, Portal, Counter-Strike, and Team Fortress 2. These games are still regularly played; Counter-Strike has 600K+ monthly players and generated over $100M in microtransactions in March of 2023 alone.

• Steam Marketplace: Steam is in the business of selling space in its digital store for its 50,000 available games and their developers. The current revenue split for Steam game purchases is 70/30, with 70% going to developers and 30% going to Valve.

• Products: Steam has released a variety of gaming products such as VR headsets and game controllers. The most successful product they have is the Steam Deck, a $500 mobile gaming device set to sell 3M units this year.

While Valve has certainly created video game masterpieces, Steam lies at the center of the company’s revenue. $10B out of the $13B in revenue the company generated last year came from video game purchases on the Steam store.

The Innovation: A Company with No Bosses?

To say that Valve has no bosses is a bit of an exaggeration, but not much of one. The company currently has 1,149 employees and Newell alone holds the power to hire or fire anyone he wants.

While this may sound like a recipe for authoritarianism, most of Valve’s employees agree with the sentiment that “Gabe Newell– Of all the people at this company who aren’t your boss, Gabe is the MOST not your boss.” That’s because Newell has one requirement for new hires: “Pursue what interests you and bring value to Valve.”

As such, the company has no official job titles or hierarchy. Instead, it has a democratized structure in which each employee can initiate projects and recruit peers to join them. The only rule that governs these employees is that at least three people must agree to work on a project before it's taken forward.

Newell used a flat organizational structure for Valve because he believed that any level of bureaucracy would quell entrepreneurial spirit and creativity among team members– much like what he saw happen during his time at Microsoft.

How Can a Flat Organization Function?

Valve is able to pull off its unique business model through an intense employee screening process paired with a clear incentive model.

Valve employees are generously rewarded for their contributions, and as such, will only participate in what they believe to be successful projects. Additionally, Valve has a peer-reviewed performance system in which top performers receive big payouts and raises.

With these systems in place, Valve can trust each of its employees to do what is right as they have a personal stake in the work they produce.