even the smallest details and then refining along the way, has been the underpinning of Peloton’s success. They hacked their way into a crowded and highly competitive market, and at this rate, will continue to hack their company to ever-expanding success.
COMPETENCE IS THE ONLY CREDENTIAL THAT MATTERS
With heavy metal music blaring in the background, Gordon Freeman barely made away with his life. The violence of the authoritarian police state became unbearable, requiring Gordon to use every available technology to protect himself and ensure survival. The problems all date back to the accident at the Black Mesa Research Facility that Gordon led, where an experiment on an alien crystal sample went horribly wrong.
The Video Game: Half-Life 2
Game Developer: Valve, LLC
Estimated Game Revenue: Over $700 million
The adventures of Gordon Freeman have been the fancy of gamers since the original Half-Life shipped in 1998. The 2004 sequel described above won 39 “Game of the Year” awards and was named “Game of the Decade” at the 2012 Spike Video Game Awards. It is considered to be one of the greatest video games of all time.
Valve, LLC, the company behind Half-Life, Counter-Strike, and Day of Defeat is valued at over $2.5 billion. In addition to producing their own games, the company developed Steam – an online gaming distribution platform (think iTunes for video games). The company has zero debt, no outside investors, and has higher per-employee profit than Google, Microsoft, and Apple. Valve was able to build one of the most successful gaming studios of all time by embracing the principles of hacking.
We can easily conjure up images of the prototypical progressive company: people with funky titles, a foosball table in the break room, and a juice bar lurking somewhere. But Valve takes progressive to a whole new level. The company is the living embodiment of core hacking principle #5 – Competence Is the Only Credential That Matters.
Gabe Newell is technically the CEO, but he has no direct reports. In fact, no one works for anyone at Valve. There are no bosses, managers, or leaders. There are also no titles – everyone’s job is simply to contribute as much value as possible. Much of their non-traditional, hacker philosophy becomes clear when reading their crowdsourced employee handbook, “A fearless adventure into knowing what to do when no one’s telling you what to do.”
Gabe founded Valve in the Seattle area in 1996, setting out to make great games and an even greater team environment. Coming from Microsoft’s rigid policies and complex hierarchies, Gabe was determined to use a radically different approach. He wanted to create a culture that fostered greatness, creativity, and impact by removing any and all structures that could hamper innovation.
“When you’re an entertainment company that’s spent the last decade going out of its way to recruit the most intelligent, innovative, talented people on Earth, telling them to sit at a desk and do what they’re told obliterates 99 percent of their value,” Gabe declares. So Gabe created “Flatland,” a completely flat organizational structure where nobody reports to anybody else (including Gabe, whose decisions are subject to the same scrutiny as everyone else’s).
At work, team members pick their own projects to work on without a single directive. They choose to spend their completely unstructured time in whatever way they believe will create the most value. All teams and projects are temporary, as are all desks. Each workstation is on wheels, allowing teams to be formed, grown, or disbanded with ease.
Valve is a company without rules. There are no schedules, orders, or pre-set processes. If you want advice, ask a colleague. If you need help, lean over and ask your peers. People at Valve are very vocal, since they have a strong sense of ownership, but no one has to listen to anyone else. Decision making is completely decentralized, with the core belief that the wisdom of all is better than the judgment of one. As a result, the best ideas carry the day rather than the person with the fanciest title or loudest voice.
At times, a temporary team leader will emerge to help keep a project organized. But instead of ordering people around, the leader’s key role is to serve others. Everything is fluid at Valve, even pay. Without leaders, you may wonder how performance reviews and pay increases are accomplished. The answer? They rely on the hacker principle that Competence Is the Only Credential That Matters. Performance reviews are conducted 100% by peers, providing practical guidance for improvement. Pay is based on stack ranking, in which four criteria determine which “stack” an employee falls into. Your pay is adjusted annually based on how peers rank you on: a) skill level/technical ability, b) productivity/output, c) group contribution, and d) product contribution. Neither tenure, nor title, nor age, nor education, nor looks, nor gender play any role in determining compensation. Your earning is solely driven by your contribution. Valve pays in the upper-range of competitors, but instead of rewarding internal political factors – like how much someone kisses up to the boss – the company exclusively rewards merit.
Traditional managers who read this may be horrified and quickly dismiss the lack of structure as far too risky. What if someone messes it all up? Gabe responds:
So if every employee is autonomously making his or her own decisions, how is that not chaos? How does Valve make sure that the company is heading in the right direction? When everyone is sharing the steering wheel, it seems natural to fear that one of us is going to veer Valve’s car off the road. Over time, we have learned that our collective ability to meet challenges, take advantage of opportunity, and respond to threats is far greater when the responsibility for doing so is distributed as widely as possible. Namely, to every individual at the company.
Valve isn’t a disorganized mess, nor it is a fantasyland utopia. Productivity is sky-high compared to others in the sector, and they are growing at a dizzying pace, with record profits. They apply rigor to each decision, but instead of the “boss is always right” decision strategy, Valve uses data. They remove personal biases by debating the merits and brutal facts of each decision. Since no single person has authority to override another, the ideas and decisions with the most merit are the ones that triumph.
The system itself leads to better output by not relying on a limited number of leaders to make the tough calls. Without the layers of managerial control, you may assume they get less done. Yet Valve is worth 37% more per employee than Exxon Mobil and 78% more per employee than Amazon, two companies with highly regarded traditional structures. While counterintuitive, the hacking approach of distributed authority allows organizations to do more with less.
You may have never heard of Gabe Newell before, and may be surprised by his estimated $2.2 billion net worth. And that’s just the way he likes it. His biggest accomplishment isn’t hogging the spotlight and taking credit while barking orders. He’s used a non-traditional, hacker approach to building the best culture in order to maximize impact and value. The success isn’t about him; it’s about a shared experience of creativity and innovation. And everyone benefits.
Valve represents the future of corporate culture, with meritocratic decision-making and advancement. It also demonstrates mindset #5 – Competence Is the Only Credential That Matters – with precision. From cybercriminals to biohackers, from software startups to multinational companies that choose to embrace the unorthodox, hackers of all types have a total disregard for authority. They believe respect and power must be earned, not issued. And that a person may have the best idea one day while having the worst idea the next. Merit is the only arbiter.
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