Yanis Varoufakis: “Valve is an Enlightened Oligarchy”

Written by Sean Murphy. Posted in 4 Finding your Niche, skmurphy

Yanis Varoufakis is an economist-in-residence at Valve Software. In “Why Valve? Or, what do we need corporations for and how does Valve’s management structure fit into today’s corporate world?” makes this interesting observation.

Valve is a private company owned mostly by few individuals. In that sense, it is an enlightened oligarchy: an oligarchy in that it is owned by a few and enlightened in that those few are not using their property rights to boss people around. The question arises: what happens to the alternative spontaneous order within Valve if some or all of the owners decide to sell up? Granted that Valve’s owners do not intend to do this, the question remains, at least at the theoretical level.

One possibility is that Valve will divide and multiply into a number of different Valve-like companies, as its talented employees leave for greener pastures and, possibly, with the intend of re-creating the horizontal management structure that they grew happily familiar with. Another possibility is that the owners may actually sell their stake to Valve employees, thus combining the features of a co-op with the Valve management system.

I found this a useful postscript to my earlier post on Valve “Four Excerpts From Valve’s Employee Handbook That Belong in Yours.” There is also a comment by “Aaron on August 3, 2012 at 7:32 am” that suggests a narrower applicability for Valve’s model to other creative firms.

You seem to miss a key point about Valve, your products have essentially zero unit cost. The flip side of this is the products are only really useful with huge amounts of combined effort. I’ll pay for 20 minutes of on excellent chef’s time, that has far more value to me than 20 minutes of a valve engineers time. This differences is what separates Valve, Github, and 37 Signals from more traditional companies, however this minor point never seems to be brought up in discussions about them.

But I still find the Valve handbook a very thought provoking model for harnessing the creative energy of a team, in the same way that Hewlett and Packard developed a set of cultural practices that fostered innovation and were copied by  many other firms in Silicon Valley.

I didn’t find much of the rest of Varoufakis’ particularly useful, and George Grellas took particular exception to a number of his statements in a long comment left on Hacker News.

Here are two excerpts that agree with Varoufakis’ conclusions that it is an enlightened oligarchy but disagree that it can scale to other industries (echoing Aaron’s insightful comment)  or  even to a substantially larger size.

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.

[…]

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.

I agree with George’s analysis but I think that Valve still offers an interesting model for startups and small teams doing software or creating intellectual property to learn from.

Update Aug-12: Doug Withau left a comment suggesting some other resources for enlightened management:

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