John Geraci

Seattle-based game company Valve was the topic of much discussion on BoingBoing yesterday.  The 16-year old company has no corporate hierarchy whatsoever, and yet - according to its employee manual - their profitability per employee is "higher than that of Google or Amazon or Microsoft".  The company's team page proclaims at the top "We've been boss-free since 1996", and then proceeds to list every single employee (a bit over 100) in alphabetical order.  About the founder, Gabe Newell, the manual says, "Of all the people at this company who aren't your boss, Gabe is the MOST not your boss, if you get what we're saying."

How does this madness work?  Leaving alone the claim of incredible profitability, how do they manage to get anything done at all?  Is this not a recipe for corporate disaster? 

Maybe.  But what the employee manual [PDF] describes is actually an incredibly well-designed corporate machine for maximizing productivity, allowing good ideas to flourish, and minimizing corporate waste.   Valve's basic approach to "managing without managers" is:

• hire only incredibly self-motivated people
• give them full autonomy to decide what project to work on
• teach them to spot valuable projects, and to understand what value they can add to those projects
• allow team structure to happen organically - teams self-select, leaders are chosen by their peers
• encourage people to acknowledge and learn from mistakes quickly to move forward
• make everyone responsible together for the success or failure of projects

and finally (and most critically):

• determine the value and compensation of each employee by peer review

When you organize an company like that, several things happen:

- You leave no room for unproductive people to hide.  Nobody can pass the buck on to the next person, as that person is going to be determining their salary at the next review.  Everyone maximizes their own productivity.

- You allow the best ideas in the organization to bubble to the top.  When people are free to suggest ideas and other people are free to join them (or not to join them) in executing those ideas, people rally around the more promising ideas while leaving the unpromising ones to die a quiet death. 

- You allow the natural leaders to lead.  For any project there are team members who will be the natural leaders.  In a more structured environment, those natural leaders are often not the ones appointed to lead the project.  When team structure happens organically, leaders emerge organically as well.

- You reward people for finding the position in the company where they can make the biggest difference.  If everyone is free to go and do what they want, and everyone's salary is determined by peer review, everyone naturally seeks the place where they can make the biggest difference to their teammates, to maximize their income.  The net effect is a system where employees want to make the biggest difference they can, always.

The results of this sort of structure can apparently be impressive - as Valve shows us.

So the big question of course is: does this only work for companies that make video games, or can it work for everyone? 

Well there are two things here to note: 

1.  Valve is unlike many other companies in a couple of ways.  Most notably, it is entirely self-owned with no outside investment, and it owns all of its own IP.

2. Valve didn't design and impose this structure on itself from the top - it evolved organically toward it from the beginning (see a good blog post about this here).

So the short, easy answer to the above question may be no, this only works for Valve.  But the bigger answer is that all companies should be exploring how they can introduce these kinds of ideas into their own corporate structure in ways that makes sense to them.  The more you create the right incentives and opportunities for employees to add value as best they can, and the more you create openings for the best ideas to bubble up naturally, the better, leaner, and more competitive your company will become.  And the happier your employees will likely be, too. 

Last week Business Insider ran an article about companies that JP Morgan thinks could be "the next Apple".  It's worth a read if you are looking for companies to invest your money in (Apple's 10-year return has been about 5000%, the article references companies poised to do the same).

But let's face it, companies like Disney, Comcast and Qualcomm are not the next Apple  - they're just big companies with stocks that will likely go up over time. Apple has of course done much more than provide good returns on stockholders' investments - it has provided good returns because it changed the way people interact with their world.  Multiple times. 

So then who is The Real Next Apple?  When we look back twenty years from now, who will we point to and say "that company changed everything"?  

Here are a few contenders:

MakerBot.   When Jobs and Wozniak started Apple, computing was in its infancy.  They saw the power of computing and wanted to make it cheap enough that people could do it in their own homes.  Makerbot is doing the same thing for 3D printing - taking a hugely disruptive, transformative technology that is currently only available to big companies and making it available for anybody with 500 bucks in his or her pocket.  Where will this go?  Nobody knows, but as the capabilities of 3D printing expand over the next decade, and Makerbot continues to refine its product, it's possible that they could become one of those rare companies that is in everybody's home, everywhere.

Square.  Aside from the fact that Jack Dorsey seems to resemble Steve Jobs more with every passing day, Square is a real contender for The Real Next Apple. As Apple did with computing, Square has extended the places in which credit card transactions can occur to include pretty much anywhere on earth.  And they're moving into specific verticals too, as with their recent pilot project to put Square in the back of NYC Taxis.  When Square was first looking for money, a VC who had heard their pitch said to me "They wont be the next big thing".  How wrong he was.

Simple.  Banks have been due for a shakeup since... well, pretty much forever.  Their collective policy of "fees no matter what you do" makes them ripe for disruption.  Enter Simple - a service that "replaces your bank", eliminating unnecessary fees, allowing you to do as much as possible on your smart phone, and giving you access to ATMs to get the cash you need when you need it.  It's the sort of huge-yet-simple idea that Jobs himself might have thought up. Simple is still in private beta, but their vision is big and the need is there - if they play things right, they could be the kind of company that changes the way we operate.

FitBit.  The ecosystem of everything related to computers was barely a twinkle in Steve Jobs' eye when Apple began.  And then that ecosystem grew.  And grew.  And grew.  Same thing for FitBit - when they started, the quantified self was hardly a footnote in tech.  Now it's quickly becoming something that many people can't get through their day without.  And the healthcare industry is now eyeing it as an efficient solution to many challenges it currently faces.  The intersection of people's lives and data will only grow over the next decade - FitBit could ride that wave to touch our lives in ways we presently don't even imagine.

The real next Apple, whoever it turns out to be, may eventually return 5000% over ten years - not because they are giant companies positioned to grow into even more-giant companies, but because, like Apple, they've changed the world around them profoundly. 

Jim Marshall, the man who created the Marshall amp, died yesterday at 88.  Everyone who likes music knows that the Marshall Stack influenced generations of rock and punk musicians from the Who to the Ramones and beyond. What nobody realizes is that Marshall did this by being disruptive. 

According to The Guardian,

"Marshall was a drummer and drum teacher who used his earnings to set up a music shop in west London in 1960. Among his customers were the likes of Ritchie Blackmore and Pete Townshend, and it was through talking to them that Marshall realised there was a gap in the market for a guitar amplifier cheaper than the American-made models popular at the time. When, at Townshend's request, a Marshall 1959 amplifier head was teamed with a cabinet, the "Marshall stack" was born, becoming the defining feature in rock bands' backlines for generations to come."

That sounds an awful lot like a garage hacker inventing the next new social app phenomenon to me - 50 years before garage hackers and social apps.

And the way he found success was by offering a cheaper alternative in a market that was full of expensive options. 

We don't tend to think of older ideas like this as being "disruptive" because nobody thought in those terms in those days.  But the truth of the matter is that being a guy (or girl) in a garage building something that is cheaper than the competition has always been the way to change the world - and it always will be.

Do you own retail storefronts, big or small?  Do you look at the web and wonder if it's going to eat your company alive in one year, five years, ten years?    Well here are two simple questions you can ask yourself to determine whether your storefront is safe against the onslaught of web disruption:

1) Is your storefront significantly more convenient to customers than the web?

2) Do you sell a good/service that can't be sold via the web?

If you answered yes to either or both of these things, you're safe from web disruption.  For now.

If not (and most storefronts would answer no to both of these questions), you are directly in the path of the web's disruption of retail.  

Here are some examples of stores that are safe and stores that are not safe:

My corner store sells butter, orange juice and toilet paper, three things everyone in my neighborhood needs and runs out of constantly.  When we run out of these things, we need them NOW - we can't wait for the online service to show up with its truck and deliver.  It is safe from web disruption for now.

The cafe down the street sells coffee, which I need several times a day.  I can't get it on the web.  (Not yet at least - next year, who knows?)  What's more, it is nearby and I enjoy walking to get it.  It is safe from web disruption for now.

The shoe store on Broadway?  It sells shoes that I can get on the web more easily than by walking to the store.  Its selection is smaller.  And try as I might, I can't even remember the name of the store!  I CAN remember the brand of shoe I want - which I can easily look up on the web.  It is not safe from web disruption.  

The big electronics store on Union Square?  I go into it and decide what electronics I want, then buy them for less online. It is not safe from web disruption.

So then what do you do if you're sitting directly in the path of web disruption, like Dorothy's house in the Wizard of Oz?  

Well, it turns out that (thankfully) there is a third question you can ask yourself, which can save you from web disruption.  And this one you have the power to determine the answer to yourself.  It is this:

3) Are you a company that co-exists equally in physical space and on the web?  Does your storefront operation tie in seamlessly to an online experience, allowing in-store visitors to become online buyers of products (and services!) now and at any time in the future? 

If your answer to that third question is "yes", then congratulations - you are positioned to move forward into the new age of storefront retail.  

In the new age of retail, the successful storefront is an extension of the online store.  The two are not separate, but continuous.  The physical reinforces the virtual, and the virtual reinforces the physical.  A customer who leaves the store without buying something isn't a loss to the business - they are simply a customer who will continue their experience online, and develop a closer relationship with the company.  A customer who starts their buying process on the web may decide to go to the storefront to finish it, pre-armed with knowledge of what they want.

The two together add up to more than the sum of their parts.  

The disruption of the web is continually accelerating, but as a retailer you don't have to lose from it.  You can instead join it and win.