"There is actually a hidden layer of powerful management structure in the company," she claims.
"And it felt a lot like High School.
"There are popular kids that have acquired power, then there's the trouble makers, and then everyone in between. Everyone in between is ok, but the trouble makers are the ones trying to make a difference."
She later talks of a "'Weird paranoia' in the company that their culture would be contaminated - they went on a witch hunt" and a how this left her "stabbed in the back"
Developers were originally left scratching their heads when the hugely-respected game studio went through a round of redundancies in February. It was seemingly uncharacteristic as not only did it drop important staff members, including Ellsworth and Steam chief Jason Holtman - but the business is built to value and support all developers thanks to a flat management structure.
It even has a lengthy management handbook that explains how this radical operation uses peer review and colleague ratings to hire and fire individuals.
It was this mechanism which Ellsworth battled against to hire her own team - and which she eventually fell foul of.
Her frank account of what happened - detailing the tough side of Valve's idealised structure, how it betrayed her, and why its hiring process are flawed - is 90 minutes long and well worth a watch if you have the time, especially as it details how Ellsworth managed to retail ownership of the hardware ideas she dreamt up for Valve - you can view the first part here.
But we have transcribed extracts below that detail specifically the situation about Valve's hiring and firing practices.
"I should frame all of this with I have a lot of friends at Valve and there are lots of great people there. The hardware team was very close-knit [and we worked long hours together]," begins Ellsworth, when asked by interviewer Jenesee Grey, who had interviewed her in a previous podcast about her work with Valve.
"I'm going to try and be careful about what I say, because my view is not 100% true for all the different groups in there."
Careful, maybe, but she is deliberate and detailed - and gives a very passionate account of how an idolised and idealised business may not get everything right. Or, er, anything at all going by this account. Read on.
Hidden management
Hardware hacker Ellsworth joined Valve to help build out a hardware offer - which over time was name checked by founder Gabe Newell as an important part of Valve's future. But the problem was that Ellsworth struggled to get approval from her new colleagues to let her hire in more staff.
"The first time we spoke [on The Grey Area podcast] about the hardware department all stemmed from trouble hiring people," she explains, summing up the problem which led to her departure - and which she ironically always had reservations about before joining the studio.
"When I first considered joining Valve I was sceptical they would stick with it. I really didn't want to commit - but they started pumping me up and selling me on having control of the hardware group and build hardware. We all used to joke about how hard we worked, doing the jobs of five people at once.
"Now we've all seen the Valve handbook, which offers a very idealised view. A lot of that is true. It is a pseudo-flat structure, where in small groups at least in small groups you are all peers and make decisions together.
"But the one thing I found out the hard way is that there is actually a hidden layer of powerful management structure in the company. And it felt a lot like High School. There are popular kids that have acquired power, then there's the trouble makers, and then everyone in between. Everyone in between is ok, but the trouble makers are the ones trying to make a difference.
"I was struggling trying to build this hardware team and move the company forward. We were having a difficult time recruiting folks - because we would be interviewing a lot of talented folks but the old timers would reject them for not fitting into the culture.
"I shouldn't say the numbers, but there were very few of us in the hardware department. We were understaffed by about a factor of 100."
The Valve hardware team were devising some strong concepts, specifically around augmented reality. Yet the ideas were killed off by the company in its regular peer-review process - a staple of the flat management structure - which can see colleagues that you rarely interact with vet your work and decide if your employment is safe.
When tweets from Ellsworth and breaking stories like Develop's about the departure of Steam head Jason Holtman forced the studio to break tradition and comment on the redundancies, it said it wasn't changing strategy on hardware.
That 'didn't jive' with Ellsworth's direct experiences.
"Well there were five of us working on this project, and all of us were canned on the same day," she says pointedly in answer to Grey's suggestion that Valve is out of hardware.
"The things that do work in Valve that we will bring forward into our new company is the idea of flat management structure, but on a small scale.
"Their structure probably works really well with about 20 people, but breaks down terribly when you get to a company of 300 people. Communication was a problem. That's where management… Well if I had anything to do differently, would be to make sure a layer of management could do communication correctly."
Specifically that includes outreach within the studio in terms of connecting staff together, she says.
"There's all these resources in the business which are just there idling or doing things, maybe they could come and help us - but there was no way to reach them at all."
Ellsworth's vocal frustration with this was the start of friction between her and some peers, she says.
"When I complained about this - and this is what I think is hilarious, what I call really drinking the Kool-Aid… He said that 'If communication was important at Valve it would have evolved a long time ago.' Which is insanity."
Ellsworth implies that Valve's management structure - or lack of - has actually encouraged bad behaviour of a sort from some staff, rewarding those who manage to game the system or avoid risk.
"They have a bonus structure in there where you can get bonuses - if you work on very prestigious projects - that are more than what you earn. So everyone is trying to work on projects that are really visible. 'Look at me, I am making all these great improvements to the latest and greatest video game'.
"And it's impossible to pull those people away for something risky like augmented reality because they only want to work on the sure thing. So that was a frustration, we were starved for resources."
'Stabbed me in the back'
Which is pretty ironic given that it was Valve's bottomless pockets which had given Ellsworth's team plenty of technology to help prototype her visionary ideas.
"We had a machine shop with millions of dollars of equipment in it and couldn't hire a machinist for $40,000 a year to manufacture machine parts for it. Because they were worried that bringing in a machinist would hurt their precious culture,” she said.
"If I sound bitter, it's because I am. I am really, really bitter. Because they promised me the world and then stabbed me in the back.
"What I learned from Valve is that I don't think it works. Give people complete latitude with no checks and balances it is human nature that they will minimise the work that they do and increase the control that they have.
"We used to joke that it's good at hiring lots of lead guitarists. We went out and hired lots of great makers - but we were all lead guitarists, we couldn't go out and hire someone just to manufacture the parts. Just getting a tech for around the lab was almost impossible. That's why a layer of management can help organisations."
Ellsworth found herself asking senior staff for help regularly - and frustrated with the hiring brick wall. In the end she says she that led to her being 'fired for being abrasive'.
"And I probably was - but I just couldn't find a way to make a process to actually deliver any hardware inside that company."
Ellsworth was hungry to build scale so Valve could build hardware, and points to that other famous Seattle business that does have that kind of scale: "Like Microsoft, the rumour is that its hardware department has 1,000 people working in it [making the Xbox]."
At Valve, "I was working with people adding zero value, in fact creating negative value" so she chose to "use the Valve handbook and roll my desk away and work with someone who is productive". But that approach only backfired and "appeared to the higher ups as abrasive and disruptive".
Ellsworth is honest about how she too was blinded by the idea of Valve's HR utopia.
"I drank the Kool-Aid really hard. Even up until the last day I was hopeful we could turn it around at least for our project. We had a goal and had proved that all the pieces were there that we could have all these cool virtual reality experiences."
She had come to believe this through months of long hours, much of it spent with then colleague, fellow fired friend and new business partner Rick Johnson. He would work on one project at Valve in the day time (Valve's move towards Linux) then spend his evenings with Ellsworth on the augmented reality tech.
Their project still lives on, since pulled out of the business and owned by Ellsworth and Johnson's new venture, with Valve's consent.
"The day I got fired I was walking up to the elevator and one of the mechanical engineers said 'Did you hear so-and-so was laid off?' It was someone on our project. I was mad. I hopped in the elevator and went straight up to our team - and I found Rick, and he said 'I was fired. You too.'
"I couldn't believe it. The handbook said that if you get too far off course they will tell you about it."
But Ellsworth's team was just dropped.
At first "I was in denial about it, thinking they would change their mind," but during the wait for her meeting with Valve boss Gabe Newell she turned rebel and "started boxing things up. I was scared they would just junk it.
"I was hiding it," she admits.
Ellsworth and her team had built a unique area of the office, filled with all sorts of strange equipment and unique lighting - including a chandelier - and some of it her own hardware. She started effectively shutting down the AR studio literally. "It took at 26 foot truck to get my stuff out - place looked like a ghost town after I left."
When the time came to confront Gabe Newell, she said that "you should fund this externally or give it to us".
"There was a lawyer in the room and Gabe just turned to him and said 'Give it to 'em'."
Ellsworth later adds that there were protracted lawyer discussions, and it wasn't this simple. But to all intents and purposes Ellsworth and Johnson were effectively working continuously the next day at his house. Four weeks after leaving Valve, their project came to fruition with prototypes for augmented reality glasses that use head mounted projectors with a special reflective mat and sub-millimeter head tracking - likened to the holographic 3D chess in Star Wars - demoed in May at the 'maker' event Maker Faire.
Her frustrating account has a happy ending, and Ellsworth has affection for Valve and its staff. And although it's clearly hurtful that her departure was decided by an external group which wanted to "round up all the undesirables and get rid of them", but she regularly caveats her personal response to the matter versus her friendships with the staff still there.
"I'm still really friendly with the folks there and the ones I wasn't friends with before we became friends since. My heart goes out to them - it's probably completely different, and they may have got their machinist."
At one point, Ellsworth's comments suggest Valve's software culture couldn't quite handle the demands and quirks of a hardware business: "being in a software company with no process for making hardware people were mortified by some of the prototypes we showed them".
Yet Valve's focus had its advantages, Ellsworth adds too.
She says: "It was great working under the guidance of software folk as it gave us focus," pushing Ellsworth and co to ask for "gameplay from clever hardware ideas."
Plus the firm's in-joke of 'Valve Time' - where projects promised completion in a matter of weeks actually take months or years - is actually a by-product of stringent process.
"There's a lot of reasons there is 'Valve time'. A lot of it is chaos, but it's also because they are thinking about their customers. And we want to keep that methodology to make sure what we promise is deliverable."
At another point, she reminds the interviewer: "I love Valve, I loved them."
But deeper probing just pushed back to a "'Weird paranoia' in the company that their culture would be contaminated - they went on a witch hunt and got rid of me and a bunch other talented folks. And it was just a couple of people [that did that] - that's what happens when you have a flat management structure like that, a bunch of people can wreak that kind of havoc.
"They definitely don't want this kind of story getting out there."
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