How IT Companies Work

1. Product Companies

There are many different companies in the IT industry, and the boundaries are not clear-cut. Large companies often do many things, some of which are definitely IT, others definitely not IT. A company is considered an IT company if it gets most of its revenue from IT products. Or it simply owns several large, well-known IT products.

In the IT sphere, thousands of companies appear, grow, and die (to be frank) every year. The founders’ goal is to keep the company alive and grow it big enough for its shares to be traded on the stock exchange. Why is that necessary?

If a company has completed an IPO (gone public), the founders can avoid selling shares (and paying a large tax bill) and, for example, take a loan secured by their shares while keeping the shares. Or pay employees part of their compensation in cash and the other part in stock.

You can reward senior management with stock for outstanding performance. You can even acquire competitors with stock — a very cost-effective way to absorb dangerous yet still small rivals. It’s also very profitable for employees to receive compensation in stock. First, it saves on taxes; second, it can make you very rich.

2. Modern IT Products

IT companies grow rapidly on investors’ money. Investors in general love when companies grow fast. “You don’t even have to make money — just grow.” © “Get 100M users, and then we’ll figure out how to make money from them.”

As the saying goes: “A person + technology will beat a person without technology,” and “An entrepreneur + investment will beat an entrepreneur without investment.” The main thing is growth — very rapid growth.

3. Modern Development

Companies must grow quickly, products must quickly gain users — and the team? The team must constantly add new features to the product.

Fifty years ago, when software development was just emerging, it was treated like construction. First came the requirements phase, then design, then development, testing, and only after that was the product delivered to customers. Five years could pass from the start of development to the first customer. Now it’s different.

Modern development is constant experimentation. Large companies continuously test new features. New versions of products are released every month, every week, or even every day.

Facebook has outdone everyone: it releases several dozen new features every day. Each such feature is shown to 1% of users; then users’ reactions to it are automatically analyzed. If users like the feature, it is then shown to 10%, and so on.

Of course, this approach to adding new features requires a completely different approach to software development than before.