How Atlassian’s two-CEO structure helped the company thrive

Atlassian founders and co-CEOs Scott Farquhar, left, and Mike Cannon-Brookes.

Atlassian

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In early March, collaboration software maker Atlassian published a blog post titled “Atlassian Stands With Ukraine,” outlining the company’s plans to support employees and customers in the region and announcing that it “suspended the sale of all new software to Russia”.

The message was signed by co-CEOs Scott Farquhar and Mike Cannon-Brookes. They went back and forth on content and main points. But Farquhar did most of the work, releasing Cannon-Brookes.

It’s one of the many conveniences of keeping two people on top of a company. The atypical structure has helped propel the 20-year-old Australian company into the forefront of the competitive software industry, with products so well-known that big companies might find it hard to walk away from them.

In 2013, Atlassian landed on CNBC’s inaugural Disruptor 50 list of private companies to watch, ahead of its Nasdaq debut in 2015. The stock has risen nearly 1,000% since then, compared to 124% growth for the S&P. 500 over the same period.

The duo had the same job at the same company for 20 years, they were born a month apart, they became parents three months apart, they were best men at each other’s weddings and they own property next to each other in Sydney. “Our ticker symbol is TEAM, and so, yes, that’s who we are,” Farquhar said.

But they are different people. Cannon-Brookes is a long-haired idealist, who became the owner of an American basketball team and tried to take control of the Australian utility company AGL Energy. His remarks are peppered with obscenities. Farquhar is sharp and cautious when speaking. Accel’s early investor Rich Wong calls Farquhar more analytical.

“Mike is kind of the quintessential unreasonable man,” Farquhar said. “‘The world should work this way.’ ‘Mike, it’s not yet.'”

The first fortunes of venture capital

Farquhar and Cannon-Brookes became friends in the late 1990s after taking the same course at the University of New South Wales. The tech bubble burst the moment they graduated, and faced with a dearth of job prospects, they started a business. Initially, it offered support for another company’s application server. Then he changed direction and started creating his own software. The first version of Jira, an issue and project tracker, appeared in 2002.

In about five years, many Accel-backed startups have adopted Jira. “It was already the standard you had to integrate your software with,” Wong said. The company expanded its portfolio with the 2004 launch of document collaboration service Confluence and the 2012 acquisition of team messaging app HipChat. Along the way, Atlassian has released versions of Jira for different types of workers.

Today, Jira is a market leader, transcending its status as a Silicon Valley darling and outpacing the heavy hitters with decades of experience in enterprise sales. Atlassian controlled a larger share than any other company in the software change, configuration, and process management tools market in 2020, ahead of Microsoft, IBM, and Broadcom, according to an estimate by researcher IDC. Atlassian’s market revenue grew approximately 22% year-over-year, faster than the overall category, which grew nearly 15% to $4.8 billion , according to IDC data.

Part of the impetus comes from the fact that programmers can try Atlassian’s software for free before paying for it. The strategy dates back to the founders.

“Our exposure to software started with things like games,” Farquhar said. “Back then, games had different business models. You could buy your PlayStations shrink-wrapped. If you look at Id Software, they came out with a shareware model, sort of try before you buy. We thought that was a great way to sell software because of course you want to try before you buy. At SAP there is no trial. You can see what it’s like because it takes a lot of time to implement it (SAP offers free trials for some of its products.)

Atlassian was either the first or the very early to sell software with a freemium offering, Farquhar said, adding that cloud file-sharing app maker Dropbox has made it more popular. And in the late 1990s, Red Hat, which IBM later acquired, gave away CDs containing its distribution of the open-source Linux operating system and allowed people to download it for free.

Short of money from venture capitalists for its first eight years, Atlassian skipped the custom of assembling a squadron of salespeople to close deals. Now, however, there are a few staff who are looking for select business opportunities, Farquhar said.

Focusing less on hard selling and more on delivering products that people actually want to use has resulted in a strong financial profile. Atlassian enjoys the fifth-largest gross margin of the 76 constituents of the WisdomTree Cloud Computing Fund, at 83%.

This status caught the attention of investors.

“In my 33 years of experience in this field, I’ve seen more than a handful of companies that have tried to do this without an internal sales force, or an external sales force. What I would say about of Atlassian is that they’re the most successful,” said Brendan Connaughton, founder and managing partner of Catalyst Private Wealth, who owned $91 million in Atlassian stock at the end of 2021, his highest position. more important at the time.

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Like many other cloud stocks, Atlassian isn’t actually profitable. Connaughton said Cannon-Brookes and Farquhar would find it easier to turn Atlassian into a real moneymaker than its peers, thanks to its relatively sparse sales team.

A bigger feature of Atlassian’s 7,000-person organization is the group that actually builds the company’s wares. Engineering, Product and Design Report to Cannon-Brookes. Farquhar oversees the legal, human resources, finance, sales, marketing and customer support teams. “I’m sort of the grandparents,” Farquhar said. “I let him deal with the tantrums and the screaming.”

When they talk about responsibility, they consider both skill and fun. You don’t want someone who’s good at handling a task but doesn’t like doing it, and vice versa, Cannon-Brookes said.

Marketing and sales were with Cannon-Brookes for 15 years, and engineering was once with Farquhar. And they both ran the whole business at different times. They went on sabbatical. Last year, Farquhar took a three-month caravan holiday with his family in northwest Australia. “We were kind of able to travel unhindered,” he said. “I think other CEOs should retire or resign to be able to take such a long break.”

The structure has helped Atlassian’s success, said Mizuho analyst Gregg Moskowitz.

“I think it helped to have two strong leaders at the top who are in agreement, at least on all the important issues,” he said. Other tech companies have employed CEOs in pairs, including Autodesk, Ceridian, Oracle, Salesforce, SAP and Workday. Alphabet’s self-driving subsidiary Waymo recently went the co-CEO route.

The strategy has a mixed history, Moskowitz said, saying it hasn’t worked well at all at the BlackBerry handset maker. The relationship between co-CEOs Jim Balsillie and co-founder Mike Lazaridis “had grown cold”, according to one account, and the two quit.

The founder effect

What’s different for Atlassian is that Cannon-Brookes and Farquhar are the founders, said Wong, the Accel investor. Their combined knowledge helps them go faster, he said.

Wong pointed to Atlassian’s 2017 acquisition of task management app Trello for $384 million, still the company’s biggest deal to date. At Trello, it came as a shock because Atlassian’s Jira was seen as a competitor, said Stella Garber, who ran marketing at Trello at the time.

“I think it took the conviction of the founders to say, ‘I know we could have built it, but it would take us time, and it would really expand the organization if we made the choice now and paid what it takes to get the acquisition done,” Wong said.

When there is a problem in Cannon-Brookes territory, it is his decision to make. But when it’s something important, he consults Farquhar, because it’s sure to affect them both. There are many such examples in and around the business right now, and it’s only natural that they split things up.

“The pandemic and Russia and Ukraine – right now Sydney is under flooding,” Cannon-Brookes said. “Put it all together, and there are a lot of things you have to manage in a growing business that aren’t just the product.”

Farquhar said he and Cannon-Brookes had long conversations about what to do with their team messaging app Stride, which arrived in 2017 as Slack and Microsoft Teams were gaining momentum.

“It was weird, actually, because everyone was talking about how good Slack was. We were using Stride internally,” Farquhar said. “The product was actually better. The Slack thing is amazing. It’s actually not as good as what we had. We had to make a decision.”

Ultimately, Atlassian shut down Stride and HipChat Cloud and sold the intellectual property to Slack. He also bought a stake in Slack, which rose in value when Slack stock appeared on the New York Stock Exchange in 2019.

When Cannon-Brookes and Farquhar were younger, they could close the office door and discuss a crisis among themselves, and for fun, they could ride mountain bikes or drink beer together. The pandemic has kept them from seeing each other so often in person. They got good at connecting on Zoom, Farquhar said.

Cannon-Brookes doesn’t need to massage what he’s telling Farquhar. Uninvited, he imagined what would happen if Farquhar left.

“I would be constantly explaining things, which would feel like I was talking to someone,” he said. “‘Good idea, but let me tell you what happened in 2012.'”

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Ida M. Morgan