How has Atlassian’s dual CEO structure helped the company develop?

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

Atlassian

In this weekly series, CNBC takes a look at the companies that made the first Disruptor 50 list in 10 years.

In early March, collaboration software maker Atlassian announced a blog post Titled “Atlassian next to Ukraine,” it reveals the company’s plans to support employees and customers in the region, and announces it is “pausing the sale of all new software to Russia.”

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

This is one of the many conveniences of keeping two people at the top of a company. The unconventional structure has helped propel the 20-year-old firm of Australians to the top echelon of the competitive software industry, with products so well-known that big companies find it hard to move away.

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

The two have been with the same company for 20 years, born a month apart, parents three months apart, groomsmen at each other’s weddings, and own properties next to each other in Sydney. “Our stock code is TEAM and so yes, we’re about that,” Farquhar said. Said.

But they are different people. Cannon-Brookes is a long-haired idealist who owns a US basketball team and is trying to take over Australian utility company AGL Energy. His comments are sprinkled with obscenity. Farquhar is clean and careful when speaking. Accel’s first investor, Rich Wong, describes Farquhar as more analytical.

“Mike is a literal irrational guy,” Farquhar said. “‘This is how the world should work.’ “Mike, not yet.”

Early VC fortunes

Farquhar and Cannon-Brookes became friends after taking the same course at the University of New South Wales in the late 1990s. The tech bubble burst when they graduated, and they started a business when faced with a shortage of job opportunities. It originally offered support for another company’s application server. Then he changed direction and started creating his own software. The first version of Jira, a tool for tracking issues and projects, was released in 2002.

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

Today, Jira is a market leader that has surpassed Silicon Valley’s darling status and outperformed the heavyweights with decades of sales experience to companies. Atlassian had a larger share of the market for software change, configuration and process management tools in 2020 than any other company. According to one estimate from researcher IDC, Microsoft, IBM and Broadcom. Atlassian’s market revenue grew nearly 22% year-over-year, faster than the general category at $4.8 billion, up almost 15%, according to data from IDC.

Part of this momentum is due to programmers trying Atlassian’s software for free before paying. The strategy extends to the founders.

“Our exposure to software started with things like games,” Farquhar said. “Games had different business models back then. You could buy your PlayStations in packaging. Identity Software, they came out with a shareware model, give it a try before you buy. We thought this was a great way to sell software, because of course you want to try before you buy. No trying in SAP. You’ll see how it looks because it takes that long to implement.” (SAP offers. free trials for some products.)

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

Having not received a ton of money from venture capitalists in its first eight years, Atlassian skipped the tradition of building a sales team to negotiate deals. Farquhar said there are now a few staff members pursuing outstanding job opportunities, though.

Focusing less on selling hard and more on delivering products that people really want to use has resulted in a solid financial profile. Atlassian has the fifth largest gross margin of all 76 components of the WisdomTree Cloud Computing Fund. 83%.

This caught the attention of investors.

“In my 33-year history of doing this, I’ve seen more than a handful of companies attempting to do it without an internal or external sales force. What I have to say about Atlassian is Brendan Connaughton, founder and managing partner of Catalyst Private Wealth, which holds $91 million in stock at Atlassian. is the most successful in this regard,” he said. end of 2021largest position at that time.

Original CNBC disruptors: Where are they now?

Like many other cloud stocks, Atlassian is actually not profitable. Connaughton said Cannon-Brookes and Farquhar will find it easier than their peers to turn Atlassian into a real money maker thanks to its relatively sparse sales team.

A more distinctive feature of Atlassian’s 7,000-person organization is the group that actually makes the company’s goods. Engineering, product and design report to Cannon-Brookes. Farquhar oversees the legal, human resources, finance, sales, marketing and customer support teams. “I’m kind of a grandparent,” Farquhar said. “I’m leaving him to deal with the tantrums and screaming.”

When they talk about responsibility, they consider both skills and fun. You don’t want someone who is good at performing a task but doesn’t like to do it and vice versa, Cannon-Brookes said.

Marketing and sales reported to Cannon-Brookes for 15 years, and engineering at one time to Farquhar. And they both ran the entire company at different times. They went on vacation. Last year Farquhar drove three months into the trailer with his family in northwest Australia. “We have to travel unhindered somehow,” he said. “I think other CEOs will have to retire or resign to take such a long break.”

Gregg Moskowitz, an analyst at Mizuho, ​​said the structure contributed to Atlassian’s success.

“I think it helps to have two strong executives at the top who at least keep an eye on all the important issues,” he said. Other tech companies, including Autodesk, Ceridian, Oracle, Salesforce, SAP, and Workday, have employed CEOs in pairs. Alphabet’s autonomous driving subsidiary Waymo recently went the joint CEO route.

The strategy has had a mixed history and hasn’t worked well at mobile phone maker BlackBerry, Moskowitz said. Relationship between CEOs Jim Balsillie and co-founder Mike Lazaridis had “cooled off” an accountand two took a step back.

founder effect

Accel investor Wong said what’s different for Atlassian is that both Cannon-Brookes and Farquhar are founders. He said their combined knowledge helped them move faster.

Wong noted Atlassian’s 2017 acquisition of task management app Trello 384 million dollars, still the company’s biggest deal to date. Stella Garber, who was marketing on Trello at the time, was a shocker at Trello because Atlassian’s Jira was seen as a competitor.

“I think it took some persuading the founders to say, ‘I know we can build this, but this will take our time and really expand the organization if we choose now and pay whatever it takes to buy.'” Wong said.

When something goes wrong on Cannon-Brookes’ court, it’s his decision. But when something big happens, he consults Farquhar because it will almost certainly affect both of them. There are many similar examples in and around the company right now, and it’s natural for them to share them.

“The epidemic and Russia and Ukraine – currently Sydney is in flood,” said Cannon-Brookes. “Take it all together and you have a lot of things to deal with in a growth business that is not just a product.”

Farquhar said he and Cannon-Brookes had long conversations about what to do with Stride, the team messaging app that came in 2017 as Slack and Microsoft Teams gained momentum.

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

Eventually, Atlassian shut down Stride and HipChat Cloud and sold the intellectual property to Slack. It also bought a stock in Slack, whose value rose as its Slack stock surfaced on the New York Stock Exchange in 2019.

When Cannon-Brookes and Farquhar are younger, they can close the office door and chat with each other about a crisis and go mountain biking for fun or have a beer together. The pandemic has prevented them from seeing each other so often. Farquhar said they are good at connecting on Zoom.

Cannon-Brookes doesn’t need to massage what Farquhar said. Without asking, he imagined what would happen if Farquhar left.

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

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