Editor’s Note: This post was originally published on 7 February 2014 and has been re-published given news on the weekend that Atlassian is planning to list on the US stock exchange by the end of the year.
Mike Cannon-Brookes is shoeless, leaning into his seat behind a conference table in Atlassian’s heritage-listed Sydney office. He raises one knee, exposing brightly coloured Superman socks.
Chairman Doug Burgum, here on one of his regular visits from the US, comments on his CEO’s outfit. It’s “the same white t-shirt you’ve been wearing for three days”.
Burgum too is in a simple grey t-shirt and jeans. Co-CEO Scott Farquhar is there, sporting the comfortable, navy company t-shirt that many employees wear for simplicity.
The latter two are wearing shoes.
These three are the leaders of Atlassian, the Australian software industry star which is on its way to making a global splash with a planned US stock exchange debut that many expect will value the company at well over a billion dollars.
Co-founders Cannon-Brookes and Farquhar, both 34, have been among Australia’s richest people for the past seven years. Enterprise software isn’t the sexiest of businesses but Atlassian has shown that corporate success in Australia doesn’t need to be in the nation’s traditionally bankable sectors like resources and manufacturing.
Economists and policymakers have been increasingly adamant that Australia needs to start looking at other sectors for future job creation. Federal Treasurer Joe Hockey called for significant changes to the nation’s economic structure just this week.
At the same time, Atlassian on Tuesday got the green light to move its corporate headquarters to London, where it gains certain advantages, especially in tax arrangements, that will help its preparation for a stock market listing. The move has caused some consternation in Australian technology industry. Some see it as the company abandoning its roots.
The blow is compounded by the status of Atlassian’s founders: they are the poster boys for the Australian tech startup sector. They are millionaires hundreds of times over, the entrepreneurs others look at and think: that could be me.
The early Atlassian was a fairytale startup. It ran on a credit card. One of its founders was a university scholarship drop-out. All the early staff were their mates. One of its founding values was a flourish of Sydney-sider brassiness: “Don’t f*** the customer.”
Atlassian’s core product, a project management and bug tracking tool known as Jira, is now a global standard, with customers ranging from the likes of NASA and universities to tech giants like eBay and Twitter.
Getting to this point has taken them through poker binges, a dodgy corporate apartment in San Francisco, and the death of a close friend: Jeffrey Walker, the first person Atlassian hired in the US.
This is the story of how they did it.
For young men who have built a 750-person multinational after starting out with a $10,000 credit card, Cannon-Brookes and Farquhar are notoriously understated. The trait spills over to their company, which maintains a relatively low profile in the investment community and in the media.
In Atlassian’s early days, the founders turned down about a dozen approaches from would-be investors or buyers whose offers came shockingly short of the company’s value. They didn’t all end badly: One of those approaches was from Jay Simons of Plumtree Software, now Atlassian’s president.
Another was a Brisbane technology firm which, eight years ago, abruptly ended talks – Cannon-Brookes says “they kicked us out” – after realising Atlassian, then turning over $10 million a year, was a bigger company than they were.
When Farquhar approached Burgum to chair Atlassian in 2012, picking up the phone in Sydney and dialling his direct line in North Dakota, the technology industry veteran didn’t recognise the company name, even though he was highly familiar with Jira.
“It was four in the afternoon and a cold call on their part,” said Burgum. “Other companies that I worked with were Jira customers, but like a lot of people, I guess, I had heard of the products but I hadn’t heard about the company.”
Atlassian now books revenues of $US150 million a year but still behaves as an underdog.
Pete Cooper, who mentors a wide range of Australian startups and organises the annual SydStart conference, describes Cannon-Brookes and Farquhar as reluctant industry statesmen whose public personalities contrast sharply with other Australian technology entrepreneurs – “PR juggernauts” like Matt Barrie and Ruslan Kogan.
“There’s a lot more humility in Mike and Scott; their street cred doesn’t come from talking, but doing,” Cooper said. “Over a thousand start-up people come to see Mike speak at SydStart. People gravitate to them. Mike’s opinion is highly regarded, whether he wants that or not.
“There’s that tall poppy syndrome in Australia, but [Cannon-Brookes and Farquhar] are not flashy and they’re uniquely colloquial. They’ve made it cool to be commercially successful in software, which is especially difficult in enterprise software.”
An Early Silicon Beach
Cannon-Brookes and Farquhar met through the University of New South Wales’ prestigious co-op scholarship program. They registered Atlassian as a business name with ASIC in 2001, and set up today’s software company in a modest Kent Street office in October 2002.
At the time, NASDAQ investors were reeling from the dot-com crash and Australian digital ventures were few and far between. An April 2013 Google-PricewaterhouseCoopers report found that only a tiny percentage of today’s 1,500 technology startups were survivors from 2001.
Jobs listing site SEEK is one of the few still standing after riding out the dot-com boom and bust. Today it has a market capitalisation of $4.4 billion on the ASX but the SEEK experience shows just how tough the environment was for tech entrepreneurs at the time.
SEEK started in 1997 and went through six capital-raising rounds before it listed on the stock market in April 2005. Co-founder Paul Bassat recalls earlier rounds were “very quick and easy” – but everything changed when the bubble popped.
By 2001, the year Atlassian was formed, both investors and potential entrepreneurs were in short supply.
“We did one [capital raising] round in 2001 and that was a long, difficult round because people to some extent had lost confidence in internet companies,” Bassat said.
“The market moved from a period of ‘irrational exuberance’, as Alan Greenspan described it, to what was probably irrational pessimism. There wasn’t an abundance of capital and there weren’t as many entrepreneurs looking to put up their hand.
“There’s no question that the dotcom crash took the wind out of the sails for some time.”
Former UNSW students – even technologists in the co-op scholarship program – say they heard little about Atlassian until the mid-2000s, when its revenues had cracked $15 million and the company was starting to make headlines in technology press.
The rags-to-riches story of Atlassian’s founding hit the mainstream by 2010, when the bootstrapped company accepted its first ever capital injection – $US60 million from Accel Partners, which was the US venture fund’s largest ever investment in a software company at the time.
Alex North, who graduated from the UNSW program in 2005 and went on to work for several high-profile technology companies, said there was little appetite for entrepreneurship among his classmates, but Atlassian’s success had since helped to build interest in local ventures.
“When I was finishing uni there was little talk or excitement about starting new companies right out of school. It wasn’t specifically encouraged as an alternative to employment,” he said.
“We knew about the Atlassian guys, but at the time they weren’t enough of a success story to change the conversation. I was lucky to find a start-up, Sensory Networks, to join, and left 18 months later to start my first business, but that wasn’t something many people did.
“Over the past decade that conversation has changed, especially as Atlassian ramped up graduate recruiting and people realised they could start another Atlassian, not just work there.”
Atlassian’s founders say they were sub-par students. Farquhar barely maintained the 65 per cent average required to retain the four-year co-op scholarship while Cannon-Brookes’ grade fell from a high distinction in his first semester to 53 per cent upon graduation – just enough to get that “piece of paper” his mum had insisted on.
Cannon-Brookes relinquished his scholarship after two years and a “mind-numbing, boring” internship to build a business with Niki Scevak (now of Blackbird Ventures), to the consternation of his course coordinators. “It was not a done thing to leave this prestigious scholarship, especially not to start your own thing,” he explained.
The university sang a different tune last year, when it distinguished the Atlassian boys with the 2013 Young Alumni Award. They accepted the award from David Gonski last March. Cannon-Brookes even went without his signature baseball cap for the ceremony.
Farquhar claims that he didn’t even know of the word “entrepreneur” until winning an award for it in 2006. His goal? To avoid a “real job” while other co-op scholars stepped into positions at IBM, Nortel, PriceWaterhouseCoopers, and the ASX, while still making the PwC graduate salary of $48,500 each.
The Atlassian Model
Atlassian’s founders didn’t start off knowing exactly what they would sell, but they wanted it to be software. They had an assumption: once developed, software could be replicated and sold cheaply, and distributing the product would get even cheaper and easier as internet speeds improved.
The assumption turned out to be a solid one. Jira was released for download in April 2002. Revenues quickly grew from $1 million in the company’s first year to $14.9 million in 2005-06, when Cannon-Brookes and Farquhar were named Young Entrepreneurs and Entrepreneurs of the Year by accounting giant Ernst & Young.
By June 2006, Atlassian had some 4,340 customers and 50 staff in Sydney and San Francisco who developed, supported and marketed Jira, and a collaboration platform, Confluence. Atlassian’s headcount nearly doubled again to 98 by June 2007, when it booked revenues of $22.5 million for the year.
Initially, Farquhar said his management philosophy was based on his co-op internship experiences and those of his former classmates, and was less about what to do than what not to.
“When we would go to lunch with friends who had joined all these other companies, the biggest problem we found was that they thought their managers were idiots in some ways,” he said.
“More than that, they had no mechanism to make a change. They always felt that they weren’t empowered and I said to Mike, ‘Shit, I hope no one ever leaves Atlassian and goes to their lunchtimes and bitches about how they can’t get stuff done.’
“That led, eventually, to one of our values being ‘be the change that you seek’.”
Atlassian was famously built on five core values, reflecting the 22-year-old founders’ ideals:
- Open company, no bullshit.
- Build everything with heart and balance.
- Don’t f*** the customer.
- Play as a team.
- Be the change you seek.
Lachlan Hardy, a former Atlassian design engineer who is now a technical evangelist for Microsoft Australia, said the Atlassian attitudes and people were the highlights of the two-and-a-half years he worked there, starting in December 2007.
“The company values are actively used in conversation, blog posts and documentation with complete sincerity,” he said, recalling sayings like: “If we change this feature, are we F***ing The Customer?”; “Staying late on this project is not Building With Heart And Balance”; and “If you think that’s wrong, why don’t you Be The Change You Seek?”
Twelve years since founding, Atlassian’s values are known not just by its 750 staff but also 30,000 customers, investors and the wider technology industry.
When the founders finally warmed to Accel’s $US60 million partnership, the venture firm sent them a t-shirt featuring the acronym DFTPC: “Don’t f—k the portfolio company.”
The Early Days: Margaritas And Poker Nights
In its early years, Atlassian was largely an enthusiastic band of former UNSW students and their siblings and partners. People would pitch in on all manner of things, from coding to setting up furniture to social poker games.
Matt Ryall, who joined the company from Macquarie Bank in January 2006, recalls Farquhar’s initial surprise at receiving his job application: “I was talking to [one of my friends] over beers one night about how I wasn’t super happy in my role and he said, ‘Why don’t you check out those Atlassian guys’.
“I sent my resume in that night to [email protected] and Scott said he didn’t understand why someone would apply to work at Atlassian because he was like, ‘Who do you know in the company?’
“At that point, there were 25 people in the company, I think, and everybody knew everybody else – they were all friends of friends, or went to university together. So I was one of the first people they hired that didn’t come from a referral.”
Director of developer relations Jonathan Nolen joined in late 2005 and was the company’s second US hire after Walker. He describes a close-knit group of 20-something-year-old men who literally worked, played and lived together.
Things moved quickly. By early 2006 Atlassian’s US team comprised about 10 people on Alabama Street in San Francisco’s Mission District. Cannon-Brookes and Farquhar were hands-on co-CEOs and each spent about half of that first year establishing the office and Atlassian culture with the fledgling team.
“They just rented an apartment from the very beginning, in the Tenderloin actually,” Nolen said, referring to the seedy downtown neighbourhood. “Nobody actually got mugged, but it was a place where a lot of students lived, so it was a relatively inexpensive apartment in a big tower.
“It was a two-bedroom, so anyone who was coming in would use the spare bedroom. People talk about how intimidating that is, to have the CEO of the company hanging out with you in an apartment, but at the time I didn’t feel intimidated at all.
“These guys were in their early 20s. I liked them, and they were friends, so we would hang out. We would go to dinner, we would go out drinking, we would talk forever – and always about the product actually, or at least about the business.
“Everyone was so passionate about what the product was, what we wanted to do, how we wanted to make it better, because we used it every day. So we would argue late into the night about what feature should come next and why that was important and what that would do for the overall business.”
For the US team, Friday afternoon lunches were invariably at Mexican restaurant Puerto Alegre on the opposite end of the Mission, with pitcher after pitcher of margaritas to “celebrate whatever it was that we needed to celebrate”.
Walker was a jazz guitarist and would set up 4pm jam sessions on Fridays with like-minded employees, including sales engineer Elisa “Boots” Wang on the drums and marketer Morgan Friberg on the guitar. They were people Walker clearly enjoyed spending time with, according to a blog post published months before he died in 2009.
“Jeffrey had an enormous impact on the culture,” Nolen said. “He was the most amazing guy. He gave me tons of really good advice about how to work in the company, how to overcome the Pacific divide and how to interact with people both internally and externally.”
Meanwhile, Australian staff bonded over Texas Hold’em poker tournaments involving up to $20 buy-ins. There was “a lot of showboating and stupid bets”, according to Justen Stepka, who joined Atlassian’s Sydney office after it bought his internet security start-up, Authentisoft, in mid-2006. Stepka now manages Atlassian’s BitBucket and SourceTree products from San Francisco.
“Atlassian had a big gaming culture,” he said. “We played a lot of poker, we played a lot of board games, we played a lot of video games. A lot of us were geeks, so we would stay after work and do geeky things. I ended up learning to play poker in order to hang out with those guys.”
Under an Atlassian house rule, hold’em players collected an additional couple of dollars from every other player if they managed to win a hand with the worst possible hole cards: a 7 and 2 of different suits. Product engineer, now development manager, Nick Menere “was the king of it,” Stepka said.
One weekend after the global financial crisis, Cannon-Brookes and seven other Atlassian employees checked into a Melbourne hotel to play poker at the Crown Casino for “ten hours a day, for three days straight”.
A group of Atlassian employees would later do a world tour together, taking in Las Vegas. But it was the earlier, more frugal days that Stepka liked best: “We played quite a few tournaments… those are some of the best memories I actually have of Atlassian at the beginning.
“We had games on Friday at 1pm in Sydney where it’s a $5 buy-in, tournament style and the antes go up every 5 minutes until there’s a winner. Once a month, we would play on Wednesdays – that was a lot of fun too.
“We were all kids at the beginning, we didn’t have wives or girlfriends or things like that. I don’t remember playing so much with Scott, but Mike would definitely push all in and go for that showmanship moment. He’s not afraid of a little risk in poker.”
Learning To Take A Risk
As far as technology entrepreneurs go, however, most say Cannon-Brookes and Farquhar rank among the more conservative.
When Sergey Brin and Larry Page recruited Eric Schmidt as chairman and later CEO in 2001, the then-27 year olds told journalists that it was so Schmidt could provide adult supervision. Harvard Business Review’s Julia Kirby put Facebook’s Sheryl Sandberg and Apple’s Mike Markkula in the same category: older, wiser businesspeople to manage young founders Mark Zuckerberg, Steve Jobs and Steve Wozniak.
In some ways, it worked the other way around at Atlassian. The founders were the conservatives, and Walker’s experience and insight – having led companies like CSC and Accrue Software – helped build confidence to up the ante.
He was far from Atlassian’s chaperone.
“Jeffrey was like the least responsible 50-year-old I know,” Nolen said. “He was very social, very easy going, very risk-friendly, so I think he provided the benefit of experience, but I never witnessed any real conflict between youth and age or anything like that.
“In fact, it feels to me that more often, Mike and Scott would be on the conservative side of an argument, saying, ‘Maybe we shouldn’t try that’ and Jeffrey would be the one saying ‘Come on, how bad could it be’.”
Burgum similarly shies away from being seen as the grown-up in the room, recalling his days as founder, chairman and CEO of Great Plains Software from 1983.
“When I was in their shoes decades and decades ago, I was saying, ‘Wow, it would be good to get some adult supervision in my life’,” he said of his thoughts during his first meeting with Atlassian in San Francisco.
“It was weird that all of a sudden I realised during the meeting that these guys were looking for adult supervision and they were asking me. When did I get old?”
Research suggests the biggest danger facing startups is “premature scaling”, where a business tries to grow faster than demand for the product allows. Atlassian has grown from two people to today’s 750, so timing the various phases of expansion has been critical.
All things considered, Nolen said Atlassian was “very un-Silicon Valley” in how slowly and deliberately it grew. Cannon-Brookes and Farquhar struck a balance between carefully considered strategy and rolling with the punches, with the company’s limited funds helping to constrain its scale in the early days.
“It was usually painfully obvious when we needed someone for each role. We haven’t done a great job of hiring ahead of the curve until more recently,” Farquhar said.
“At first it was more like, ‘Oh, we need someone to count the money. Ok, that’s a book-keeper, they file the tax returns.’ You know, you hire because you need the people.”
As Atlassian’s leaders, Cannon-Brookes and Farquhar have grown with the company, learning from mentors like Walker and Burgum, filling any skills gaps – like how to give staff constructive feedback – with training when needed, and getting the unusual co-CEO structure to function effectively.
San Francisco-based Jay Simons said the duo had become more effective as co-CEOs over time, with Cannon-Brookes typically taking charge of product management, design and strategy, sales, and marketing, and Farquhar focussing on engineering and business operations.
“We’d be scripting the keynote [for a user conference] and sometimes they might have different ideas,” he said of the initial challenges of having two bosses. “It’s really important to clarify who gets to make the call here or if we’ve got two different ideas, which one we are taking out of the room.
“I’ve seen them develop that skill, where they become a lot more effective as dual CEOs over time, because they’ve learned to channel their double energy.”
2009: The Turning Point
The $US60 million that Atlassian took from Accel in 2010 wasn’t money they desperately needed. The two founders were each valued at $30 million on BRW’s 2007 Young Rich List. They’ve been rising through the ranks since, and have topped since 2012.
Farquhar said the Accel deal was more of a “symbolic” gesture, indicating the company was ready to start reaching beyond its beginnings.
According to Simons, who joined from BEA Systems as VP of sales and marketing in mid-2008, the deal came after a particularly difficult 12 months.
Walker was a cancer survivor, nearing the five-year anniversary of his first scare. In mid-2009, he went to his doctor complaining of a pain in his leg that turned out to be a tumor. Surgery didn’t help and his condition deteriorated quickly – colleagues thought all was well just three weeks before he passed in September.
“There were about 50 of us [in San Francisco] when he [Walker] passed away, and we were in the middle of the global financial crisis,” Simons recalled.
“When you look back and think about moments when the company reaches down and grabs its future and builds on top of greatness, that was one of those. Because there were a bunch of rocky moments throughout 2009.”
Atlassian did hit some happier landmarks that year as well. Cannon-Brookes and Farquhar each turned 30, got married and took three-month-long honeymoons within 12 months, leaving the other party to run the company solo.
The co-founders had casually spoken of building a company that outlived themselves for some time, but it wasn’t until they returned from their respective travels in 2010 that their long-term plans solidified.
“We’d talked about it, but that conversation when we actually sat down and said, ‘what are we going to do’ was probably three or four years ago, when we said, ‘Do we want to build this up for an exit? How are we going to set up our lives?’,” Farquhar said.
“What we wanted to do was either double down and build this into something that was really long-lasting, or decide that hey, this was one venture and we’d spend 10 years on this one, and go on to spend 10 years on something else.
“We thought that this was this was a great canvas to paint on for a lot longer, so the next ambitious goal was to set it up to last beyond ourselves, so we decided to get venture funding from Accel.
“That was somewhat symbolic… sort of a starting point for us to go on a faster growth trajectory. That’s when we built up our board of directors and brought in a few more senior people.”
Cannon-Brookes and Farquhar travelled to the US to meet with Accel in April 2010, received term sheets in May, and announced the $US60 million deal to staff and the public in July that year.
In July 2012, Atlassian announced that it had recruited former SuccessFactors and Great Plains Software chairman Doug Burgum, former Adobe CFO Murray Demo and former VMWare executive Kirk Bowman to the board.
The board previously comprised Cannon-Brookes, Farquhar and Accel representative Rich Wong. Facebook VP of infrastructure engineering Jay Parikh and former Symantec CEO Enrique Salem joined in August last year, bringing the number of members to eight.
Atlassian’s board appointments fuelled speculation about an impending IPO, especially as Burgum had taken Great Plains public as chairman and CEO in 1997, and sold it four years later to Microsoft for $US1.1 billion.
The company has yet to speak directly about when it might list, or in fact whether or not it would do so, but executives have made plenty of comments and decisions to indicate that a float is not far off.
Company president Simons told Business Insider Australia in November that the company was working towards a broad, ten-year plan in two-year increments. The latest long-term plan was set up in 2012, and the next two-year goalpost is December 2014.
Towards A US Stock Market Debut
Farquhar and Connecticut-born Cannon-Brookes have long indicated a preference for a US IPO, to the dismay of many Australian entrepreneurs, investors and start-up industry observers.
The company recently moved to establish a holding firm in England and Wales to support a listing on NASDAQ or the NYSE, expecting Britain’s foreign investment regime to be more relaxed and its corporate law better understood internationally than Australian regulations.
Shareholders began transferring shares to a holding company for the UK move this week. According to documents filed in December, an unnamed investor will buy up to 8 per cent of Atlassian following the restructure.
Atlassian executives say Australian investors simply don’t understand the software business as well as US investors might because there are fewer ASX-listed technology companies to compare Atlassian against. There were 69 software and services companies listed on the ASX as of mid-January.
Freelancer.com founder Matt Barrie disagrees, pointing to his company’s spectacular, billion-dollar ASX float last November as proof. Freelancer was forecasting 2013 revenue of $18.3 million at the time.
Barrie said he had been lobbying the Atlassian co-founders to stay in Australia for years. “They’re sick of it,” he said, laughing, but added: “The minute they accepted money from Accel, this [US listing] was going to happen.”
Various news reports have put Atlassian close to pulling the trigger on a US IPO since 2012, but it was only last December that it issued an official offer inviting staff to apply for share options.
As of January 28, there were a total of 178,899,959 Atlassian shares, of which the co-founders held a combined 78 per cent; Accel held 15.21 per cent; philanthropic arm Atlassian Foundation held 1.12 per cent, Burgum held 0.22 per cent, Simons held 0.19 per cent, and staff, including directors and senior developer Anton Mazkovoi held just over 5 per cent.*
Despite the British restructure and US float, Atlassian executives on either side of the Pacific reject the notion that the company would lose its Australian roots, highlighting German software giant SAP as an example of a foreign-headquartered company traded on the NYSE. SAP is also traded on the Frankfurt and Stuttgart Stock Exchanges.
It is unclear how the establishment of a British holding company might impact Atlassian’s day-to-day operations.
Australian Communications Minister Malcolm Turnbull downplayed the decision in a public Q&A this year, describing it as a “corporate move” that did “not involve moving their team or business there”. To many, though, it’s a bit like a lover moving all their things out of an apartment while saying the relationship’s still intact.
Meanwhile, Burgum told Business Insider Australia late last year that there was nothing that would force the co-founders to move to the US should the company list on Wall Street.
“It’s not a listing requirement and these two have clearly shown that they can lead a global company based out of Sydney. They may have to travel more than they want to but that’s part of building a global company, no matter where you’re based,” he said.
Atlassian executives have been tight-lipped about the timing of a float, with Simons stating only that it would occur “when we’re ready to”.
Generally speaking, companies looking to float on a US stock exchange would need to be Sarbanes-Oxley compliant, implement suitable financial systems, and understand and mitigate the risks of going public by making any big, difficult decisions – like introducing new products, changing prices, or making major investments – before listing.
On the other hand, listing benefits employees by putting a value on their equity, provides a marketing event to help grow Atlassian’s global profile, raises capital and allows for equity-funded acquisitions, and lays the foundations for a company looking to stand the test of time.
Burgum said Atlassian’s business model, involving recurring subscription fees rather than software sales, would allow it to list in the US without requiring significant changes to financial systems and strategies.
“I believe that this company will have one of the easiest transitions to becoming a public company of any company that I’ve seen,” he said.
“The biggest challenge for companies is when they start out, they think very long term, but when they go public in the US they have to start thinking about quarterly results. That drives a cycle of short-term thinking.
“But with the business model of this company, where there’s recurring revenue that’s not driven by a sales force that’s incentivised to close deals on the last day of the quarter, I believe that Scott and Mike are still going to be able to do long-term thinking and long-term investing as a public company.
“That’s a luxury that most public companies don’t have but it’s a direct credit to the business model that they’ve built.”
Technology companies have raised obscene amounts of money in US floats in recent years, with Twitter making a $US24 billion debut in November despite it operating at a loss. Analysts at the time expected Twitter to bring in 2014 revenues of $US1.14 billion, giving the company an astounding price-to-sales ratio (PSR) of 21.
A 2012 Bloomberg analysis of cloud software vendors found that firms had an average PSR of about 8.1. Google had a PSR of 8.7 as of its 2004 IPO.
Should a listing occur, Simons said Atlassian’s market capitalisation would be “comparable” to other software companies with its revenue. According to YCharts data on the software application industry, companies bringing in quarterly revenues of $US40 million have an average market capitalisation of just under $US1.5 billion – a PSR of about 9.4.
Simons acknowledged that Atlassian had considered “a lot of” investment banks that might lead an IPO but didn’t have any favourites as of November.
Betting On Australia
Australia’s startup community has seen a quiet but sure resurgence in the past decade. Some part of that growth must be attributed to the Atlassian success – the nation’s first software company to scale to its size, at its speed.
Meanwhile, new early-stage venture funds, incubators and a range of co-working spaces have emerged across the country and in Sydney and Melbourne in particular: from Tank Stream Labs in the heart of Sydney’s CBD to the grungier Fishburners in Ultimo and the York Butter Factory in Melbourne.
Since accepting money from Accel in 2010, the Atlassian co-founders have tipped millions from their own pockets into local start-ups. Both contribute to Scevek’s seed fund StartMate and Blackbird Ventures, as well as incubator Pollenizer.
“We’ve invested in funds that have a domestic focus. Part of that is patriotism, I guess; but also, we want to help out,” Farquhar told Business Insider Australia last June.
“We look at a whole bunch of younger people who are running smaller businesses and say, how can we help them – what is the help that we would have liked when we started Atlassian.
“I haven’t set financial targets; hopefully it’s successful and you make money, but I think you have to be willing to lose, investing in start-ups.”
Many in Australia say it would have been better for the country if Atlassian had been willing to list on the local stock exchange, as it would have helped attract investor attention and lay the foundations for future entrepreneurs.
Freelancer’s Barrie believes Australia needs more successful technology businesses to list on the ASX to help stem the constant bleeding of high-performing businesses and talent.
Local technology entrepreneurs face an unfortunate chicken-and-egg predicament, with many software companies driven to list offshore because of a lack of software companies in Australia. And if the cycle continues, the national economy will remain “quite primitive”, Barrie says, highlighting its heavy reliance on services, mining, manufacturing and agriculture.
Over the years, few have had a bad word to say about the Atlassian founders – even Barrie blames a lack of Australian government support rather than faulting Cannon-Brookes and Farquhar.
“They’re a fantastic team, great guys, well-respected, well-liked, and I think the government should be doing everything it can to keep them in the country. It’s a tragedy for the country that they’re going offshore,” he said.
“Tech really is out of sight and out of mind in Australia. It slips between the cracks of various [ministerial] portfolios and responsibilities: broadband, communications, innovation and others.
“I can’t think of any other industry with a better wealth and productivity multiplier than technology, and the only people who are hiring people and growing are startups.”
On the other hand, software engineer North suggested that Atlassian’s global reputation was giving Australian start-ups a wider reach, helping them attract funds not only locally but also offshore.
“There have been a few companies recently raise significant money from US investors: BigCommerce, Canva, Shoes of Prey, Posse to name a few,” he said.
“I’m sure they all pointed to Atlassian as an example of how an Australian HQ can still reach a global market. Newer Australian VCs like Blackbird and Square Peg believe the same thing of their investments.”
And while Paul Bassat may have chosen to list SEEK on the ASX, he said he didn’t have “a strong view” on the Atlassian decision without knowing all the details of the business. Bassat left the jobs listing site in 2011 and now invests in and mentors early-stage businesses with Square Peg Capital.
“I don’t think there’s any question that the success [Atlassian has] enjoyed has had a positive impact on the sector, by inspiring potential entrepreneurs and also because Mike and Scott are active investors and spokespeople for the industry,” he said.
Keeping The Culture
As Atlassian grows, SydStart’s Pete Cooper – a former investment banker, technologist, and entrepreneur – said its biggest challenge would be innovating at scale.
Small, flexible start-ups generally pride themselves on being the disruptors to the bigger, more established “disrupted”. And with Atlassian now boasting some 30,000 customers, some technologists say it could easily coast on previous successes and rely on having those organisations locked in for now.
“Atlassian’s approaching its mid-career. They’re in the big company category now, or they will be in 2015, so then the question becomes how do you innovate in a company of 2000-plus staff,” Cooper said.
Atlassian spent almost $US58 million on research and development last financial year, far outstripping its $US19 million spend on sales and marketing and $US25 million on administration.
To date, the company has bolstered its product portfolio by building what it needs and buying what it can. Besides Stepka’s Authentisoft, Atlassian has acquired tools like Crucible, Fisheye and Clover with Australian company Cenqua in 2007, and instant messenger HipChat in a 2012 deal valued at $US8.4 million. And bigger purchases may be on the cards, with executives highlighting the potential to pay for acquisitions with stock among the benefits of an IPO.
Cooper pointed to the likes of Google, Apple and Macquarie Group as giants that continued to innovate, with the latter getting past the issue of scale by operating as an “independent, federated network of entrepreneurs”. Former Google employees have described a similar, positive experience of working in a “collection of startups” rather than feeling like an anonymous cog in a multi-tiered, 46,000-person machine.
But for now, at least, Atlassian consistently ranks among Australia’s top places to work. Cooper – who recently joined the University of Technology Sydney’s engineering and IT faculty as director of innovation and growth – says its graduate positions are in high demand.
Atlassian prides itself on hiring selectively but keeping turnover to a minimum, fostering a high-performing environment that former design engineer Hardy initially found challenging.
“After I’d been there for 5 months … it still seemed quite overwhelming. How [was I] to know if I was useful? Everyone there is just so damned switched on,” he said.
“[A product manager] told me he’d had a similar conversation with Mike Cannon-Brookes when he’d been there for 6 months. Mike told him not to worry, saying something along the lines of: ‘Everybody takes time to settle in. Everybody we hire was a big fish in a small pond. Now they’re swimming with other big fish and it can take up to 6 months to adjust.’ I found that to be true.”
Besides its major offices in San Francisco and Sydney, Atlassian now has an office in Amsterdam and staff in Poland, Manila, Vietnam and Tokyo. Its headcount grew almost exponentially in its first six years and it has remained in a perpetual “hiring spree”, taking on another 100 staff across the globe in the first quarter of this financial year alone.
Simons, Cannon-Brookes and Farquhar hold Q&A sessions with each batch of new recruits in the bigger offices. The co-founders take turns to conduct those sessions every month in Sydney.
“We have an open-plan [office] and always have had an open door policy,” says the founders’ executive assistant Ruth Kapea, who joined Atlassian from more traditional finance and public sector organisations in late 2010 and now refers to her bosses as “the boys”.
“We have that many new staff starting that once a month I book in a Q&A founder session. Up to 10 people are invited … The newbies can just come in and ask the boys anything. That way, the boys get to meet the new staff and vice versa. They love it because they’re around other enthusiastic IT people.
“It’s an even structure [within Atlassian]. The boys will wander the floor; if I don’t stick something in Mike’s diary, he often goes down and hangs out with his team.”
Atlassian executives are all too aware that some highlights of its earlier days, like friendships and time, may be impossible to achieve at scale. The founders said they had to adapt to a more hands-off approach to getting things done.
“You’re managing managers who manage managers who manage people doing important things,” Cannon-Brookes said. “The biggest challenge has definitely been scaling ourselves and the biggest surprise is that we’ve managed to.
“Fundamentally, when the business scales at the rate of products or customers or whatever, the team you have at 100 people is not the team you have at 800 people, and not the team you have at 8,000 people.”
And as longer-serving staff mature, some have noticed little changes in the company’s social activities and decor.
Every six weeks, Sydney staff, their partners and children are invited to a social “TGIF” event, be it a quiz night, mini-golf, or sumo wrestling. There’s also an annual Atlassian Family Day – the company hosted 150 children of its 400 or so Sydney staff at the Featherdale Wildlife Park in December 2012.
“’Don’t F*** The Customer’ changed to ‘Don’t #@!% The Customer’ towards the end of my time there because employees bringing their kids in – a regular occurrence for some – didn’t want ‘f***’ written in large letters on the wall. We still pronounce it the same way, though,” Hardy said.
Ryall describes Atlassian’s growth with the Big Bang theory. In the early days, the Atlassian universe was relatively small, and people had a view of everything else that was going on. That became more difficult as the universe expanded and other bodies – people, projects, goals and teams – moved irrevocably further away.
Atlassian has tried to bridge the gaps with more formal communication channels like blogs, regular social events, the odd note on a wall, and “rites of passage” like having new San Francisco hires be responsible for delivering beer to all staff on Friday afternoons.
“We always joked that we wouldn’t become the kind of company that posts announcements on the walls of a bathroom because it seems clichéd and kind of corporate,” Simons said.
“But we do that now, and that’s kind of because there are things that you want to make sure people see everywhere they go and that’s a place that they go.”
And while some like Nolen, who moved from Santa Barbara for Atlassian eight years ago, saw his colleagues as his earliest friends in San Francisco, most staff acknowledge that the days of all-staff poker nights and pub crawls have come to an end.
“They say the mythical human team size limit is 150,” Simons said, referring to Dunbar’s number, which is the theoretical maximum number of stable relationships people are capable of maintaining.
“So far, I’ve scaled past that but it’s hard. I remember this at BEA where you see somebody repeatedly and so you both know each other but you don’t know their name and you’ve seen them four times in a row so both of you are embarrassed to say ‘I don’t remember your name’, so you never ask.
“I pride myself on knowing every name in the [Atlassian] building, in part because I work really hard at it.”
“But friends is probably a little too strong a word,” he said.
Liz Tay is on Twitter, @liztayau
* Data on Atlassian’s share distribution was corrected on 10 February 2014. The original article stated Burgum held 6.98 per cent and Accel 9.72 per cent of shares as of 12 December 2013. This was incorrect and the article has been updated accordingly.
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