How Atlassian’s dual CEO structure helped the company thrive

Atlassian Founders and Co-CEOs Scott Farquhar, left, and Mike Cannon-Brookes.

Atlasian

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In early March, Atlassian, maker of collaboration software, 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 was “completed the sale will release all new software to Russia”.

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

That’s one of the many benefits of having two people at the helm of a company. The atypical structure has helped propel the Australians’ 20-year-old firm into the forefront of the competitive software industry, with products so well known that large companies might struggle to break away.

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

The duo have held the same job at the same company for 20 years, they were born a month apart, they became parents three months apart, they were groomsmen at each other’s weddings and they own property next to each other in Sydney. “Our stock ticker is TEAM, and that’s what we’re all about,” Farquhar said.

But they are other people. Cannon-Brookes is a long-haired idealist who became the owner of a US basketball team and attempted to take over the Australian energy company AGL Energy. His comments are peppered with profanity. Farquhar is clear and careful when he speaks. Early Accel investor Rich Wong calls Farquhar more analytical.

“Mike is the epitome of the unreasonable man, so to speak,” Farquhar said. “‘The world should work like this.’ ‘Mike, not yet.'”

Early VC fortune

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

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

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

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

“Our exposure to software started with things like gaming,” Farquhar said. “Back then, games had different business models. You could buy your PlayStation games shrink-wrapped. If you look at Id Software, they came out with a shareware model, so give it a try before you buy. We thought this would be a great way to sell software because of course you want to try before you buy. There is no trial and error with SAP. You see what it looks like because it takes so long to implement.” (SAP offers free trials for some of its products.)

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

Because Atlassian didn’t have a ton of cash from venture capitalists for its first eight years, it skipped the custom of assembling a squadron of salespeople to close deals. Now, however, there are some employees pursuing select business opportunities, Farquhar said.

Focusing less on hard selling and more on providing products people actually want to use has resulted in a robust financial profile. Atlassian enjoys the fifth-highest gross margin of any 76 components of the WisdomTree Cloud Computing Fund at 83%.

This status has attracted the attention of investors.

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

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

A more prominent feature of Atlassian’s 7,000-strong organization is the group that actually manufactures the company’s goods. Engineering, product and design report to Cannon-Brookes. Farquhar oversees legal, human resources, finance, sales, marketing and customer service teams. “I’m kind of like the grandparents,” Farquhar said. “I’ll let him deal with the tantrums and the screaming.”

When they talk about responsibility, they think of skills as well as joy. You don’t want someone who’s good at getting a job done but doesn’t enjoy doing it, and vice versa, Cannon-Brookes said.

Marketing and sales reported to Cannon-Brookes for 15 years and engineering once reported to Farquhar. And both have run the entire company at different times. You took a sabbatical. Last year, Farquhar took three months off to live in a trailer with the family in north-west Australia. “We have to travel somehow unencumbered,” he said. “I think other CEOs would have to retire or quit to be able to take a break that long.”

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

“I think it helped to have two strong leaders at the helm who at least agree on every important issue,” he said. Other tech companies have hired CEOs in pairs, including Autodesk, Ceridian, Oracle, Salesforce, SAP, and Workday. Waymo, an autonomous driving subsidiary of Alphabet, recently went the co-CEO route.

The strategy has a mixed history, Moskowitz said, saying it didn’t work well at all for phone maker BlackBerry. The relationship between co-CEOs Jim Balsillie and co-founder Mike Lazaridis had “gone cold,” according to a report, and the two resigned.

The founder effect

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

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

“I think it convinced 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 for what it takes ‘to get the acquisition done,’” Wong said.

If there’s a problem with Cannon-Brookes, it’s his call. But if it’s something big, he will consult with Farquhar because it will almost certainly affect them both. Such examples abound in and around the company these days, and it’s natural that they divide things up.

“The pandemic and Russia and Ukraine – right now Sydney is in flooding,” Cannon-Brookes said. “When you put it all together, there are a lot of things to deal with in a growth business that aren’t just the product.”

Farquhar said he and Cannon-Brookes have had lengthy discussions about what to do with their team messaging app, Stride, which launched in 2017 when Slack and Microsoft Teams were gaining momentum.

“It was actually weird because everyone was talking about how good Slack is. We used 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. It also bought a stake in Slack, which skyrocketed in value when Slack stock debuted on the New York Stock Exchange in 2019.

When Cannon-Brookes and Farquhar were younger, they could close the office door and talk about a crisis, and maybe go mountain biking or drinking beers together for fun. The pandemic prevented them from seeing each other in person as often. They’ve gotten good at connecting via Zoom, Farquhar said.

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

“I would constantly explain things that felt like I was condescending to someone,” he said. “‘Good idea, but let me tell you what happened in 2012.'”

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