How Atlassian’s dual-CEO structure has helped the Australian software company thrive

In this weekly collection, CNBC takes a take a look at firms that made the inaugural Disruptor 50 listing, 10 years later.

In early March, collaboration software maker Atlassian revealed a blog post titled, “Atlassian stands with Ukraine,” laying out the company’s plans to help staff and clients in the area and saying it was “pausing the sale of all new software to Russia.”

The put up was signed by co-CEOs Scott Farquhar and Mike Cannon-Brookes. They went backwards and forwards on the content material and the details. But Farquhar did most of the work, liberating up Cannon-Brookes.

That’s one in every of many conveniences of conserving two folks at the high of a company. The atypical structure has helped propel the Australians’ 20-year-old agency into the high tier of the aggressive software business, with merchandise so well-known that huge firms would possibly discover it tough to maneuver away.

In 2013, Atlassian landed on CNBC’s inaugural Disruptor 50 list of personal firms value watching, forward of its 2015 Nasdaq debut. The inventory has risen nearly 1,000% since then, in contrast with 124% progress for the S&P 500 over the identical interval.

The duo have had the identical job at the identical company for 20 years, they have been born one month aside, they grew to become mother and father three months aside, they have been finest males at one another’s weddings, they usually personal property subsequent to one another in Sydney. “Our inventory ticker is TEAM, and so, yeah, that is what we’re about,” Farquhar mentioned.

But they’re totally different folks. Cannon-Brookes is a long-haired idealist, who grew to become an proprietor of a U.S. basketball group and tried a takeover of Australian utility company AGL Energy. His feedback are sprinkled with obscenities. Farquhar is clean-cut and cautious as he speaks. Early investor Rich Wong of Accel calls Farquhar extra analytical.

“Mike is sort of the quintessential unreasonable man,” Farquhar mentioned. “‘The world ought to work this fashion.’ ‘Mike, it does not but.'”

Today Jira is a market chief, transcending its standing as Silicon Valley darling and overtaking heavyweights with many years of expertise promoting to enterprises. Atlassian managed larger share than every other company in the marketplace for software change, configuration and course of administration instruments in 2020, forward of Microsoft, IBM and Broadcom, in line with an estimate from researcher IDC. Atlassian’s income in the market grew about 22% 12 months over 12 months, quicker than the total class, which expanded nearly 15% to $4.8 billion, based mostly on IDC’s information.

Part of the momentum derives from programmers attending to check out Atlassian’s software totally free earlier than they pay for it. The technique goes again to the founders.

“Our publicity to software began with issues like video games,” Farquhar mentioned. “Back then, video games had totally different enterprise fashions. You might purchase your PlayStation ones shrink-wrapped. If you take a look at Id Software, they got here out with a shareware mannequin, type of strive before you purchase. We thought that was a good way to promote software, due to course you need to strive before you purchase. At SAP, there is not any making an attempt. You get to see what it seems to be like, as a result of it takes that lengthy to implement it.” (SAP does provide free trials for a few of its merchandise.)

Atlassian was both the first or very early to promote software with a freemium provide, Farquhar mentioned, including that cloud file sharing app maker Dropbox made it extra in style. And in the late Nineties Red Hat, which IBM later acquired, gave away CDs containing its distribution of the open-source Linux working system and permitted folks to obtain it freed from cost.

Lacking a pile of cash from enterprise capitalists for its first eight years, Atlassian skipped the customized of assembling a squadron of salespeople to attain offers. Now, although, there are a number of on employees who pursue choose enterprise alternatives, Farquhar mentioned.

Focusing much less on promoting laborious and extra on delivering merchandise folks really need to use has given rise to a sturdy monetary profile. Atlassian enjoys the fifth widest gross margin of all 76 constituents of the WisdomTree Cloud Computing Fund, at 83%.

That standing has caught the consideration of buyers.

“In my historical past of 33 years of doing this, I’ve seen greater than a handful of firms which have tried to do it with out an inner salesforce, or an exterior salesforce, both. The factor I might say about Atlassian is that they’re the most profitable at it,” mentioned Brendan Connaughton, founder and managing companion of Catalyst Private Wealth, which held $91 million in Atlassian inventory at the end of 2021, its largest place at the time.

Like many different cloud shares, Atlassian is not really worthwhile. Connaughton mentioned Cannon-Brookes and Farquhar would discover it simpler to show Atlassian into an precise moneymaker than its friends, because of its comparatively sparse gross sales group.

A extra distinguished characteristic of Atlassian’s 7,000-person group is the group that really builds the company’s wares. Engineering, product and design report back to Cannon-Brookes. Farquhar supervises authorized, human sources, finance, gross sales, advertising and marketing and customer-support groups. “I’m type of the grandparents,” Farquhar mentioned. “I depart him to cope with the mood tantrums and the screaming.”

When they speak about duty, they think about each abilities and delight. You don’t need somebody who’s good at dealing with a job however does not like doing it, and vice-versa, Cannon-Brookes mentioned.

Marketing and gross sales reported to Cannon-Brookes for 15 years, and engineering as soon as reported to Farquhar. And they’ve each run the whole company at totally different instances. They’ve gone on sabbaticals. Last 12 months Farquhar took three months off to caravan with household round northwestern Australia. “We type of received to journey unencumbered,” he mentioned. “I feel different CEOs must retire or give up to have the ability to take a break that lengthy.”

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

“I feel it has helped, having two robust executives at the very high who see eye to eye, at the least on all the necessary points,” he mentioned. Other expertise firms have employed CEOs in pairs, together with Autodesk, Ceridian, Oracle, Salesforce, SAP and Workday. Alphabet’s autonomous-driving subsidiary Waymo just lately went the co-CEO route.

The technique has a combined historical past, Moskowitz mentioned, saying it did not work nicely in any respect at handset maker BlackBerry. The relationship between co-CEOs Jim Balsillie and co-founder Mike Lazaridis “had gone chilly,” in line with one account, and the two stepped down.

Wong pointed to Atlassian’s 2017 acquisition of task-management app Trello for $384 million, nonetheless the company’s largest deal to this point. At Trello it was a shock, as a result of Atlassian’s Jira was seen as a competitor, mentioned Stella Garber, who ran advertising and marketing at Trello at the time.

“I feel it took conviction of the founders to say, ‘I do know we might have constructed it, however it could take us time, and it could actually increase the group if we make the selection now and pay what it takes to get the acquisition performed,'” Wong mentioned.

When there’s a problem on Cannon-Brookes’ turf, it is his resolution to make. But when it is one thing huge, he consults with Farquhar, as a result of it is nearly definitely going to have an effect on them each. There are a lot such examples in and round the company proper now, and it is pure that they divvy issues up.

“The pandemic and Russia and Ukraine — at the second Sydney is below floods,” Cannon-Brookes mentioned. “Put all of it collectively, and there is a number of issues it’s essential cope with in a progress biz that are not simply the product.”

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

“It was bizarre, really, as a result of everybody was speaking about how good Slack is. We have been utilizing Stride internally,” Farquhar mentioned. “The product was really higher. The Slack factor is superb. It’s really not so good as what we had. We needed to decide.”

Ultimately, Atlassian shut down Stride and HipChat Cloud and bought the mental property to Slack. It additionally purchased an fairness stake in Slack, which shot up in worth as Slack inventory appeared on the New York Stock Exchange in 2019.

When Cannon-Brookes and Farquhar have been youthful, they may shut the workplace door and have a dialog with one another a couple of disaster, and for enjoyable they may go mountain biking or drink beer collectively. The pandemic stopped them from seeing one another in individual so usually. They’ve gotten good at connecting on Zoom, Farquhar mentioned.

Cannon-Brookes does not have to therapeutic massage what he says to Farquhar. Without prompting, he imagined what would occur if Farquhar have been to depart.

“I’d be continuously explaining issues, which might really feel like I used to be speaking all the way down to somebody,” he mentioned. “‘Good concept, however let me inform you what occurred in 2012.'”