How Atlassian’s dual-CEO construction has helped the corporate thrive

On this weekly collection, CNBC takes a have a look at firms that made the inaugural Disruptor 50 checklist, 10 years later.

In early March, collaboration software program maker Atlassian printed a blog post titled, “Atlassian stands with Ukraine,” laying out the corporate’s plans to assist staff and prospects within the area and saying it was “pausing the sale of all new software program 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. However Farquhar did many of the work, liberating up Cannon-Brookes.

That is one in all many conveniences of holding two folks on the prime of an organization. The atypical construction has helped propel the Australians’ 20-year-old agency into the highest tier of the aggressive software program 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 price watching, forward of its 2015 Nasdaq debut. The inventory has risen virtually 1,000% since then, in contrast with 124% development for the S&P 500 over the identical interval.

The duo have had the identical job on the similar firm for 20 years, they have been born one month aside, they grew to become dad and mom 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.

However they’re completely 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 firm AGL Vitality. His feedback are sprinkled with obscenities. Farquhar is clean-cut and cautious as he speaks. Early investor Wealthy Wong of Accel calls Farquhar extra analytical.

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

As we speak 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 higher share than another firm out there for software program change, configuration and course of administration instruments in 2020, forward of Microsoft, IBM and Broadcom, based on an estimate from researcher IDC. Atlassian’s income out there grew about 22% yr over yr, sooner than the general class, which expanded virtually 15% to $4.8 billion, based mostly on IDC’s information.

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

“Our publicity to software program began with issues like video games,” Farquhar mentioned. “Again then, video games had completely different enterprise fashions. You might purchase your PlayStation ones shrink-wrapped. If you happen to have a look at Id Software, they got here out with a shareware mannequin, kind of strive before you purchase. We thought that was a good way to promote software program, due to course you wish to strive before you purchase. At SAP, there is no making an attempt. You get to see what it appears to be like 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 primary or very early to promote software program with a freemium provide, Farquhar mentioned, including that cloud file sharing app maker Dropbox made it extra fashionable. And within the late Nineties Crimson 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.

Missing 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 workers who pursue choose enterprise alternatives, Farquhar mentioned.

Focusing much less on promoting onerous and extra on delivering merchandise folks really wish to use has given rise to a strong 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 eye 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 inside salesforce, or an exterior salesforce, both. The factor I’d say about Atlassian is that they’re probably the most profitable at it,” mentioned Brendan Connaughton, founder and managing accomplice of Catalyst Non-public Wealth, which held $91 million in Atlassian inventory at the end of 2021, its largest place on 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, due to its comparatively sparse gross sales group.

A extra distinguished function of Atlassian’s 7,000-person group is the group that truly builds the corporate’s wares. Engineering, product and design report back to Cannon-Brookes. Farquhar supervises authorized, human sources, finance, gross sales, advertising and customer-support groups. “I am kind of the grandparents,” Farquhar mentioned. “I depart him to take care of the mood tantrums and the screaming.”

After they discuss accountability, they think about each expertise and pleasure. You don’t need somebody who’s good at dealing with a activity however would not like doing it, and vice-versa, Cannon-Brookes mentioned.

Advertising and marketing and gross sales reported to Cannon-Brookes for 15 years, and engineering as soon as reported to Farquhar. And so they’ve each run your complete firm at completely different instances. They’ve gone on sabbaticals. Final yr Farquhar took three months off to caravan with household round northwestern Australia. “We kind of acquired to journey unencumbered,” he mentioned. “I believe different CEOs must retire or give up to have the ability to take a break that lengthy.”

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

“I believe it has helped, having two sturdy executives on the very prime who see eye to eye, at the very least on all of the essential points,” he mentioned. Different know-how firms have employed CEOs in pairs, together with Autodesk, Ceridian, Oracle, Salesforce, SAP and Workday. Alphabet’s autonomous-driving subsidiary Waymo lately went the co-CEO route.

The technique has a blended historical past, Moskowitz mentioned, saying it did not work properly in any respect at handset maker BlackBerry. The connection between co-CEOs Jim Balsillie and co-founder Mike Lazaridis “had gone chilly,” based on one account, and the 2 stepped down.

Wong pointed to Atlassian’s 2017 acquisition of task-management app Trello for $384 million, nonetheless the corporate’s largest deal thus far. At Trello it was a shock, as a result of Atlassian’s Jira was considered as a competitor, mentioned Stella Garber, who ran advertising at Trello on the time.

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

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

“The pandemic and Russia and Ukraine — in the mean time Sydney is underneath floods,” Cannon-Brookes mentioned. “Put all of it collectively, and there is quite a lot of issues you could take care of in a development 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 Groups 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 wonderful. It is really inferior to what we had. We needed to decide.”

In the end, 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 Inventory Trade 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 particular person so usually. They’ve gotten good at connecting on Zoom, Farquhar mentioned.

Cannon-Brookes would not must therapeutic massage what he says to Farquhar. With out prompting, he imagined what would occur if Farquhar have been to depart.

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