Atlassian Stuart Schonell University of Tasmania Atlassian, an Australian team collaboration software company launched in 2002, Specialises in productivity and collaboration tools for businesses. It's software assists teens in organising, discussing and completing shared work. The company, with 5 million active monthly users, has over 51,000 organisation clients using its software products, including Citigroup, eBay, Coca-Cola, Visa, Procter and Gamble, BMW, Facebook, NASA and Netflix. Atlassian was formed on an A$10,000 credit card by entrepreneurs Scott Farquhar and Mike CannonBrookes. their belief was that if you made a great piece of software, price it right, and made it available to anyone to download for the internet, customers would come. Incredibly, Atlassian was built without a Salesforce, working on Farquhar and Cannon-Brookes’ premise that if customers like their product they would tell friends and associates. Atlassian was very quickly a success, with A$1 million in revenue in its first year, growing to A$14.9 million in 2005-06 When Cannon-Brookes and Farquhar were named entrepreneurs of the year by counting giant Ernst and Young. Revenue has continued to climb, reaching A$319.5 million in 2015, a 49% increase on 2014 revenue. The Industry An analyst at Gartner estimated Global spending for infotech (including hardware, software, services and telecommunications) at US$3.8 trillion for 2015. Within this massive revenue pool, the industry is being continually reshaped. Rapid change is an industry Hallmark, with customers continually demanding better service, lower prices, high quality and more depth of inventory. Rapid change and customer demands have led to destruction in software and services delivery and business models. Legacy tech companies can no longer rely on one-dimensional value strategies. Improving margins and finding new revenue streams are critical for Success. Many Legacy tech companies reexamining the structure of a business to seek better financial performance. Their profit margins and market share under siege from aggressive competitors and destructive well-funded start-ups. Legacy companies such as IBM, Symantec, Hewlett-Packard and eBay are looking for new business models that allow them to be more flexible and responsive to market demands and changes. They are splitting into more Nimble structures that enable them to compete with start-ups and aggressive new players. Separation can provide better revenue growth through the business’ distinct strategies comma targeted investments, and innovation. In the tech industry in almost all situations, widening revenue streams is the only viable option for long-term survival. Shareholder quickly losing patience with companies that look inward towards margin improvements. Most Legacy companies are facing shrinking markets for the Legacy products. Without Summer top-line improvement through organic Innovation or acquisition, they are in the precarious position of being just a few earnings disappointments away from alienating shareholders and shedding market capitalisation. For tech companies, future will depend not as much on cost-cutting as it will on outpacing competitors in rapidly evolving high growth areas such as cloud computing, cybersecurity, data analytics, everything-as-a-service (XaaS) and digital content. Companies with the highest growth potential are leaders in the so-called XaaS sector comma which includes computing platforms, applications and infrastructure, delivered remotely. According to Paul Sallomi, the US and global technology sector leader at Deloitte, in the rising digital economy there are three certainties:1. The pace of technological change will not slow down 2. Standing still is not an option; barriers to entry will continue to fall. We are seeing the rapid rise of privately funded companies whose market capitalisation would exceed US$1 billion if they were to go public. 3. Continued innovation will remain an essential component across all industries. The Atlassian Advantage In 2015, Atlassian, with its ‘no sales force’ philosophy, spent 21% of revenue on selling its products. Similar software businesses do not come close to this ratio. Sales and marketing costs for Atlassian and competitors in 2015 are listed in Table 1.8 Atlassian’s business revolves around recurring subscription fees rather than software sales; therefore, they are not driven by a sales culture that’s incentivised to close deals by the last day of the reporting cycle. So how is this ‘no sales force’ model successful? Twenty years ago, the distribution model (how you get products to market) and the promotion strategies (how you sell a product) were two of the most important parts of sales success. Distribution and promotion are two of the 4Ps of marketing, part of the marketing mix still taught today. Atlassian is changing the way we think about distribution (see Figure 1) and promotion. It spends a greater percentage of revenue on building great products and then lets the market or customer do the selling for it. Its products are available online and are downloaded from its website. ‘Through this word-of-mouth marketing, we have been able to build our brand with relatively low sales and marketing costs’, the company said in its 2015 prospectus. ‘This strategy has allowed us to build a substantial customer base and community of users who use our products and act as advocates for our brand and solutions, often within their own corporate organisations.’ Atlassian is an example of the connected model at work (see Figure 2). To remain competitive, vendors must connect customers to the products and buying experience they want – the customer experience is integral to the product.Atlassian explains, ‘Traditional enterprise software distribution models, with their focus on quotadriven sales representatives and reliance on large deals, are not well suited to reach, influence or meet the needs of teams, who are increasingly driving technology purchasing decisions’. Atlassian’s consumer-style approach to sales means that its products are all available online and free to trial. It declines to make exceptions to the contracting terms or price. Atlassian understands its market and has built a community of users/advocates. The customer’s experience of Atlassian is flawless through every stage of their purchasing journey – exploration (through networks, on the web, in communities), evaluation (advisers, free trials), engagement (easy to contract) and importantly in its experience (life after the sale). Atlassian has a deep understanding of what it is to be a customerdriven sales organisation.A happy workplace Atlassian also differs from other tech companies in that it is driven by an inspiring set of values (see Table 2) and focuses heavily on staff wellbeing. The company donates 1% of profit, product, equity and employee time to charity, helping thousands of children in developing countries receive an education. For two years in a row (in 2014 and again in 2015) Atlassian topped BRW’s Best Places to Work list.15 All new hires receive a ‘celebration before you start’ gift card to splurge on something for themselves or celebrate with friends and family before their new job commences. The company also offers Atlassians initiatives such as five days paid volunteer leave annually to participate in a cause of their choice, paid parental leave schemes, a buddy system to introduce new employees, and an additional three days’ annual leave on top of the standard 20 for staff who have served for three years or more. After five years Atlassians receive an all-expenses-paid holiday. The company also offers Atlassians daily perks including free snacks, subsidised lunches, fitness classes, free beverages during the day and subsidised public transportation. Technology is used as a way to break down staff barriers. Atlassian’s internal communication channel, Confluence (also an Atlassian product), serves as a collaboration platform. Through these systems, staff members can give their colleagues ‘Kudos’ for a job well done, without the approval of management. Kudos requests are submitted to HR, which arranges the recommended gift and a handwritten Kudos card. 11% of Atlassian staff members are awarded Kudos in an average week. The company also has quarterly innovation Sales Models events, called ShipIt, to reinforce their values and create time for people to step outside their day-to-day mindset and think creatively. See https://www.atlassian.com/company/shipit. Atlassian’s expansion Until recently, Atlassian has relied entirely on profits to fund expansion – a rare feat in today’s tech market. Most tech startups raise hundreds of millions of dollars from venture capitalists before they make profits or float on the stock market. In December 2015, Atlassian floated on the US market and reached A$8 billion (US$5.85 billion), with its shares soaring by 32%, in opening trade. This valuation made Atlassian, at the time, bigger than companies such as Medibank Private (A$5.9 billion),Fortescue Metals (A$5.7 billion) and the Bank of Queensland (A$5 billion). The US float placed Farquhar and Cannon-Brookes in the ranks of the 20 wealthiest Australians and was the biggest-ever float from an Australian company on US markets. Atlassian has grown slowly and deliberately, striking a careful balance between considered strategy and adapting to changes as they happen. Since 2010, Farquhar and Cannon-Brookes have tipped millions from their own pockets into local start-ups. They contribute to seed funds StartMate and Blackbird Ventures, as well as incubator Pollenizer. In a recent interview, Farquhar said, ‘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’. Atlassian spent US$247.6 million on research and development from fiscal year 2013 to fiscal year 2015. The company builds the products it needs and buys the products it can. Atlassian has acquired Stepka’s Authentisoft, tools like Crucible, Fisheye and Clover, and instant messenger HipChat. The company’s 2015 prospectus lists its growth strategy as ‘adding customers, developing new products, expanding in existing customers and pursuing selective acquisitions’. Drivers of growth include: ‘protect and promote our culture’, ‘continue to refine our unique business model’, ‘increase product value’ and ‘grow the Atlassian marketplace and partner ecosystem’. Where to from here? There is a contrary relationship between the strategies of private owner-run companies and public companies. When companies start up they often think long term, but when they go public there are shareholder demands to consider, so they begin focusing on the short-term and quarterly reporting cycles. In addition, as companies grow they increase their management staff numbers. These managers are often on short- to medium-term contracts, with profit- and revenue-driven key performance indicators. As Atlassian continues to grow, a major challenge will be innovating at scale. Small, flexible start-ups are generally the disruptors to the bigger, more established tech companies. Farquhar and Cannon-Brookes have changing roles. They now need to manage managers who manage managers who manage people. The strategies they used in a company of 100 people may not be the strategies they can use in a public company of 2000 people. Atlassian is in the big company category. How can it continue to innovate as it grows into a company in excess of 2000 staff, or is this no longer a strategy it should follow? Are Farquhar and Cannon-Brookes going to be able to do longterm thinking and long-term investing as a public company? Can Atlassian continue to use the ‘no sales force’ philosophy in such a competitive market? When does this case cease to become a competitive advantage?