CXO

Atlassian's upside-down business strategy: Could it work for you?

Atlassian bootstrapped its way to a $3.3 billion valuation while selling to a demographic that hates salespeople. Jay Simons, Atlassian's president, offers tips on how to replicate its success.

Atlassian

There's something different about Atlassian. The collaborative tools company, profitable and cash-flow positive for 12 years, makes money — lots of money — selling to people who hate being sold to (developers) without salespeople and seemingly without even trying. In an interview with Atlassian president Jay Simons, however, it's clear that there's no magical formula for Atlassian's success.

There's just lots of persistence and $0 in venture capital funding.

Selling sans salespeople

Atlassian generates over $200 million in revenue, with sales climbing an average of 40% annually over the last five years. Despite starting with $10,000 in "credit card funding," the company has been cash-flow positive for 12 years and is now worth a whopping $3.3 billion. Roughly 37,000 organizations use Atlassian products, up from nearly 12,000 in July 2010.

That's impressive.

Even more impressive, the company manages to sell and do so much without a sales team. Atlassian spends just 15% to 20% of its annual revenue on sales and marketing and 35% to 40% on research and development. Rather than employ an expensive sales force, Atlassian opted to make its product inexpensive and easily acquired over the web, as co-founder and co-CEO Mike Cannon-Brookes highlighted in a 2009 presentation:

Atlassian model

This might be a matter of necessity, given that Atlassian's primary audience has been the developer, a demographic notorious for its parsimony. Early on, Atlassian focused on what it calls "the lone genius" in the enterprise and over time has expanded its product line to help "make your people geniuses" or otherwise improve the productivity of teams. Throughout it all, the company has focused on a few core values:

  • Open company, no bulls***.
  • Build everything with heart and balance.
  • Don't f*** the customer.
  • Play as a team.
  • Be the change you seek.

Importantly, as Simons stressed to me, this model and these values depended on Atlassian being able to chart its own course, removed from the stress most startups assume when they take on venture capital.

The genius of bootstrapping

Most startups today hunger for gargantuan piles of venture capital. Atlassian has never taken a penny. While the company has taken money from Accel ($60 million) and T.Rowe Price ($150 million), in both cases, it was to provide liquidity to employees, not to fund operations.

Simons told me this meant that Atlassian "didn't have the influence early on to grow faster than [it] organically would." Instead, the company could focus on acquiring and serving as many customers as possible," creating "a wonderful chemistry that is pretty precious."

Part of that "chemistry" is the ability to sell at a lower price point than might otherwise seem prudent — or to hold firm on pricing, even as its enterprise customers demand discounts.

Atlassian charges a perpetual license fee with ongoing maintenance of 50% each year. High-growth customers might start spending under $10,000 in their first year but can see their bill jump to $50,000 in the second year, and growth can continue to accelerate at this pace. Several hundred Atlassian customers fit this pattern.

As Simons told me, once customers hit a certain spend — say, $500,000 per year — they often ask for an enterprise license. In the standard enterprise software world, this might mean $1,000,000 for a three-year agreement. But, insists Simons, this sort of arrangement means "The customer expects us to forgo future earnings, which doesn't make sense for us."

So Atlassian says "No."

While the company agonizes over whether this means it might be "screwing its customer," ultimately, the right thing for the customer and for Atlassian is to deal with customers openly, honestly, and predictably.

"Every time we've said no, we've been right. You simply can't get our quality of software at our price point. So, customers come back to us even when they say they're going to pull the plug."

Simons was also quick to add that customers appreciate that Atlassian's model charges customers when they actually derive value. Unlike the traditional enterprise sales model, where a salesperson is incentivized to get as much money upfront as possible and then largely forget the customer, the Atlassian model forces it to continuously deliver value and charge accordingly.

Plan for the long term

Atlassian can afford to take this measured, firm approach because it's under no pressure to some external board to hit artificial growth targets. It is beholden only to its customers and to its employees.

This, ultimately, is Atlassian's great secret. Because it has no obligations to VCs, it can think long term. As Simons points out, "Nothing any of us can do to affect the quarter now. It was baked three quarters ago. This forces us to think several quarters out."

Some companies talk about this long-term approach but "it's really hard to create if, from the beginning, you're creating a quarter-driven entity."

For those companies that have already taken a lot of venture money, perhaps the best way to get to Atlassian's freedom is to become profitable, and soon. The more profitable the company, the less it needs to depend on outsiders to guide inside decisions.

What are your thoughts about Atlassian's business strategy? Share your thoughts in the discussion thread below.

Automatically subscribe to TechRepublic's Tech Decision Maker newsletter.

About Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.

Editor's Picks

Free Newsletters, In your Inbox