20VC Atlassian CoFounder Scott Farquhar on The Biggest Lessons Scaling Atlassian to $50BN Market Cap; The Four Roles of the CEO, The Funding Round That Net Accel $6BN, The Regrets of Omission and Commission & The Honeymoon Cut Short

In a dynamic conversation with Harry Stebbings on "20VC," Atlassian co-founder Scott Farquhar delves into the foundational roles of a CEO, the evolution of Atlassian from a college startup to a global tech giant with a $50 billion market cap, and the importance of adapting to technological shifts like AI. Farquhar reflects on the company's early bootstrap days, its strategic decisions around funding and growth, and the significance of learning from both successes and missteps. He also discusses the impact of remote work on company culture and the future of business operations, emphasizing the need for intentional togetherness and the balance between personal life and professional ambition. Throughout, Farquhar shares personal insights, including his approach to philanthropy and parenting in a world of wealth.

• Scott Farquhar identifies four primary responsibilities of a CEO.
• Hiring and firing the management team is crucial for organizational health and direction.
• Setting the company vision provides a roadmap and inspiration for the entire company.
• Establishing company culture ensures alignment and cohesion among team members.
• Resource allocation involves strategic decisions on where to invest company funds and efforts.

"The four things a CEO should do, one of them is hire and fire the management team, two is set the vision for the company, three is set the culture for the company, and four is basically resource allocation, where you put the dollars and the bets."

• This quote outlines the four key areas of responsibility for a CEO, which are critical for leading a company effectively.

• Mistakes in small companies are usually active missteps, while larger companies often err by omission.
• Recognizing and acting on opportunities is increasingly important as a company grows.

"When you're small as a company, the mistakes are mistakes of commission... When we get larger, most of the mistakes I've radar of omission and not doing something that we should have done."

• The quote emphasizes the shift in the nature of mistakes as a company grows, with larger companies more likely to miss opportunities rather than make active errors.

• Atlassian scaled significantly, achieving a market cap close to $50 billion, 11,000 staff, and over 260,000 customers.
• Harry Stebbings expresses admiration for Atlassian's journey and is excited to discuss it on the 20 VC podcast.

"Today we have the story of an Australian technology company that has scaled to be one of the largest in the world, with a market cap of close to $50 billion, 11,000 staff and over 260,000 customers."

• This quote provides a snapshot of Atlassian's impressive growth and success, setting the stage for the conversation about the company's journey.

• Scott Farquhar and his co-founder Mike Cannon-Brookes started Atlassian after graduating from college.
• Neither founder wanted a traditional job, leading them to explore software and eventually create Jira.
• The company's growth from a two-person operation to a large, successful business is highlighted.

"So Mike and I started Atlassian, graduating out of college... Eventually we built a product called Jira, and 22 years later, 250,000 customers, 11,000 staff."

• This quote traces the origins of Atlassian and its evolution over two decades, from a small startup to a major player in the technology sector.

• Scott Farquhar believes in the importance of passion for one's work to stay competitive.
• He also suggests that growing competence in a field can lead to increased passion.

"I'm a firm believer that you've got to love what you do... And I think there's an aspect of when you get good at something, you learn to love it more."

• This quote discusses the relationship between passion and competence, suggesting that a love for one's work and the journey to mastery are both important for success.

• There was skepticism about whether Atlassian would become as large as it is today.
• The company bootstrapped for a long time, which was possible due to the era's economic climate.

"We had lined up five vc interviews for that week... It took us ten years before we bought vcs on board and we didn't take any money onto the balance sheet for 15 years."

• This quote reflects on Atlassian's early financial strategy and the unexpected hacking incident that occurred just before their first venture capital fundraising efforts.

• Bootstrapping a company is still possible today, especially in niche markets with little competition.
• Atlassian's success without early venture capital funding was influenced by the economic environment of the time.

"But there are many markets that go after very, very small niche software... And in those situations, I do think you can bootstrap businesses still today because there is not much competition there."

• This quote suggests that while the abundance of venture capital has changed the startup landscape, there are still opportunities for bootstrapping, particularly in less competitive niches.

• Scott Farquhar challenges the myth that startups are glamorous, highlighting the survivor bias and the reality of startup failures.

"I think there's a belief that startups are glamorous and I don't think that is necessarily the case... Most startups really fail hard."

• This quote debunks the misconception of startup glamour by pointing out the often difficult and unglamorous reality of starting and running a new business.

• Scott Farquhar recounts a significant crisis involving a security breach during his honeymoon.
• The incident required immediate attention and demonstrated the company's commitment to transparency.

"I flipped directly back to Australia and basically relieved Mike... We called these vcs up to tell them what had happened, because we felt openness and transparency was important."

• This quote illustrates how Atlassian managed a critical situation by prioritizing transparency with their venture capital investors and customers, despite the potential risks to the company's reputation.

• At the time of their first venture capital fundraising, Atlassian had a revenue run rate of under $100 million.
• The company was in a strong financial position before engaging with venture capitalists.

"About a $60 million run rate, I think, but something in that range, like sub $100 million."

• This quote provides context for Atlassian's financial health before they sought venture capital, highlighting their success in bootstrapping the company to a significant revenue milestone.

• Scott Farquhar explains Atlassian's unique approach to fundraising.
• They used a closed envelope bidding system to avoid collusion and lowball offers.
• Atlassian pre-screened VCs to ensure they were comfortable with any potential partners.
• They raised funds based on their performance metrics, such as $60 million in revenue and a 20-30% profit margin.
• Valuations varied but Accel's $405 million valuation won, which was considered high at the time.

"So when we did this, we told people that it's one shot closed envelope bidding, because I've believe that was the best way to get a result."

This quote explains the rationale behind Atlassian's fundraising approach, emphasizing the desire for a fair and competitive bidding process.

"We raised tens of millions of dollars, but you tell us how much money you put in and then you tell us what the valuation was."

Scott Farquhar describes the open-ended nature of the fundraising, where VCs proposed both the investment amount and the company valuation.

"And Excel, who ended up winning for us came back at $405,000,000, which looks back crazy."

The quote highlights the winning bid from Accel, which at the time was a significant valuation for Atlassian.

• Trust and the relationship with VCs are crucial, even in a quick bidding process.
• Atlassian had built relationships with VCs over time through meetings and discussions.
• They considered inviting a second VC to join the deal but ultimately didn't.
• The importance of trust is underscored by the pre-existing relationships with VCs prior to the bidding process.

"No, vcs are definitely our partner. But we spent all that time up front."

Scott Farquhar emphasizes the importance of VCs as partners and the effort put into building relationships before the fundraising.

"And so it was like, hey, we can choose any of, like, put your best foot forward."

This quote reflects the confidence Atlassian had in their VC options due to their prior relationship building.

• Atlassian's biggest mistakes were identified as not investing enough in new opportunities.
• Scott Farquhar reflects on missed chances with products like BitBucket and a Slack competitor.
• The company's bootstrap background may have influenced their conservative investment approach.
• They have since started a program called Point A to incubate new products and invest in new categories.

"And most of the opportunities or biggest mistakes we've made are not going hard enough about new opportunities."

Scott Farquhar highlights the missed opportunities due to not investing aggressively enough in new ventures.

"We've created these amazing categories and we're investing heavily behind them."

This quote shows Atlassian's current strategy to heavily invest in new product categories to avoid past mistakes.

• Scott Farquhar discusses the key responsibilities of a CEO.
• He references an article that outlines four main duties: hiring management, setting vision, establishing culture, and resource allocation.
• Resource allocation is not a daily task but should be revisited quarterly, especially in a large company.
• The CEO's role in resource allocation is crucial but should be balanced with other responsibilities.

"And four is basically resource allocation, where you put the dollars and the bets and those four things are the most important."

Scott Farquhar outlines the critical role of resource allocation as one of the four main responsibilities of a CEO.

"I don't think resource allocation is something you do every single day."

This quote suggests that while resource allocation is important, it should be done at a reasonable cadence to maintain perspective.

• Scott Farquhar believes his strength lies in systems thinking, understanding the interconnectedness of actions and outcomes.
• He expresses the need for CEOs to be curious across various disciplines to be effective systems thinkers.
• His curiosity is also his weakness, as it challenges his ability to prioritize effectively.
• He surrounds himself with people who can help him prioritize to manage this weakness.

"If I change this knob over here, what's going to happen to the entire system?"

Scott Farquhar uses this metaphor to describe his ability to understand and predict the outcomes of changes within a system.

"I really have to step back because I can get so excited by almost anything."

This quote reveals Farquhar's challenge with prioritization due to his wide-ranging curiosity.

• Scott Farquhar discusses the importance of having an AI strategy given the history of technological change.
• He believes AI will significantly change the landscape and that companies who don't adapt may falter.
• Atlassian is focusing on integrating AI into existing products and workflows.
• He emphasizes the need to understand not just what works but also what doesn't in AI application.

"I do think that there's going to be a big change in how technology works and change the landscape."

Scott Farquhar predicts a major shift in technology due to AI, impacting the success and failure of companies.

"We have multiple hundreds of engineers working on AI things at the moment."

This quote indicates Atlassian's significant investment in AI, with a large team of engineers dedicated to AI projects.

• Smaller companies can move faster due to less overhead.
• Large companies can have a broader impact and have advantages such as access to larger datasets, which is particularly beneficial in AI.
• AI startups without access to customer data may move slower than larger companies with such access.

"Obviously, the smaller the company is, the faster you can move... But if you look at can we move fast? Yes, we have these other advantages that allow us to move fast, particularly in the AI area where it's about data."

The quote emphasizes that while small companies are nimble, larger ones like Atlassian can leverage their customer base and data for rapid advancement in AI, offsetting their inherent overhead.

• Atlassian decided early in the pandemic to allow hiring without geographical restrictions.
• The company's policy not to require office attendance led to hiring globally and retaining top talent.
• Atlassian's remote work policy reportedly helps the majority of employees do their best work.

"We made the decision that we would never require someone to come back into an office... 92% of them say that they think our remote policies help them to do their best work."

Scott Farquhar highlights Atlassian's commitment to remote work and the positive feedback from employees, indicating that their remote policies are effective in facilitating productivity.

• Atlassian recognizes the need for in-person interaction to build connections.
• Research by Atlassian shows a 30% increase in team connectivity after in-person gatherings.
• The effect of increased connectivity lasts four to five months, suggesting that infrequent meetups can maintain strong team bonds.

"We've done some research now which wish we'd known earlier that when you get people together, we see our team connectivity boost by 30%... It's four to five months, actually, before that returns to the baseline."

The quote explains Atlassian's findings on the lasting impact of intentional in-person gatherings on team connectivity, challenging the assumption that daily office presence is necessary for team cohesion.

• The "Team Anywhere" policy is a significant and nearly irreversible decision due to employee trust and logistics.
• Atlassian's choice to remain remote is backed by the belief that it allows employees to have a greater impact.

"Team anywhere is obviously a huge one because it's not always a one way door, but we would burn a whole bunch of employee trust if we change that now."

Scott Farquhar reflects on the gravity of the decision to maintain remote work and its implications for employee trust and company culture.

• Atlassian shut down Stride, a competitor to Slack, learning valuable lessons about pricing models, team scaling, and market growth expectations.
• Scott Farquhar acknowledges that freemium models can be more successful and that doubling a team's size doesn't necessarily double productivity.
• The decision to close Stride was made with the belief that employees could make a more significant impact elsewhere.

"We acquired this product... It was growing really fast... But Slack was free, and $10 a month. And free is a lot cheaper than $2 a month."

The quote reveals the competitive challenge faced by Stride against Slack's freemium model and the strategic pricing missteps that influenced Atlassian's decision to shut down the product.

• While acknowledging competitors is necessary, Atlassian finds success by focusing on customer needs and offering unique solutions.
• Scott Farquhar believes that simply copying competitors is not the path to success.

"I think you have to pay attention to competition... But when I look at the ways we win, it's often by ignoring the competition and doing something because they listen to customers."

Scott Farquhar explains Atlassian's approach to competition, emphasizing the importance of innovation and customer focus over imitation.

• Jira is designed to serve a wide range of users and never be outgrown, regardless of team size.
• Complexity can be a downside, but Atlassian is committed to simplifying the product.
• Some complexity arises from user configuration rather than the product itself.

"The great part is you never grow out of Jira... The downside is that complexity can sometimes be overwhelming for some customers."

Scott Farquhar discusses the balance Jira strikes between being a powerful, scalable tool and the need to manage its complexity for users.

• AI is expected to put pressure on the per seat pricing model.
• The value provided by AI may necessitate a shift from per user pricing to value-based pricing.
• The impact of AI on pricing models will vary depending on the extent of augmentation versus replacement by AI.

"I do think that AI will put pressure on per seat pricing... So over time, we are going to have to work out how we solve for value."

Scott Farquhar acknowledges the challenges AI poses to traditional software pricing models and the need for the industry to adapt to value-based pricing strategies.

• Scott Farquhar reflects on the changing relationship between time and money throughout life.
• Having more money allows for a different trade-off between time and money.
• Farquhar's personal struggle with this shift is influenced by his upbringing in a family without significant wealth.

"There's a relationship between time and money I think that you have throughout your life... If you've got a lot of money, you just, the trade-off, the slider moves a lot more."

The quote delves into Scott Farquhar's contemplation on how financial success has altered his ability to balance time and money, and the implications for his personal life and family.

• Scott Farquhar discusses the trade-off between time and money, emphasizing the value of time over minor financial savings.
• With increased wealth, he believes it's beneficial to spend money to save time, especially for spending that time with family, like his kids.

"I'm getting better. I think that if you want to achieve a lot in life and you have more money, then getting the time back to be able to devote it to other things is useful."

The quote highlights the realization that as one's financial situation improves, the ability to use money to reclaim time becomes more valuable, particularly for meaningful activities such as family time.

• Scott acknowledges the challenge of raising children in a wealthy environment while maintaining their humility and ambition.
• He has not found a foolproof way to shield his children from awareness of wealth but focuses on teaching them the value of money and being good human beings.

"I think it is a very difficult thing to do. I don't think I've cracked the code on know."

This quote conveys Scott's ongoing struggle and humility in admitting that he has not yet mastered the complex task of raising children with wealth while retaining their humility and ambition.

• Scott believes in putting one's partner on a pedestal, being best friends, and learning to apologize quickly as keys to a happy marriage.
• He references research that supports the idea that idealizing one's partner can lead to a more successful relationship.

"One is I think putting your partner on a pedestal is really important to do that."

Scott emphasizes the importance of holding one's partner in high regard as a fundamental aspect of a successful and happy marriage.

• Scott Farquhar shares his experience with philanthropy and education, inspired by John Wood's book and a successful pricing experiment at Atlassian.
• The experiment led to a significant charitable donation and the start of a relationship with Room to Read, as well as the founding of Pledge 1%.

"So I guess there's a long answer. But collectively, a few things came together to start a philanthropic journey."

The quote summarizes how various experiences and inspirations led Scott to embark on a philanthropic journey, particularly in the realm of education.

• Scott admits he seldom changes his mind as he takes time to form his opinions.
• He discusses the resilience of public markets and his approach to disagreeing and committing, recognizing that others might be right.

"I don't really change my mind very often."

This quote reflects Scott's thoughtful decision-making process and his tendency to stick to his convictions once formed.

• Scott shares his personal strategies for maintaining calmness, including daily exercise and ensuring adequate sleep.

"Daily exercise, and I try and be in bed for 8 hours a night."

The quote succinctly states Scott's methods for keeping a serene mindset amidst the challenges of his professional life.

• Scott values a great relationship with his children and aspires to have them make choices he can be proud of.
• He acknowledges the trade-offs between professional success and being a present father, aiming for a balance between various life responsibilities.

"I think everyone has the same 168 hours in a week, and there will be people out there who are way better fathers than I am because they spend more time, and that."

Scott reflects on the universal constraint of time and how he chooses to allocate it between work and family, recognizing that others may prioritize differently.

• Belief in one's potential is highlighted as the kindest act Scott has experienced, mentioning co-founder Mike and their first chairperson's faith in him.

"I think believe in me is the nicest thing."

The quote captures the profound impact that others' belief in Scott's abilities has had on his life and career.

• Scott compares a co-founder relationship to marriage, stressing complementary strengths and mutual respect as the foundation of his successful partnership with Mike.

"I think co founder relationships, much like a marriage, like, it's a very intense relationship."

This analogy underlines the intensity and importance of the relationship between co-founders, similar to that of a marital partnership.

• Scott is excited about the future potential for Atlassian to improve teamwork and reduce busy work through AI and other means.
• He envisions a future where emotional intelligence and effective collaboration enhance workplace satisfaction.

"There's so much we can do to improve how work happens for people, for teams, for organizations."

The quote encapsulates Scott's vision for Atlassian's role in transforming the nature of work and team dynamics for the better.

• Harry Stebbings expresses gratitude for the opportunity to have a real conversation with Scott, whom he admires greatly.
• Harry highlights the value of unscripted dialogue in creating meaningful interview experiences.

"So thank you so much for being so great, and I've loved doing this."

Harry's appreciation for Scott's openness during the interview reflects the significance of genuine interactions in media conversations.