Episode 47 The Atlassian IPO

In episode 47 of Acquired, hosts Ben Gilbert and David Rosenthal delve into the Atlassian IPO, a company known for its technology acquisitions and IPOs. Atlassian, founded by Mike Cannon-Brooks and Scott Farquhar in Sydney, Australia, bootstrapped its way to success without traditional venture capital, relying instead on the quality of its products like Jira and Confluence to organically attract customers. Their unique approach to selling software—eschewing a sales force in favor of direct, self-service online sales—has led to impressive growth, with revenues reaching $320 million before going public. The IPO allowed Atlassian to raise capital for corporate purposes, including acquisitions like Trello, while also providing liquidity for its founders and employees. Despite the IPO's conventional nature, Atlassian's consistent performance and responsible decision-making earned it a solid reputation among investors, showcasing a disciplined and successful transition to a publicly-traded company.

• The hosts, Ben Gilbert and David Rosenthal, initially discuss whether to follow up on a previous topic, Alaska Virgin, but decide against it due to their perception that listeners dislike follow-ups.
• They mention that listeners also dislike hot takes, leading to the decision to avoid these types of content.
• Ben contemplates using a quote about the unsuccessful follow-up for the episode's teaser.

"The other thing I was thinking about is, do we want to do any follow up on Alaska Virgin?" "Yeah, people hate follow ups." "Yeah, people definitely hate hot takes. I think they also hate follow ups."

These quotes highlight the hosts' understanding of their audience's preferences, which informs their content strategy and episode planning. They aim to avoid topics that might not engage their listeners.

• Ben Gilbert and David Rosenthal introduce themselves as the hosts of Acquired, a podcast that covers technology acquisitions and IPOs.
• They express reluctance to cover recent news unless they have firsthand experience or enough data to reflect upon.
• The episode's focus is the Atlassian IPO, chosen due to its interesting backstory and ample data available two years post-IPO.
• David mentions the uniqueness of recording in person, as they usually do shows remotely due to his move to San Francisco.

"Welcome back to episode 47 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert." "I'm David Rosenthal, and we are your hosts." "Today we are covering the Atlassian IPO, and normally, we're hesitant to do episodes on such recent news unless we're, like, actually on the scene."

The introduction sets the stage for the episode, explaining the podcast's theme and the specific choice to cover Atlassian's IPO. It also provides context for the hosts' recording situation.

• Pilot is introduced as a sponsor, a company providing accounting, tax, and bookkeeping services for startups and growth companies.
• The hosts discuss the growth of Pilot and its backing by prominent investors, including Sequoia, Index, Stripe, and Jeff Bezos.
• They emphasize the importance of startups focusing on their core product and outsourcing non-core activities like accounting.
• Pilot is recommended for its comprehensive financial services, which include CFO services and investor reporting.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner Pilot for startups and growth companies of all kinds." "So enter pilot. Pilot both sets up and operates your company's entire financial stack." "And when you say thousands of companies, Pilot does this for David. These are now companies like OpenAI, airtable and scale, as well as e-commerce and other companies."

These quotes describe Pilot's services and their relevance to the startup ecosystem. They also highlight the hosts' endorsement of Pilot based on its success and the value it provides to its clients.

• The hosts encourage listeners to join their Slack community, which is nearing 1,000 members.
• They emphasize the value of the community and the interactions that take place there.

"Listeners, if you are not in the slack, we're about to cross 1000 members."

This quote serves as a call to action for listeners to engage more deeply with the podcast through the Slack channel, fostering a sense of community among the audience.

• David notes that Atlassian is the first bootstrapped company covered on Acquired that became a large, independent public company without venture capital funding.
• Ben and David discuss the rarity of companies growing without regular funding rounds and highlight Atlassian's traditional growth path.
• They mention Atlassian's secondary share sales to investors like Excel and T. Rowe Price, which did not contribute to the company's balance sheet but allowed founders and employees to sell shares.

"And I think this is the first company that we're going to cover on acquired that's been bootstrapped and gone, quote unquote, all the way." "Everyone just takes around every 18 to 24 months, and that's often driven because your competitors are doing that or some timing reason why it needs to grow, grow, grow." "So excel invested and tro price invested before they went public, but both of those were only secondary shares sales, so none of those dollars went to the company's balance sheet."

These quotes emphasize Atlassian's unique journey to becoming a public company without traditional venture capital funding, setting it apart from the current startup funding landscape.

• Atlassian was founded in 2002 by Mike Cannon-Brooks and Scott Farquhar in Sydney, Australia.
• The founders met in college and bonded over a shared desire to avoid traditional corporate jobs, aiming to match a typical starting salary independently.
• They financed the company with credit card debt and paid themselves significantly less than their goal salary in the early years.
• Atlassian's name is inspired by the Greek titan Atlas, reflecting their goal to support customers.

"Atlassian was founded in 2002 by Mike Cannon-Brooks and Scott Farquhar in Sydney, Australia." "They kind of made a pact, and they said, if we can do something that enables us not to have a job like that, but still earn the same amount of money per year, and the going rate, apparently very specifically, was $48,500 a year in salary." "They didn't raise, as we've said, didn't raise a dollar. They had credit cards. They took out debt."

The founding story of Atlassian highlights the founders' entrepreneurial spirit and their commitment to building a company without relying on external funding, a decision that shaped the company's growth and culture.

• Jira, Atlassian's first product, was launched in April 2002 as an issue and bug tracking tool for software developers and product managers.
• Atlassian faced the challenge of selling enterprise software during the dot-com bust, leading them to innovate by selling Jira directly on the Internet.
• The company's approach to sales was unconventional, focusing on accessible pricing, generous trial periods, and a user-friendly model that allowed customers to sign up with a credit card.

"They launched their first product, Jira, which is still, I think, their biggest product." "So they launched it in April 2002. As we're alluding to, it's an issues and bug tracking tool used mostly by software developers and product managers." "They decide to just sell the software on the Internet."

These quotes detail the early challenges Atlassian faced and how they overcame them by leveraging the Internet to reach customers directly, a strategy that contributed to Jira's widespread adoption and the company's eventual success.

• The discussion begins with the evolution of enterprise software, categorized into three "waves."
• The first wave includes traditional companies like Microsoft and Oracle, selling on-premises software with upfront licenses and a heavy sales process.
• The second wave is represented by the SaaS model, with companies like Salesforce changing the business model to a subscription basis and delivering software via the Internet.
• The third wave, likened to artisanal hipster coffee shops like Blue Bottle, focuses on high-quality products that sell themselves without a traditional salesforce.

"Starbucks and the third wave is blue bottle and these artisanal hipster coffee shops. I think Atlassian is the third wave, was the first company of the third wave of enterprise software."

This quote introduces the idea that Atlassian represents a new era in enterprise software, similar to how Blue Bottle represents a shift in the coffee industry.

"It's all about the same product, different means of delivery."

This quote summarizes the concept that while the delivery method of software has evolved, the core product often remains unchanged.

"The product has to be so good that people will buy it anyway."

The quote emphasizes Atlassian's philosophy that the quality of the product is paramount, eliminating the need for a traditional salesforce.

• The transition to a service model occurs in two steps: changing the billing method and then fundamentally improving the product.
• The initial iterations of SaaS were often just traditional software billed differently, without significant product changes.

"The transition to as a service happens in two steps, and one is the business model and the way that it's billed, and then the second is the product actually being very different and the product being deliberate as a service."

This quote explains the two-step process in the evolution of SaaS, highlighting the importance of actual product innovation beyond just a new billing method.

• Atlassian's founders, without resources for a sales team, had to create a product that could sell itself online.
• This approach led to quick growth, with Atlassian hitting $1 million in revenue in its first year.
• Atlassian launched Confluence in 2004, a content collaboration tool that competed with open-source options and SharePoint.

"We just make a really great product. We're not going to go out and take you to a steak dinner to convince the CIO to buy this."

The quote encapsulates Atlassian's strategy of focusing on product quality over traditional sales tactics.

• The discussion touches on the shift in enterprise software buying decisions, where users, not just CIOs, have a say in the purchasing process.
• This change is attributed to the "bring your own device" (BYOD) era and the resulting need for software to appeal directly to end-users.

"For the first time the buyer and the user of software in the enterprise was actually being coupled."

This quote highlights the significant shift in the enterprise software market, where the users have become influential in buying decisions.

• Atlassian continued to grow, releasing Confluence in 2004 and acquiring BitBucket and HipChat in later years.
• They also launched Jira Service Desk in 2013, expanding their suite of enterprise software tools.
• By 2015, Atlassian had impressive revenue growth and was profitable, with high operating cash flow.

"In 2010, they acquire a product called BitBucket, which is also very interesting. And the parallels between Atlassian and Slack and GitHub, as we mentioned, are very apt."

This quote discusses Atlassian's strategic acquisitions and their similarities to other successful companies like Slack and GitHub.

• Atlassian filed to go public in 2015 with impressive growth figures and low sales and marketing spend.
• Excel, a venture capital firm, made a significant investment in Atlassian, which was seen as a sign of professionalism and credibility.
• The founders retained a large percentage of the company, indicating their continued commitment and vision.

"An incredible investment by Excel."

The quote reflects on the successful investment made by Excel in Atlassian, indicating the company's strong performance.

"The company is doing so well that it puts the founders in a position where they can say, look, we would love to give you some shares."

This quote illustrates the strength of Atlassian's position, allowing the founders to offer shares without needing investment capital for growth.

• Atlassian does not employ a traditional salesforce with territory managers and reps.
• They partner with third-party value-added resellers for customers who need a sales touchpoint.
• Atlassian invests marketing dollars and internal headcount to empower these channels.
• The sales effort is present but not in the conventional enterprise or SaaS company manner.

"And so what Atlassian said is like, okay, great, we're not going to do that ourselves, but we will work with third party value added resellers who can effectively be that synthetic sales touch point for buyers who need that."

The quote explains Atlassian's strategy of using third-party resellers to provide sales support to customers, differentiating from the traditional sales model of having an in-house sales team.

• Atlassian's main revenue comes from Jira and Confluence, which are primarily aimed at engineering and product management organizations.
• Concerns about a saturation point for these products and the need to sell other products in their suite.
• The sales of other products may require more effort due to less self-sufficiency and increased competition.

"I think it's a risk to the business that most of their revenue comes from Jira and confluence."

The quote highlights the risk associated with Atlassian's revenue being heavily dependent on a few core products and the need to diversify their product revenue sources.

• Statsig is a feature management and experimentation platform.
• It helps product teams ship faster and provides real-time product observability.
• Statsig can ingest data from data warehouses and works with existing feature flagging setups.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

The quote describes the purpose and functionality of Statsig, emphasizing its role in enhancing product development processes.

• Crusoe is a clean compute cloud provider for AI workloads.
• They partner with Nvidia and use wasted, stranded, or clean energy for their data centers.
• Crusoe offers better performance per dollar than traditional cloud providers due to their unique energy sources.

"Crusoe's data centers are nothing but racks and racks of a because Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote explains Crusoe's unique value proposition in the cloud computing market for AI workloads, focusing on performance and cost-effectiveness through the use of alternative energy sources.

• Atlassian went public in December 2015 with a $4.4 billion market cap.
• They have been an acquisitive company, notably acquiring Trello in January 2017.
• The IPO and subsequent acquisitions provided Atlassian with a significant cash balance for future investments.

"They sold about 10% of the company. They raised 462,000,000 in the IPO. They bought Trello for 425,000,000."

The quote details Atlassian's financial moves around their IPO, indicating the strategic use of raised funds for significant acquisitions like Trello.

• Atlassian reimagined HipChat as Stride to compete with Slack.
• Stride was built with additional features such as task assignments and lightweight project management.
• There are concerns about the stickiness of chat products and the difficulty of switching users from established platforms like Slack.

"There's zero chance I'm going to also have, what is it? Stride running. In addition, what is it again? I have nine. Yeah, that's Slack's marketing message right there. What is it again? Try slack or stick with Slack."

The quote reflects the challenge Atlassian faces in convincing users to adopt their chat product, Stride, in a market dominated by Slack, highlighting the importance of product stickiness and user habituation.

• Atlassian's S-1 filing was transparent and straightforward, showcasing a strong business model.
• The public narrative matched Atlassian's own portrayal as an innovative company in enterprise software sales.
• Atlassian's consistent growth and customer retention were evident in their public filings.

"They had a full cohort analysis in their s one. The cohort analysis is like a newer way to evaluate businesses, and that's not mandated by the SEC."

This quote points out the thoroughness of Atlassian's S-1 filing, which included a cohort analysis that is not required but provides a clear picture of the company's growth and customer retention.

• Atlassian went public to increase their capital for corporate purposes and potential acquisitions.
• The IPO allowed Atlassian to increase their cash balance significantly.
• Being a public company adds the discipline of regular reporting and can be beneficial for well-run businesses.

"Atlassian will use proceeds from its IPO for corporate purposes, including capital expenditures and potential acquisitions."

The quote explains the strategic reasons behind Atlassian's IPO, highlighting the company's intention to use the raised capital for growth and acquisitions.

• Public markets can enforce discipline and rigor on companies and management teams.
• Being a public company can be beneficial for fostering innovation and maintaining a long-term focus.
• Amazon is cited as an example of a company that innovated and focused on the long-term as a public company without generating a profit for many years.

"We have a lot of data points on this show that being public...can enforce a discipline and a rigor on companies and management teams that you're not going to get otherwise."

The quote emphasizes the positive impact that being a public company can have on enforcing discipline and rigor, which may not be as strong in private companies.

• Atlassian's highest selling products are designed for engineers and can be sold in a self-serve way.
• There is a concern about market saturation for Atlassian's core products.
• Atlassian has repositioned itself as a company that makes products for teams, not just developers.
• The company's values, such as "Open company, no BS" and "Play as a team," reflect a broader focus.
• The Nasdaq ticker "TEAM" represents Atlassian's focus on team collaboration.

"Are they saturating the market? Do they need to branch out because there's not much more growth left in their core businesses?"

This quote raises the question of whether Atlassian needs to diversify its product offerings due to potential market saturation in its core business areas.

• Atlassian spends a significant portion of its revenue on R&D compared to competitors.
• The company does not have a traditional sales force; instead, the product itself acts as the sales force.
• Atlassian's R&D investments are seen as necessary to compensate for the lack of a sales team and to drive product adoption.
• The company focuses on security, availability, uptime, and user experience in its R&D efforts.

"Why is Atlassian spending so much on R&D relative to other seemingly more technical companies?"

This quote questions the rationale behind Atlassian's high R&D spending, especially compared to companies that are perceived as more technology-intensive.

• Atlassian relies on product quality and user experience to drive sales and adoption.
• The company's focus on product-led growth means that the product must not only be good but also sell itself.
• Atlassian's strategy includes creating a seamless conversion funnel and tracking the customer journey.
• Word of mouth and virality are crucial for Atlassian, and the company invests in product features to facilitate these.

"They've chosen to use product to solve problems about adoption."

The quote explains Atlassian's strategy of using the quality and user experience of its product to address challenges related to product adoption, instead of relying on a traditional sales force.

• The IPO provided Atlassian with option value and credibility to sell into the enterprise market.
• The IPO did not significantly alter the company's operations but provided liquidity for shareholders.
• Atlassian's founders retained a large percentage of the company's ownership post-IPO.
• The IPO is viewed as a responsible move rather than a high-stakes, transformative event.

"The actual IPO itself is like, I have a hard time grading it because I'm emotionless about it."

This quote reflects the speaker's neutral sentiment towards Atlassian's IPO, indicating that it was a well-executed but not particularly exciting corporate event.

• The discussion touches on how emerging technologies like AR and VR could impact project management and visualization.
• There is speculation about the potential for AR and VR to create more immersive and effective tools for visualizing work items and tasks.

"Honestly, I think that's a killer, killer app for VR and AR, because I think a monitor is just not nearly enough space to visualize work items and tasks."

The quote suggests that AR and VR technologies have the potential to revolutionize how people manage and visualize tasks, offering a more expansive view than traditional computer monitors.

• The speakers share personal recommendations for books and other media that have inspired them.
• "Shoe Dog" by Phil Knight and "Born to Run" by Bruce Springsteen are praised for their compelling storytelling and insights into the lives of successful individuals.

"Oh, my God. Is shoe dog good? Oh, it's so is for listeners who haven't heard of it. It's the Phil Knight book."

This enthusiastic endorsement of Phil Knight's memoir "Shoe Dog" highlights the book's engaging narrative and the valuable lessons it imparts to readers.