Scott Farquhar cannot be accused of wasting his university days. He and his co-founder, Mike Cannon-Brookes, forged their partnership in enterprise software company Atlassian while studying a Bachelor of Science in Information Technology (BIT) at UNSW.
Their company does not fit the usual mould. A look at their website proves the point.
Under the heading of ‘Open company, no bullshit’, the reader is told: “Atlassian embraces transparency wherever at all practical, and sometimes where impractical. All information, both internal and external, is public by default. We are not afraid of being honest with ourselves, our staff and our customers.”
Meanwhile, under another heading of ‘Be the change you seek’, the founders reveal: “We think Gandhi had it pretty right when he said, ‘We need to be the change we wish to see in the world’. At Atlassian we encourage everyone to create positive change – we’re constantly looking for ways to improve our company, our products and our environment.”
As you can see, these guys have a unique approach to business, but it has not hindered their performance. So what does Atlassian do?
Farquhar explains: “[With companies] there’s an idea that you take a product or a concept to launch. So whether it’s an insurance product, a software product or whether you’re building a telephone because you’re in the telco industry – all industries build things from concept to launch – and at Atlassian we build software that helps assist that process.”
The process could involve the initial brainstorming sessions, turning that information into a format that can be shared with a team and then getting that information out of someone’s head into a collaborative format. It could then go all the way through to the project management and tracking, to keeping account of the deliverables and when they are due, through to things such as code review.
Is it like project managing the invention or innovation process?
“All of our products are used by teams of people and that’s where we’re really strong – helping groups of people work together,” Farquhar says. “When we started Atlassian back in 2002, we viewed that there was nothing out there that we ourselves could use for this. When we started our business, we needed a place to store documentation and we needed a place to track our projects and communicate with our customers, and there just wasn’t something out there at the price point we were after.”
In short, any existing products were too expensive. Farquhar and Cannon-Brookes decided to turn a shortfall into an opportunity.
“Being young guys, we couldn’t afford hundreds of thousands of dollars worth of software, and so part of it was identifying there was a gap in the pricing mark of the products and [a lack of] something that was really easy to use at an affordable price,” he points out. “And part of it was just making a bit of a better mousetrap in that we did a really good job of executing on that and building something that people wanted to use.”
Farquhar says at first they wanted to provide third-party support for an “awesome software product” that was built out of Sweden.
“It was a fantastic product, but it had very, very lacklustre support for it – the guys just weren’t interested in providing that,” he explains. “And so we said, ‘Well, we can provide the third-party support for you on a paid basis’, but that turned out to be a very bad business model for many reasons. First, you had zero control over [it] and, second, you can’t fix the bug for customers, you can only raise them with the vendor.”
There was also a sleeping issue that put another question mark over the business.
“We were in Australia and most of our customers were in the US and Europe, so we’d get phone calls at all times of the day or night to handle support requests. So after doing that for a few months, we started looking at alternative businesses that we could start, and as a result of needing these products in that business, we decided we would go into the product business ourselves.”
The products are not tailor-made, but they have wide applicability and now there are about 40,000 organisations around the world that have paid for Atlassian software to be on their servers.
But do not get the idea that these guys are just geeks. In 2006, they won Ernst & Young’s Young Entrepreneur of the Year award, but then scooped the pool by taking out the big prize of Entrepreneur of the Year.
Not a bad effort for Farquhar, a guy not bred for business.
“I come from, I guess, quite a working class background,” he says. “My Dad worked in an office his entire life and Mum worked in retail and other things apart from being a housewife, so I didn’t even know what the word [entrepreneur] really meant until probably after I started my business.”
That said, his university studies exposed him to big business courtesy of a component of the degree requiring 18 months’ work experience, which took him to IBM, PricewaterhouseCoopers and the Australian Stock Exchange.
“I worked for IBM in the year-2000 craziness,” he says. “I worked for the Stock Exchange during the dotcom boom and I got to work at PwC for one of their large projects for Sydney Water – it was an interesting learning experience.”
It seems the call of business became irresistible for Farquhar and Cannon-Brookes, these then students with latent entrepreneurial tendencies.
“Mike dropped out of his degree halfway through and I postponed the final year of my university degree to start Atlassian,” Farquhar confesses. “Our business plan was always on the back of a napkin so to speak and it was just really to make an awesome product that people wanted to use.”
The pair’s unusual approach even extended to a non-reliance on outside help and expertise.
“We were both self-funded, so we didn’t have to get any outside money until about a month ago,” Farquhar reveals. “And we also never had a board of directors – we had a couple of people we kept in touch with every six months to bounce some ideas off, but we didn’t really have any formal advisory roles.”
Why was so little funding needed to create an award-winning business?
“The great thing about starting a software business and our business model was that it didn’t require much capital to start,” he explains. “It required a couple of computers and some rented hardware on a server in the US and then our time largely – creating a website and doing the design for it. That didn’t take much capital and because we chose to sell our software online, and sell at scale to large numbers of people, it meant we didn’t need salespeople and all those things that suck up cash. That’s how we managed to scale it without spending lots of money.”
The novel approach has not stopped this business growing, with Atlassian housing about 260 employees worldwide who helped to bring in US$60 million last year.
The founders’ have also trusted their instincts when recruiting. Their first employee actually walked in off the street when he was in Sydney on a working holiday visa. He had been talking to a friend in the United Kingdom and had said, “I’m in Sydney, where do you get a job?” and the friend said, “Well hang on, Atlassian’s in Sydney, you should look up them for a job”.
Farquhar says the job seeker literally rocked up to their office, walked in the door and asked if they had any jobs going.
“We said, ‘No, but let’s go to the pub for lunch and get to know each other a bit better’. And that afternoon we said, ‘Yep, come on board as our first employee’. And he was our first programmer and worked for us for about three years before he went back to the UK.”
Like a few cases in this book, Atlassian has co-CEOs and it persists with this model for a simple reason – it works.
“We have a great time together,” Farquhar says. “I’ve said to other people before that I’ve got two great partnerships and the most important one is my wife and the other one that helps me out a lot in life is my partnership with Mike.”
The business relationship raised eyebrows when the pair were judged at the Ernst & Young awards in Montreal in 2006.
“One of the judges there said, ‘Don’t tell me that you’re equal CEOs?’ And we said, ‘Yeah – that’s how it works’. To which he said, ‘Well, I don’t believe it’. And we responded, ‘Well, we don’t care if you believe it or not’. He said the only people that he’d ever met – he’s a pretty old sort of senior venture capitalist – that could make it work were Hewlett Packard. It was a very interesting comparison.”
Despite their success, Farquhar concedes he and Cannon-Brookes have made errors and learnt some important lessons.
“We’ve made a lot of mistakes,” Farquhar says. “I’m not sure if they can be summed up in small statements.”
In any case, they have learnt more from books than screw-ups.
“The big one for us that we’ve been successful at is reading a lot – I think there’s a lot of knowledge out there about the business and the tech industry. I know Mike sees himself as a historian of the tech industry ... He learns a lot from what has happened in the past and we both read – not as much now but in the first five years voraciously – every business book we could possibly read. And I think that goes a long way to learning things.”
What was the best one?
“There was one that stands out called Batteries Included and it was a fantastic book on customer service. It talks about how to have awesome customer service and what that means in an organisation.”
Asked how being an entrepreneur changes you, Farquhar is initially flippant.
“A lot more grey hair!” he says. “[But] I’m not sure there’s too much change. By the time you’re 21 or 22 you probably understand a lot about who you are and so I don’t really think that your core of how you treat people, how you approach business and so forth changes. Hopefully I’ve become a lot better and, doing what I do, better at leading people, better at setting strategy. The business grows 30 to 50 per cent a year. Every year is different and the responsibilities and challenges that you have to tackle change. And so by the time you’re good at one thing, the next year it’s a different skill set you need.”
Asked if it was the product, the service, the marketing or the business model that explains Atlassian’s business success, Farquhar finds it hard to split them.
“If I could point at all of them I would,” he says. “The primary ones are the product and the business model – I think that’s what stood us apart from others. The product was very easy to adopt within an organisation and we went to special lengths to have great defaults; we didn’t impose a structure on people. Also the business model was to charge a relatively low up-front fee and a relatively high annual fee, which is the way we’re moving to now with subscription models, but we were early in doing that. On marketing, we were an earlier adopter of online marketing back in 2001 and the concept of pay per click was still very new and we did a lot of that and we were also very active in the communities we sold into.”
These guys, as you can see, are highly unconventional but they are also unusually smart and it explains why their results have looked pretty smart as well.