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Scott Farquhar's Remarkable Rise
Building Atlassian Into a $50 Billion Behemoth
Justin Gordon
October 05, 2023
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Scott Farquhar
Scott Farquhar, along with his co-founder and co-CEO, Mike Cannon-Brookes, started Atlassian in the early 2000s.
Today, it’s a company with a market capitalization of nearly $50 billion and one of the world’s largest software companies, doing more than $3 billion per year in revenue.
Throughout the company’s life, Scott and Mike have operated unconventionally, from starting in Australia to being co-CEOs, to shunning the traditional software sales model.
All of this while going through the dotcom crash and financial crisis.
The even more incredible part?
They essentially bootstrapped the company to an IPO.
How’d they do it?
Let’s get to it.
Early Days
Scott grew up in a working-class family in northwest Sydney, Australia.
His dad did some computing early on but had a sleep disorder that disrupted his work so he had to quit and find other employment. His mom, for much of his life growing up, was a housewife.
While he came from humble beginnings, Scott didn’t realize his economic status was lower than others until he started dating a girl in a private school, and, upon seeing the houses of other kids, understood their financial status was a bit different than his.
This became an issue when Scott wanted a computer as a kid:
I wanted a computer really badly because my friend had one and I knew you could play games on it. I remember emotionally blackmailing my parents and at one stage crying to get a computer – I feel horrible now, because my parents couldn't really afford one.
His father managed to buy Scott a computer a year or two later, but there was one problem.
It couldn’t play any of the games Scott wanted because it was too outdated.
While Scott tried for months to get it to work, it was to no avail.
But even the fact that Scott tried for so long showed he already had a good work ethic or, at the very least, a high level of persistence.
This work ethic of his started young, when he got his first non-A grade in his 6th year of school, as his former teacher described:
When I gave him the B or C or whatever it was, I didn't realise he'd never had one before and obviously he went home quite down in the dumps. I could just tell he was coasting and, because he had the brains, he wasn't pushing himself.
Years later, in 2013, Scott would email his teacher, letting her know the impact that had on him, writing:
In effect, you told me I was phoning it in. I can still remember the shame of having to explain to my parents why I didn't get a flawless report card. Since then, I've tried my best to not phone it in and I've managed to be reasonably successful in the business world, I think in no small part to the lesson you taught me 22 years ago.
Of course, Scott would become a bit more than “reasonably successful” in the business world, but how did he get started?
Starting Atlassian
As an undergraduate at the University of New South Wales, Scott meets a guy named Mike Cannon-Brookes, often working together on some of the same class projects.
When they end up doing the same scholarship program, working with different companies, Mike drops out of the program to build his own company, Bookmark Box, with a classmate and friend, Niki Scevak, who later started the venture capital firm Blackbird.
Mike and Niki raise a little money from family and friends and rent some office space to build their internet bookmark management tool, selling it in 2000 for a small amount to a company called Blink.
Scott on the other hand finished the scholarship program, working various stints as part of the program for IBM, PwC, and ASX (The Australian Stock Exchange).
He didn’t like it.
Scott was disillusioned with the corporate world, so when Mike sent an email out to a bunch of people at school in June 2001 asking, “Before you take grad jobs, does anyone want to do something crazy and do our own thing?”
Guess who was the only person to say yes?
Scott.
It didn’t seem like much of a risk at the time. Scott just figured he could get a job later if he had to and, given that he could get dinner as cheap as $4.50 at a restaurant down the street, he didn’t need much money to live off of.
Plus, Scott trusted Mike.
They had worked together on projects at school, Mike had previously sold his company, and they seemed like a good fit.
That doesn’t mean it was necessarily easy.
All of their peers had taken a different path with stable jobs.
Scott’s girlfriend, now his wife, was an investment banker at the time and her friends were wondering why she was dating Scott, this guy who didn’t have a job. That was the view of entrepreneurship in Australia back then.
Scott and Mike’s timing to start a business wasn’t great either:
We started in sort of 2001 and back then it was really the dotcom crash and in 2008-2009, and the current downturn, you think it’s bad for technology, and it is, but nothing really compares to the dotcom crash where most companies lost 90% of their market capitalization, and people were laid off in huge numbers.
Back then we thought it was the right time to start a company, probably because we were just graduating out of college, we had no other choices, it was either that or go work for a bank.
So we decided we didn't want to have to wear a suit and go to work. We knew that the graduate salary to work at PwC was $48,500 and we figured as long as we could earn more than that and not have to wear a suit to work we would be good.
They couldn’t raise any real amount of money if they wanted to back then and yet, neither could their competitors.
This turned out to be an advantage eventually, but without any funding, how did Scott and Mike survive?
We started a support firm for a company built out of Sweden called Iron Flare and they had a product called Orion Server which is back in the application server days where there was like 50 different application servers vying for supremacy on the internet.
So we provided support for this small Swedish company who had most of their customers in America and that was a terrible business. In fact, I'm glad it was so bad because I know many founders, great founders, get trapped in mediocre businesses, this was so bad.
We had to get up at four in the morning or three when the phone rang to answer someone from the U.S. and try and sound credible at three in the morning trying to solve support calls.
So we did that for a while then we discovered writing software is actually a passion, not supporting someone else's software out there, and we started building that, but in order to bootstrap we still needed money so some of the people who had paid for consulting chose to fly me across to the Netherlands to work and do some code review over there.
So I flew across for a couple of weeks and eventually a couple of months and I would work during the day in the Netherlands on what was a billing system for the Dutch telecommunications company and I’d do a good job over there and I'd read up textbooks at night on how to code and then the rest of the time I'd be coding on Jira which was our first product.
We’ll get to Jira in a moment, but one of the first support calls they did for their consulting company was during a party and Scott spent the next 5 hours trying to debug something for a customer.
That was the type of work and chaotic schedule they had.
Not ideal.
But the customer support they’d provide is how they got their company name, Atlassian, after the Greek god Atlas, who was condemned by Zeus to hold up (support) the earth for all eternity.
Just like Atlas, Scott and Mike would provide legendary, or Atlassian, support.
You've got to love the creativity.
And, as co-CEOs and 50/50 partners, their famous partner agreement stipulated that if they disagreed on an issue, they’d have to solve it with a game of rock, paper, scissors.
LOL.
Of course, that would later change.
Less than a year into their service business, they’d abandon it and launch their first product.
Jira
The first version of Jira, a bug-tracking tool for software developers, was launched in 2002.
It took Scott and Mike 3 months to make, with a 1.0 version, as Scott would later describe it, taking about 6 months.
Where did the idea for Jira come from?
We found back then in building our own software, on doing the support work, we realized there was nothing to track all the tasks that we needed to get done and we built something sort of really crappily internally just because there was a need for it.
Then we went out to the market to sort of see, well, what else is there out there and there was nothing.
There was either open source, and the open source stuff was really terrible, and it would take you originally a week to set up, the first stage was compile MySQL with these special flags and that's not really easy for most people to do.
Or you had very expensive stuff that started at $100,000 going up from there and sold by IBM and in many cases the software was consulting where they'd come in and that was their introduction to your company rather than a product you would buy.
So we really felt that there was something in the middle that you could put on your credit card and do that.
Coming up with Jira reminds me of Laura Behrens Wu and how she created the billion-dollar shipping software company Shippo because her shipping experience was so terrible with her e-commerce company.
It’s a theme that’s come up repeatedly in these founder deep dives: Personal problems becoming massive businesses.
But wait, where did the name Jira come from?
A competitor:
Our biggest competitor back then was a product called Bugzilla which was made by Apache. It was an open source product out there and the word Bugzilla came from Godzilla which was the sort of Japanese film, but it turns out that actually Godzilla was the anglicized Western name. Gojira is actually the Japanese name. So we dropped the go and Jira became the product.
Scott and Mike sold their Jira software for $800 initially.
They needed to sell one copy per week, as Mike described:
We needed to sell one copy a week. And if we sold one copy we would eat, pay rent, do all the things, it was $800 split two ways and everything else.
If we didn’t sell one copy we were going to go bust. Some weeks we sold two copies, that was amazing, but then some weeks you’d sell zero.
The motivation of such a simple goal, I remember, there is a reason you went back to work after the pub it’s like, it’s Wednesday and we haven’t sold anything this week.
On top of the $800, they’d offer a $400 maintenance contract for ongoing support.
They were updating the software every week or two, which was very unusual at the time, and these maintenance contracts were a great alignment of incentives to continually provide better software.
For about the first two years they only were paying themselves $300/week and they put around $10,000 of costs in the early days, for two desktop computers and hosting, on Mike’s credit card.
And how were they getting the word out?
Early on, they had a tiny marketing budget of $100/month, then $100/week.
They’d go to software events, but couldn’t afford a booth, so they gave out business cards.
Another time, at a conference in San Francisco, they printed flyers and left them everywhere they could.
At one point, they asked an event organizer if they could bring beer for attendees, so they did, handing out beer with Atlassian stickers on each bottle.
They were scrappy, doing things that don’t scale, the type of things that came up repeatedly with successful companies in the early days.
And their first office space was kind of as you’d expect:
The building was so cold that Mike had this trick that at 4am you'd go to the sink and turn the hot tap on to warm up your hands so you could keep coding for another four or five hours.
Nonetheless, they had customers and their first employee actually heard of them from one of their customers and just showed up one day.
Not long after, Scott and Mike would hire many of their classmates as their early employees.
And, with around 20 customers, a breakthrough moment occurred.
Breakthrough
Scott and Mike were hustling to get customers in the early days, hand-to-hand combat you could say, but you can’t do things that don’t scale forever.
They got an order for their software early on from American Airlines.
A big deal on its own, but, more importantly, after seeing the order come through, the team had a realization.
Nobody on the Atlassian team had talked with American Airlines.
American Airlines had found them on the internet, looked at the details for Jira on their website, and paid for the software.
Seems like no big deal nowadays, but that was huge back then.
As Atlassian got more customers, the team grew, but with a particular type of hire:
In the early days, 100% of our company was engineers. And that's very different from other companies.
If you have a salesperson, you pay that money to that salesperson this year and they get you revenue, but you have to keep paying the salesperson to keep getting the revenue.
However, if I build a stellar product, even if all the R&D people left, the product would still keep on being great and attracting more customers. So the investment in R&D is a much more long-term ROI.
A theme throughout this story is how Scott and Mike have taken a different approach to building Atlassian than many others have in building their companies.
Another example?
We were sort of in the early days where you could conduct commerce online. So instead of having to sell software for $50,000 or $100,000, which you sort of had to do when you were doing it on a golf course and with credit cards and faxes and purchase orders, we could sell software for $5,000.
So we have these huge advantages and at a time that we could catch up with our competitors and, being in Australia, I guess we didn't really know any different.
If we'd been in Silicon Valley everyone would have told us that was impossible. In fact, many Australian venture capitalists told us it was really impossible to build a business that way, but it was a time and place that worked out for us.
This differentiation became a key piece of their strategy.
Scott outlined their big hairy audacious goal (BHAG), a concept popularized by Jim Collins in his book Built to Last, to acquire 50,000 customers, at a time when they had just 500, and when other software companies, like Rational, charged way more for software, yet again taking a different approach:
When we started, Rational had about a thousand customers worldwide and those customers probably on average spent a million dollars with Rational between software and services and so forth and keeping it up.
And when you're spending a million dollars on software that really limits it down to a very small number of customers that can afford to do that and I think a decade later when I stopped tracking it Rational still had about a thousand customers.
So our original goal was to be very different. Our first big hairy audacious goal was to get to 50,000 customers worldwide and it took us about 12 years to do that and we set that goal when we had 500 so our big hairy audacious goal for the company was a hundred times our current size but more importantly it was sort of a vector that really made us differentiated from everyone else in the market because we were really going to go after high volume, low cost, at scale and sell globally.
So if we're going to sell globally you have to basically sell through your website. If you sell through the website, it had to allow you to submit a credit card, if it's on a credit card, it needs to be able to sell itself and it needs to be good enough that you can sort of try it out and then buy it.
So I set out this virtuous cycle that we probably now know as product-led growth. It didn't have a name back then but we were probably one of the earliest pioneers of people being able to try and buy business software on the internet.
This differentiated approach started paying off very quickly and, within two years of launching Jira, Scott and Mike released their second product.
Rapid Growth
In 2004, the same year Mark Zuckerberg launched thefacebook.com, Atlassian launched Confluence 1.0, a web-based corporate wiki.
This was at a time when Atlassian was only a team of about 10, a decision facilitated by Mike, and one that ended up working out well.
The same year, they opened a small office in New York but shortly after closed it, as they’d over-extended themselves.
It didn’t matter, Atlassian was already on a roll.
In 2002, they did a few hundred thousand in revenue. The next year, $1.2 million. Then $4 million when they had two products in 2004.
By 2005, when they launched their quarterly hackathon tradition called ShipIt, Atlassian would have more than $10 million in revenue and hit the 1,000-customer milestone.
Their product-led growth created a phenomenal flywheel, as Atlassian’s former President, Jay Simons, would later describe:
We gravitated to that metaphor early on because a flywheel is a big, heavy device that takes lots of energy to spin. You typically can’t get it to accelerate fast because it takes so much to push it. But once you get it going, it’s going to move at a consistent pace, and there’s small things you can add to move it a bit faster
Conversely, it’s hard to stop a flywheel — you can’t just grab onto it and bring it to a halt. That feeds into what we’ve always tried to architect for, which is the durability of the business as a whole.
Durability.
I like that.
I wonder how many companies actually think that way.
Anyways, Atlassian was off to the races.
In 2006, only four years after starting the business, Scott and Mike created the Atlassian Foundation and pledged to donate 1% of equity, profits, and employee time to charitable causes.
Scott would later describe how important this was for them and, as it would turn out, for many people who ended up working for Atlassian because of this.
The next year, they solidify their five core values:
Open company, no bullshit
Build everything with heart and balance
Don’t fuck the customer
Play as a team
Be the change you seek
A few years later, after going through the financial crisis and continuing to grow, Scott and Mike decided, for the first time, to explore bringing outside capital into the business.
Accel
In 2009, the first Atlassian Summit, now called Atlassian Team, took place in San Francisco with 340 customers.
The year after, when Scott and Mike were both 30 years old and had been in business together for 8 years, they reached a point where they were contemplating Atlassian’s future.
What should they do next?
The company had $50 million in the bank and was doing $50 million a year in revenue by this point.
They had 20,000 business customers including all of the world’s top ten software companies.
Scott and Mike both thought they weren’t done with Atlassian and that the next decade would be better than the first decade so they decided they should each take a sabbatical.
So they each took 3 months off, at separate times.
This was made possible by them being co-CEOs.
They decided they were going to bring on investors at this time. They didn’t need the money, but they wanted the expertise of investors who could help them in the next decade of the company and beyond.
Scott and Mike kept a spreadsheet of all the VCs who were contacting them inbound by this time, something they stopped doing by the time they had 80 different investors on the list.
They couldn’t pitch all 80 of course, so they chose the 5 or 6 investors they had gotten along well with, met over the years, and had a good relationship with.
They told the final investors that they were flying to SF for a week to meet them and get a deal done, creating a Dropbox folder with historical financials and everything they needed to evaluate Atlassian.
All the investors were told the rules - they’d get one shot, give their best offer, and Scott and Mike would decide.
When one investor had a question, Scott and Mike would share the answer with all of them. Nobody had an information advantage.
In the end, Accel’s one-page term sheet, something their general counsel hated, won out, and they invested $60 million into Atlassian, valuing them at $400 million.
Scott elaborated on this in a This Week in Startups interview in 2023:
We never took primary capital onto the balance sheet. So we did some secondary rounds to allow Mike and I to take some money off the table and allow employees to take some money off the table but we've never taken primary money…
We originally took cash in 2010 from Accel because we wanted to head towards going public, and some interesting stories go into that.
By this time Atlassian is a company with 225 employees and selling software for less than $10,000 per product.
As part of the Accel investment, Rich Wong, an Accel Partner, joined Atlassian’s board.
Two years later, Scott and Mike would continue making moves.
HipChat
In 2011, the same year Atlassian shipped the first cloud versions of Confluence and Jira, they did $102 million in revenue.
In October, they changed entry-level pricing from $150/month for 10 users to $10/month for 10 users.
The next year, they acquired HipChat, a tool for internal private online chat and instant messaging, when the company had only 6 developers.
HipChat was growing 300% to 400% year over year at one point.
Great, right?
Yup, except that Slack, which launched publicly in 2014 was growing 1,000% year over year.
Scott didn’t think there was room for 3 players in the market and Slack, as well as Microsoft Teams, were already leading the way.
Atlassian would later sell HipChat to Slack in 2018.
Scott learned an important lesson from the experience though:
My lesson for that particular thing is if you're early to a market, you need to bet heavily on that market.
We doubled and tripled the team size, in line with its growth but we didn't bet heavily enough in that market. We should have taken out banner ads and we should have really pushed that.
The second one for me is that in an engineering sense when you have a small engineering team, sub 10 people, the way that they operate as an engineering team is very efficient because you don't need to create documentation, everyone knows where everything is, it's a really small team.
When you double that team to 20 or 25 people you actually go backwards in productivity. You really need to triple or quadruple the team to actually get full momentum and so although we doubled the team, we went backwards in productivity because you had to create all the documentation. So we should have really put a lot more effort behind that engineering team.
The last one is big markets can be way bigger than you think and even if you've got the numbers at your back in terms of raw growth you should always look at it in terms of how does that compare to the market size and how does that compare to your competitors and they were growing at stratospheric rates. We could have grown faster if we pushed.
The same year, in 2012, they launched the Atlassian Marketplace, which today has more than 6,000 apps.
Reflecting on Atlassian’s journey in 2013, Scott said the measure of success for them was building a company that’s around 50 years from now.
To achieve that, culture mattered most, and it had to extend beyond Scott and Mike.
Raising money from Accel in 2010 was part of making that happen.
The next year, Pledge 1% was co-founded by Atlassian and a number of other organizations to be a force for good in the world. There are now more than 18,000 companies pledged and they’ve given away 200,000+ hours of time as well as hundreds of millions of dollars.
At the same time, gearing up for an IPO, Atlassian did a pre-IPO raise from T. Rowe Price of $200 million, mostly from employee shares, valuing Atlassian at $3 billion.
IPO
Atlassian went public in late 2015, with Scott and Mike each owning more than 30% of the company, a testament to bootstrapping the company early on and building an incredible business. The IPO valued Atlassian at around $4.5 billion.
Two years later, flush with even more cash, they acquired Trello for $425 million.
It was their 18th acquisition and their largest to date.
In 2018, building off his angel investments, Scott launched Skip Capital, his private fund investing in technology and infrastructure, with a portfolio including Canva and Figma among many others.
By 2019, two-thirds of Atlassian’s workforce is based in San Francisco.
After the pandemic in 2020, Atlassian became one of the largest companies committed to remote work, with a team of more than 11,000 employees.
Scott and Atlassian Today
Today, Atlassian has more than 260,000 customers, 250,000 of which have never had a salesperson interact with them.
Clearly, their product-led growth model worked to near perfection and Atlassian generated more than $3.5 billion in revenue in the last year.
Scott and Mike, in more than 20 years of working together, also showed that the co-CEO model can work.
A CNBC article in 2022 expanded on that:
Marketing and sales reported to Cannon-Brookes for 15 years, and engineering once reported to Farquhar. And they’ve both run the entire company at different times. They’ve gone on sabbaticals. Last year Farquhar took three months off to caravan with family around northwestern Australia. “We sort of got to travel unencumbered,” he said. “I think other CEOs would have to retire or quit to be able to take a break that long.”
While Mike is the more creative of the two, coming up with lots of ideas, Scott is the more structured person, helping turn those ideas into something and also showcasing tremendous leadership:
He is awesome in a crisis situation. We had a security incident . . . Scott was on his honeymoon so he bailed on his honeymoon to come back.
By the time he came back, I was just about expiring, it was easily the most stressful seven-day period of our lives. It's instances like that where you see the team rally and the leaders shine.
While Scott grimaced thinking back to that story in a 2014 interview, saying he had to have another honeymoon with his wife later, it showcased his commitment to Mike when he needed him.
Besides becoming close friends themselves, Scott and Mike have also become friends with others in the tech world and host a private retreat to bring them together:
And so every two years the Atlassian founders have hosted a private retreat, inviting every Australian start-up valued over $100 million, which is about a dozen. They hike and fish. Families are invited. The goal is to encourage camaraderie and share best practices.
It’s been 21 years since Scott and Mike started Atlassian as a software support firm, they’ve had an incredible journey and built a nearly $50 billion company in the process.
Scott’s Wisdom
In each edition of the Just Go Grind newsletter, I like to include a few more quotes at the end from my research into the founder who is featured, sharing their wisdom.
If you want to build a product-led growth company it's much more like a consumer model. It's basically how many trials do I get, how many people are using the product, at what stage in the the funnel are they, and that's much more scalable.
At that stage you're not throwing sales people at it to get every incremental dollar of revenue. So we focus on metrics like how many active instances are there of our product out there, where they're paying us or not - just how many people are using it.
We focus on consumer metrics like monthly active users which is a big metric we use internally so we're sort of much more consumer focused in the metrics we use.
On what keeps him motivated as Atlassian has become a huge company:
The compound effect of helping 250,000 companies and tens of millions of people to be more productive and enjoy their jobs more and get more done for the world - that's way bigger impact than I could have in almost any other domain and so that that keeps me excited at a mission level.
Then as an entrepreneur, we're 11,000 people, two decades ago we were two people, so every single year there's a different challenge and a different journey to go on and that is hugely intellectually stimulating for me. I love learning. I love trying new things.
On the most important thing about leadership:
One of my maxims is that the most important thing about leadership is to a set of vision.
People will work for a complete asshole who has a great vision, they won't work for the nicest person in the world that has no direction, and so my number one thing for me, for leadership, is vision.
So I'm hoping across 11,000 people we can still set a pretty compelling vision even if I can't have that one-to-one relationship.
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