Unpacking all the non-consensus moves in Atlassian's story - Jay Simons

[00:00:00] We created our second product in our second year. And that's really unusual, right. Especially when you've got a breakout product like JIRA, that's growing really nicely, and there's a ton of things that you need to do to it, to fragment your focus a little bit, or split your focus on a second thing.

Conventional wisdom would say, don't do that. But I think the thing that we benefited from by doing that is we began to build this muscle around. How do you think about cross-merchandising cross-selling upselling? How do you think about. Pricing and all of a sudden you need to rationalize pricing and packaging across not just one thing, but multiple things.

How do you think about business model? How do you do product planning and prioritization and budgeting and staffing? If we're going to acquire a company that has a product that can only be sold by people because it wasn't built to be sold any other way. And that's actually going to be a challenge for us across, you know, the things that we may want to do.

It makes cross flow and cross sell in a system that we built harder to achieve. And so I think we just had a really early age begin to kind of wire our brain to think about all those things. Like all the things that companies need to do as they get bigger. We learned when we were a teenager or even younger,

[00:01:20] welcome to in depth, a new show that surfaces tactical advice, bounders and startup leaders need to grow their teams, their companies, and themselves. I'm Brett Berson, a partner at first round. And we're a venture capital firm that helps startups, like notion, roadblocks, Uber, and square tackle company building firsts through over 400 interviews on the review.

We've shared standout company, building advice, the kind that comes from those willing to skip the talking points and go deeper into not just what to do, but how to do it with our new podcast. In-depth you can listen into these deeper conversations every single week. Learn more and subscribe today@firstround.com.

His episode of in-depth, I'm thrilled to be joined by Jay Simons. Jay is currently a partner at bond and serves on the boards of HubSpot and Zapier. But before that, he had a long run as the president of Atlassian, which developed software collaboration tools like JIRA, confluence, and Trello as Jay put it at, LaSeon covered a lot of distance.

In the 12 years, he was there growing from about 20 million in the ARR when he first joined in 2008 to around 2 billion today. So he was really excited to have Jay on, to dig into the lessons he learned from scaling this incredible business. What I found particularly interesting about our conversation is just how much of it lasts in story runs contrary to conventional startup wisdom, the company's success, and their ability to go back to first principles.

Doesn't get enough attention while young flashy startups grab headlines at last year and has been humming along for 18 years. They started not in Silicon Valley's center of gravity, but in Australia, they relied on product led growth before anyone coined the phrase with a focus on low pricing and a heavy use of channel partners instead of the traditional sales model.

They also had two people in the CEO role and launched a second product in their second year, sidestepping the common advice to centralize leadership and focus on a flagship product. In the early years in today's episode, Jay unpacks, each of these counterintuitive moves getting super tactical on how the Atlassian team made them all work.

He also digs into how they thought about the funnel as a product itself and talks about why they lean so heavily on channel partners. Instead of building their own traditional sales team. We also got pretty deep in the weeds on why HipChat lost a slack, how it Lassie and pulled off their land and expand to enterprise strategy and how they approach the build versus buy question throughout the company's life.

We close out on a discussion of how they built a culture around first principles thinking and the flywheels that fuel and reinforce Atlassian growth. There's tons of great advice in here for go to market and revenue leaders. But the lessons on product and culture, as well as the inside, look at how this massive company got built, make it a great listen for all kinds of startup leaders.

I really hope you enjoy this episode. And now Mike conversation with Jake, Jay, thanks so much 

[00:04:40] for joining us. Thanks for having on a Brett. 

[00:04:43] So I wanted to start by having you define the Atlassian playbook and how you think about the business model. I'm excited to get to dive in, in this area because one of my favorite topics is what are the sort of underexplored success stories in technology?

I actually think there's a lot of companies and a lot of things that actually get too much coverage. And I think outside of people saying, oh, it lasts Sheehan has this weird go to market with no salespeople. It's not a particularly well understood company. I think a lot of people don't understand that.

I think it went public for low billions in market cap, and now is about to cross 50 billion in market cap since its offering. And it's an extraordinary company. And so excited to sort of start by maybe having you define how you think about the Atlassian playbook 

[00:05:26] and business model. I'll try not to have this one answer, cover the entire podcast because there's lots of dig in here.

Naturally. I think you need to begin with what it last year did really well. Even before I got there, which was to build an incredible product and the company's mission, its earliest mission. It characterized is building remarkable products and they were really intentional with the word remarkable because they thought we want to build a product that compels people to remark about it, which is sort of the definition of word of mouth.

They wanted to build something that was just delightful, that people were surprised by that they love to use, which, you know, certainly a lot of founders and product teams aspire to create, but the companies before it focused on the value, or in addition to focusing on the value that it was providing customers that was really critical.

And what that allowed us to do was really build a different way to distribute that product and acquire customers. And so some listeners may know this, but you know, it lasting for a long time was characterized and still is by having a very different sales model, a very different customer acquisition model.

What's typical is, is when you've got a product that you've identified has value for customers. Use speaking to build a, you know, a team that can find those customers and help them understand what your product does and transact with them effectively sell the product or convince the customer to buy. And.

Last thing, approach it very differently. LaSeon believed that we'd built a product that was easy to use the people loved. And so that was sort of going to add to the megaphone kind of the marketing megaphone of getting the word out about who you were and what we did. And then we chose in the earliest years of the company to basically price the product very affordably.

And part of this was the condition of what the market looked like at the time, the market for JIRA lysines first product, it was characterized by products like IBM, rational or Microsoft. Now team foundation server used to be, you know, visual studio, but these products that were licensed at a thousand dollars per seat, per developer for a technical user.

And then on the other end of the spectrum, there was a lot of free and open source issue, trackers, bug Zilla, and mantis and track and things that actually, don't got a lot of airplay now in 2020, and the vast majority of the market was using opensource. And so when Alaskan thought about it's tan, it's accessible market, the first customers that it wanted to go after were customers that weren't paying any money for the thing that Atlassian wanted to convince them to replace.

And so we intentionally priced it effectively just above free. And that meant that we needed to find a way to distribute it to customers economically. And you know, at the time this is sort of in the early two thousands seems like really head-nodding now. But the internet was a way that you could basically technology was sort of really at the advent of cloud.

And, but even if you had, uh, an on-prem software, you could host it and let customers download it from the web and install it. It was the advent of AdWords. So we were a really early adopter of that channel to meet customers at the point where they were looking for something to solve a problem. And that wasn't something that IBM as a competitor or free and open source alternatives were really doing.

And so that gave us kind of a leg up. And we wanted to build a model where we just believed that for the most part, people really want to help themselves. They want to self-serve. And if you can eliminate the path all the way into the product and have the product kind of guide them through in the same way that maybe a human being would, if they're sitting right alongside them and you made it easy for them to buy the product, there's a way for them to transact online.

And the price point was something that didn't require a lot of explaining or a lot of convincing that all of those things would effectively lubricate this self-service flywheel. And that is what we created. And what we proved that we could scale to over a billion dollars. And, you know, the last thing we'll say, and then either I'm sure there's a lot you want to dig into, maybe the one misunderstood part of that is it LaSeon always had people that were involved in that self-service flywheel.

You know, we would say to every customer, let us know how we can help. We refer to this team as advocates. They were either product advocates or their customer advocates, and they were absolutely focused on the success of the customer and helping them. They just realize, or they knew that most of the model would support the customer's journey all the way through and what they were there for is to remove whatever hiccups or speed bumps or potholes the customer might step into.

And so they'd answer a question about a product capability or they'd answer a question about a competitive alternative, or they'd answer a question about pricing. But with a great answer, they would then send the customer back out into the self-service path. And the customer for the most part would go all the way through and by themselves.

And that's the part that we scaled. And it just meant that we had this sort of one to many commerce engine and an emphasis on self service that meant that our human capital, that support that was a lot more cost-effective for us was a lot more economical. And then we built basically a system that would help us acquire customers in the thousands and grow it.

[00:10:44] about that is I think that when Silicon valley we often spend most of our time talking about product innovations. And I think what Atlassian did is, is sort of the magic of when you join a product innovation with a distribution innovation and a business model innovation, I think it's just such an elegant example of particularly now everybody's obsessed with bottoms up SAS.

But back then it was quite non-consensus and I'm sure a lot of people sort of looked at what you were doing as kind of something quite funny. Is there a way that you approached or executed this now consensus idea of bottoms up SAS that you actually think is unique relative today, or reasons why it worked or maybe go a few levels deeper on exactly.

Sort of outside of the philosophy of bottoms up SAS, getting people to take their credit cards out and then sort of upselling and cross-selling is sort of at penetrates a given organization, kind of some of the details of the way that you executed that you think sort of ended up working so well. 

[00:11:39] I think a lot of the characteristics are similar to maybe what you would see today in freemium or bottoms up SAS or some aspects of kind of a modern SAS company.

I think the thing that we really did well, you know, you mentioned this sort of emphasis kind of outside of product. I think product and the business model are really married together. And that's what we got. Right. You know, a lot of companies worry about how to sell a product really, before they do build a practice that can sell itself.

And so there is no way that they could, there's basically either too many wrinkles to iron out or too many potholes that the customer will step into and you compensate for those things, but with people, and once you go down that track, it's sort of very difficult to say, whoa, we could actually fix all these things in the product.

And then we either wouldn't need as many people or we could use those people differently. It's sort of, once your train is set in motion, It's difficult to jump to a different set of tracks. And so I think what we did that was very unconventional at the time was think about how could we build a self-service model and what are the core ingredients that would make that work?

Well, first you have to build a great product. You have to build a product that people can discover on their own can begin to use on their own, can be onboarded effectively on their own, or sort of guided kind of through the product with technology and automation. And that's sort of part one. If we can't do those things, it's not going to work.

We probably need a price point. That, as I mentioned earlier, doesn't need a lot of explaining we had at the time, if you look at how it lasts and priced, it was basically just one price per product. I mean, it was priced by user tiers, but we didn't have what's very common today. And actually what it lasting has today, the notion of kind of a free version and maybe a standard version and then a premium version and then an enterprise version or a premium plus version.

And the reason we didn't have that as at the time, we were so focused on reducing the cognitive load on the person that was coming to us, the customer, to understand what we did. And if you had four different versions at four different price points with different features across those price points, that would be very difficult to help the customer kind of Wade through that.

The first thing that they'd want to do is to shortcut it and say, I'm not going to spend all my time going through all this stuff to understand it, just get me somebody to explain it to me. And I think if that's what happens, our ethos at the time was well, let's fix that. Let's only have one single price point.

It'll make the flywheel move faster. It'll help our marketing teams explain to the evaluator what it is they're looking at in the choices that they're choosing from are simpler. So we always, you know, I mentioned this before. But, you know, we thought about the, the funnel really as a product in and of itself.

And we looked for opportunities to either fix bugs in the funnel, like defects or to add features, to achieve what we wanted, which was this high velocity, very low friction kind of automated self-service engine. And in the two thousands, you know, it was a very unusual well approach, but it just meant that we had to emphasize, we had to put a lot more energy into building a great product and then improving that over time.

That's what I don't see. Maybe a lot of companies do in part, because you may be impatient for growth. You want to move really quickly. And so you don't go all the way there. I forgot who said it, but the business model ends up becoming the business, right? It's as equally as important as the market you're going after and the product that you build.

And I guess the takeaway from the last year is we were really intentional and thoughtful about it and spend a bunch of time building towards it. And so 

[00:15:08] on that note is part of the way that you thought about it was basically this new customer journey from somebody hearing about it, to ultimately having it deployed at their company.

And you looked at that very, very closely, like a product manager might look at any part of their product. I guess I'm curious what that process looked like for optimizing that. And are there moments along the way, sort of the ahas or unlocks that actually led to a disproportionate amount of the improvement in that distribution mechanism?

Or was it chipping away at little percentage points over many, many years that ultimately led to success 

[00:15:44] on the whole it's more the latter than it is the former and the early days you get more of the inflection points. When you realize that there's just kind of big boulders that are in somebody's way that you can remove.

And remember a lot of this was for last year in any way was precess. It was really pre-cloud. And so cloud provides a whole bunch of additional benefits and advantages because you have a higher fidelity connection to the user in the product. You can make a bunch of changes in the product that you're hosting for them to either get kind of the influxion gains or the incremental percentage gains forward.

A tweak to onboarding, you know, way better fidelity around the data that people that do convert or the features that help people do convert. You understand what those are. And so you can sort of like steer people towards them. For us, we would do things like, you know, we just understand this kind of a very head naughty, but we would understand through either observation or through asking customers, or if somebody went through an evaluation of the product and then basically said, no, I'm not going to buy it.

We would spend a bunch of time understanding what were the headaches that you bumped into that convinced you to go somewhere else. And then we'd focus on fixing those in product, in the funnel. It was things like that team of advocates that were basically on the receiving end of customer questions. We would look for patterns.

It was like, Hey. Every day, customers are asking us a question about this product capability or, you know, in a no brainer would be here. If you don't put pricing in your website and everyday somebody is asking you, Hey, what does this product cost? There's one school of thought that says, wow, you've created a lead stream.

You've created a reason for people to identify themselves to you and ask a question for us. It was like, we actually don't want that as a lead stream. The customer, ideally, doesn't want to ask us that question. They just want to know the answer to it. And why not just give people the answer and then remove the need for them to kind of interact with us for something that is kind of a relatively simple thing that we can resolve.

And so those were the kinds of things that we begin to chip away, and it was all in pursuit of how can we help the customer go through this funnel faster and get to the other side? That's what it was a really about, but it was a combination of both kind of product and funnel optimization. 

[00:17:59] And so on the advocate or sort of your version, I guess, of pre-sales support or however you would define it, how did that role evolve over time?

And did it start with just, Hey, have any questions, email us, and these are the people that would respond or what sort of was that function in person and background that was kind of your flavor of maybe pre-sales or something like that. It 

[00:18:22] still exists today. And I think it's it most closely approximates, maybe customer success.

And so it is a very product oriented person. That's why we chose product advocate. You know, I'm representing this product to you. I'm not necessarily trying to sell it to you. Although everyone in the company should to some degree be a sales person should be selling. And so they definitely had an aspect.

I want, I want to convince you that this is a great product if you need convincing. But my job is, is not maybe the one differences I'm not paired to you as a lead or as an opportunity that I'm trying to close. I'm here to help because there's some friction points that are preventing you from moving forward.

And my job is to help remove them. And then trust that if you bump into other friction points, you're going to come back to me. If not, you're going to Atlassian has created a path for you to buy the product on your own. And the way that it's evolved is mostly in just the dimensionality. And as we become bigger, we began to recognize that there was an advocate role specifically around retention that would be dedicated to there'd be a retention advocate or a lo we call them a loyalty advocate.

There'd be an advocate role specifically around the customer for customer service or billing issues that are separate from product. And so post-sale, I don't have a technical break fix issue that I need somebody in support to help me with the billing contact at my company changed. And I can't figure out how to remove that person and put me on.

As we moved up into the enterprise more, and that this began to kind of evolve. We really became the closest thing to salespeople at other companies. We added an enterprise advocate role, the first enterprise advocate role. I think we added probably in about 2013 or 2014, but we had, you know, at last year had kind of deferred any real enterprise focused and we had lots of enterprise customers, but there were things that large enterprises were asking us to do.

And, you know, as we began to invest in them, we thought about there's a product offering here that really is for these big, big, existing customers of ours to upgrade to. And in some cases that upgrade could move them from spending hundreds of thousands of dollars a year with it last year to potentially millions of dollars of year to do it lasting.

And at that point, it really made sense, sense for us to be a bit more proactive with those larger customers that had. You know, material growth opportunities with a product that we could explain to them with more energy to accelerate that upgrade cycle from the numbers that I mentioned a hundred K to a million.

And so we created this enterprise advocate role that really paired with the largest existing accounts. Now, still today, most new customers that Alaska and acquires come through a funnel that is, you know, almost identical to the one that I've been describing. It's very easy to try the product that they're using to buy the product we sell team software.

And so even if you're a fortune 10 company, you might start with the last thing with a team of 10 or 20 or 50 or a hundred. And, you know, in that particular case, you could be spending less than a thousand bucks a month. But, you know, as you begin to grow and we've got the advantage of having, you know, natural network effects in our products built in because they're collaboration software.

And so one user can be, get another user. One team can be, get another team, but at some point you had the products expand to a point where it makes sense to talk to that customer about this sort of enterprise more premium upgrade opportunity. And that's where we've layered in more proactive sales energy in the form of enterprise advocates.

But if you look at it, LaSeon lasting has probably close to about 5,000 employees now and relative to most enterprise software companies of that size, it has a fraction of the number of quota carriers in part because the company benefits from. The flywheel that we've described as an acquisition engine, as creating kind of more and more existing customers for a sales team where the maturity of that customer and the opportunity and that customer is right more right for a sales team to engage by the way.

The other thing that's really important to mention, because it's a core part of last things business is when we were really young. Whenever there was really maybe a need a customer need or a market need for a sales person. And so maybe in the enterprise, they'd say, Hey, I'm comparing you to IBM, rational and IBM sending in, you know, a whole demo team and they're going to do a dog and pony show.

I want it last thing to do the same thing. We chose not to invest in that directly. And instead we thought that was a perfect opportunity to build. A channel or reseller channel and a partner ecosystem because those big companies are going to need some handholding. If they select us, there might be some services work around migration around configuration and set up.

There's some expertise that a third party could develop. Then that third party probably also we can help them develop the proactive sales energy that the customer is asking for. And then we won't need to do it. And so the channel, which accounts for about a third of it, last scenes revenue, the channel, we had a really symbiotic relationship with the channel because we weren't competing with them directly.

We didn't have our own sales team that was hunting for the best deals. Whenever there was a really big opportunity. We were motivated to introduce a channel partner of ours to basically handle the sales engagement. And that's the, I was characterized at last year's business model. There's a lot of ink spilled about maybe the aspects of it not having kind of a traditional sales organization.

It really is. This. Three legged stool of this high-velocity acquisition, self-service leg one, an indirect global network of partners that provide services, but also have their own salespeople who are out trying to like find opportunities and sell them and close them, them complimenting that self-service high-velocity flywheel.

And then like two, and then like three is our own very strategic sales, an organization that is taking existing large customers and helping them grow often in concert with the channel. And it takes a lot to make sure that those things harmonize. And I think, you know, if there's one thing that LaSeon worked really hard at is making sure that, that not to butcher the metaphor, but that harmony sounded good.

Cause it's easy to sort of cannibalize one dimension of that stool for another. I'm curious to 

[00:24:36] talk a little bit about that just before we move on in the different product advocacy roles, retention advocate, post-sales et cetera. Which one are those? Do you have a quota or do have some sort of incentive comp that you might think of?

That looks a little bit like sales versus isn't sort of comped oriented in that way. 

[00:24:54] Well, I would say the business model is going to involve. And so this is maybe subject to change in the time that I haven't been there, but on the whole it's really the enterprise advocate group that carries quota and focuses on that upsell and upgrade path for an existing customer from a meaningful collection and usage of our products.

But up to. And enterprise grade or premium version of the product and they carry quota. The product advocates largely are measured by volume of customers that they serve and the satisfaction of those customers that they touch in part, because the flywheel was basically built that high velocity firewall was built to let customers go all the way through.

And so if you intercept a customer that could self-serve and you say, well, I'm gonna attach myself to this customer. And then I'm actually going to close them when we've already proven that that's unnecessary with a bunch of testing over the years around what is the difference. If we throw a bunch of people and we really work at it, and in our particular case, I think because of the characteristics of the product and the investments that we've made in the product over time and the cost of the product and how affordable it was, there really wasn't negligible difference in trying to traditionally.

Go one-to-one with every single customer also recognize that that high velocity flywheel has customers in the thousands and thousands that kind of flow through it. And so it would require a lot of human resource, a huge teams to basically pair with all of them. So short answer, your question is really just enterprise advocates.

[00:26:17] going back to the sort of stool metaphor, and you were talking about maybe one way to think about it is how do you create a stool that doesn't become very wobbly and fall over? And it just seems like this is very conceptually easy to understand the three legs of the stool, but I'm sure internally, and you sort of were mentioning this, keeping that balanced is very challenging and I can just see questioning well, what is the role of the channel?

And we'll why don't we take this and we could expand margin in this way or that way, or sort of what have you. So can you share a little bit more about, maybe share some stories or some instances of hard trade-offs or ultimately sort of, how do you keep that stool balanced. 

[00:26:57] One of the reasons it's hard is because it can always seem easier to do things directly and to manage your own organization, your own investment in capability.

And it's harder to trust some aspects of that to partners or to companies that are affiliated with you, but aren't, you. And there's always going to be trade-offs, but I think we were focused on where can we get leverage that improves our speed and velocity and just the efficiency of the business. And, you know, we paid really close attention to what are the differences here and what are the trade offs that we're making and where can we invest in?

And if there are differences that are pronounced, where can we invest in fixing them as an example? You know, if the retention rate for a customer that bought through a channel partner, which this isn't true necessarily, but if it were significantly lower, that becomes the focus here. It's like, how do we improve that?

Let's understand why and figure out the things that we could do to fix, you know, either in the business model or, you know, with training with the partner enablement, or maybe there's a different group inside of our company that needs to work as a quality assurance on top of the relay, you know, whatever the thing would be.

And I think it just, if it just, it comes back to where we were rooted. If you think about in building an international global business, you know, a lot of companies will say, well, God, I need my first boots on the ground in Europe. And it's not just to boots on the ground. Right? Like you have to think about all of a sudden, I don't just need a salesperson than I need to think about how is that person supported with marketing and eventually.

There's going to be tax implications for both paying their salaries and how they're transacting with customers locally. There'll be different finance considerations, or there's a whole bunch of other stuff that comes with kind of just planting a flag in a particular country. In our particular case, we got the leverage and advantage of saying well, there's customers in France that we could sell to that don't want to buy online from us.

They want to buy through. A local entity and rather than create our own local entity, we could actually sell through a reseller that is a local entity. They could actually, if the customer wants to buy in euros, sell in euros, they could invoice from a French address for tax reasons. We transact with them over the single currency that we transacted with for the bulk of the last things, life and us dollars in our business.

It's just a lot simpler to manage. And maybe the question you're asking is it's sometimes it's really hard to understand how material some of those trade offs are, but that's actually where the hard work comes in and try and understand that as best you can. What do we get for the choices that we're making and what do we lose and how does all of that square and the business that we're building, not just over the next four quarters or the next four years, but over the next 15 years over the next 20 years.

And that I think is, you know, LaSeon always thought very, very long-term about what we were building and how. So you 

[00:29:47] were mentioning one of the areas you look to sort of see if things were in harmony. One example would be depending on if the opportunity came through us versus through a channel partner, how that given company retained, are there other things you were looking for to make sure this decision of like what the channel or maybe some other, basically that the stool is kind of balanced or that this is all in harmony.

[00:30:08] Yeah. I mean, you look at ASP for customer, you look at customer growth, kind of in the expansion rate and the retention rate. I mean, all of the properties of, if I take one customer that came through one channel and another customer came through another channel, you know, one direct one indirect, how do they compare?

Today's episode is with Jay Simons, who spent the last 12 years as the president of Atlassian, overseeing go-to-market strategy and big acquisitions as the company went from startup to IPO. He digs into their unconventional moves, such as using channel partners instead of a traditional sales team, and building a second product in their second year. From why HipChat lost to Slack, to their "land and expand" enterprise strategy, Jay has heaps of advice for startup leaders of every stripe.