5 Interesting Learnings From Atlassian at $2 BILLION in ARR!

Hey everybody. We've been doing this five interesting learning series on saster.com, where we take a look at some of the Most iconic public SaaS companies that are growing like a weed and we do a deep dive on five or so learnings that will help other founders and SaaS executives. We've looked at Atlassian, Box, Datadog, Qualtrics, Twilio and so many others and thought it might be fun to do a video deep dive on these five learnings so we can chat about them a little bit more than we have space to on a blog. So let's start with Atlassian. I think we've all used some sort of Atlassian products in our lives as builders, if not Jira for tickets or maybe some of us confluence. We've certainly all used Trello once in our lives for project management and collaboration and Atlassian is fascinating. Atlassian for all intents and purposes was bootstrapped, I think up to 40 or 50 million in ARR before Excel invested relatively late it was bootstrapped so it took longer to get going, but once it did, it became a machine. It was Atlassian has two CO CEOs. That's not supposed to work, but it works. Atlassian didn't come from Silicon Valley, it came from Australia. And at least pre Covid they did have end up massive audiences and presence in the Bay Area, but they came from Australia. And another narrative violation for Atlassian is that you need a sales team. And we'll dig in this a little bit on the five interesting learnings, but Atlassian actually has a small internal sales team now and a large team of partners that sell their products. But the internal sales team is pretty small. So what are five interesting things about Atlassian at a breathtaking $2 billion in recurring revenue? Well, the first one that really jumped out at me is actually their website, their marketing site and that's SEO and brand continue to work at scale. So Atlassian last year not only had 21 million unique visitors to its marketing site to its homepage, but that's up 30% year over year. So you know, listen, you can't all be about brand in the early days you don't have a brand. But don't forget how important your marketing site is. Your marketing assets are that 30% growth of their homepage year over year is their top of the funnel. And it's pretty fascinating that that is one of their core sources of new customers and new signups even today is the Atlassian website. So that can last forever. Your marketing site is more important than you think. And obviously you can't give it as much attention as your product. But make sure your marketing site always this is my rule of thumb. Make sure your marketing site is always better than your product. Look, it's hard. It's hard to build great software. Best case, it takes time. But you can iterate the images of the product where your product's going to be. You can talk about how great your features are, how great your customers are before you've even shipped a lot of it or perfected it. So make sure as especially as founders, you check your marketing site once a month. Go through the flow, go through every page, make sure it's current and make sure again that it is better. Every description, every image, everything is better, even better than your actual product because it works. Atlassian shows your website alone can generate 30 million views a month and grow and grow 30% a month. The second most interesting thing about Atlassian is they've added free editions lately they've added free editions. We also have seen this with new relic and traditionally we've always seen in SaaS and Cloud it's tough to go down market. Everything's hard. But traditionally we found most folks that don't start in the enterprise. Folks that started the enterprise are the vivas, the servicenows, the workdays. They know enterprise. The founders did, that's where they start. But most of us start at the more toward the bottom market and work our way up. Like we learn, we've seen this with PagerDuty, we've seen this with Zoom finally going enterprise. Now we've seen it with Slack that went quite enterprise after about 100 million in revenue. And they all sort of start at the bottom at SMBs and small accounts and go up. That tends to work because you can bolt on more and more features over time. But a company used to selling large ticket size really generally struggles to go SMB or add free editions. But with Atlassian, it's worked at last seen like HubSpot, like was late to go truly freemium, although they always had free trials and elegant ways to test the product. So it's not as dramatic as it thinks. But it tripled their signups. It tripled their signups since in less than nine months. It may have been a partial reaction to Covid, which gave everybody a chance to see hey, can we just if revenue is going to be impacted, let's at least get more users. Obviously Cloud exploded shortly after Covid hit, but the learning is that for the first time almost since Inception. There are free editions of their two largest products, Jira, Confluence and Sign Up. And not only did signups tripled, but Atlassian views this again as like their website, a core new source of new paid customers and users. So you know, just bolting on or free edition when it's not in your DNA, it's not going to work. But if you go all in on it as a core initiative, it's never too late, right? Atlassian waited the better part of two decades to add a free version. HubSpot waited over a decade, new relic started free and drifted away with it when it went enterprise and then came back and saw 15% higher revenue lift from the customer segments where they added free again. So it's sort of revenge of the free do it right and we learned this from Zoom and Slack. Do it right and it really works. Third, interesting learning from Atlassian and this one is sort of boring because it's similar to peer companies, but it's good to track. They segment their net revenue retention, how much revenue each customer account is worth over the course of each year. And they segment it overall in enterprise and their NRR. Overall their net revenue retention is 120%. So overall each hundred million of revenue they have grows into 120 next year inclusive of churn. Okay. And 120 for companies that serve small, medium and large business like Atlassian. That's basically world class. 120 if you serve all sorts of customers and it's 130 for them in the enterprise. So if your products are kind of like Atlassian products, if they're collaboration, if they have similar deal sizes, shoot for at least 120 overall and at least 130% net revenue retention from your bigger accounts, from your more enterprise accounts. Point four. And this is sort of a persistent theme through this whole five interesting learning series is that it took Atlassian a while to become a multi product company. It took others a while. It took. We're just seeing ServiceNow waited for a billion. We've seen that Box is growing faster than Dropbox at a billion because Dropbox waited to add more products while Box added them earlier at about 500 million in revenue. Atlassian waited, but today its core products are Jira, Confluence that have been around almost since inception, but they're only 60% of revenue today. ServiceNow is similar. ServiceNow is at 5 billion in revenue and its original IT tracking product is just over 60% of revenue. With Veeva, its original PharmacyRM product is now smaller at 4 or 5 billion in revenue. Than its second product vault. So you need these multi product streams if you want to grow that 30% and up after a billion in revenue. And if you're small this may seem silly and don't get distracted right? Don't launch 17 products too early but I think as early as 10 or 20 million in ARR you want to start thinking about it. You want to start planting the seeds and thinking about what can move the needle, what you can what later, what later, what can I test on the way from say 10 or 20 million error to a hundred what can I test so that it might take off and give me that second product and plan on needing one. And the ones that didn't add a second product after billion revenue as we see in the series, they almost all slowed down. The surveymonkeys slowed down until they added an enterprise product. Twilio accelerated once it added a send grid and all the rest Viva accelerated but the dropboxes decelerated. And Slack. It's unclear Slack never added a second product and ended up selling for an incredible 28 billion. But we'll never see that next card of what Slack as a standalone company could have done if it added another product after billionaire revenue. So it's very interesting that even though as early as six, seven years ago Atlassian basically had no revenue material amount of revenue outside of JIRA Confluence, now that other products are 40% of its revenue stream and going up. So not to worry about today for most of us or this month or this year, but as founders Once we hit 10 million, just start thinking about what your second product could be, thinking about it and maybe testing a few things.5 and this is just always sort of interesting to track with cloud leaders. Atlassian also waited to go more enterprise and now it's going more enterprise. Now this is not to say Atlassian didn't always service enterprise customers, it always did. I mean in 2011 when I walked into Adobe as a vice president, Atlassian was everyone in the elevators like how to use Confluence. And Atlassian started off on prem, not on cloud. It was actually late in many in many cases to transition to cloud. But that had some advantages in the earlier days of cloud because it was perceived as more secure and they could actually get more enterprise clients. But nevertheless, Atlassian, even though it always had big customers, it didn't lean in heavily on these 500k $1 million customers. But today they're the fastest growing segments. It's 1 million dollar. Atlassian now has over $101 million a year customers over $101 million. Guys that are super enterprise like ServiceNow have over 1000, but $100 million a year. That's pretty enterprise. And more relevantly, the $1 million up deals, that revenue stream is growing 76% year over year. So that's the fastest growing. The next segments, 500k and up, that's growing 56% year over year. And even 50k, 50k is growing 44%. So while Atlassian is growing about 30% overall, in this case, the small ones aren't keeping up. They're not keeping up. And it's the big ones that are propelling that revenue. After 2 billion and a lot of time, that's what our math tells us. Our math tells us after a certain point, if you want to go from 2 billion to 3 billion or 4 billion, it seems easier to do it with the big logos. But what's interesting is it's not always the case. We've seen other folks in the series where the enterprise deals keep growing, but folks like Zendesk have seen their SMBs keep up. Even though enterprise in a way is earlier easier to grow at scale because the NRR is higher, because enterprise adds more licenses. Right. In this case. Right. Remember at Atlassian, if we go back, our net revenue retention is 120% overall, but 130 in the enterprise. So that means just mathematically it's easier to get more revenue out of enterprise accounts. But if you really appeal to customers, small, medium, large, sometimes just the sheer volume of small customers can keep up. We've also seen this with Shopify in this series. Even at 3 billion, even though Shopify is more enterprise product, Shopify plus has exploded. It's grown like a weed. There's so many SMBs selling on the Internet that Shopify's SMBs have kept up in total revenue. So Atlassian is what we expect at some point. We all go more enterprise. Pager duty post IPO has gone more enterprise. Look at Zoom. Take a look at its website. Zoom, when it IPO'd not that long ago was very SMB, very small, medium and large. Everyone basically uses the same Zoom. But look at Zoom today you'll see Enterprise everywhere. And Atlassians like that. But the meta learnings we don't know, right? You just don't know whether you truly have to go more and more enterprise forever or whether you can sort of have a consistent ratio. And it's interesting to see different case studies. So those are the five ones, but let me add just a couple more that I thought were interesting. Two more points again. 6. The way Atlassian does sales. And this doesn't work for everybody, but Atlassian is the most visceral example. But it's true of HubSpot and Shopify as well. Channel partners are 63% of Atlassian's revenue. Channel Partners and at HubSpot it's about 40. I'm not sure what Shopify exactly, it's hard to tell, but it's more like 30%. But for both of those, a ton of the revenue comes from channel partners and that can mean different things. With Shopify, it's often web shops. With HubSpot, it's often marketing agencies that deploy HubSpot, that's about 40% of the revenue comes from those agencies. With Atlassian, it's channel Partners that help set up these products. But even in the early days, we always thought of Atlassian as this outlier that didn't need sales, it always needed sales. And if you go back, even when Jay Simons, who was the president of the time, came to our second Saster annual back in 2016, he wanted to make that point to the audience that yes, Atlassian at that time had very few in house salespeople, but a ton of essentially external salespeople, channel partners that were selling their product. And even Today, even at 2 billion ARR, 63% of their product is sold by the channel Partners. And because of that, if you look at their numbers, atlassian only spends 15% of its revenue on sales and marketing. Cloudflare, which is similarly technical, spends 30%. So they have to spend twice as much money on sales and marketing because they don't have channel partners selling it. But it's just a question of where does that sales headcount live inside your company or outside your company? And it's a mix. This channel stuff doesn't work for everybody. It only works for certain segments where there are existing agencies and partners that have relationships with thousands and thousands of customers to rely on to deploy their products. A cloudflare you might just deploy on your own, but it's interesting, when it works, it really can work. So if you're finding channel partners, third parties, agencies want to sell your product, test it, test it. And maybe this is the meta point. Sometimes we think, wow, these web products, our cloud products are so easy to use. Why would we need third parties? Why would we need partners to deploy us when anyone with the brain can just use our product in an hour? Well, it's not that simple. Even products that seem simple, like a HubSpot or a Shopify or some of Atlassian. You know, they involve business process change, they involve changing the way we do business, they involve integration with other systems, right? Even if these integrations to some of us seem simple, they're not simple to everybody. And a lot of times it's worth it. If I'm going to spend 10 grand on HubSpot or 25 grand on some on Atlassian Suite, it's worth it to spend another 10 or 20 grand so that it works. I don't have time, I don't have a CIO or an IT team for a lot of companies. So if I want, spending that extra 1x or 0.5x or 1.5x is often worth it. So don't discount the idea that thousands of shops, channel partners, boutiques, agencies can help resell your product with value. Don't be dismissive of that because it works for Atlassian, it works for HubSpot, it works for Shopify, and it just might work for you. And the last point just of interest on this is, boy, Atlassian is a cash generating machine. So Atlassian, at 2 billion in revenue is generating 500 million in free cash flow. Now Dropbox, Dropbox is also 2 billion. It's generating a billion dollars in free cash flow. So half of every dollar that goes into Dropbox comes back out as cash, 25% of each Atlassian dollar. Atlassian, in some ways is more interesting because Dropbox is growing quite slowly with one product. So in a sense they're almost milking a slow growth because they're not investing as much in new customers. Atlassian is growing quite quickly. It's growing twice as fast, more than twice as fast as Dropbox, but it's still generating 500 million in free cash flow. And certainly it helps that they don't have as big an inside sales team that their partners handle it. But it shows that software can be very profitable. And sometimes in SaaS and cloud it takes a while to get that engine going. But 25% of every dollar that goes into Atlassian comes back out as cash. Talk to you guys soon.