The slow and steady mentality is fine, but we see over and over that it isn't what the market wants. A private company or a high risk growth company, those are the two options for a software company.

Either that or they'll be taken over. They're revenue now is just a $2bn, so that "grow grow" mindset from 10 years ago did not work out. In theory, a steady CEO could try to steady at that size with a nice margin. But, actually declaring and pursuing that would mean halving the companies market cap to a "normal" P/E of 20-30X.

At that price (say $20bn) one of the big software companies would just buy them... for their own growth targets.

Moderation has no place in the public markets as a software company. It's remarkable how unstable a stable condition is.

I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation. There are too many mono/duopolies already, and the bigger they get, the harder it will be to split them apart.

This, I think, is the core of why. It's not that being a medium sized publicly traded company is immoral or unprofitable - it's that in a public market your stock is priced on future earnings and choosing to be smaller than possible means your tech can be bought for cheap. If you choose to stay smaller than maybe you could be - you're leaving ROI on the table in a lot of peoples' eyes (even if you're right and you'd lose money trying to get huge). So, as your stock price drops off to reflect the expectation that you're not going to get super impressive earning growth, you start to look appealing as an alternative to developing technology for an industry giant. Why spend $5bn over 10 years to develop competing services when you can borrow $5bn today, buy atlassian, get a tax break on the debt and start making a play for market dominance with the atlassian tech?

If you want a small or medium company, staying private is a more sustainable approach.

Salesforce vs. Siebel being a great example of exactly that.

While I agree with your statement, I had to look that up because it sounds interesting. In 1999, the year Salesforce was founded, Siebel was the dominant player in the CRM field, holding 45% of the market, so not precisely a small company.

More than a budget war against a deal-with-the-devil startup, what killed Siebel was its inertia. Siebel sold expensive in-your-premises software, while Salesforce sold SAAS, and emphasized a cheaper cloud model. Siebel didn't react until 2003(!), when it released its first cloud version. By tht time, the expertise of cloud solutions of Salesforce made Siebel look like an amateur.

Siebel surpassed 1 billion revenue in 2000, while Salesforce did it until 2009. They had their chance.

I still agree that even if a small company did everything right, another one with more money and no fear of heavy losses would eat their lunch even if their product was inferior.

>In 1999, the year Salesforce was founded, Siebel was the dominant player in the CRM field, holding 45% of the market, so not precisely a small company.

Sure, but CRM was a new market back then (many argue that Siebel invented CRM) and Siebel was roughly equal in revenue scale to Peoplesoft and c. 10% the revenue scale of Microsoft. It would be very hard for anyone to argue that they ran out of space to grow (vs. choosing to slow down growth for profitability, especially in light of the dot-com crash)

>More than a budget war against a deal-with-the-devil startup, what killed Siebel was its inertia. Siebel sold expensive in-your-premises software

One great way to stop being an expensive piece of software and to grow faster is to lower your prices (but then you run the risk of becoming unprofitable).

Also worth noting that in 2000, Siebel spent c. 33% of revenue on Sales and Marketing, while Salesforce chose to spend 500%+ of revenue in the same period.

>while Salesforce sold SAAS, and emphasized a cheaper cloud model. Siebel didn't react until 2003(!), when it released its first cloud version.

Again, Seibel chose to spend 13% of revenue on product development in 2000. Easy to crush competition, but only if you're willing to spend for it.

>Siebel surpassed 1 billion revenue in 2000, while Salesforce did it until 2009. They had their chance.

Exactly, and choosing to harvest profit out of that $1bn of revenue too early is what did them in (though arguably, they are still probably something like $1-2bn of market cap for Oracle).

Seibel is and always will be the perfect example of disruption/the innovator's dilemma, which ultimately boils down to 'if you're comfortable with your current profits and not worried about growing top-line revenue, you will likely lose both.'

Markets pull towards potential, and the potential of Atlassian is valued higher than it's stable state.

Except the government got addicted to printing money and throwing it around to boost GDP (and taxes) through bullshit business models and bullshit investments. They literally created framework where being an overstaffed money-bleeding behemoth creates higher returns for the shareholders than being a lean-and-mean niche business.

If you don't go the unsustainable blitzscaling route you'll be outcompeted by those who do, just as Atlassian did to plenty of smaller, more sustainable competitors.

> I understand that being small leaves you vulnerable to the predatory tactics of big players, but I see that as a consequence of lax regulation.

That's nice, but that doesn't make it go away. Do you have a plan to make the regulation non-lax?

1. Companies provide useful products to customers.

2. Growth means that you built products that more customers paid more money for, because it was useful.

3. Thus, growth means your company contributed more to human prosperity.

What the market wants is short term growth and I firmly believe that is what is destroying our economy and the market.

Instead of building pillars and companies that outlive the founders, we have short term cash grabs. We have VC firms buying up our existing pillars, gutting them of any valuable assets, saddling them with debt, and then selling off the carcass. We have firms buying up real estate and creating or exacerbating scarcity to drive up demand and prices. We have shifts towards subscriptions and quarterly profits.

It's not healthy and it's destroying us.

Agreed, and its now a pox on the overall system.

What kind of a 100 year future does Atlassian have? Jira certainly isn't a 100 year product. Software is so fast... IDK. The pox is not just a product of greed and malice and nothing.

We're talking about a company that produces products that are widely used. JIRA is not the issue, but the company that produced it. 100 years is stretching it, but I would believe that Atlassian outlasts yahoo.

"only" $2bn ? this is bizarre to see discussed without question

And has been growing 30% YoY for the last 3~4 years alone. This is unheard of in any other industry/market.

Their FCF is also impressive.

It has been common for the leaders in every other market throughout commercial history, as it pertains to corporations of large size. What you're looking at are presently old industries and comparing them to newer, that's where your mistake rests.

Walmart did it. Sears did it. Kmart did it. Best Buy did it. US Steel and its components did it. The various automobile majors did it. Standard Oil and the other oil majors did it. General Electric did it. Caterpillar did it. Pan Am did it. Many of the railroad companies did it during their time. McDonald's, Starbucks and most large chains do it during their expansion->saturation phase. Coca Cola did it.

It's exceedingly rare to find a large corporation that didn't bang out 30% growth years for a decade or more to get as big as they got.

One day, decades from now, "cloud" will look like a big dead industry too, and people will talk about how it never grows fast. Just ask the people that used to make business software you install onto PCs.

Facebook took 17 years and Walmart took 25 years to reach $85B in sales.

Most tech companies have ~80% gross margins. Walmarts is ~25%.

You simply cannot compare the two.

Growing revenue while still not making a profit is not impressive. If you give me $100 today I can go out a buy $100 a pair of new shoes, and sell it for $70. Give me $200 and I'll go out and by two pairs of shoes and sell them for both $84 (total)! Keep giving me money and you'll continue to see this growth I promise!

> This is unheard of in any other industry/market

Given my example above, that should be a warning, not a sign of success.

I find it mind-boggling that people can really not even grasp that growing revenue with out demonstrating you can transform that revenue into profit doesn't mean all the much.

Grow profits every year by 30% and I'll be impressed.

It is when you’re a software company and the marginal cost of the goods is zero.

$600mm annual sales and marketing isn't cost of goods but the method of accounting that I subscribe to includes such costs as a fundamental cost of production delivery.

Subscription revenue isn't the same as revenue in other businesses.

Hilarious that you use the analogy of shoes. This is exactly the problem. Great explanation on this concept:

https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is...

> Grow profits every year by 30% and I'll be impressed.

Oh, you mean like Facebook did?

https://www.statista.com/statistics/277229/facebooks-annual-...

20-30% doesn't get you to a justification for Atlassian's peak value. It doesn't inspire "the next Microsoft" vibes.

Maybe after 10-15 years of growth at this rate, it would... but the market's not paying these prices for that.

Atlassian becomes an acquisition target if stock prices reflect a 20% rate of growth.

This phenomenon might to some degree be a function of the board’s veto power over the CEO. A primary reason you typically go public is to grow, so by default at IPO you’re a “growth stock”. But from that point on, its difficult to ever make a transition to a steady, sustainable “dividend stock”, especially as a tech company. If you try to, the stock will tank, all the “growth” investors will get mad and you (the CEO) will probably get fired by the board, and they’ll bring in a new “growth” CEO.

For the successful companies that do grow into a dividend company, they often have valuations that far outstrip their eventual settling location at some point in the trajectory.

I've seen this happen so many times:

- profitable, down to earth founders generating net profits

- VC approaches said outfit and tries to gather as much info

- VC realizes said outfit is difficult to emulate and break into market

- VC invests and starts demanding they run at a loss to grow quickly

This works well when interest rates are low, and VC is not under pressure to deliver returns. However, when capital suddenly becomes slightly expensive, the whole house of cards start to crumble taking down the good business with it.

Neither strong prudence or optimism helps here. Once you start running at a loss post-VC money, you no longer control the destiny of your own company you started.

Let this cyclical downturn (likely to last for 5 or more years) be a lesson that the previous generation learned. If you are not making growing net profit (Revenue - COGS), you are no making period. Not so while ago people were arguing that debt is an asset and cash is a liability. It's always amusing to me how quickly people denounce gravity are impacted by it.

The good times are over for VC backed SaaS

- Your entire theory relies on VCs having some power over decisions being made at Atlassian. That isn't the case. The founders of Atlassian have always been in control. After taking VC money and going public, they still have over 80% of the voting shares [0].

- A downturn of 5+ years would be the longest downturn in the USA in the last 100 years [1]. Anything is possible but it's unlikely to be that bad.

[0] https://www.businesswire.com/news/home/20220527005335/en/Atl...

[1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...

GDP contraction won't last five years. But it will be longer than the GDP contraction before VC money becomes as easy as it was for the last five years.

A founder isn't forced to take on investors. The same founders who were so "down to earth" and profitable are the ones making the decision to take on investors. The founders can't be responsible for profits and then suddenly get taken advantage of by investors. Everyone involved is eyes-wide-open.

Lots of great businesses have been built, in partnership with investors, during higher interest rate periods and downturns.

And maybe there is no good option, no matter how “down-to-earth” they are.

Disagree. These companies absolutely pump out cash on a free cash flow basis:

"It’s the absolute dollar free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that’s something that investors can spend. Investors can’t spend percentage margins.” “What matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.” “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.”"

https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-fr...

It is not necessarily true for other sectors (e-scooters, different delivery services, maybe even Uber), as there is no stickiness in those areas. Whenever a cheaper Uber would come to my city, I'd drop them within a second. They are usually cheap while they can burn VC money.

If Atlassian can keep their system for a couple of years in a big, slow legacy company, the company will end up with tens of thousands of tickets and pages.

Then, no matter how everyone thinks that all the products of Atlassian is terrible (there is a thread about it every second month here), the company will never leave Atlassian because nobody wants to spend the time on migrating all that stuff and everybody is afraid to say that "we will probably not going to need poorly written user stories from three years ago", and they don't want to risk that the new system doesn't cover everything that e.g Jira does.

Once a company is locked in, it will keep paying because paying any amount is easier for them then migrating, training the employees to use the new system, broken links, missing features, etc.

Atlassian is well-managed. Their revenue is fine. Their cash flow management is good. Their compensation plan is effective at retaining employees--the stock employees receive is likely to be more valuable at the end dof the vesting cycle than it is today.

Atlassian has got a collection of offerings that are industry standard. When used at large companies, they become quickly entrenched, with very low churn.

It is also a collection of offerings that is chosen by startups. Last quarter through a year from now, I expect that stream to be dry. But they are on 3-year contracts at an awful lot of got-my-Series A startups that will have to tighten their belts in other ways before trying to rotate off of Atlassian.

Isn't the stickiness that drivers will only switch if customers use it, and customers will only switch if drivers use it?

Consumers switch because prices are low since the rideshare company is artificially subsidized.

How does it NOT make sense? The purpose of a business like this is not to generate some short term profit. These are winner-take-all markets - they're playing for complete and utter domination of an entire product category.

Their Q1 revenue grew 37% YoY - how on earth would you care about profit over what they doing here? They should keep hitting that as hard as they can.

Teslas are profitable, once you pay off the amortized cost of a factory. It isn't clear that uber is profitable. They had 5-10% gross margins pre-IPO, and it has gone negative since.

But, you can't grow forever. At some point you hit things like the maximum market size and there's no longer any way to invest your profits back into growth.

Or, to hit a lot closer to home: As a stockholder, your stock won't appreciate in value forever. Software companies very rarely turn into Microsofts and Googles. You need to sell at some point in order to realize the value of your investment. (Unless you're getting dividends.)

Atlassian is probably a fair bit away from that. Amazon is much closer to that mark today but they got there after following exactly this strategy since the 90s.

How do you justify that?

One way Atlassian's market size gets limited is by being viewed as a competitor to Microsoft (or other large incumbent's) products. Some customers can choose both, but not everyone can. The feature and experience differences don't matter much to the buyers (procurement), so if something is cheaper elsewhere, then it's a harder sell. It also increases risk in a potential recession where Atlassian is viewed as a luxury option. I feel like JetBrains play a smarter game here.

It feels like folks have forgotten how bad a niche developer tools have been. Circumstances have meant that VCs have been throwing money at developer tools and developer experience has been in vogue. Things will probably be better in this wave than previous ones, but it's still much riskier than other markets. Developers may rule the world, but the software powering their day-to-day is very different between software companies and the majority building line-of-business software.

I don't think people, even here, understand how simply large and growing the market is for software development tools.

https://www.gartner.com/en/newsroom/press-releases/2022-04-0...

I worked at Rising Sun Pictures (RSP) in SA 2005–2007 and the CEO at the time, Didier Elzinga, did the same.

But what RSP did went even further. Didier and the CFO did a full disclosure presentation about the company's financials quarterly or bi-annually (can't remember).

It was great. Not least to make everyone understand why they couldn't pay rates that VFX professionals who moved to AUS from the East coast or London where used to – at least at that time (it was early years for RSP then).

RSP remains one of the best workplaces I ever had the luck to be employed at.

Afair Didier was also in some role on the board of Atlassian at the time. Maybe not a coincidence.

I believe that's Doug Burgum (now governor of North Dakota).

VCs love risk. They will want to dramatically reduce your chances of a small positive outcome if it means a increase on your (always small) chances of a huge positive outcome.

Anyway, that can quite possibly be perfectly aligned with your company's goals. It's not a bad or good thing. It's just a thing.

Business risk stuff - does the market exist? is a new pricing model possible? etc. - is not at all on the list of risks that VCs like.

Seriously, when did it become normal in capitalism that you should not prove that your business can make money? That there a customers willing to pay for your product? That the promise of future maybe profit sells better than actual profit now? This is insane.

This has been the consequence of increasingly cheap money and investor money having nowhere to go after the real estate crash in 2008. To be fair, if money is basically free then it does make sense to grow without worrying about a profit. If you've had an entire career without every having to worry about more investor money coming it, it would start to seem wasteful to not spend it all.

But that's why these current economic conditions have me very worried: money can't be cheap anymore. If interest rates continue to rise we'll see a massive contraction in tech. First it will be the smaller, direct to consumer startups, then it will be all of the companies that have those startups as a non-trivial portion of their revenue.

There's a difference between 'not profitable' and 'losing money.'

The issue is that many of these companies have never demonstrated that if they want to they can be profitable. The big assumption in these growth models is that there is a point where you can just magically flip that profit switch.

For example if I run a lemonade stand where I spend $3 to make a $1 glass of lemonade, even if I am able to use investor capital to keep growing my lemonade stand to be the only lemonade stand in town, or even the world, it's not clear that I can survive if I'm forced to make a profit.

The only conclusion to this statement is "When we will stagnate we will then start making profits"

This doesn't sound like a great strategy to me. This is why I'm not investing in "no-profit but growth" except for the stock price increasing in the short term.

If that means profits available to, e.g. pay dividends with then sure. But I think it ought to always be the goal to have a profitable operation then you can plough the profits back into the business to push growth (which will mean reporting 0 profits).

“In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.” -Security Analysis 1934

Revenue .. well, if you can get huge revenue with huge losses and convincingly demonstrate (mostly by spending) that more losses (= more capital) means more revenue can actually take you a long way. Almost all of the "unicorns" and "decacorns" embraced this model - lose $2-5 per $ of revenue but able to demonstrate almost unlimited market. Most of those companies can never, ever be profitable entities.

Depends on your definition of value. If a companies max revenue is $X, the farther away from $X they are the more of a return you can hope to get!

What you're left is a company with 8000 employees and a system to problematic to change.

With the recession incoming, the time for free money is over and tech startups are bound for a correction. I'd sell or get ready to wait 10-20 years.

Even in the wait scenario, you're basically hoping that a huge corporation will transform itself and rediscover their startup roots - which is not likely to happen.

It happened with Mashape (sold their unprofitable marketplace to the RapidAPI people - geez, what a bad deal, it was painful to watch) and they managed to reinvent themselves with Kong.

They literally did a bunch of experiments and went on with what succeeded, ignoring their main, flawed, business model.

That's what companies should do to chase success, they need to act like venture incubator, don't bother their teams with corporate BS and hope one of their teams will succeed. If they behave like mammoth corporations they're doomed to fail.

https://investors.atlassian.com/news/news-details/2022/Atlas...

And their typical customers are the least exposed to recessions i.e. medium to large companies who are making software purchasing decisions for the long term.

And even if Australia is unaffected by an American recession, much of Europe, and much of Asia won't be (especially with China's growth slowing down).

Which brings me to my second point, which is the only reason Australia was able to avoid a US recession was selling itself to China, something which it is politically unlikely to do so anymore (although I'm not up to date on the new PM's China policy) and anyways, China may not have the capacity or willingness to support Australia anymore.

I doubt miners are big Jira users. US tech companies who are cratering right now though...

I see if few of those end up mines that would be epic for consultants but just another story for miners.

Most other industries you’d probably have the workers unionize or murder the agile coaches, lol.

My wife & I have a couple academic friends and they make 1/4 our income probably, but they are unfireable & they also just took off for another 6 weeks stay in southern Europe at a family home this summer .. so there's that.

Guaranteed income & time flexibility are hard to measure in absolute dollars.

My wife & I are on the other hand on our 5th/6th job in our almost 20 year careers, never having had more than 2.5 weeks off consecutively. The hustle now is maximizing the dollars and building some alternative income streams so we can start to wind down the intensity in maybe 10 years and fully exit workforce in 20 years?