A Different Kind of Software Company: What Matters: Three Lessons

Getting in touch with my Inner Jazz

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Vinnie Mirchandani, fellow Enterprise Irregular was gracious to invite me to guest blog reflecting on Atlassian hitting a new milestone: $100 million in all-time sales since inception. It’s not about the milestone, as reaching 14,706 customers as of today is more fulfilling. It’s about creating a different kind of software company.

Vinnie asked me what’s been fun about the journey, and truthfully I failed and wrote this more serious, reflective post. I was able to scrounge up this photo from our last Christmas party which has become a mini-tradition where our San Francisco team enjoys great live jazz, sushi, and a few too many martinis. `

At Atlassian, we talk about creating something different. Not for the sake of it. Because we’re never convinced norms should be accepted. Even our own could change. At the risk of simplification, these are my Three Deep Lessons I have internalized over 3.5 years in this company.

1. Open Up Your Company.

Why do software companies hide prices? Why must I call a sales person to get them? Why must I fill out an order form to get a goddamned PDF of half-baked content? Why don’t more companies treat customers with respect and develop trust through openness? Sounds straightforward, but this is the cat-and-mouse game that enterprise software companies persist in.

We think open pricing, open license terms, open bug and issue tracking of our products, and licensing our source code are what people, like us, want. We ask ourselves: would we buy this crap? How do you want to be treated? That’s a good test for how transparent you are.

2. Affordable Prices

Mike Cannon-Brookes pounds on the table regularly about the price of entry. He is always trying to figure out how to make it easy for the next developer, the next IT manager, the next knowledge worker to not hesitate. Once we have a product we would use, then we have a fist fight over keeping the prices low. The low price principle was more striking when I met these two guys…

Mike Cannon-Brookes and Scott Farquhar

… as they were, let’s say, frugal Aussies. They had that shining spirit from Down Under which is an authentic Aussie practicality that was refreshingly unconventional in Silicon Valley. Funny thing is: even though the founders are no longer quite so frugal, our prices have rarely changed. Keep your prices low, Mister Software Man.

3. Anal-Retentive Analytics and Metrics

Scott Farquhar is our Super Metrics Warrior. Scott got us measuring Net Promoter Score (still running around 52%). Scott pounds on the table for so much detail and facts about the business, people leave the room dizzy and frustrated because they are starting to realize what they don’t know.

We don’t have the systems and analytics yet to measure up to some great large companies, but for a $40 million/year business with 185 employees, we’ve pretty damn good. We analyze the shit out of everything. We are constantly writing queries and dashboards on our internal Confluence wiki. This is our form of Lighting Business Intelligence, without any traditional BI software overhead. It’s also one of the hidden gems in our wiki.

Every team has a dashboard, but more important, every team is pissed their dashboard isn’t better. Continually unhappy with the gaps in our data, and searching for that Last Shaker of Metrics, we are on a Forced March for more data. This is a Mission from God I am still learning.

I could rant on about what we think a different kind of software company should be, because we’re still not there. We’re trying though.

RELATED POSTS

Susan Scrupski, another of the Enterprise Irregular clan, covered this milestone and trumped everyone with a video of Mike and Scott from Sydney.

Tech Nation Australia also interviewed Mike on the milestone.

Lessons from the Obama Campaign for the Software Business

Yesterday at the 15th Annual Stanford University Accel Symposium, I heard an energizing talk with Chris Hughes, Facebook, and Architect of Obama’s Digital Campaign Strategies, and Matthew Barzun, National Finance Team for Obama and Former Chief Strategy Officer, CNET Networks, Inc. on “Technology Priorities: Lessons from the Campaign”.

Three powerful lessons leapt from the stage that certainly any software company trying to do something different should understand. These apply to any company who cares about their customer community and focuses on growing a large business.

Scale and Focus

Traditional software counts on hunting down customers and finding those willing to pay the large price tag. Kind of like traditional political fund raising where fund raisers seek big-heeled donors for the $5,000/plate dinner.

The Obama campaign’s New School thinking concentrated on creating scale and community. Instead of only mining a list for the 1-in-5 donor with the big bucks, they started asking 25 people to go out and each find 25 more to pay $25 to show up at an event. The first time they tried this, they sold every ticket. So they tried it again, and next thing they knew: 1,800-person venue sold out.

Thinking how to scale from a smaller list of initial supporters (Obama challenge) was very different than thinking how to divide-and-conquer the large list of potential donors (Clinton early advantage). Matthew said it required concentrating on metrics that really matter – a mantra within the campaign, lowering the barriers to entry for donors and supporters, while having high expectations for the ultimate outcome. Aside from this concentration on large scale, they were relentlessly focused on immediate outcomes: they had to win Iowa; there was nothing after Iowa. Matthew represented this new thinking…


Farming vs. Hunting

The campaign compared their marketing strategy to Seth Goding’s Farming and Hunting analogy. The new school campaign focused on farming a community versus only game hunting (Yes, they did both: about half small donors; half large.). The idea was to spread word-of-mouth, build a bigger community using the existing base of early passionate supporters.

The trick was multiplying the base versus the traditional 1-in-5 division game of hunting. Build the community through networking. Get 25 supporters to rally another for a small entry fee. This is how Matthew illustrates some of the early results…

Once the Obama campaign got this farming working, the multiplier trumped any notion of relying on the traditional approach.

Values Matter

Communities thrive on trust and respect. If you are serious about building a community of supporters or customers, start with asking how to treat people. Here’s the Obama Campaign Code they handed out for the Iowa caucuses: three simple values:

Respect
Empower
Include

At one caucus the Clinton people showed up with 13 supporters, which on a Cold Day in Hell in Iowa is a good showing. The Obama supporters on the other side of the room numbered 68. But the Clinton group was below the 15 count needed to participate. The doors to the caucus closed at a specific time, meaning no more participants. The Clinton team was potentially without a quorum.

Then after the rules allowed, in walk two more Clinton supporters, giving Clinton a quorum. This was against the rules. What did the Obama supporters say? Let them in. Include them. They deserve to be here. The spirit in the room was immediately more inclusive.

Software companies (all companies frankly) would do well to start by treating their customers with respect, treating them well, and concentrating on inclusion. A couple values we think apply to software companies is treating customers equally and fairly regardless of their company’s size or the size of their orders, and opening up information about your company (pricing, licensing, source code, bugs) so you build trust.

Applying new school marketing thinking and concentrating on scale, inclusion, and low barriers made a whopping 100% difference to what Obama raised. What would it do for your business, Mister Software Man?

The Pizza Strategy: 5 Tips for a Successful Business

A Coffee shop opened on the corner near our office. What they are doing to launch their new business amazingly applies to most companies. It’s brilliant and common sense. The Coffee shop illustrated to me lots of attributes of how to think about starting a new business, and how not to do it…

1. The New, New Thing vs. the Pizza Strategy

Mistake #1 in Silicon Valley is the obsession with the New, New Thing. The opposite is the Pizza Strategy. It’s practical, you could eat it every day (if you work with engineers), it’s both lunch and dinner food. It serves a lot of purpose, but it’s common and a bit boring. Innovation is wonderful, yet not enough technology companies go after crowded industries where an unmet need still lies.

Coffee Bar, which opened last month in our neighborhood is an excellent example of my kind of entrepreneurialism. They opened one block away from Starbucks. People asked why they would do that? Dumb question. Starbucks is an Unholy Blasphemous Sacrilege to those of us religiously devoted to the Sacrament of Coffee.

I call JIRA our Pizza business. It’s the sincerest form of flattery because Mike and Scott chose a software product with tons of competitors yet found an unserved need: a useful, practical issue tracker for $1200 – $4800. Five years later, it still sells like hotcakes. There were lots of pizza shops, but JIRA pizza has a strong following.

2. Marketing vs. Product

It’s not that marketing is bad. Hell, I’m recruiting for a VP Marketing. The question is: what do you lead with? If you can’t win folks with the product first, pack it up.

Coffee Bar has sitting next to their menu a ranking of all the best, generally boutique coffee shops in San Francicso. This takes cojones because San Francisco has some great coffee shops in the North End that are historic with the Beat Generation. Coffee Bar ranks #1. The point is: they are proud of their product and determined to be the best. They lead with Great Product.

Coffee Bar does something else we try to do at Atlassian which is give customers fewer choices, but give them good ones. We apply this rule to pricing to keep things simple. The first time I heard about Coffee Bar’s food, Jonathan Nolen said “The menu is limited but everything is great.” Bullseye. Apple figured this out a long time ago: compare the number of add-on options available on a Mac to those on a Dell. With Dell, the choices are agonizing and confusing.

Lead with product and keep things simple.

3. Free Trials vs. Hassle

What’s the biggest problem with test driving a new car? The hassle from an annoying salesman. Why do software companies do this when all you want is a whitepaper…

Why don’t more companies just let you try their products with the least intrusion and hassle? During lunch when I normally don’t have coffee, Lindsay at Coffee Bar asked me if I wanted to try the coffee for free. Just the act of offering me a free coffee warmed me to the place. When I asked for a double espresso, she said, “Perfect”, because she wanted me to taste the undiluted essence of the core product: coffee. She handed me the espresso with a pride and belief in her product. She expected nothing in return.

The more questions you get asked when you evaluate a product, the more you ought to run for the hills. Businesses need to be willing to trade bad customer information for engendering trust.

4. Marketing vs. Word of Mouth

When I told Lindsay at Coffee Bar lunch was excellent, she asked if I could tell my co-workers. I was more than happy to oblige. Lindsay led with great product, she has visible pride in her restaurant and product, she is happy to be a few feet away from the Starbucks, and she understands my recommendation is much more important than an advertisement.

Ask yourself what can you do to promote word of mouth? Advertising is no longer what it once was.

5. Branding only matters so much

Too many tech and Internet companies obsess over names. Granted, consumer companies have a greater challenge. If you are taking on, say Coca-Cola or Cheerios, I would support an intense effort on naming.

What I like about Coffee Bar is that it is imperfect but it works. It stands for Coffee in the daytime, Bar at night. “Oh, that’s cool”, was my first thought. I’ll remember that. Is it a boring, generic name? Sort of. But so what if the product is excellent, and they concentrate on what customers really want?

There are a few common, useful rules for naming from Rob Gemmell, a friend and Marketing God:

1. Own-able — The name is unique and you can own it. “Accenture is ow-nable; “Pacific Lumber” is not. Any name becomes own-able over time if you either spend a lot of money on marketing, or you establish a large market of customers who know you.
2. Spell-able — The one weakness of the “Atlassian” name. Sometimes related is Pronounceable, which is another Atlassian imperfection.
3. Memorable — Related to uniqueness, but very different: will people remember the name?
4. Relevant — “Reliable Roofing” is highly relevant: it includes the benefit. It is relevant to the customer. “Apple”, on the other hand is completely arbitrary and not relevant. It’s cute, but it’s not relevant to the customer. “International Business Machines” was extremely relevant at the time.

The other two useful, secondary rules are: 1) Start with a letter high in the alphabet, a strength of Atlassian or Apple, and 2) Try to keep it as short as possible.

“Coffee Bar” is imperfect. Once you understand it, it might be memorable. But it is too generic to be own-able, without a lot of marketing money behind it. It doesn’t matter as much as the product, the customer service, the ambiance, and of course, a motivated, smart owner like Lindsay.

Why Radiohead Should Price Your Software

If you are the typical software company, I have a hot tip for you. Call the guys in Radiohead and try to hire one of them to fix your pricing. I doubt they have the time, because they just did something that is turning the music industry on its head. As you probably know the recording industry is in serious decline, and it’s likely to get worse before it gets better. The record companies stuck to high CD prices like stubborn pit bulls for so long, iTunes became the only interesting game.

Pay attention to Radiohead’s new album pricing: users pay whatever they want from zero on up. I haven’t heard the album yet, but they deserve $25 for having the creativity and moxie to do this.

What does this have to do with traditional software pricing? A lot. Although the software industry is in much better shape than the recording industry, it has never been the same since the bust of 2000 – 2003. Enterprise software sales is a fundamentally broken model: it’s too expensive. I met with friend, and fellow musician, Fred Harman at Oak Investment Partners this week, and Oak has avoided software startups for years largely due to this phenomenon. Oak concentrates on larger growth investments to avoid the high cost of sales inherent in most software companies.

When I talk to experienced, traditional software sales and marketing people, invariably I get asked why Atlassian’s prices are so aggressive. “You’re leaving money on the table”, is the common refrain.

But it’s the high price tags that invariably command a squadron of Suits whipping out their Powerpoint presentations and flying all over the place. That’s expensive, and customers are tired of it. Tired of the high prices, tired of the secrecy behind pricing on websites, tired of having to register to get a white paper or request a sales call, tired of the whole process.

A new software company in the developer tools space approached us about a partnership recently. The CEO is a fantastic guy who I could easily see as a friend. When I asked what his software would cost, he said with big smile, “As much as possible”. I smiled back and said, “That’s exactly the wrong strategy.” Innovative companies like his will continue to struggle with faulty pricing strategies.

“This is the industry’s worst nightmare.” said music industry writer Bob Lefsetz about Radiohead’s bold and brilliant move. Although we certainly don’t think of ourselves in these terms, we do think there’s a _very_ different way to do business, to price, and to treat customers.

Microsoft Response to Google Gets an A

The most interesting aspect of the Google Apps and Cap Gemini announcement was not the announcement. It was Microsoft’s response. Regardless of your opinion of Microsoft’s products, this was world-class competitive positioning. Whoever wrote this deserves a raise:

• Google touts having enterprise level customers but how many “USERS” of their applications truly exist within the enterprise?
• Google’s primary focus is on ad funded search. Their enterprise focus and now apps exist on the very fringe…
• Google’s apps only work if an enterprise has no power users…
• Google’s tech support is open M-F 1AM-6PM PST – are these the new hours of global business?…
• Google says that enterprise customers use only 10% of the features in today’s productivity applications which implies that EVERYONE needs the SAME 10%…

Now here’s what surprised me. It was not an official response. This was an internal response that was leaked. What a shame. I would like to think Microsoft is proud to produce this quality of a response to Google. I’m still impressed.

The Goggle announcement itself is terribly Ho-Hum. As fellow Enterprise Irregular Dennis Howlett pointed out on ZDnet, Cap Gemini is not a top 10 systems integrator in the US, where Google Apps have to be successful, if they ever will be. Also the desktop outsourcing business, which is what this announcement is about, is a bottom-feeder business with low margins. Why do you think Accenture concentrates on applications?

I would like to expect more from Google, but it’s not an enterprise software company, as Microsoft relishes in pointing out. Nevertheless, I would not underestimate what Google plans next.

How to Ruin a Perfectly Fine Product with Marketing

We’re about to release a new product, and someone asked how we are gearing up our marketing for its introduction. The answer is we’re not. His question is rational, but it’s comes from a place that says if you surround a new product with marketing, you increase the chance of success.

The problem is that this assumes customers want this marketing and will trust the messages. It is wise to assume most customers distrust marketing, they have little time or patience, and they are smarter than how most advertising treats them. New products particularly face this reality.

Wouldn’t you be more likely to buy a new product if someone other than the company selling it recommended it? How often do you believe claims abut new products?

What we find works is releasing a product, getting it into the hands of a bunch of customers, listening to their criticism and ideas, and then building on their word of mouth. When this first group of customers starts telling you the product is actually useful and they want to keep it, then you might have something. Customers talking about a product generate far more sales than our claims.

The last thing you want is a whole bunch of customers running into your store because they saw some great ad, and then acting disappointed when they see your new pots and pans. Introduce the pots and pans more slowly. Unfortunately most people can’t wait, and marketing testosterone usually trumps sensitivity to customers.

Which leads to the second common trap when marketing new products. Claims are more easily wrong before lots of customers whack away at the product. Your customers can give you tremendous insight into what works and what sucks. If you collect enough of this data, you can produce straightforward, useful information about your product, and skip the claims. Introduce your marketing once you really have a grip on how people outside your company view your product.

50,000 Pound Software

My friends at SRA Capital in San Francisco invited me to their Winter Technology Conference last week giving me a hall pass to sneak out of the Atlassian office and check out some public software companies. For those of you in private companies, if you ever wanted to disabuse yourself of the idea of being public, go to a financial conference.

The drill is: companies pitch themselves to investors as a good investment without…

a) sounding like Ken Lay or Jeff Skilling of Enron,
b) saying anything that has not been sanitized to smithereens by their investor relations consultant, internal counsel, law firm, accounting firm, and any other anal-retentive person in the decision hierarchy,
c) making any future statements remotely interesting
d) saying they are a good investment.

This last fact is a bit hilarious. Isn’t the whole point to believe these companies are a great buy?

All this means the presentations can be exceedingly dull. To make it even more boring, two out of three of the following people give these presentations: the CFO, the investor relations person, and the CEO. The CEO has some chance of making the presentation interesting because in theory he or she has the brass balls/ovaries to say something slightly edgy.

But if you were to pick out of a line-up exciting presenters, you probably wouldn’t pick any CFOs. Think about what they do: make numbers add up correctly. Personally I would be incarcerated right now if it were not for some great CFOs like Bill McDonagh (now at Walden Venture Capital) with whom I worked in the past. CFOs are critical guys, but they are not the go-to guys for spine-tingling excitement.

The other weird phenomenon is what the companies and investors focus on. I call this a self-fufilling prophecy. The investors want to know how big the Average Selling Price (ASP) of the software is. The bigger the better, naturally. One thing I noticed that is somewhat new since I last did these presentations is that companies talked about how many deals were over $100K in size. The more the better. This is dysfunctional in my mind because there are ways to make money and produce great margins without huge expensive software. But an endless loop exists with investors wanting this and companies feeding their lust.

Another dysfunctional metric is how many sales people do you have and how many are you hiring. As if huge sales forces were the only answer. Investors are looking for the leverage. Meaning: you spent all this money developing the intellectual property, you can sell it now, so now ram it down the throats of more customers.

I think the opposite is a lot more exciting. Once you understand the power of really good, lightweight software sold at a great value with lower distribution costs, you understand a much more efficient and exciting business model. But people who think this way aren’t real common at investor conferences. Some day I think this will change.

Not everyone was boring. Ali Jenab, CEO of VA Software was great. He is a sharp guy. He had led a compelling turnaround, and he gave the audience a lot of interesting content. His challenge is that VA Software’s media businesses: Slashdot, Freshmeat, and Sourceforge.net are highly distinct and have considerable potential, but their software business doesn’t seem anywhere near as interesting. You can bet that because they are public, with a guy like Ali running the show, there are strategies he cannot talk about that are in the works.

Which brings me back to boring presentations and the herd-mentality about business models. The opportunity exists for public companies to say something really interesting, rather than trudge through the same crap every other company does. Although Sarbanes-Oxley has neutered these guys to some extent, a financial conference pre-Enron collapse was not much different. I have never actually fallen asleep in one, but I need a lot of coffee and Coke.

The real troubling thing is the same-ness to the business models: expensive software requiring expensive sales costs.

But forget it. That’s why I work in a private company like Atlassian that does everything totally counter to these types of companies. And has better performance. ☺