Atlassian: The Ultra-High-Efficiency, Bottoms-Up Distribution Machine
Yesterday Atlassian, the Australia-based developer tools vendor, filed its F-1, formally announcing the company’s intent to go public. By any measure — customer and revenue growth, gross margin expansion, profitability (yes, that’s right, Atlassian is actually profitable) — the company’s performance has been impressive. However, it’s the incredible sales efficiency associated with Atlassian’s go-to-market that is staggering and makes the company the poster child for developer-led, bottoms-up adoption.
In his breakdown of Atlassian’s F-1, my colleague Tomasz Tunguz, plots the company’s sales & marketing expense as % of revenue against a bucket of 50+ publicly traded SaaS companies. It shows that Atlassian has spent between 12% and 21% of their revenue on customer acquisition in the last three years compared to 50% to 100% spent by the median SaaS company. This implies a sales efficiency of 2.5x to 3.2x compared to 0.8x to 1.2x for the comp set. Mind-blowing.
Much like New Relic — another recent IPO which espoused a developer-led go-to-market — Atlassian’s key early strategic insight was that great products could sell themselves without traditional sales infrastructure. With a tight feedback loop between product, demand-gen and its end-users, Atlassian was able create an ultra-high-efficiency distribution flywheel.
“Our high-velocity distribution model is designed to drive exceptional customer scale by making affordable products available via our convenient, low-friction online channel. We focus on product quality, automated distribution and customer service in lieu of a costly traditional sales infrastructure. We rely on word-of-mouth and low-touch demand generation to drive trial, adoption and expansion of our products within customers.”
One interesting side note: despite the similarity in go-to-market philosophies between Atlassian and New Relic, the former is more than three times more efficient in acquiring customers (3.2x vs. 1x) than the latter. This relates to the viral nature of Atlassian’s portfolio of collaboration products vs. New Relic’s single-purpose application performance monitoring tool which required more traditional brute-force marketing spend to drive awareness.
Nevertheless, both Atlassian and New Relic represent a new breed of IT companies who succeed by winning the hearts and minds of their end-user through best-in-class product and frictionless distribution. Any and all entrepreneurs selling an IT product today are encouraged to study these two models and apply these learnings to their own businesses.