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Worked there from 2008-2013. So early-ish employee here. I still have a chunk of shares from the original ESOP program. Saying that for full disclosure because

Worked there from 2008-2013. So early-ish employee here. I still have a chunk of shares from the original ESOP program. Saying that for full disclosure because I'm biased and this feels like a hit piece to me. When I worked there, they disclosed all financials in our internal Confluence site. There was a policy of full transparency with the employees. The owners (Mike and Scott) had impressive business discipline. They were profitable every quarter. They had many many opportunities to get vc money and go wild. When they finally took VC money, It was a modest amount ($60M I think) and the purpose was explained to us as setting up an ESOP program and putting Atlassian on the path to go public. A year or two later, Doug Berman, the founder of Great Plains software became chairman of the Atlassian board. He gave a presentation to all of the employees at the Sydney office. One thing that stood out was that he said, it's actually bad to be profitable when you're growing. I'm paraphrasing here but he essentially said, you're leaving growth on the table. His thesis was growth is more important than profits. So whether you agree with that or not, that is obviously the idea they are operating on rather than uncontrolled spending and helicopter dropping stock on employees heads out of desperation.

marcosdumay 4y ago
> it's actually bad to be profitable when you're growing 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.
- foobiekr 4y ago
  VCs love _technical_ risk. Outside of the very unusual circumstances of the Zero to One capital-funded-monopoly-theory era, they have considered _business_ risk quite toxic.
  - marcosdumay 4y ago
    Hum... Quickly investing all your money into product development creates what kind of risk? I'm having a hard time separating them. 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.
    - foobiekr 4y ago
      My point is that you state "VCs love risk" and I'm trying to help you clarify the way you think about this. VCs don't love _risk_ at all, they love _things that are an technical execution risk but would sell immediately if they can be done_. 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.
TeeMassive 4y ago
> One thing that stood out was that he said, it's actually bad to be profitable when you're growing. 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.
jokethrowaway 4y ago
The article talks about this. The problem is that growth is not there. 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.
- threeseed 4y ago
  Atlassian grew 30% last quarter compared to previous year. https://investors.atlassian.com/news/news-details/2022/Atlassian-Announces-Third-Quarter-Fiscal-Year-2022-Results/default.aspx 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.
  - pluc 4y ago
    Given their recent outage (that was this quarter right?) that is bonkers.
    - calebj0seph 4y ago
      The outage was pretty bad but it only affected 0.4% of customers. Not surprising that it didn't materially impact revenue.
      - pluc 4y ago
        It didn't scare new customers away is what I find surprising. That outage lasted over a week and data was lost/inaccessible..
nemo44x 4y ago
The character Russ Hanneman on the TV show “Silicon Valley” took it a step further stating that having no revenue to speak of makes a company more valuable. It’s satire…but is it?
- arcturus17 4y ago
  In a way it isn’t because no revenue at all can excite the imagination infinitely more than underwhelming revenue.
- maccard 4y ago
  > It’s satire…but is it? 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!
- HNDen21 4y ago
  This was the Masayoshi Son/Adam Neumann playbook for WeWork... growth above all
- robbiep 4y ago
  A company with no revenue can potentially raise at a higher valuation with a company of $1 of revenue - because now it’s real and investors will start making their mind up about the actual possiblities of the investment
  - foobiekr 4y ago
    Directly experienced this - having actual _profit_ makes it hard to encourage fantastical storytelling about how big the upside is. It's the company future equivalent of mark-to-market. 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.
- ihaveajob 4y ago
dalbasal 4y ago
The idea that growth is better than profits was in-built into Atlassian's proposition to shareholders, ultimately. 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.
- theturtletalks 4y ago
  Fundamentally, why would someone buy a stock of a company that doesn’t eventually make a profit or offer some sort of dividend? Seems like Atlassian traded profit for staying power, but can they leverage that staying power to bring value to their investors?
  - bombcar 4y ago
    People buy growth stocks because they can sell them for more tomorrow, it's often a bit of greater-fool theory in play. 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.
  - dangerboysteve 4y ago
    Amazon comes to mind.
  - JamesBarney 4y ago
    The idea is they'll eventually get purchased, or have a profit and dividends. But if you're growing so fast it makes sense to focus on that over profitablity. Most investors would rather have a 1.40, next year than a dollar today.
tarsinge 4y ago
The problem is that choosing to be unprofitable is a strategy that maybe worked (or just was fashionable) the past decade under very specific circumstances (lot of free money chasing higher returns in a context of very low rates), but otherwise obviously makes no sense, it's antithetic to the very idea of a business. It's not to be confused with the sane version that is reinvesting profits for growth instead of distributing them as dividends.
- slap_shot 4y ago
  > but otherwise obviously makes no sense, it's antithetic to the very idea of a business. 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.
  - bonestamp2 4y ago
    Yep, exactly what UBER is doing and what Tesla has found themselves doing with high spending on their Texas and Berlin Gigafactories. It's a short term pain for domination... expand fast and be the market leader in every country before someone else beats you to it. Then, soak in the profits.
    - jacobr1 4y ago
      Which works when the unit economics are good. You can take the profit from an operating business, and just inject it back in the business to grow. That sometimes looks like an unprofitable business, but the test is: "if the company freezes growth tomorrow" would it be profitable? 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.
- serial_dev 4y ago
  In the space Atlassian is in, choosing to be unprofitable while quickly growing could make sense. 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.
gwbas1c 4y ago
> I'm paraphrasing here but he essentially said, you're leaving growth on the table. His thesis was growth is more important than profits. 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.)
- naravara 4y ago
  > 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. 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.
  - zerkten 4y ago
    >> Atlassian is probably a fair bit away from that. 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.
    - mbesto 4y ago
      > How do you justify that? 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/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022 https://www.gartner.com/en/newsroom/press-releases/2022-04-0...
mytailorisrich 4y ago
I think it depends on what you mean by "profitable". 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).
virtualritz 4y ago
> When I worked there, they disclosed all financials in our internal Confluence site. 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.
papito 4y ago
It's like that scene from Silicon Valley (which is almost always accurate). 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.
- fencepost 4y ago
  If I have a company with good cash flow, all employees (including me) are compensated well, and I'm spending a chunk of that cash flow on R&D and growth but have only marginal profits if any am I doing something wrong? Should I cut R&D to pay dividends? How about if the company is privately held? There's a difference between 'not profitable' and 'losing money.'
  - papito 4y ago
    I worked for a company that rented a new expensive floor in the heart of NYC to show "growth" to other investors. We were supposed to spread out for the optics, when potential investors did a walk-through.
  - PheonixPharts 4y ago
    If "profitable" is a switch you can flip, then what you're describing makes sense. 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.
- PheonixPharts 4y ago
  We've been in a bubble so long that there were people who have worked only in the current tech bubble. People run companies now that think a stock market crashes ultimately means more money flows in from VCs. I once worked for a c-level that seriously thought he had discovered something amazing when he realized that a company that made more than it cost to run the business had unlimited runway... the very idea that a company could run without constantly running to investors begging for more cash was completely foreign to him. 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.
anton_ai 4y ago
Doug Berman == Russ Hanneman
upupandup 4y ago
> it's actually bad to be profitable when you're growing. 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
- avisser 4y ago
  Seems like he meant "It's bad for me (the VC) to be profitable when you're growing"
  - gnicholas 4y ago
    Bingo. The VC wants the grand slam that returns the entire fund. He'd rather have an x% chance of a grand slam than a 3x% chance of a double/triple. Founders have a very different calculus because their risk isn't spread across a portfolio of companies.
- ryaniscool 4y ago
  Few counterpoints: - 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/Atlassian-Co-CEOs-Adopt-New-10b5-1-Trading-Plans https://www.businesswire.com/news/home/20220527005335/en/Atl... [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
tablespoon 4y ago
> Doug Berman, the founder of Great Plains software I believe that's Doug Burgum (now governor of North Dakota).
- ryaniscool 4y ago
  Yes, you're right! I realized my mistake and tried to go back and edit it at some point but I guess there is a time limit on edits.

marcosdumay 4y ago

> it's actually bad to be profitable when you're growing 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.

foobiekr 4y ago
VCs love _technical_ risk. Outside of the very unusual circumstances of the Zero to One capital-funded-monopoly-theory era, they have considered _business_ risk quite toxic.
- marcosdumay 4y ago
  Hum... Quickly investing all your money into product development creates what kind of risk? I'm having a hard time separating them. 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.
  - foobiekr 4y ago
    My point is that you state "VCs love risk" and I'm trying to help you clarify the way you think about this. VCs don't love _risk_ at all, they love _things that are an technical execution risk but would sell immediately if they can be done_. 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.

TeeMassive 4y ago

> One thing that stood out was that he said, it's actually bad to be profitable when you're growing. 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.

jokethrowaway 4y ago

The article talks about this. The problem is that growth is not there. 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.

threeseed 4y ago
Atlassian grew 30% last quarter compared to previous year. https://investors.atlassian.com/news/news-details/2022/Atlassian-Announces-Third-Quarter-Fiscal-Year-2022-Results/default.aspx 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.
- pluc 4y ago
  Given their recent outage (that was this quarter right?) that is bonkers.
  - calebj0seph 4y ago
    The outage was pretty bad but it only affected 0.4% of customers. Not surprising that it didn't materially impact revenue.
    - pluc 4y ago
      It didn't scare new customers away is what I find surprising. That outage lasted over a week and data was lost/inaccessible..

nemo44x 4y ago

The character Russ Hanneman on the TV show “Silicon Valley” took it a step further stating that having no revenue to speak of makes a company more valuable. It’s satire…but is it?

arcturus17 4y ago
In a way it isn’t because no revenue at all can excite the imagination infinitely more than underwhelming revenue.
maccard 4y ago
> It’s satire…but is it? 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!
HNDen21 4y ago
This was the Masayoshi Son/Adam Neumann playbook for WeWork... growth above all
robbiep 4y ago
A company with no revenue can potentially raise at a higher valuation with a company of $1 of revenue - because now it’s real and investors will start making their mind up about the actual possiblities of the investment
- foobiekr 4y ago
  Directly experienced this - having actual _profit_ makes it hard to encourage fantastical storytelling about how big the upside is. It's the company future equivalent of mark-to-market. 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.
ihaveajob 4y ago

dalbasal 4y ago

The idea that growth is better than profits was in-built into Atlassian's proposition to shareholders, ultimately. 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.

theturtletalks 4y ago
Fundamentally, why would someone buy a stock of a company that doesn’t eventually make a profit or offer some sort of dividend? Seems like Atlassian traded profit for staying power, but can they leverage that staying power to bring value to their investors?
- bombcar 4y ago
  People buy growth stocks because they can sell them for more tomorrow, it's often a bit of greater-fool theory in play. 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.
- dangerboysteve 4y ago
  Amazon comes to mind.
- JamesBarney 4y ago
  The idea is they'll eventually get purchased, or have a profit and dividends. But if you're growing so fast it makes sense to focus on that over profitablity. Most investors would rather have a 1.40, next year than a dollar today.

tarsinge 4y ago

The problem is that choosing to be unprofitable is a strategy that maybe worked (or just was fashionable) the past decade under very specific circumstances (lot of free money chasing higher returns in a context of very low rates), but otherwise obviously makes no sense, it's antithetic to the very idea of a business. It's not to be confused with the sane version that is reinvesting profits for growth instead of distributing them as dividends.

slap_shot 4y ago
> but otherwise obviously makes no sense, it's antithetic to the very idea of a business. 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.
- bonestamp2 4y ago
  Yep, exactly what UBER is doing and what Tesla has found themselves doing with high spending on their Texas and Berlin Gigafactories. It's a short term pain for domination... expand fast and be the market leader in every country before someone else beats you to it. Then, soak in the profits.
  - jacobr1 4y ago
    Which works when the unit economics are good. You can take the profit from an operating business, and just inject it back in the business to grow. That sometimes looks like an unprofitable business, but the test is: "if the company freezes growth tomorrow" would it be profitable? 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.
serial_dev 4y ago
In the space Atlassian is in, choosing to be unprofitable while quickly growing could make sense. 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.

gwbas1c 4y ago

> I'm paraphrasing here but he essentially said, you're leaving growth on the table. His thesis was growth is more important than profits. 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.)

naravara 4y ago
> 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. 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.
- zerkten 4y ago
  >> Atlassian is probably a fair bit away from that. 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.
  - mbesto 4y ago
    > How do you justify that? 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/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022 https://www.gartner.com/en/newsroom/press-releases/2022-04-0...

mytailorisrich 4y ago

I think it depends on what you mean by "profitable". 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).

virtualritz 4y ago

> When I worked there, they disclosed all financials in our internal Confluence site. 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.

papito 4y ago

It's like that scene from Silicon Valley (which is almost always accurate). 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.

fencepost 4y ago
If I have a company with good cash flow, all employees (including me) are compensated well, and I'm spending a chunk of that cash flow on R&D and growth but have only marginal profits if any am I doing something wrong? Should I cut R&D to pay dividends? How about if the company is privately held? There's a difference between 'not profitable' and 'losing money.'
- papito 4y ago
  I worked for a company that rented a new expensive floor in the heart of NYC to show "growth" to other investors. We were supposed to spread out for the optics, when potential investors did a walk-through.
- PheonixPharts 4y ago
  If "profitable" is a switch you can flip, then what you're describing makes sense. 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.
PheonixPharts 4y ago
We've been in a bubble so long that there were people who have worked only in the current tech bubble. People run companies now that think a stock market crashes ultimately means more money flows in from VCs. I once worked for a c-level that seriously thought he had discovered something amazing when he realized that a company that made more than it cost to run the business had unlimited runway... the very idea that a company could run without constantly running to investors begging for more cash was completely foreign to him. 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.

anton_ai 4y ago

Doug Berman == Russ Hanneman

upupandup 4y ago

> it's actually bad to be profitable when you're growing. 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

avisser 4y ago
Seems like he meant "It's bad for me (the VC) to be profitable when you're growing"
- gnicholas 4y ago
  Bingo. The VC wants the grand slam that returns the entire fund. He'd rather have an x% chance of a grand slam than a 3x% chance of a double/triple. Founders have a very different calculus because their risk isn't spread across a portfolio of companies.
ryaniscool 4y ago
Few counterpoints: - 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/Atlassian-Co-CEOs-Adopt-New-10b5-1-Trading-Plans https://www.businesswire.com/news/home/20220527005335/en/Atl... [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...

tablespoon 4y ago

> Doug Berman, the founder of Great Plains software I believe that's Doug Burgum (now governor of North Dakota).

ryaniscool 4y ago
Yes, you're right! I realized my mistake and tried to go back and edit it at some point but I guess there is a time limit on edits.