Mike Cannon-Brookes on Scaling Tech Businesses

Transcript

Brett Kelly (0s):

Welcome to the be better off show. Our guests today are 2012 interview I did with Mike Cannon Brookes. Now at the time it was the, the event was the launch of my book, business owners, wisdom, which featured an interview with Mike that we'll share with you at the bottom of this page, in this interview. It's quite interesting. You're going to hear the foundational ideas that at the time the company was worth about 300 million and today, it's worth over 20 billion US dollars. And I think it's very rare and unusual to be able to hear a guy share with you these ideas that helped him shape up what has become undoubtedly, a world renowned company. So I encourage you to have a listen. I'd love to hear your feedback. Have a great day. You're listening to the Be Better Off Show by Kelly+Partners.

Brett Kelly (41s):

Ladies and gentlemen it's fantastic to have Mike here today: At such a young age to have built, as I mentioned earlier, a business that Fortune have described as being to software what Apple is to design, I think is an enormous endorsement. So I guess I wanted to start at the beginning, but I can just say, well, how did this business start?

Mike Cannon-Brookes (1m 05s):

Well, the simple answer is neither of us wanted to get a real job. So I have a cofounder and we decided that we'd try our hand at something. It's a kind of being step by step from there, but we had no, to be honest, we had very few grand ambitions on day. One of being anything like we are today, it was just a survive through year one and not look like fools.

Brett Kelly (1m 27s):

Yep. Okay. So today the business has more than 500 employees across five offices around the world. Is, is reputedly valued at more than $400 million? When, when all that happens, how do you feel when you know, how did, how did, how has that changed you?

Mike Cannon-Brookes (1m 05s):

That's a tough question. It, look, it feels good. It's some sort of a sense of accomplishment, I suppose. I mean, when you look back, it sort of all seems like a big blur. There's no point where you actually think it's done. I think we won't be sort of celebrating until we feel like we've got less in front of us than behind us, if you like.

So we're both business builder people. We're not really business maintainers, probably very crap managers and all that sort of thing. But we still feel like the bulk of our journey and the businesses in front of us. So maybe when that finishes or, you know, everything, which is a natural sort of point will have a little more time to relax and enjoy.

Brett Kelly (2m 27s):

Okay. Now in the book, yeah. In the book you mentioned that the business is built on, on five core values. Can you share a couple of those or certainly the ones that most resonate with you and tell me why, why has it been so important to, to in your, your view build a business based on these sorts of ideas?

Mike Cannon-Brookes (2m 45s):

Sure, sure. A couple of things behind that, I guess one is, is in the it space. It's probably the most brutal war for talent that we've ever been in. And I don't know if any industries, I'm sure other industries have been in similar spots, but at the moment, finding the guys who can do the dance, if you like in terms of programming and the visuals, all that sort of thing is incredibly globally competitive. So culture is basically the only weapon. I mean, you can only lose. We've always maintained that you can't win people with money. You can't throw more money at them. They're not going to want a better job. You can lose people by paying them too little, but basically, you know, the, the values and culture of the business, that sort of long-term viral referral from every employee to every other employee to say, ah, I know I've got to make that work. So the last year he loves it. You know, you should definitely go for a job.

There is kind of our core, one of our core competitive weapons. And we realised that very early, the second reason the values came about was as founders. We, when we were early in the business, you've got 20 people, you know, 40 people, et cetera. It's one on one. So you scale yourself very easily by talking to everybody. As soon as that hat that stops being, and you meet someone in the business that doesn't share the values, you're suddenly like, wait, why is this? And we quickly realized we needed to codify the things that we never wanted to lose about who we were at that time.  So we have a few non well rather controversial ones. So open company, no bullshit has always been a very big motto inside the company. And then when we wrote them down, that was obviously there and sort of speaks to itself to an Australian audience. That's probably not a revolutionary thing, Americans all titter and find it hilarious. And you kind of, when you say open, you don't really mean open and we're like, no, no, we, you know, someone's we call a spade a spade and we want everybody inside the business to do that.

My favorite is built with heart and balance. Yep. Which does mean, well, what it means is, is it's basically admitting to employees that in the growth, in any growth business, we have to make a lot of very difficult decisions on a regular basis. And all of those decisions require a very balanced judgment. So considering all of the options and making a balanced decision and a required degree of caring, right? Whether it's letting someone go or choosing whether or not to, to go with a project or whatever, there's going to be someone on the other side of the decision, who's upset about it. And the whole business has to understand that we've tried to make that decision in the most balanced and caring way as possible. And, but at the same time, we're going to make that hard decision, right? We're not going to avoid it for the sake of not hurting people's feelings.

Brett Kelly (5m 18s):

But this is one of the most interesting things that I guess I heard from, from Mike in terms of the, the interview, when I was sitting there, is that in, in high growth businesses, what's most likely to happen is that your you're going to outgrow people because a business can grow. That's a cumulative effort of a lot of people, a lot faster than an individual can grow.

So often you see at different stages where Michael was reflecting that they were letting people go because they just simply had outgrown them. So this concept of, of, I guess, building with heart and balance, just accepting that that's what it is, but try to be genuine and open in, in dealing with that.

Mike Cannon-Brookes (5m 54s):

Yeah. And we've always tried to maintain to everybody internally that look, it's a big journey that we're on and anybody, it doesn't matter if you've been with us for five days or five years, right. You wrote a piece of that history and you contributed to a piece of that history that doesn't necessarily mean you have a contributory role to the future. Now we'd love it if everybody did, but there are a lot of roles that we just scale beyond, right? And it's, it's a really hard thing for any growth business to deal with.

You talk to anybody who's grown really fast. It, it naturally happens. And we're just trying to be honest with employees and everybody about saying, Hey, it naturally happens. You know, we'll, we'll try to be balanced. We'll try to find you other, other jobs either inside or outside the company, but in no way, should that diminish the contribution. Some of those guys in those roles, unfortunately, they, they work really hard to contribute to the growth. And then they realise they've, you know, they've kicked off a snowball, that's gone beyond them. And you know, that that's sort of the way it is, but we're just trying to be open with them about that. And, and so they understand that we, we care about their contributions as well.

Brett Kelly (6m 52s):

Then you mentioned that. And I think, I think this is very interesting to me is that a lot of people look now at Mike and his partner and say, look at this great business, they made all this money. Isn't that fantastic. But can you share with everyone because I thought it was, it was intimate and important for people to understand that live many, many, many years where you just drew virtually no money out of this business.

Mike Cannon-Brookes (7m 14s):

Sure. Yeah. I mean, we, we, we couldn't raise any capital when we started 2002, if you know anything about tech sec tech cycles, 2002 was nuclear winter for tech, there was everything had gone pear shaped in 2000, 2001, all the money disappeared. Everybody who came out of consulting, went back to consulting and there's just nobody around. So we didn't really have a hope in hell of raising any money. So we kind of had to pay ourselves nothing at start. And, you know, again, we had the luxury and I don't call it a risk.

We had the luxury of being effectively university students, you know, we had very cheap, modest lifestyles. And so in that way, you know, we, we hit the right place at the right time. I mean, we couldn't, couldn't do that nowadays. Both of us have wives and children and things, and, you know, $200 a week is probably not really something [inaudible].

Brett Kelly (7m 40s):

So it's a real advantage to be building this business young before you're married before you got kids before you've got responsibilities

Mike Cannon-Brookes (8m 09s):

Absolutely. I mean, people always talk about entrepreneurs taking a risk, but if you're going to take a risk, jeez, you know, straight out of university or at that age, the risk is very low, that the cost of your career is extremely low. The cost of your family, people around you is very low.

So I think that's the best time for people to do it. And if it comes off great. And if it does, I admire the 40 plus year old guys with wives, kids, mortgages, et cetera, that go start another business. That's a real risk. That's sure. <inaudible>.

Brett Kelly (8m 40s):

Yeah, absolutely. So as you now look forward and you hear the sort of plaudits that, that the business has got, I guess, how, how are, how did you choose this partner that you've got in the business? I found that very interesting. You mean, you mean Scott in terms of founder or cofounder and then, and then next year, private equity partner.

Mike Cannon-Brookes (8m 55s):

Oh, right. Okay. In choosing a cofounder, everyone asks what the secret sources to that. I don't know. There is one really, we looked at each other and we've, we've answered this question hundreds of times.

Right. But they're really, the only thing we knew is we're both pretty smart. We both seem to be pretty hard working. We like to be, and you know, he's just sort of bloke. I want to be, you know, he's a, he's a scout leader, you know, it's like that kind of typifies it all. You're like, yep. He's got it. He's got a pen knife and we're in the Bush. We're kind of going to be all right. But you don't know anymore at that stage. That's the thing is like, when you pick and Coke people like, well, what experiences they have this and that it's like, well, we had none, but I had none. So it's the same thing. And you sort of make the best choice you can. And, and a lot of co-founding relationships bust up and a lot of them stick the distance. Right. And we've now had such a shared journey in a shared learning over 10 years that we can sort of Finch each other stories really quickly. It's, it's, it's a sort of a weird relationship that develops.

Brett Kelly (9m 49s):

And how does that work now in a business who takes responsibility for what?

Mike Cannon-Brookes (9m 53s):

So we've, I mean, at different times we've run the whole business independently where one of us has been on a special project, you know? So I went over to start up in the U S the office over there for about a year, 18 months. And he kind of ran the whole shop from Sydney. And then I came back and basically ran the whole shop and he went and did a few other special projects and we sort of jumped back and forth. Yeah, right now we basically have approximately half the management team. So the whole U S office still reports up to me, et cetera. And, and he, you know, runs the finance and engineering parts of the business. So we have it split pretty much, 50 50.

Brett Kelly (10m 23s):

And then when you, when you had had grown this business, you needed to bring in a part or thought it might be advantageous. You were looking to, to get involved with a private equity group. Can you tell, share with people just how you ran that process? Because I thought this was, was intelligent, mature and assertive.

Mike Cannon-Brookes (10m 39s):

Sure. Yeah. Look, my, my favorite subject, the university, I did a series of courses on game theory, and we've employed that in the business very many times and game theory usually means other people are pissed off. Cause you're taking they're nice, you know, salesmanship world and turning it up on its head with some sort of clever way of doing things. And we, we did that. So we we're lucky enough by then. So we're about seven years into the business to have a whole series of private equity people from, you know, seed funds and through VC funds. And we'd gotten to the stage of size that we had the real sort of private equity capital P capitally guys coming to, to want to put money into the business, which is flattering.

And we'd said, no, no, no, we're not interested, but not interested for years and years. And we had one decision point to take. So we're about seven and a half years in, as I said, and we could kind of have done anything at that stage. And so we took ourselves away and when it had to be beers and decided what we wanted to do, did we want to sell and get out, you know, 10 years, we plenty of time to go do something else, or did we want to recommit for sort of the next seven years? It seemed like a good time. And we both decided that we weren't done. We had plenty that we wanted to do. So we decided to recommit, which is why we went to look for capital. Yup. And then we went to five firms, all of whom we've met, we RPA maintain a spreadsheet. We had probably 70, 80 firms on the spreadsheet that had contacted us.

And we just went to the ones that we had a good personal relationship with. So we didn't pick on the basis of brand or anything. We picked two or three folks from each one over a six year period and pick the guys that we wanted to work with. Right. The guys that we felt comfortable we'd have a beer with, et cetera. And then we ran the process very much on our own terms. I was telling entrepreneurs, we were in the driving seat. We knew that. So we ran our process. We told them what the rules would be. That they'd get one pitch that they could ask any question. But every question they asked, all the information would be instantly shared with everybody. We had one shared file system. They all understood who else was involved. So it was a very, very open sort of level playing field.

We gave them a clear set of criteria that we'd be making the decision on, not just financially, but the people, the references, they had the, you know, the context I could bring the prisoners, they helped, they would been to us, et cetera. And then we gave them one, one bid basically at, at what they were doing.

Brett Kelly (12m 54s):

And did you, did you then choose on price or did you choose...

Mike Cannon-Brookes (12m 59s):

I mean, we had some favorites running in, I think. Yeah. And then they sort of got jumbled around a little bit and we were lucky enough that that one or two firms came up pretty much near the top on all things. Yeah. And so then, you know, price was certainly determined. It was one of about four factors, but the guys, we chose Excel partners who I have nothing but respect for them. They've been awesome. So two and a half years in architecture, they've been really useful. You know, they were pretty much number one or equal number one on a number of categories. So that was, that was good.

Brett Kelly (13m 28s):

Share I guess, if you would more broadly this understanding of software in the, in the book, you mentioned how today the major companies have to be software companies. Sure. Can you, can you, can you share that with people? 

Mike Cannon-Brookes (13m 42s):

A lot of people don't realise it, but I mean, my personal theory is that software is pretty much the only strategic advantage nowadays. Like everything else gets so quickly copied so fast and software is really hard. And basically what you've seen over the last 10 years and look, no bullshit aside 10 years ago, we didn't see this at all. We've kind of ridden a wave and we've been studying the wave that we're riding and trying to work out why we're writing it and then learning from it and you know, getting back on top of it sort of thing.

So it's not a sort of longterm vision we've had for a long time. But what you've seen over the last 10 years is really software moving from a very operational thing. Some guys in the basement down there, they write some code. We tell them to write, they write it and we move on or we outsource it or whatever, to a very much more of a strategic thing for almost every, every big business now. And by strategic, I mean, you know, the CEO that the C level suite management get heavily involved in the process, their products are becoming digitized, right? How many physical products do you buy? Now? They have an app that somehow going, I mean the canonical examples. So Nike is a big customer of ours. You know, they don't sell you a pair of shoes anymore. I just happened to buy a new pair of shoes the other day, three or four days ago. And you open the box and it's advertising for their app on the inside of the box, it's got a chip and issue.

It's got a chip in the shoe. And I think that even have the chip anymore, they moved on. Right? But the point is their shoes, their business is becoming so much more about the software they provide. Right? If you look at car manufacturers, I think we talked about this. I don't know if it ended up coming. In fact, you go to the Detroit auto show. My wife is from Michigan. So this is what you do. And the Detroit auto show, nobody pitches their cars anymore on anything mechanical, right? It's it's safety systems, it's navigation systems, it's entertainment systems, it's fuel efficiency, which is all driven by computers nowadays. Like the whole car is basically a giant computer with a bunch of wheels stuck to it. So if you want to win in that business, you have to have the engineers, you have to have the people. And that requires all of these different folks in your business to get together.

And you know, when we would talk to Nike, the fascinating thing about their transformation is really these digital products that they sell are as important to them as their physical products. But they never had to do that before. What they would do is make some shoes, the marketing department go make some ads and they kind of spit it out. And that was it. And now it's like the digital guys go, Hey, the app's not ready. We can't ship the shoes. And the shoe guys are going, what do you mean? We've made them turn the whole, these industries upside it's changing the way that they do things right in their advantage. Right? You think about, I don't know, not picking on any but Puma or Adidas or somebody who doesn't have all this sort of digital technology that Nike does. They're on sort of Nike is on version three of this whole generation of their business. And those guys trying to catch up. It's incredibly difficult anytime soon.

Brett Kelly (16m 10s):

So as you look out to the future, what is your hope for the business and at a personal level, what drives you to keep going?

Mike Cannon-Brookes (16m 20s):

Well, the hope for the business is always that we don't screw it up from here. I've got more to lose now than we had before I described it to someone else in the us the other day, he said, how would you put it into one sentence? And I said, well, we've taken left foot, right foot in roughly the right direction. And we haven't shot ourselves in the head yet. And that's, that's pretty, pretty much what we want to keep doing. Look, I don't know. I mean, we, we, you know, we're, we're sort of not an open secret, but we were investigating going public in the U S and things like that, which would make us a pretty much the first Australian tech company to do that. It would be the Australian company. So, you know, that that'd be pretty good.

I think personal achievement for us and for the business as well, just continuing to professionalize it and, and see how far we can go. We've got a great start. We were looking at a very big industry, a big opportunity in front of us. So, you know, who knows 500 people, maybe we look back one day and say, Oh, remember when we were only five people, right? Yeah, absolutely. And in terms of driving us, I mean, we're still enjoying it, right. I think as soon as we stop learning things, I stupidly enough when the business started, I, you know, we were both product guys. So we wrote code in the very early days. It's been many, many years since we did that, but you know, we're product guys. And I told somebody in the business that when we hit 40 people, I'd be out the door because it'd be boring by then, you know, we'd be managing people and, you know, that would kind of be it, that gets brought up regularly, internally on a, on us, some somewhat it's every six months someone to find it. And you know, it hasn't been as boring as we thought, right? The, the, the managing people putting together teams has been exciting. So, and I'm sure that learning will start to taper off and we'll have other challenges at some stage, but we're still having a good time.

Brett Kelly (17m 57s):

Excellent. Mike, I guess ladies in general, I really want to thank Mike for coming today. He's incredibly business busy, as you can imagine. And I guess we just want to do that short time together to give you a sense of what's in the book. There's a, there's a lot more and, and I don't want to steal all of the books then obviously we could sit here all day.

End of transcript