‘Tech wreck’ hits home, Atlassian the latest victim

Atlassian has had a different trajectory to many of its peers; it infamously grew in size relatively slowly from a small start-up into a tech giant over the past 20 years.

The lay-offs plaguing the global technology industry truly hit home on Tuesday, when tech darling Atlassian – long one of the nation’s largest and most resilient technology companies – joined a long and growing list of software firms to succumb to the deepening ‘tech wreck’ that has torn through the sector.

Atlassian, which made billionaires out of its co-founders Mike Cannon-Brookes and Scott Farquhar, announced on Tuesday that it was axing 5 per cent of its workforce to “better position for the longer term”, with the 500 affected employees to be notified via email whether it would be their last week at the company.

“To be clear, this decision is not a reflection of Atlassian’s own financial performance, as we will be reinvesting in roles that better support our priorities,” the co-founders wrote in a letter to staff.

Atlassian has had a different trajectory to many of its peers; it infamously grew in size relatively slowly from a small start-up into a tech giant over the past 20 years without any formal sales or marketing process, instead notching up sales of Jira and Confluence through word of mouth.

The company was one of many that grew too quickly during the pandemic however, and as recently as October said it was hiring 1,000 new workers as part of an aggressive recruitment drive. Atlassian was not alone in enjoying a hiring spree during the pandemic, with Silicon Valley firms like Zoom and Salesforce ramping up headcount amid expectations that consumer and workplace behaviour had permanently shifted more online.

Atlassian co founder Scott Farquhar in its branded recruitment RV

Share prices and private valuations ballooned over the past three years, with investors fuelling a tech gold rush that spread across the sector.

Amid a backdrop of rising interest rates, the war in Ukraine and tepid ad spending the industry has now come back down to earth, and is grappling with what to do once the party ends.

The tech lay-offs aren’t happening because the companies are nearing bankruptcy or aren’t performing well financially necessarily. Atlassian’s shares are down only mildly over the past 12 months, compared to others. The lay-offs are instead at least in part due to the fact these companies aren’t growing as quickly as they did during the pandemic, and therefore need to ‘right size’ to a more sustainable level. Investors don’t want to just see growth, they want to see efficient growth. And they have commonly welcomed lay-offs, sending Atlassian shares for example up 2.2 per cent in after-hours trading.

The most impacted roles in most of the tech lay-offs – including Atlassian’s – is in HR, given the reduced requirement for the HR function as the companies slow hiring.

Another reason behind the lay-offs is a more simple and psychological one: copycat behaviour.

“The tech industry lay-offs are basically an instance of social contagion, in which companies imitate what others are doing,” Stanford Graduate School of Business professor Jeffrey Pfeffer said.

“If you look for reasons for why companies do lay-offs, the reason is that everybody else is doing it. Lay-offs are the result of imitative behaviour and are not particularly evidence-based.”

While the lay-offs will be difficult for the impacted tech workers, they can look at the young start-ups around them with some hope, or consider starting their own.

Atlassian’s co-founder Farquhar has said he likes to measure his impact by the entrepreneurs who leave Atlassian to start new ventures. He points to the infamous “PayPal mafia”, of which PayPal founders and employees Elon Musk, Reid Hoffman and Peter Thiel were members. They went on to start Tesla, LinkedIn and Palantir respectively.

Multiple Australian technology start-ups have already sprung from Atlassian’s ranks, including customer feedback company Dovetail, search start-up Sajari and workplace communications provider Pyn.

These companies were all started by ex-Atlassian employees.

“I’d love if we were the Atlassian mafia,” Farquhar said in a 2021 interview. “But maybe not as violent … Maybe a different term.”

Any young Australian tech start-up would love to hire an ex-Atlassian employee, and a new round of innovation and scrappy start-ups may yet spring from this painful period.