Remote.com's Business Model
Buy the rumor; sell the news
Introduction
I previously wrote about Remote here; this post expands on that last post. I decided to write a deeper post about Remote given its recent $150 million raise and newfound unicorn status. All content here is sourced from publicly available data. I’ve got no connection to Remote, though its CEO and I follow each other on Twitter. Any errors in this piece are mine.
What caused the shift to remote work
Though concerns about COVID-19 are the proximate cause for the rise in remote work, what has enabled remote work has been an explosion in consumer-friendly technology: widespread broadband, powerful laptops and tables, videoconferencing, and, crucially, GPUs and CPUs capable of powering all of this software and hardware.
The pandemic only increased the speed of remote work adoption. A decade’s worth of progress in remote work, it has been claimed, was made in only a few months as corporations around the world realized that (1) they had to close their offices and (2) every knowledge worker used a portable laptop. Firms moved online en masse, and companies like Google, Amazon, Zoom, and Microsoft stepped up to the plate and powered corporations’ global remote workforces.
But one thing has been missing from this remote revolution, and that is the ability to hire qualified people anywhere in the world. A company based in the United States may identify talented developers in Brazil, or excellent graphical designers in Bulgaria. But if that US company doesn’t own a legal entity in Brazil or Bulgaria, it can’t hire people resident in those countries on a full-time basis. Professional employer organizations (PEOs), like Remote, which do have legal entities in these countries, can function as an outsourced employer of record (EoR).
At a very high level, the relationship between a company, a PEO, and an employee is the following: the company identifies an employee it wants to hire, and it contracts with the PEO to serve as the EoR for the employee. The EoR is responsible for administering payroll, withholding taxes and remitting those taxes to the government, and providing workers’ compensation insurance.
PEOs and their clients can exist within a single country, so a United States company may choose to have all of its American employees employed through an EoR, which administers the company’s payroll. But, crucially for the remote work era, PEOs can also employ people on behalf of companies not located in the country in which the PEO operates. So, for example, a Canadian company could hire Americans through a PEO that operates in the United States, under US law.
And all of this has been pretty standard, for decades. What makes Remote special is that it has married the legal structure of PEOs with modern software. As Stripe has done with payments rails, Remote is poised to do with employment rails.
Remote’s business model and its similarities to Stripe
Comparisons to other companies can sometimes be misleading, and I don’t want to make too much of the similarities between Remote and Stripe. But both encode complex and opaque business processes in software, making it easy for companies to conduct business. Further, both operate as SaaS companies, and both have created an API which other companies can use to rapidly build complementary apps. Stripe pioneered the combination of a SaaS revenue model and a productized API, and Remote has adopted this model as well. Productizing your API converts a use of cash (expense) into a source of cash (revenue). And it turns out, as we’ll explore, this has some interesting implications for scalability, growth rate, and valuation.
Therefore, it’s worthwhile to think of Remote as being Stripe for employment. In fact, as I wrote my earlier piece on Remote, I noted that Remote’s own handbook makes mention of this:
Remote is creating more remote jobs in the world by making it possible to employ people in every country. Not as a contractor, but as a fully legal, local employee, with all the benefits that come with that. Think Stripe for employing people.
Remote envisions a world in which APIs allow any employer to quickly onboard any employee or contractor globally, and remain in full compliance with the labor laws of the country in which the employee lives. Imagine you run a software company in South Africa, and you find that some companies in Canada want to use your software. Maybe you make software for mining companies. While you can administer the software via the cloud, maybe you need sales reps in Canada who can demonstrate the software for prospective customers. Remote can facilitate this for you, which means that you don’t have to create your own legal entity in Canada.
How a productized API complements a SaaS offering
By itself, the SaaS business model is pretty compelling. As with any software business, each additional license is nearly pure profit. Remote does traditional SaaS companies one better, in that, being fully remote, it doesn’t have any of the real estate costs inherent in running a traditional office-based business.
As if that were not good enough, Remote also has its productized API. And here’s where things get very interesting. By turning its API into a product that app developers and other businesses can use for their own purposes, Remote does two things:
it converts an expense into a revenue stream
it gains valuable insight about what the market values in terms of products and features in the HR tech stack
This means that Remote will get real time feedback from the market about what products want to pay for, while being paid for other people’s development of these products. This kind of market research is invaluable, and turning your API into a product means you get paid for facilitating that market research!
Further, since each additional API call is an expense financed by revenue, the API is, as with the SaaS model, a scalable and profitable one. This means that revenues, and so valuation, can grow very quickly. And, as we have seen, Remote, founded in 2019, became a unicorn in 2021. Stripe was founded in 2009 and most recently raised $600 million in 2021 at a $95 billion valuation. These are true hyperscale companies. And they won’t be the last: most of the wealth generated in the next decade or two will come from similarly scalable companies.
Conclusion
Every successful company arrives at the intersection of timing and opportunity. The combination of improvements in technology and pandemic-induced remote work has allowed Remote to scale very quickly. Remote work is real, it is changing labor markets significantly, and the companies that provide the tools and services that allow other companies to optimize their workforces for a remote first world will grow very large.