Gitlab and All-Remote Companies

What the first IPO of a truly all-remote company tells us about remote work

Hi friends,

Over the last few weeks, two companies filed to go public that represent different lenses on something which has been happening for a while now, but is finally coming into the spotlight: the globalization of software talent and companies.

On one hand, Gitlab, which goes public in the coming week will be the first truly remote from “day one” company to go public. It has over 1300 employees in 65 different countries, and made the decision to start off remote in a very different era than the one we are in today.

On the other hand, Freshworks, became the first Indian SaaS company which caters to a global company base to go public. India has always had a strong IT sector, but it has been more so in services, rather than software products directly. I’ll focus on Gitlab today, but hope to cover Freshworks in a future edition.

The First-mover advantage of being remote

Gitlab was founded in 2011, and has been remote since its inception. Over the last few years in particular as remote work has taken off driven by the pandemic, it has helped Gitlab’s brand as a pioneer in this space.

It has helped them both from a recruiting perspective: employees that liked working remote in the pandemic that may not want to go back in person might consider Gitlab as an attractive place to work given they were a pioneer in this and have one of the best infrastructures in place to support remote work.

In addition, it the press and media they have gotten has improved their brand which has helped them from a sales perspective in terms of attracting new customers, as they touch on in their S-1.

Pioneer in all-remote work since inception enhances our brand with customers: As remote work has become a more popular topic after the COVID-19 pandemic, it has enhanced our overall company brand with new and existing customers and team members

Remote work doesn’t necessarily mean labor cost arbitrage

While remote work could be used as a way of reducing labor costs by focusing on hiring talent in low-cost areas, it doesn’t have to be used that way.

While Gitlab does pay based on the market rate in a given location (i.e., adjust compensation to cost of living and other factors tied to a location), the big benefit of remote work they call out is access to talented people with high in-demand skills all over the globe.

This is the compensation formula they use:

Compensation = SF benchmark x Location Factor x Level Factor x Exchange Rate

At least on the surface, by virtue of being globally distributed, it isn’t the case that they are spending less on talent than other companies. In fact, arguably they are spending more on talent.

  • Gitlab’s stock-based compensation as a share of revenue was 50% in 2020 and 72% in 2021, which is quite high compared to peers.

  • Gitlab’s stock-based compensation in 2021 of $110M on 1300 employees represents an average of ~$85K per employee, which is comparable and even higher than many Bay Area HQed companies

  • Gitlab’s R&D spend as a percentage of revenue was 70% and 72% of revenue, much higher than the typical 20-30% of revenue on R&D of a typical high growth SaaS company, as below.

Would Gitlab have been spending more for the same number of employees if it was all in SF? Yes. But is the company’s business model predicated on lower labor costs? No. If it were based in SF, it likely wouldn’t have been able to hire as much and so would have just grown more slowly or built less things.

Creating a culture for all-remote environments

Gitlab made a conscious decision to be globally distributed, which comes with it a unique set of challenges, even more so than those that choose to be remote but require roles to abide by certain time zones. Naturally a lot of its culture and core values has flowed from this decision.

Specifically, its six core values all have an element of being an all-remote company to them.

  • Collaboration: Gitlab embraces active collaboration as part of its culture (rather than serendipitous passive collaboration) and codifies how it should work including how to provide and receive feedback, how decisions should be made (in the open), etc.

  • Results: Gitlab has a culture focused on results where the outputs are more important rather than the inputs (“facetime”, hours “worked” or anything of that sort).

  • Efficiency: As part of efficiency, there is an emphasis on documentation and on not wasting others time (unnecessary meetings) and on working asynchronously (getting early versions out for async feedback rather than trying to get everyone in one room).

  • Diversity and Inclusion: Being all-remote naturally helps hire a more diverse workforce and allows them to make better decisions for their personal life without impacting career advancement (moving, etc.)

  • Iteration: A focus on quick, small iterations empowers individuals and small teams to make changes and reduce cycle times. It also reduces the need for reaching consensus and unnecessary over-collaboration and debates, which helps move fast in an all-remote setting.

  • Transparency: With the lack of hallway chatter, transparency is critical for all-remote organizations for people to feel like they have a say and know what’s going on. Gitlab takes transparency above and beyond by not only documenting everything and making it available internally, but also making a lot of things available externally.

As their S-1 states:

The freedom and flexibility that comes with an all-remote workforce enables team members to view work in an entirely new light, one which focuses on results and productivity over the number of hours spent working.

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The importance of transparency and documentation

The importance of documentation and transparency is worth touching on in a bit more detail.

With people being on different time zones, synchronous communication and collaboration is often difficult, meaning that documentation and asynchronous communication is critical.

We document everything: in the handbook, in meeting notes, in issues. We do that because "the faintest pencil is better than the sharpest memory." It is far more efficient to read a document at your convenience than to have to ask and explain. Having something in version control also lets everyone contribute suggestions to improve it.

In addition, to enable free-flowing collaborating, it’s important that this information and documentation is generally available rather than limited to silos.

Gitlab’s belief is to be open about as many things as possible because they believe that “By making information public, we can reduce the threshold to contribution and make collaboration easier

Gitlab’s belief for transparency comes with a few elements:

  • Public by default: Gitlab’s philosophy is to make things public be default unless there is a good reason for it to not be public. The best example of this is there 2000 webpage company handbook which is available publicly.

  • Single Source of Truth: Gitlab encourages a single source of truth for everything (ideally public) so that everyone is on the same page and things are readily available for people.

  • Findability: A culture of documentation and transparency requires that all relevant things are documented and made available to everyone and then is easily findable and searchable. Gitlab encourages keeping stakeholders informed of changes and broadcasting important decisions so things are easily accessible.

  • Documenting the why’s: All key decisions are documented at Gitlab. But it’s equally important that the rationale for them is also documented, so new people in the future don’t have to wonder why a decision was made and so that people can look back on decisions without wondering why it was made. It thus helps build institutional memory.

While a culture of asynchronous communication, documentation and transparency is critical to all organizations, especially all-remote ones, Gitlab has definitely taken it a step further by making so much of the internal operations of their company public. I highly recommend perusing their handbook

The infrastructure needed to enable remote work

A lot of the future of remote work discussion has focused on the collaboration and productivity tools that enable remote work.

But an equally important part of it is the operational tools and products that help support a remote company.

Hiring and Payroll

The logistics of hiring and providing benefits to employees all over the globe from day 1 while complying with the myriad of local regulations is non-trivial.

Gitlab has set up legal entities in over 15 countries, and uses professional employer organizations to hire employees ~20-25 other countries. The incumbents in the PEO space are Safeguard and Global Upside but there have already been a few unicorn startups that are helping address this problem of hiring and benefits and payroll for a distributed workforce, including (started by a former Gitlab employee), Deel, and Papaya Global.

Here’s what Gitlab has to say on the logistics of their hiring approach:

We engage our team members in various ways, including through direct employment, PEOs, and as independent contractors. In the locations where we use PEOs, we contract with the PEO for it to serve as “Employer of Record” for team members engaged through the PEOs. Team members are employed by the PEO but provide services to GitLab. We also engage team members through a PEO self-employed model in certain jurisdictions where we contract with the PEO, which in turn contracts with individual team members as independent contractors

Operations and Security

Gitlab highlights the operational risks which are amplified by being all-remote.

As a remote-only company, we face a number of unique operational risks. For example, technologies in our team members’ homes may not be robust enough and could cause the networks, information systems, applications, and other tools available to team members and service providers to be limited, unreliable, or unsecure

On the security front, while some of the typical tools still work well, different approaches may be needed in some cases. Gitlab’s has been implementing the Zero Trust approach, which is still relatively new.

In our case, Zero Trust means that all devices trying to access an endpoint or asset within our GitLab environment will need to authenticate and be authorized. Because Zero Trust relies on dynamic, risk-based decisions, this also means that users must be authorized and validated: what department are they in, what role do they have, how sensitive is the data and the host that they are trying to access?

In addition, being all-remote does come with additional challenges in terms of operations (how do you ensure everyone gets equipment during onboarding, swag, gifts, etc.) and maintaining connectivity (virtual events, team bonding events). There have been a few products catering to the former spaces including Airbnb Experiences, Thriver, Boombox, Workbright and Snacknation.

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