SaaS 102 #43 How did Deel Reach 100 Million USD in ARR in Less Than 2 Years?

Deel is a SaaS company that was founded in 2018, and which provides global hiring, compliance, and payroll services to global companies.

Deel achieved 20x growth in 2020 and 12.5x growth in 2021. In April 2021, their annual recurring revenue (ARR) reached 100 million US dollars. These figures have made Deel one of the fastest growing SaaS companies .

After looking at Deel’s growth, I wanted to write about the following topics in this article:

1. What did Deel do right?

Understanding the answer to this question can help other SaaS companies avoid failure.

2. What other factors helped Deel to grow so fast?

Understanding the factors that helped Deel on their journey can help give other SaaS companies the opportunity to achieve fast, healthy growth.

What did Deel do right?

First, their product started out by solving the founders’ own pain points

Deel’s co-founders Alex Bouaziz and Shuo Wang had originally started their own businesses in Israel and China. They both found that when only hiring locally, candidates were limited and costs were comparatively high. So, they decided they wanted to hire globally.

In this process, they found that hiring globally wasn’t easy at all. In fact, it was difficult and time-consuming. The costs of understanding the law in different countries and regions, and of ensuring compliance, was very high. This helped them deeply understand the pain points faced by startup companies who wanted to recruit globally.

Experiencing these pain points directly made them decide to create a product which could help companies recruit globally with low risk, at high speed, and at low cost.

From my point of view, a very important factor that decides if a SaaS startup can succeed is whether the founders can genuinely appreciate the customers’ pain points.

The most optimal situation is:?

The founders faced these pain points directly, and found a method to resolve them. They then iterated that method into a standardized SaaS product, and released it to the market.

This is because if you have come across a pain point yourself, and you create a solution to address it, your chances of successfully creating a company are still only around 1%.

But if you start out without a pain point, and you have to both find a pain point and then find a solution to it, it’s as if you’re doing the work of starting a company twice. That way, your chance of success is around 1% × 1%, which equals 0.01%.

So for SaaS start-ups, I strongly recommend starting out with products which address pain points you have faced yourself. For more on this topic, you can read my previous article “What Kind of People Are Most Suitable for B2B SaaS? ”

Second, they focused on providing services customers needed, rather than software

Before Deel, both traditional recruitment software and traditional recruitment service providers only provided customers with recruitment-related services. They didn’t help customers shoulder legal liability and risk.

Deel, in contrast, has not only created a global hiring software tool. They have also registered business entities in more than 100 countries, in order to help take care of legal liability for their customers.

This fits with a point I have emphasized before. In Software as a Service, what is really important is not software but service.

What customers are really concerned with is not what technical methods you can use, but what services you can provide to help resolve their problems.

Third, they started with a specialized niche, and provided a standardized product and service that was as simple to start using as possible

Initially, Deel co-founders Alex Bouaziz and Shuo Wang planned to help companies manage employee performance reviews. Their plan was to help calculate employee performance scores, and automatically pay bonuses.

But this product was too confusing. Even though they worked extremely hard to sell the idea, very few business customers were interested. In their first two weeks, they didn’t even win one customer.

After that, they decided to change their thinking, and start out in compliance and payroll. They produced a user-friendly and standardized product: Deel. Customers could use Deel to complete payroll with just a click of a buttonwithsingle click of a button.

Cal.com CEO Peer Richelsen gave Deel this review on Twitter :

"the button "mass-pay" in @deel feels like cheating, it's so good.?pay your entire team (employees + contractors) with a single button”

And exactly because the product is standardized and user-friendly, customers can start using it quickly. This has enabled Deel to take advantage of opportunities for fast growth, and at the same time ensure a relatively high gross profit margin.

At most privately-owned SaaS companies, the gross profit margin is between 70% and 85%. A gross profit margin of above 75% is already considered healthy, yet Deel reports a gross profit margin of above 85% .

Fourth, they found metrics closely related to customer success, and charged according to those metrics

In my previous article “How to Set Pricing Models That Help You and Customers Succeed ,” I wrote about how pricing models should be bound to key metrics related to the customer’s business development. There are two benefits to this:

The first is that as a SaaS company’s customers grow their business, the SaaS company can grow their revenue alongside that growth.

The second is that this kind of pricing model can make everyone at the SaaS company think of every possible method to help their customers succeed.

Deel’s pricing model matches well with this concept. They charge according to how many employees their customers want to hire.

If customers can use Deel to meet their worldwide recruiting needs, while ensuring speed and compliance, those customers then have an opportunity to grow their business. And if their business grows, they will then need to hire more talented people globally.

What other factors helped Deel to grow so fast?

The things that Deel did right helped to increase their chances of succeeding as a SaaS company. But how did they manage to achieve such fast growth?

First, they followed the future trend of global hiring

In recent years, the technology, platforms, and infrastructure that allow people to work remotely have improved. This has given more and more companies the opportunity to look for the best employees globally, rather than only locally.

Let’s look at software engineers as an example. In 2021 , there were around 341,000 software engineers in Silicon Valley. Globally, there are around 24 million software engineers .

A company’s chances of finding the right software engineer are clearly higher if they have a pool of 24 million employees to choose from, rather than a pool of 341,000 employees. As well as that, the competition to hire talented people in Silicon Valley is fierce. The cost of hiring in Silicon Valley is almost always higher than the cost of hiring in other regions.

With these factors in place, global hiring has naturally become a trend of the future. And Deel has done very well in following this trend.

Second, the pandemic sped up the global recruitment trend

Deel was founded in 2018. In 2019, they completed their initial compliance and hiring product. In 2020, after the COVID-19 pandemic started, they started to see explosive growth. Companies who wanted to hire high-end talent in other countries and regions proactively sought out Deel. Those companies included some Fortune 1000 companies .

Because of the effect of the pandemic on the global recruitment trend, Deel were able to grow their ARR by 20x in 2020, and by 12.5x in 2021.

Third, they identified the absolute need for compliance in hiring

Global hiring is a future trend that was sped up further by the pandemic.?

But why do companies that want to hire internationally need to use Deel? Why can’t they complete the hiring and employment process themselves?

International recruiting has many legal and financial obstacles which need to be resolved. For example, companies may need to think about registering local business entities, sending compensation and benefits across borders, and resolving compliance issues in the countries and regions where they are hiring.

As legal and regulatory requirements mature across different countries and regions, we can anticipate that requirements for hiring will become more stringent in most regions.

For companies that want to hire globally, compliance is a challenge that needs to be dealt with effectively. Most companies don’t have the ability or resources to hire globally and ensure compliance with regulations as they stand currently, let alone in the face of regulation which is being continually updated and changed.

Ensuring compliance in global hiring is an absolute need, and one that Deel has captured very well. This has allowed Deel to quickly win many international companies as customers.

Fourth, provided a standardized product and service

Deel registers business entities and draws up hiring contracts according to the legal requirements of different regions. Once this is done, this set of business entities and contract templates can be reused for many different customers. This means that the service Deel provides is a relatively standardized one.

As they provide a user-friendly and standardized product and service, Deel can train sales and marketing staff, and onboard customers, faster. This is an advantage which has helped Deel to grasp the opportunities I’ve written about in this article, and achieve fast revenue growth.

Summary

Deel did the following things right, which helped them to succeed:

1. Their product started out by solving the founders’ own pain points.

2. They focused on providing services customers needed, rather than software.

3. They started with a specialized niche, and provided a standardized product and service that was as simple to start using as possible.

4. They found metrics closely related to customer success, and charged according to those metrics.

As well as that, Deel would not have been able to achieve such fast growth without the following factors in place:

1. They followed the future trend of global hiring.

2. The pandemic sped up the global recruitment trend.

3. They identified the absolute need for compliance in hiring.

4. They provided a standardized product and service.

Afterword

In the last few years there have been some very fast-growing SaaS companies. Yet behind the growth of each of these companies, the following factors have been in place:

• Working with future trends
• Being boosted by current trends
• Starting with a product that addresses the right problem
• High-quality product and services

Whether or not we are boosted by current trends isn’t something we can influence. So I would encourage SaaS companies to look at trends that will not change over the long term, as well as SaaS entrepreneurship principles.

For example, principles to follow include starting out with pain points you have experienced, focusing on providing services above software, and providing standardized products and services which are easy to start using.

If we can keep our feet on the ground and focus on providing quality products and services according to these principles, then even if it takes us a bit more time, we will reach our destination in the end.

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Teddy Chan is a serial entrepreneur with 20+ years of experience in SaaS and eCommerce. His latest venture is?AfterShip , a SaaS post-purchase experience platform that empowers eCommerce retailers like Wish, eBay, and Gymshark to improve their customer experience, drive sales, and increase brand loyalty.

SaaS 102 is a series of articles where I share my thoughts and experience with SaaS. My fundamental belief is that a great team with an average idea will always go further than an average team with a great idea. If you want to be part of this great and growing team, check out careers at AfterShip?here —I’m currently on the lookout for superstar sales talent.

Visit AfterShip’s homepage?here .

(Article translated by?Joseph O'Neill )