This Week in Startups - Overcoming SMB Roadblocks: Expert tips from Gusto's Josh Reeves | Episode 1988

Starting point is 00:00:00 You have to build a product that people love. That organic word of mouth and referral is still the biggest driver of top of funnel and leads to gusto. And that's because if you're serving smaller business, you're going to make less revenue per customer. So it can't just be a paid acquisition game. You have to have something that's super useful. People want to evangelize, you know, share on social, etc. And it has to be a key part of how you're creating, you know, more funnel and more top of funnel leads into your product. This Week in Startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sock to report fast.

Starting point is 00:00:41 Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. Open phone. Create business phone numbers for you and your team that work through an app on your smartphone or desktop. Twist listeners can get an extra. 20% off any plan for your first six months at openphone.com slash twist. And DevSquod. DevSquod helps startups design better products. If you need UI and UX expertise and don't want to hire an entire design team, head to devsquod.com slash startups and book a call. Mention that you're coming from Twist to get 10% off. Hello and welcome back to this week in startups.

Starting point is 00:01:22 My name is Alex at Alex over on Twitter. one of my favorite startup clusters in the entire world is the HR tech space. Now, I know it's not quite as headline grabbing as quantum computing or, I don't know, drone-based deliveries, but it's incredibly important and so large that it's actually built some of the largest and most valuable tech companies out there in the world and especially on the private markets. One of which is gusto, it's a unicorn worth nearly $10 billion. And today I have its co-founder and CEO Josh Reeves here on the pod. Josh, hi, thanks for coming. on? Great to be here, Alex. I'm excited. This is an inaugural, like, long-form episode for you. Thrilled to be here, tell more of our story and connect with your audience. Yeah. He's referring to the fact, this is my first long-form interview here for Twist. Normally, Jason does these, but we want you to do even more episodes, so I'm going to pick up the occasional one here and there. Now, before we get into Gusto, Josh, I have a couple of notes about your history. I know you were at Zazzle back in the day, but I hear you also were the CEO and co-founder of a company.

Starting point is 00:02:25 called Unrap, and that was sold back in 2010. I know nothing about it. I couldn't find much on the internet. So what was that, and why did you sell it? So, I mean, there's a bunch of things I could go through. I want to talk about Unwrap. I'll just add, if you want, to that background. I studied electrical engineering as my undergrad and master's. So hopefully we'll come back to how free electrical engineering alumni from Stanford got into the HR tech space. But, yeah, my journey was graduating, deciding not to do the PhD. I worked at an e-commerce company called Zazel for three years, my first time

Starting point is 00:02:58 as a product manager. And then it was in 2008 that I started a company with a friend. Facebook platform had just launched. This was when it was all web-centric and desktop-centric. So this is kind of still in the early, early days of mobile. You could build what were called

Starting point is 00:03:14 Canvas apps. So kind of third-party developers for the first time being able to build into the kind of Facebook e-commerce or ecosystem. brother. This is also what brought about companies like Zinga, if you remember back in the day. And so we were honestly just like trying to build stuff. I would say kind of a very different approach than Gesto. We had friends starting companies. We decided to go start dabbling. Ultimately, our products were things like bringing e-commerce products into Facebook. You could kind of build

Starting point is 00:03:43 a page with Zazel listed there or Etsy listed there, kind of more of a referral program type dynamic. And then we sold the company, like you said, there was a period of, you know, big fish eating small fish. We sold a company to a company called Context Optional. They got acquired by a company called A Fish in Frontier, who was then acquired by Adobe all in the span of 14 months. And so that was a little bit on that chapter. 14 months, were they all just running out of money like sequentially? How did that possibly come together so quickly? Well, I wasn't, again, running those bigger companies, you know, the beautiful.

Starting point is 00:04:20 part about that experience for me was it's when I first got exposure to running payroll for our small team, hiring some contractors, setting up state tax registration, doing health insurance. But I think what happened in the space is it just got pretty frothy. I think there was a bunch of M&A, Salesforce bought one of the companies in the space, Google bought, one of the companies. Again, a lot of people were kind of wondering, what is social, how will it work? and these were the companies that were at least in theory, you know, best in a position to help, you know,

Starting point is 00:04:50 bigger companies navigate that space. It's interesting to hear you talk about the early era of mobile and kind of a desktop focused web because that's still the context that I live in today. Like, I'm always on a multi-monitor setup, unless I'm like in the car, literally. But the world today seems to be so much more mobile first. I'm starting to feel almost left behind by the state of the web, if you will, because everyone now just wants to be on a smaller screen, and to me just feels like regression.

Starting point is 00:05:17 Like, we have these awesome desktop computers. Why would we not default to them? But I know that that's me sounding increasingly okay boomerish, but it's not that long ago that that still was the norm. I mean, 2010 is less than a decade and a half. It's just not that far back. I mean, there's just changes of foot on all dimensions, as you know, obviously, you know, wearables and lots of different types of devices,

Starting point is 00:05:40 but I'll just bring us back to small business for a second. The reality is small businesses, actually, most of them don't have computers and monitors, and a lot of them are on the go. And so part of what even enabled Gusto was mobile, because if you were pre-Mobile era, like, going to go install some software on your family computer when you get home and your kids playing a video game, it actually made sense to do stuff like payroll by hand on pen and paper. And when we started the company, like 40% of companies in the U.S. did payroll on pen and paper.

Starting point is 00:06:10 So we actually had a thesis that like mobile, cloud, paperless. These were the ingredients that made it possible for someone to now actually do things like payroll in a much more digital-friendly way. And obviously, some of our progress has been made possible by that transition. Yeah. I mean, other companies that came out of a similar idea, like the docu-science and so forth, like the idea of taking something literally off the paper and into, I guess, the internet has been a pretty successful business approach now for a very long time. But I want to double-click on S&Bs because I've been thinking a lot about the state of how small businesses approach the modern world because it's now very digital, very e-commerce-based. I mean, Gusto does everything, you know, through the cloud and so forth. And we saw the recent, called a catastrophe from a crowd strike that hit a lot of people, small companies, big companies, kind of up and down the thing.

Starting point is 00:07:02 And so you have a lot of S&B clients who have kind of depend on you to hold a lot of their data because it passes through your systems. And so I'm just kind of curious from like the CEO perspective, thinking about making sure that you don't let S&B data out. Has the CrowdStrike mess caused you guys to rethink any elements of, I don't know, like your cybersecurity posture as a business? So first off, CrowdStrike issue did not affect us or our customers, but we definitely had some gusties who were at airports and kind of got stuck waiting there for a period, which was unfortunate. But what I would say is from day one, like for us starting the company and kind of, were talking earlier about my prior startup, each of my co-founders had had prior startups. We actually, after having done those experiences, like wanted to tackle a problem that we could spend decades making better, like hopefully dedicate most of our professional life to.

Starting point is 00:07:49 So to get to the heart of your question, like, we had to from day one, given the product space we're in, be hyper-obsessed with how we secure data, how we secure all the different private information. Like, when a company sets up on gusto, they're giving us their EIN, their SSN, their bank number, their routing number, and then, you know, 10 days later, we're debuting thousands of dollars from that account to go process payroll, pay their taxes, pay their employees. So even when we were like five employees, this was again back in like 2012 time frame, there's a period in at least Silicon Valley where everyone wanted to put beta on stuff,

Starting point is 00:08:24 and you were kind of like proud about that. Oh yeah, and like Gmail was in beta for like 10 years. Yeah, like that almost was a positive thing at some point. Like we had none of that with Gusto. Like it wasn't a page where you have like the whole team listed. like, no, no, this is like a system that works that's reliable, that's accurate, and it needs to show up that way every single step of the way, even when we were just five people. Now that we're 2,600 strong, I would say we're even better at that, but it's always been important

Starting point is 00:08:48 for our business. Yeah, well, actually, just a, well, I was prepping for our chat today. I was going through the public, augusto cybersecurity, like page discussing how you guys keep things safe, because I was thinking about exactly what you said, if you're working with these companies, and they're giving you their kind of corporate DNA and access to their blood veins, their cash accounts. I mean, you can't afford to make a mistake. All that's to say that I'm very glad that I'm not in your shoes, because it sounds like in today's cybersecurity climate, it's going to be hard to always be right and not have any mistakes and not have to go apologize to people.

Starting point is 00:09:18 It's just data is an asset and it feels slightly like a liability in today's business climate just because people are getting compromised. And I wonder if we're ever going to reach a state in which that's not a concern that people have to worry about kind of year in, year out. I don't, I don't know if that's ever possible, but it would be nice to get there at some point. I mean, if you play it a little bit of the theoretical, right, the only way to fully not have anything be dependent on someone else is to do everything yourself. And like, at least in our space, again, you know, we do many products now. We'll probably talk about that in a bit.

Starting point is 00:09:51 But like, when we started the company, 40% of companies in the U.S. did payroll by hand. And like, if that was an easy to use experience, that'd be wonderful. like almost 30% of those companies in the U.S. that basically made mistakes, like got fined and had problems every year to government. So, you know, I would say the balance here is you want to work with a system that is obsessed with security. And then, you know, what I say to the team is like,

Starting point is 00:10:19 when we process now, like over half a trillion dollars through gusto, right? Like, that's an incredible responsibility. And, but that's also a sign of like us building something useful that people appreciate and care about. and then we got to do it right. What's the time frame on the half trillion dollars? Is that yearly? Is that monthly?

Starting point is 00:10:36 I don't have a good vibe for how quickly you're reaching that number. Well, we're growing quickly, as you know, and then because once you set up with a product like Gesto, if we do our job right, which we do, then people stay on the product. So there's, you know, several hundred billion a year. And on top of that, the cumulative gets even larger. Oh, yeah. No, I was just going back through some of your releases. and you guys were talking about doing tens of billions of dollars of payroll each year back in, I think, February of 24.

Starting point is 00:11:04 So just hear you say half a trillion. I was like, wow, seems like quite a lot of growth. But let's start there. So back in June of 2023, you guys dropped a pretty significant milestone that you had at that point, $500 million in trailing revenue. So not a run rate, but a trailing number, the most conservative metric possible. And I realized that it's been 13 months since we had that conversation. and the economy's been interesting, I think it's fair to say. So I'm curious, how has the last year been for Gusto just from the straight business perspective?

Starting point is 00:11:38 Yeah, I mean, we're growing quickly. I'm not going to share as a private company getting into like the entire kind of quarter by quarter. I know you would find it very interesting, Alex, but we, I would say, are more focused on like what the next several years look like. So I think inside the company we talk a lot about is how to be compound because what I can share, you look at our customer account, for example, like we're at about 5% of the employers in America, right? So that's pretty small relative to the opportunity. You look at the number of new employers started every year, and we're well north of 10%.

Starting point is 00:12:10 That's still really small relative to our potential. So what we're excited about is, you know, creating more awareness about gusto, solving problems for the customer, and then obviously doing more for them over time. So on the 10% number, is that all LLC's C-Corps, S-Corps, Like any incorporation in the U.S., you're working with 10% of the new ones?

Starting point is 00:12:32 Well, more than 10. So we focus on employers. So there's, give or take, every year, actually millions of new businesses formed. So I think the stat for last year is around 5 million new businesses formed. But there's obviously fewer employers created every year. So there's about 6 million employers in America. And every year, give or take, and this is what's pretty interesting. There can be some impact from macro.

Starting point is 00:12:55 You talked earlier about, you know, obviously the economy can have an impact on broad-based kind of business creation, hiring trends, etc. But even at low points of the economic cycle over the last several decades, you still have, you know, three, 400,000 new employers every year. And at the high points of those economic cycles, you have five, 600,000 new employers. So several hundred thousand employers regardless. And that's kind of really special. We think that's part of like what makes the economy strong is that people starting new businesses, if something doesn't succeed, try the next business. And the stat that we also obsess over is

Starting point is 00:13:29 only about half of those new employers make it to year five historically. We hope through our work we actually start moving that needle and help companies survive longer. Listen, a strong sales team can make all the difference for a B2 startup. But if you're going to hire sharks, you need to let them hunt and you can't slow them down with compliance hurdles like SOC2. What is SOC2? Well, any company that stores customer data in the cloud

Starting point is 00:13:53 needs to be SOC2 compliant. If you don't have your sock too tight, your sales team can't close major deals. It's that simple. But thankfully, Vanta makes it really easy to get and renew your SOC2 compliance. On average, Vanta customers are compliant in just two to four weeks.

Starting point is 00:14:07 Without Vanta, it takes three to five months. Vanta can save you hundreds of hours of work and up to 85% on compliance costs. And Vanta does more than just SOC2. They also automate up to 90% compliance for GDPR, HIPAA, and more. So here's your call to action. Stop slowing your sales team down

Starting point is 00:14:23 and use Vanta. Get $1,000 off at vanta.com slash twist. That's vanta.com slash twist for $1,000 off your sock, too. So I think a lot about kind of North Star metrics for companies. And, you know, of course, we talk a lot about revenue, employee account, customer account, and so forth. But I really like the idea of measuring Gusto's success, kind of as what fraction of new employers are using it. And if you're over 10% now, I mean, how long does it take you to reach 20%, at which point it would be one in five? we're making progress, Alex, is the quick of it. You know, we obviously internally have lots of specific metrics and goals that we set.

Starting point is 00:14:58 I mean, what I can share more is, again, a backdrop here is this is not a space that we entirely invented. You have other companies out there. And when you look at all those incumbents added up, it's about 50% market share. So there's still a huge percentage of companies in the U.S., like back to the topic we had previously doing this on pen and paper. And so that's kind of what we obsess over, like small business. a lot of technologists, entrepreneurs,

Starting point is 00:15:21 they get really excited about serving large companies, enterprise, we've met many B2B SaaS companies that are all about scaling up to like the million dollar, five million dollar contract. What I think is cool is that there's more and more companies out there like Shopify and Square and toast and,

Starting point is 00:15:37 you know, obviously into it as kind of the original one and us included now that like really, really care about bringing great technology to small and medium-sized business. And in that segment, it's a lot of greenfield, right? It's a lot of folks that were basically

Starting point is 00:15:49 doing it manually before and now are adopting cloud-based systems for the first time. If we had this chat a week earlier, I wouldn't have talked to the CEO of Hunters, which does cybersecurity for SMBs. And I was talking to him, I was very curious about how his company approaches the S&B market, because it's famously high churn. Companies die, like you mentioned earlier, or they just round enough money or just cut back on services. They're often difficult clients. But what I learned from him is that they work a lot with managed service providers or MSPs, and that essentially that's going to connect to one company that then has lots

Starting point is 00:16:21 of SMEs on the other side. And he said, those are a bit more SaaS-like and they're a bit more stable and so forth. And I was thinking about Gusto and your work with embedded payroll, which you launched back in, correct me if I'm wrong, 2021. Yeah. Okay, cool. And I was someone that worked behind the scenes got started way before that, but that was only first announced it. Yeah, I remember

Starting point is 00:16:42 that conversation, but I was curious if adding partners on the Gusto embedded payroll site is analogous to perhaps Huntress working with MSPs on getting their service out to more SMBs, essentially aggregating demand to single points that make it easier for you guys to scale, I suppose. So actually, there's three different parts of our kind of main go-to-market Alex, and you just brought up embedded.

Starting point is 00:17:07 The thing that's more analogous is actually our gusto pro-Gusto accounting channel program. So let me talk about that a little bit and then we can come back to direct and hopefully that's helpful to any entrepreneurs out there who, were looking to build, you know, SaaS products for S&B. So it's actually back in 2013 that we went live with our Gusto accounting program. So today, over 17,000 accounting and bookkeeping firms are a part of the Gusto ecosystem. And the way that looks is these folks join our platform and then they add their clients directly

Starting point is 00:17:38 onto Gusto. So one accounting firm might add 10, 20, 50, 100 small businesses onto gusto. And so that's what's, I think, analogous to the example you gave. And so that's been a really vibrant part of our go-to-market. You know, what helped us, I guess, with having that conversation, because I think a lot of folks would, in theory, love to have channels like that, and it's obviously been a strength of ours, is you have to have a product that makes sense for that partner

Starting point is 00:18:03 to bring up and talk about with their client. And in our case, you know, payroll is what we started building from day one. It's the least optional part of the stack. The good thing for the accountant segment was, it was actually something a lot of times they were forced to do themselves by hand for their clients as just a cost of like keeping that client.

Starting point is 00:18:22 So when I said manual, like a lot of times it wasn't just the business owner doing payroll manually. It was the accounting firm or bookkeeper helping the business owner doing it manually. So when we started talking with them and said, hey, we can bring you a system that actually will save you a ton of time.

Starting point is 00:18:35 You can get all the credit. Like say you brought this great product to the client. It'll build a tighter relationship between you and them. It actually gives the accounting firm the chance to go move up the stack kind of do more higher value-added services. It was music to their ears, and again, beneficial to us

Starting point is 00:18:49 in terms of creating more awareness and adding more customers to our platform. Yeah. Okay, so then on the embedded side, because I thought that was going to be a good fit here, but it seems like I missed the mark a little bit. Embedded then is a way to let other companies kind of use Gusto technology inside of their service. So I suppose looking at the direct, the embedded,

Starting point is 00:19:07 and then also the accounting partners, which is growing the fastest right now inside of Gusto. I'll are growing very, very quickly. I'll just give your listeners a little bit of context. You can have a favorite child, by the way. I know everyone says, I know all their children the same, but... I have four children, Alex.

Starting point is 00:19:24 I mean, literally, I think you might... That's not a figurative thing. We have four kids, five and under. And they're all my favorites, frankly. But yeah, Gusto Embedded for us is a chance to help other small business ecosystems. Like, you know, Chase, for example, has a lot of small businesses. You have a bunch of verticals, players out there that have their, you know, business in a box solution. And so for us,

Starting point is 00:19:47 we really obsess over what's best for that small business and customer. And when we realized that all these partners had these small business customer bases, you know, they were partnering with Gusto as kind of a referral relationship. What they really wanted was to have native payroll inside their product, but they did not want to build it from scratch. And that was basically the insight that led to Gusto embedded. So you are right. Like it does give us in terms of how we do customer acquisition once the partner is set up, once they've deployed the payroll product powered by Gusto, then it really is them driving adoption, awareness, and attach. And for us, you know, it is scaling nicely in terms of then, you know, thousands of businesses being

Starting point is 00:20:29 added through that avenue. And it's a much higher touch relationship, right? Like going and signing a partnership like that is the definition of like enterprise sales, very high touch, kind of C-suite to C-suite engagement. But I'll also highlight on the direct front, like, that's been our bread and butter from the beginning. And like, I'm confident and excited that that direct small business focused on new employer motion will get us to a million plus SMBs in the coming years. And we haven't talked about that too much. But the key for that kind of go-to-market to work is actually, you know, proving out. It's always a big segment in SMB or a small business. But you have to have good CAAC payback. You have to have good unit economics. You have to have good gross margin.

Starting point is 00:21:14 And if you can execute that well and prove, like right through the net dollar retention, through your cohort performance, they're like, yes, companies join, some will shut down, but others grow bigger. And they also might use more of your product suite. You know, then you can actually have a great business in that segment. And again, it's not just us. Several other companies, I think, have proven you can have a great, a great business in small bizland. So if you're selling to SMBs and you're doing it via a direct channel, putting the side of the other things, so long as you have a multi- product setup such that you can have a relatively strong long-term net dollar retention

Starting point is 00:21:45 for companies that survive. You can afford to have kind of higher gross turn from SMBs and offsets because the other ones are growing so quickly. That actually makes a lot of sense to me. But given that, why- There's one more key ingredient. There's one more big key ingredient. I just, I kind of skipped through really fast.

Starting point is 00:22:01 It's like, you have to build a product that people love because that organic word of mouth and referral is still the biggest driver of top of fun. and leads to gusto. And that's because if you're serving smaller business, you're going to make less revenue per customer. So it can't just be a paid acquisition game. You have to have something that's super useful. People want to evangelize, you know,

Starting point is 00:22:22 share on social, etc. And it has to be a key part of how you're creating, you know, more funnel and more top of funnel leads into your product. If you use multiple devices and apps to run your business, you need open phone. Open phone simplifies your communications with one simple app. An open phone has rethought what a modern business phone can be. What's magical about open phone is that it works through a simple, elegant app right on your

Starting point is 00:22:46 existing phone or you can even use it on your desktop. I know because we use it here at launch and our sales team loves it. And you know what? Those phone numbers, those discussions, all those text messages, we need those to be on launch phone numbers. We don't want those on people's personal phones where if they leave the company, it's distracting, it's annoying to your sales team as but one example. and we love having a shared number for customer support as well. We do a little round robin where different people can pick up the one phone number. So customers have one number, but we can have that phone call go to multiple people on the team. So we, you know, can just have somebody pick up the phone quicker. It's that simple. Answering the phone quickly is a best practice and it makes people love your product or service. Open phone is already super affordable at just $13 a month. My lord, that's affordable. But Twitch listeners can get an extra 20% off.

Starting point is 00:23:37 for any plan. The first six months, that's incredibly generous. Just head over to openphone.com slash twist. And what if you have an existing number with another service that you hate? Well, open phone will port them over at no extra cost, easy, peasy, lemon squeezy. So head over to openphone.com slash twist and get a free trial and get 20% off. But that sounds, that sounds doable. And the way that I've heard VCs and other founders describe SMB focused tech companies is, it's impossible, but you're the second CEO I've talked to in a row who has pretty positive things to say about selling to this particular company demographic or cohort. Why is there the dissonance between your kind of like lived experience and then the common wisdom, if you will, out there in the market? Because it feels pretty, pretty far apart from one another.

Starting point is 00:24:23 I mean, I think probably in this is, you know, all opinion, like, is it harder than the like enterprise kind of SaaS playbook? It probably is. And part of that is because for a lot of products, like SMB probably isn't a viable segment to pursue. One of the benefits of payroll, for example, and there's other products like it, is that everyone needs it. Right. So like anytime you start carving the market up to like, hey, only a small percentage might need it, your life gets a lot harder. Because small, medium-sized business is not one segment. You have geographic diversity.

Starting point is 00:24:54 You have industry diversity. And so you have to have the right set of products that are really, really widely needed, as, you know, vitamins, but medicine. Like if I used to say when I started the company and I'll say it now, I've said it a lot. Like, if you don't pay someone, they quit, right? Full stop. Pretty simple statement. So what we help solve is not an optional thing. When our customers set up and use gusto, like it has to work and it has to be something that gets done right. And like if they don't use us, like their employee isn't going to get paid. So I think that was a big, big, like, enabler. And then you have to be able to execute.

Starting point is 00:25:30 you know, once you have one product scaling and succeeding, you know, building out additional product lines. And so again, I think, you know, pros and cons to every segment, but that's some of the complexity. If you overcome it for small business, it can be an amazing, amazing segment to serve. So on the expanding the number of products you guys offer, Gusto has expanded over time. You guys now do some HRic onboarding and you do benefits. And I know you guys had to deal with remote to do international contractors. And it's been pretty accretive. I'd on the product side for a very long time now. But one thing that I've also heard a lot lately is,

Starting point is 00:26:05 you know, founders have to focus. They need to be super dedicated to this niche or whatever their vision is. And so I'm curious, how do you, to balance the desire to expand into doing more stuff for your existing and future customers, but also not losing a grip on what you do at your core and not losing kind of focus on the stuff that's made you where you are today? Yeah, I think it comes down to like the definition of what is core, right?

Starting point is 00:26:29 So, like, other things can mean anything. Like, is Gusto going to start building satellites or rockets? No. I hope so. Oh, that's definitely. I'm sorry to burst your bubble, but that's not in our plans. You know, we have a lot of opinions on, like, how we can go achieve our kind of full potential.

Starting point is 00:26:46 We have, again, a point of view on, like, how the employer-employee relationship evolves, how the employer journey evolves and how the employee journey evolves. And, like, we just really have, I guess, a strong conviction on, like, how the future could look very different than the present, but then it becomes sequencing. Like, what do we do now versus what do we do next? And you have to couple that. I guess my advice would be you can get cut up in strategy land, I think, sometimes too much, with concrete customer feedback. Like, the biggest way that we prioritize additional product lines to launch to our customers is what they're asking us to go help with. And when we are building out something,

Starting point is 00:27:23 right, and it's sometimes either first party, and I'll talk about like health benefits as an example, which is the first party, like we built that ourselves. There's also, obviously, in some cases, a third party solution you can use, which we do for 401K, for example. But the biggest thing is having it be something that customers are asking for, and then there has to be a way you can prove that there's a better together dimension to it. So with health benefits, like we had employees and employers on Gusto getting paid using payroll, and then they were setting up health insurance, right?

Starting point is 00:27:54 We're a broker today, so we're not the health carrier, but all the information you need to go do that enrollment, right, to submit the, know your name, your address, you know, who's in your family, all of that information sits very much in payroll already. So there's right off the bat just an efficiency from having like one place to go update stuff and not have to go enter it into multiple systems. And then second, as changes happen, as someone joins and leaves the company, as someone has a kid, etc. Like, again, just one place to go update that information, streamline and simplify. Just one example of how that better together thesis has to be there.

Starting point is 00:28:28 And if you can prove that, then as you launch these additional products, the key in our space, at least, is you want to keep the product staying as simple and easy to use as possible, even while it's growing more powerful. And that can be really, really tricky, right? It's easy in the two-by-two to make a product more powerful and more complicated. But how do you make it more powerful and keep it simple is where we spend a lot of time and obsession? Well, on that point, I mean, the most powerful and worst software in the world is concur,

Starting point is 00:28:55 which is, I think from the corporate perspective, amazing, because you can have it set up with any rules you want. But if you try to actually use it as an employee, it makes you want to physically die. So, yes, there is a tradeoff there. Have you ever looked at a new gusto service or product and thought yourself, there's no way we can ship this? It's too complex and, like, pulled it back and forced a reduction in,

Starting point is 00:29:16 I don't know, UI, busyness or whatever the vector there is. Well, we definitely iterate, but like what I would say is, first off, our goal is to scope something pretty narrow, pretty small to start. I mean, I can even case study payroll. When we went live in 2012, December of 2012, you know, it was a product in only for California-based companies that only if you had never paid someone, so new employers, only if they're fully salaried and full-time, and like that's who we could help. Now, you know, within the next 12 months, we expanded to other employment types and obviously being able to migrate from an existing provider.

Starting point is 00:29:56 But like a key part of our, at least our approach to product development is how do you get to that minimum lovable product? That's kind of the terminology we use inside Gusto. Like, because if there's a thesis we're trying to prove around, hey, there's a pain point. Customers tell us they're frustrated with something. They want us to help solve it.

Starting point is 00:30:11 Like, how do we get to the kernel of actually us solving it and making it useful? And then we can layer in all the additional features and functionality over time. But that iteration is really, really important. I want you to double click on MLP, because of course, MVP is a very standard bit of Silicon Valley Arcana, minimum viable product. People have different definitions of that, to be clear. Minimum lovable product. Tell me how you

Starting point is 00:30:33 define that internally. Yeah. So for us, I mean, the reason why we have that framing and how we ultimately then, how it shows up in our business model, we kind of talked a little bit earlier. But like with small business, these are, first off, really, really busy people, right? Like, they don't have large departments or staffs. They're kind of wearing 20 hats is our mental model. and like I used to say Gusto could take two of those 20 hats off their head. Now I say we take, you know, 10 of those 20 hats off their head. But like they have to have something that's easy, intuitive, simple to use. And so that's part of why scoping and simplifying matters so much.

Starting point is 00:31:06 That's the minimum piece of it. And then lovable, you know, it's, I think, easy in product software land to kind of build incremental features and functionality. Like for us to both stand out as a, you know, disruptor to the incumbents and for us to live into, you know, just our potential, it has to be something that when you use it or, you know, engage with it, you go, wow, this makes my life so much easier, simpler. I never thought it could be this fast or this easy. And that's the lovable piece. It doesn't have to be comprehensive yet. It's not to check every single checkbox, right? But if you get that moment of someone going,

Starting point is 00:31:42 wow, I'm so grateful. Like, thank you. This is amazing. I can't, like, I can't imagine what I did before. I forget what I did before. I'm going to use this now. This is what I'm going to use going to use going forward and I'm going to tell my friends about it. That's the lovable piece that we find really important. And then again, there's the iteration to kind of keep adding additional functionality as needed. But it's what's key to our whole growth model. In small business land, you have to build products people love. And I actually like that. I would argue it would be great if in every segment you had to build products people love because I would create a little more accountability. The most love products are the most successful companies. That's not always the case in other segments,

Starting point is 00:32:16 but in small business land, that's a necessity. In fact, I think it's actually kind of the inverse because if you think about giants like, and Josh is not saying this, I am. So if there's any hate mail, let it come my way. But like, you know, your SAPs, your oracles, these are not companies that are famous for being cuddly with their customers, you might say, or having user interfaces that are modern and slick and easy to grasp, if that's fair.

Starting point is 00:32:38 So I agree with you, but I think the S&Bs then almost, they almost sound a little bit more like consumers in the way we think of like B to C. Like it has to be approachable, easy. It has to have an element of virality to it. So is selling to SMBs as a business, kind of like the B2B equivalent of B2C in that case? I mean, I think it shows up a lot in talent. So when I think about the team and the talent, how much we wait, things like UX, UI, is that just the role of our design teams, or does everyone involved in product

Starting point is 00:33:05 development, have to have empathy, connect to the customer, meet with them, interview with them? Like we do, you know, sessions with our leadership team across, down to every part of the organization to make sure that that customer proximity is very, very clear. and evident. I'm not sure that matters quite as much in an enterprise setting. But I have an anecdote I can share, maybe to add to your commentary, and we'll see, hopefully this doesn't drive too much flame, but, you know, it is what it is. It's my opinion. But I, when I was an undergrad at Stanford, I kind of was just a very curious person, I'm still a curious person, but for some reason I was

Starting point is 00:33:40 meeting with, like, the registrar and, like, understanding better, like, what software stack they use. And so I was, like, talking to the person there about how they were migrating at that point, this is, you know, 20 years ago plus, from like a bunch of native homegrown, disparate siloed products to PeopleSoft, if you remember, product that no longer exists. So maybe that's a little bit simpler.

Starting point is 00:34:00 And they said that it's going to take, it's going to take two years to deploy, and by year four, it'll be ROI positive, was like the theory. And I remember thinking, I'm like a 19-year-old kid. I never,

Starting point is 00:34:10 I built software for fun, like not in a business context, but I just didn't like compute from me. I'm like, why would software take two years to deploy? and why would it not be actually helping until year four somehow? And I think there's just, you know, here's a little bit of my diatribe, like software. I love software.

Starting point is 00:34:28 Software is there in its ideal form to give people superpowers, right? Like, that's what software can and should be. And when instead it's like people learning how to use the software, like when I see books on how to use software or people, you know, God bless them like on LinkedIn saying I'm amazing at using this thing and I took this certification class, like it bothers me. because software should just give you superpowers, make your life better, easier, and a lot of software doesn't do that, frankly.

Starting point is 00:34:55 So, you know, we're doing what we can at gusto, but I hope others, I mean, there's a lot of other companies, obviously, that believe in this philosophy too. And yes, you could argue, it's a little bit of like consumer tech philosophy because in consumer, if you don't build a great product, nothing works.

Starting point is 00:35:07 No one will use it, you don't grow at all. But, like, why doesn't that same mindset exist in enterprise? Like, I think it's definitely been key to our success, and I would argue more companies approaching it that way, you know, will also benefit. Hey, startups, does your product need a facelift? Well, a lot of companies get up and running quickly, and that's part of the idea here in Silicon Valley and in startup land.

Starting point is 00:35:26 But, hey, the design suffers. Maybe you got flawed UI, the UX decisions were made in a rush, and that can be the difference between product market fit and not getting product market fit, or weak product market fit, medium product market fit, or strong product market fit. Well, here's the good news. Dev Squad's asynchronous design squad is here to help you, Our long-term partner, Def Squad, built this service specifically for startups like ours.

Starting point is 00:35:52 That means you don't have to worry about winging it yourself, and you don't have to buy a subscription to an unlimited design service and have them under-delivered. No, thanks to Def Squad, you can buy hours from expert designers who will handle everything for you, from UX audits to very sophisticated UI design, and the result is going to be an improved user experience and ultimately happier customers in a more successful business. So if you need to map your user flows, maybe you need to craft some interactive prototypes, or maybe you need to conduct a rigorous usability test, DevSquad has you covered. So if you are ready to transform your startup's UI without the painful overhead of having to hire an in-house design team, just head to

Starting point is 00:36:37 devsquod.com slash startups and book a call. That's right, devsquod.com slash startups. Mention you heard about the service here on this week in startups, you get 10% of them. I mean, just answer your question, you're selling in the direct model. If I'm making Alex Inc. as S&B and I have two employees and I want to use gusto, you're selling to me, the person who owns

Starting point is 00:36:57 the company, but if you sell an enterprise contract to he will pack an enterprise for I don't know, 10,000 Slack seats, the actual end user is never going to be in that conversation. They're not going to be in the implementation, the timing, the selection, the product, nothing. And so they're never going to have a say.

Starting point is 00:37:13 That's why I think you can get away with lackluster products, but it sounds like because you guys have to go out there and sell to individual business owners, I mean, it has to be good. And that's where the virality and kind of people are willing to talk about your product comes into play because if it's not good, not easy to use, they're going to go tell their friends, I tried Gusto, I didn't like it. You shouldn't use it. So there's like there can be a negative morality element to go in direct to S&Bs as well.

Starting point is 00:37:38 I mean, I call that accountability. And I think it's actually a good thing, right? And if you have an aligned business model, right, like it comes down to business model, too. We haven't talked too much about a business model, but like our business model is pretty straightforward. A lot of companies have it. It's a subscription-based business model, you know, based on how many employees are in the company, you know, getting paid by Gusto, for example, and also how many different products from Gusto that company is using, whether they've adopted benefits or whether they've adopted time tracking or 4-1K, etc.

Starting point is 00:38:08 that's how we basically make more or less revenue from that company. And it's a monthly billing process. So if we do our job right, they're evangelizing, they're trusting us more as they have more needs. They use more of gusto. And if we do our job poorly, you know, they're frustrated and they might churn. And that's a feedback loop that we obsess over, right? There's the unpreventable churn and the preventable churn.

Starting point is 00:38:31 Unpreventable is folks going out of business. Long term, we want to move that needle. But the preventable churn is where we can be obsessed. We've had great stats on that. It goes to historically. We want to keep it that way. But that's another good feedback loop if you're serving a small business to make sure you're building a healthy long-term company.

Starting point is 00:38:46 So I'm kind of curious, how much money or maybe the right phrase is like how much of your sales and marketing budget goes to essentially talking to S&Bs, evangelizing to them, and maybe even helping them evangelize for you. Because I think this is a bigger component of how you approach the market than I thought. And so I'd love to learn more about how you guys think about that from or kind of a top-level gusto perspective. Yeah, a little bit on like go-to-market and like top of funnel. Yeah.

Starting point is 00:39:14 Yeah, so we, I mean, I'll go a little bit through history because I know there's probably some listeners that are earlier-stage companies. So maybe one thing that's interesting to share, when we went live in December 2012, like we knew we had to prove out that we had built a good useful product, not just because like that's what we wanted to and that's like how we'd think of like good software working, but it was necessary for the business model because, you know,

Starting point is 00:39:36 we knew that that organic is what, you know, you know what's called, but most people call, like, this category of word of mouth referral, content, etc., organic growth, had to be kind of a key, key component to our go-to-market. And so we actually didn't do any paid acquisition for the first 12 months or so. And that's because it's actually, I think, quite easy when you're just early launching a product to start throwing money at growth. And, like, it's very easy to turn $5 into $1, right? Like, really simple, really easy. anyone can do it, trust me. And it's, you know, maybe sometimes, you know, useful on the edge case, but if it becomes a primary way of growing, that to me is gambling, not company building, right? It's

Starting point is 00:40:16 kind of the gambling process of like having either bad gross margin or bad cack in terms of customer acquisition cost and like thinking somehow at scale, you can fix it. Like, especially in our business and small business land and SaaS, like you want to have for anything that you're going to be scaling a really good unit economics. And so, you know, the kernel starts with organic, but then you can programatize stuff, right? So like content, for example, like content like us producing blog posts, articles, doing bylines.

Starting point is 00:40:44 You know, it turns out, not surprisingly, small businesses are on their own and they're desperate for help and they're Googling all the time for things they need help with. And like, if you can create content that helps them, first that's just useful to them.

Starting point is 00:40:56 But second, it creates awareness for your brand, you know, gusto or at that point. You know, Zen payroll was at the top of the page. So content was an important piece of it. And then after a year, we started layering in paid acquisition. So that's things like buying keywords on Google, you know, doing various forms of like ad retargeting or social advertising. And even in the last year or two, we've only started, you know, 10 plus years in dabbling in some more brand-centric work.

Starting point is 00:41:19 So we think of it as a portfolio. There's no silver bullet. Maybe in enterprise land, there are silver bullets in terms of like going to the right conference, having the right salesperson, closing the five deals and you're good. Like in our world, it's a portfolio of activities that basically drive more awareness. And then once someone is, you know, in our experience, you know, giving them the best possible onboarding setup conversion moments so they can then start, you know, using the product benefiting from it and then paying us is something that a separate team inside Gusto obsesses over. So on the, on the blogging point and the organic point, the reason why I kicked off with a question about cybersecurity is I was reading the Gusto blog, again,

Starting point is 00:41:55 prepping for our chat today. And there was a piece by a woman who was discussing, you know, how to respond to the CrowdSark issue if you are in S&B. And it hit me that, you know, a lot of SMEs probably were just going, does this matter to me? Does this impact me? Should I be afraid? And that's kind of where that came to be. But the organic side of things back when Gusto was starting off, back in the, I don't

Starting point is 00:42:15 know, 2012 or 2013s was different because search was different. And I think reaching an audience via organic channels was just much easier, be it for a news publication or, you know, a software company. And it's definitely different now. So if you were starting, you know, Gusto today, right, just putting everything else aside, would you have a similar approach of go to market or would there need to be a different set of steps given how much the landscape online has changed since you guys started? Yeah, I think I mean, I would definitely start, I think with like build something useful,

Starting point is 00:42:49 solve the pain point, have customers love it. I think that has to be the nucleus. You know, in terms of the different portfolio of programs, I guess, like getting to having multiple irons in the fire, I think, I mean, same approach. Would I do sequencing different, perhaps? You know, there's still a lot of folks out there that are, like, confused, you know, frustrated. Like, this is a big part of our philosophy and serving small business. Like, these are people that started companies for generally, like, very noble reasons. Like, they wanted to go help their community. They wanted to create a livelihood for their family. Like, no one made them generally

Starting point is 00:43:23 start a small business. Like, it's a labor of love, right? Like, my co-founders grew up, their parents being small business owners. My mother-in-law, like, help do payroll for small businesses. Anyone here probably listening has either a family or a friend, I guarantee you, or someone you see when you go to the coffee shop nearby that is a small business. And so one of the big philosophies we had at Gusto,

Starting point is 00:43:44 this is kind of getting perhaps part to your question, is like this cannot be just a transactional tool, right? Like if software is there to give you superpowers, like how should we ultimately, what's our relationship with you as Gusto? And the framing we keep always coming back to is we're here as a partner, and we should be ultimately an opinionated partner. Like, if you think about the analogy, go to a supermarket,

Starting point is 00:44:05 is our job to show you, like, the right row or aisle to go to and then give you, like, 20 types of ketchup to choose? That's not actually helpful. Maybe it's better than, like, nothing, but it's still overwhelming to have so many choices. And, like, if any time someone's using gusto and has to go Google what to go do, that's a failure on our part. Like, our goal is to actually surface proactively these different pieces of context and automate something so that the outcome is it is easier to be an entrepreneur.

Starting point is 00:44:31 If I think about one big goal we have as a company, it's how do we enable more entrepreneurship, not just in the U.S., but also around the world eventually. Yeah. We'll get back to that international point in a second, but I have to push back on your 20 types of ketchup thing because I recently went to the local bodega and they had like 48 different types of Red Bull. And I thought it was a triumph of capitalism that I can sit there and drink, you know, like summer only flavors of my favorite way to call myself.

Starting point is 00:44:55 and, you know, I think under a non-capitalist society, there'll be one energy drink. So I think 20 types of ketchup is a win. I don't think I want to try them all, but I'm glad that they exist because, God, I love choice. And I'm using that as a segue to talk about competition because you guys have scaled alongside some other companies in your loose space, your ripplings, your remotes, your deals. And I know there's bits of overlap that are different with each company. but one thing that struck me is just how big of a market you're growing inside of because it seems that there's a lot of there's several players that you could call competitors to gusto and you're all growing pretty quickly and I'm just kind of curious what the lesson

Starting point is 00:45:38 there is. Is it just that markets are bigger than people might expect until they get into them? Is it that the digital transformation has now come to fruition and therefore there's just almost like an endless green field of companies to sell into both S&B and midmarket? I'm just shocked that you're doing as well as you are and other companies that are competing with you are as well. So how do you think about the size of the market? Yeah, I mean, I think I'll share in the context, Augusto and the market we're in, but there's probably some lessons here for entrepreneurs thinking of other markets. Yeah.

Starting point is 00:46:08 Like, you know, people talk about Tam and market size. Like, you know, I would just argue that the space we're in is one of the foundational kind of segments of like how society functions. What do I mean by that? So I'm making a big assumption that, you know, capitalism is the framework for how, you know, an economy functions. In a capitalist structure, you have currency, you have money, you have the concept of work, you have government that needs to be funded. You have the concept of taxes, right? Just like really building block centric here, starting very basic.

Starting point is 00:46:40 The basic Lego is the bottom, yeah. Right? Like the basic building blocks here are like people working, right? Then they have to get paid something in some form. they have to then be able to use the thing called currency to go like buy other stuff, whether it's a home or food in that shopping store, maybe all the Red Bull, maybe they buy all the Red Bull that you were talking about earlier. Maybe they have a big family.

Starting point is 00:47:00 And so when you think about what we're doing, right, like first off, just start on the payroll front of that, you know, the economy flows through payroll, right? You have to earn money before you spend it, right? So payroll is a very foundational, you know, pain point or job to be done if you're familiar with that framework, right? like we actually directly engage with the employer, the employee, and the government, and these are local, state, federal tax agencies, right? And there's not just the payment processing piece of it, but all the different filings and

Starting point is 00:47:28 documents and compliance that has to be done right, gives peace of mind to the employer-employee, but also, you know, obviously helps government, you know, get the information they need. And so I think part of it is just literally how foundational this pain point is. Maybe people didn't think about it enough or realize, but like this is something that ultimately every single company in the world has a need for. And then the question is, you know, who's solving it? And, like, you mentioned some of the more newer folks to the space. Like, ADP is a $100 billion company, right? Like, you know, it's easy to overlook some of the incumbents. And then on top of that, you know, maybe it would be different if it was a highly concentrated market.

Starting point is 00:48:08 It is a highly fragmented market. And you have especially at small business land, a huge amount of evergreen in terms of folks on pen and paper where I'm convinced to my very core, like that entire segment will eventually be on a digital product. It just is a better, easier, more cost effective, less error prone. Like there's nothing better about doing payroll on pen and paper. Trust me. And so, you know, that's just payroll. You connect that then to like healthcare, which is also, I'd argue, pretty foundational pain point. And you think about that evolving employer-employee connection. And like, you know, again, I think there's other big segments out there, right?

Starting point is 00:48:46 Like people talk about CRM and customer record. Like, the space we're in is the employee record. And again, just one of the biggest spaces out there. Thinking about our talk earlier about when to add products, your comments about helping entrepreneurship flourish. And then what you just said, I'm kind of curious if there's a next or future chapter in Gusto's history, if you will, in which you get a bit more into fintech. because what is the biggest expense in most companies?

Starting point is 00:49:14 It's payroll. They also do other expenses, other payments from already linked accounts. So is there a world where you guys also offer the minimum lovable version of like a stripe inside of what Gusto does, just kind of tack that on for SMBs that might want to have that in kind of one box? I mean, right in front of me, I have the document that's like our next three-year roadmap.

Starting point is 00:49:36 Is that what you're asking? Yeah, if you don't just hold it up to the camera. Just hold it up. I would say, I mean, I'm trying to be helpful here because a lot of the things we're executing on, obviously, we were really excited to announce. But we have a philosophy, you know, tongue in cheek here, Alex, but this is a real philosophy. Like, again, our due north, why we started this company, why we hope to build it for many decades is like serve and solve pain for these, you know, small, medium-sized businesses, their teams, their employees. Like, whenever we announce something, like, I want it to be real and I want it to be something I can have a small business start using. otherwise I'm just talking about myself.

Starting point is 00:50:11 And like that's actually not useful or helpful, I'd argue. Like things we can prove and show that actually customers can go benefit from is like where frankly I spend much, much more of my time. But I will say like from a framework lens, you know, we do have like lots of additional pain points we hope to help customers with. And, you know, it's not just in the context of people-centric topics. But any approach we're going to take is going to be based on customers, clearly having a pain point,

Starting point is 00:50:39 plus having a thesis on how we can solve it, and then doing it. Ah, I should have asked, are your customers asking for a payment solution that you might build for them in the future and then flip it around on you? No, but I think the way you answer that, it brings up something that I wanted to touch on,

Starting point is 00:50:54 because, and I'm going to dance around this very delicately, there has been an increasing level of stridency, you might say, in certain intra-technology and startup conversations. people with loud voices saying loud things, both about product and about non-technology topics. And what you just said was, I don't want to get over my skis.

Starting point is 00:51:16 I don't want to talk about it until I have it. I don't want to, you know, I don't want to blow hot air. And your approach has always been like this as long as I've known you. And it now seems to be an even sharper contrast to what some of your peers are doing in the public sphere. And I'm kind of curious why it seems that

Starting point is 00:51:36 the other side of the coin has gone as loud as they have, while you have stayed as quiet. And I'm curious if you have any insight into what the hell is going on with other founders. Yeah, I think there's maybe like an audience way to talk about this. So trust me, inside Gusto, we, when we do three-year planning cycles and when we talk about our 10-year vision, we have a whole bunch of really, I'd say, big stakes in the ground and like deep, ambitious goals related to how we can go solve more pain for our customers, live into our potential as an outcome, you know, be a much, much, much larger, more valuable company if, again, we can execute into that potential. So internal is one audience. I think you're talking

Starting point is 00:52:17 more about external. I'd say external even breaks down into a couple different buckets. You know, I anchor a lot on small businesses, right? Like a small business owner in like Oklahoma who like needs to set up health care or needs to set up payroll or needs to set up time tracking or what have you, doesn't care about Silicon Valley companies talking about Silicon Valley companies. They want to know who can help them right now and make their life easier. So that's kind of where I'm always going to anchor. If you're now talking more about like kind of the Silicon Valley gossip kind of community connection space, yes, you know, I've never really drawn energy from engaging in those

Starting point is 00:52:55 conversations. I'd much rather go build a great product, go serve lots more customers, win higher market share. you know, we're a pretty competitive bunch at Gusto. I don't get me wrong. But like what we control, what we can go influence to go actually win and be a bigger market player is, you know, what we built,

Starting point is 00:53:13 right, and how we serve. And that's just where we frankly spend most of our time. So essentially, the point here is if you have customer centricity in how you talk outside of a company, you're not going to end up in a multi-part putter fight with other people. I think that's a pretty good point. that founders might have paid attention to.

Starting point is 00:53:32 Maybe I'm missing something, but I don't know how that helps that company in Oklahoma who needs healthcare. But I know how I could help them by like hiring another person to our sales team or adding a few more engineers to our benefits team and like actually building even better product for them. Well, one, I mean, just honestly, one nice thing that I was just getting ready to talk to you was how I put kind of all the other stuff aside. You know, I don't have to ask you about, you know, what your personal super PAC is going to be

Starting point is 00:53:58 doing because you haven't said Jack about it. this actually feels kind of like an old school, kind of like technology conversation about business and what we're doing, versus the kind of cause celebray of the moment, which is the collision of technology and politics. And I don't think it's helping founders to see their backers and often leaders. Like you mentioned Shopify, its CEO has thoughts that they share sometimes.

Starting point is 00:54:23 And I just wonder who the audience really is for. Back to your point, if it's for their friends or if it's for their companies. And it doesn't seem to be super business focused and therefore it seems honestly very distracting to getting work done and a mistake. I mean totally honest. Just thinking out loud. Yeah. I mean, I think again, we can be a case study. If folks resonate with this approach philosophy, wonderful, if folks don't, there are many ways and reasons to start a business. I'm not saying that our approach is the only one. But I just really believe companies don't exist for their own benefit and like founders, you know, we don't start companies to be founders.

Starting point is 00:55:02 Like we, companies exist to serve and solve the customer and like founders start a company because they're so obsessed with solving that pain that they had to start a company to go do it. That's just, I guess, what I believe to my core and has been a big part of the gusto story from day one. And we've tried to hire people that share that philosophy. So like, to be clear, we have a lot of things that we care about. It's all in the context of like how small businesses grow, develop, how their teams evolve, how that employer-employee relationship gets strengthened improves.

Starting point is 00:55:31 Like, how and when people decide to promote someone, like what should they be paid? Like, we're not going to tell you that, but we want to equip you with the tools to be more thoughtful and intentional about that because otherwise the small business owner is just Googling it, right? And being like, what should I do? And that's not the right solution.

Starting point is 00:55:46 The right solution here is I'm actually being more informed and equipped, like with some of the stuff big companies have had. We're not trying to bring that enterprise tech dynamic to small business because you already highlighted some of the flaws in it. but the reality is big companies have had access to much better, awesome, powerful technology than small companies I've had. And we're trying to write that balance a bit. Yeah.

Starting point is 00:56:07 Thinking about the average S&B customer out there, how quickly is their IT or software spend growing? I hear a lot about the enterprise IT budget, but very little about kind of the S&B world. So from your perspective, what's the rate of change there? Oh, I mean, I think different cuts on different costs, but like high, high level. I mean, one thing I just saw yesterday, I think businesses spent over $40 billion on just compliance pain points alone last year.

Starting point is 00:56:34 And that's only one part of what we're trying to help with. So, like, it's not getting easier, right? You think about all the different rules and regulations. You think about all the different hoops and hurdles folks have to jump through. You know, we have a role to play to try to bring the voice of small business to policy. Right? We have like a strong, amazing team of one that's in D.C. that's trying to bring data to these conversations, because a lot of times policy gets created,

Starting point is 00:56:59 you know, maybe with hopefully good intent, but like without the right data, it can actually lead to a bad outcome. But yeah, lots and lots of pain points around compliance, pain points around health care, pain points around the part of hiring in more locations. We talked about international briefly, but like, you know, you can now hire with gusto as a, if you want to hire a contractor in over 100 countries. And obviously, in all 50 states, that actually, you know, sounds simple, like would have been really hard 10, 20 years ago, and a business owner would have had none of that flexibility. And yeah, working with our partner remote,

Starting point is 00:57:30 we're also enabling EOR hiring. So being able to hire employees in other countries, if that's right for your business, the whole point here is to give more and more of these tools that big companies have had two small businesses, so they can then do what's right for their business. And again, that's a big opportunity. So the underlying ethos then of SMB technology

Starting point is 00:57:51 is to take what has been offered to the largest companies make it simple, make it, just will make it better and then offer it to small business. This feels a little bit like FinTech companies that want to like,

Starting point is 00:58:03 you know, democratize types of investment that have been historically constrained to the super wealthy and bringing them down to like the masses. I've always really liked that because it's what technology should be doing. It should be taking that which was rare and expensive

Starting point is 00:58:16 and making it common and inexpensive. I'm glad that people like you are still working on that. But on international, I know you guys have to deal with remote. We talked about that a couple of years ago. How's that going? How has that partnership been performing?

Starting point is 00:58:30 And how much of Gusto's business is now international-ish? I'll start with all of the customers, the employers we serve are based in the U.S. And there will be a time when we expand the employer footprint to more countries. We have people that ping us and ask, can you please open Gusto in this country, that country? That's not a matter of if, but when.

Starting point is 00:58:50 but to our earlier topic, you know, prioritization focus is super, super important. And for us, you know, high level, there's geographic focus, there's, you know, company size focus and product depth and breadth focus. And we can't slide right and say all the above on all three. We have to have a sequencing. Now, in terms of what is available for those companies in the U.S., if they want to hire contractors, it's in over 100 countries. That's been growing really quickly.

Starting point is 00:59:14 And again, it's just a dead simple experience. You're hiring someone. We just ask you where they are, right? it's not a whole separate flow, it's not a whole separate application or website. You're adding a human, a person to your team. Where are they? And then you shouldn't really have to care about what happens behind the scenes. And actually, the irony is like opening a company in a state and then hiring in another state itself.

Starting point is 00:59:35 Like the U.S. is more like 50 countries than 50 states or one country rather because of the local state compliance rules and regulations. So like even multi-state had a huge acceleration with the pandemic and companies being able to pull small businesses, employees in more locations. And then, yeah, from an employer record standpoint, I think we're now in over five countries. And the cool thing is remote already is in 75 countries. So there's going to be a steady drumbeat of expanding the countries there. But again, the main value here is you're a small business owner.

Starting point is 01:00:07 Like, you're adding someone to your team. You should not have to care about or know all the details of what happens behind the scenes. That's our job to abstract it from you. Okay. Do you guys end up in competition with Remedy? remote to some degree, because it sounds like you have big plans to expand your own footprint internationally as an EOR. Does that mean you eventually outgrow the remote deal and become frenemies down the road? Well, I think there's always a ecosystem component to these conversations.

Starting point is 01:00:34 I mean, I'll ground us in like even working with Chase on Gusto embedded payroll, right? Like, we're really excited to have them launch a payroll product powered by Gusto. If you're a small business inside that ecosystem, that could be the right product for you. So there is some overlap by having these different strategies in place. What I really believe in what's been shown so far is that what we're doing is just giving Gusto the chance to serve many, many millions more businesses. And so I'm very excited by our direct offering, the gusto.com and native app, mobile, people platform experience that's growing and has huge potential to keep expanding for all the

Starting point is 01:01:14 reasons we've been discussing. I'm excited about embedded and how that, will bring us to more companies who will be a part of the broader gusto ecosystem. I think at the stage and scale we're at, and this isn't a unique dynamic to Gusto, having just multiple ways to reach small businesses and multiple products to help serve them is actually a really good thing to be in the position of versus just one product, one go-to-market is kind of our entire way of scaling the company. Oh, I just realized that, you know, earlier talking about your go-to-market strategy

Starting point is 01:01:44 and doing kind of now some brand advertising, that means you can find finally do silly things like sponsor sports teams. Nice. That's got to be a fun place to be. You should pick up like a couple WMBA teams, a couple NWSL teams, you know, brought to you by Gusto. I can see it now. Fantastic. I mean, I'll tell you this. If, if the data shows there's a meaningful small business audience that connects to those different concepts and that this would enable us to build a tighter relationship with them. Yes, you won't see or hear me doing stuff like that for for ego reasons because I couldn't care less about me. I just, I want to go to your house and I want to like pour three shots of tequila in you and then like just like have you

Starting point is 01:02:22 make a slightly silly decision because you're uh and this is a compliment like hyper rational is how it feels right now listening to this like if I was in your shoes and I had been disciplined for I don't know 12 13 years now I would definitely smash out on like I don't know like the the New York Liberty or something just because hey let off some steam you know how I let off steam I like I like letting off steam by going running, if that helps. It also is a double win. I can, yesterday I fit three kids in the single stroller. So it's also a win when it comes to child care.

Starting point is 01:02:54 Oh, we just bought our first double stroller and it's terrifying. All right. I have just a couple of last time. I mean, so June 23, you said that the company was probably going to reach free cash flow positivity in the next couple of quarters. It's been four. Did you make it? Yeah, we've had several quarters of free cash flow.

Starting point is 01:03:13 And again, we think that's for us. scale that we're at, you know, what it means to be running a good business. Rest assured, we're excited to be reinvesting that cash flow into new product development, into engineering, hiring into our go-to-market engines because we're still small in terms of our market share relative to what we believe is possible. All right. And then last question, I promise to let you go. Why does everyone now want to wait until they reach a billion dollars in ARR to go public?

Starting point is 01:03:39 No judgment. I'm just curious. I can't speak on behalf of others. I mean, I can just tell you it's not as simple as a binary formula. But what I can tell you is, you know, we're going to be building gusto for many, many decades. And that means at some point we will be a public company. I also think a lot of stuff that companies wait to do until they're public, you know, really big at-scale private companies should be doing already.

Starting point is 01:04:01 So I know that's not directly answering your question, but we'll just say again, like, you know, I'll quote actually a story from another CEO. You know, when Gusto goes public, I'll treat it like our high school graduation. The rest of our life happens after. like it'll be a milestone, we'll celebrate it, and like what gives me joy, and this kind of gets to the heart of your rational statement earlier, is like helping people.

Starting point is 01:04:21 Like my parents are both teachers, my dad was high school teacher, my mom was an elementary school teacher. It's just really in my bones and my DNA. It's a big part of our hiring philosophy of Gusto is like service mindset, people that really embody this desire to like help others get joy from that. Are competitive, can be kind, can be ambitious,

Starting point is 01:04:38 but also have humility. And those are the type of folks we're looking for if anyone's interested in joining Gustav. I think you should write more about exactly what you just said, because I think that's actually a note or a tone that's missing in the broader symphony that is private market technology companies. But Josh, I'll let you go. Thank you so much for coming on, Twist.

Starting point is 01:04:55 We really appreciate it. We'll have you back in 12, 18 months whenever there's new news. But in the meantime, where can folks find you on the great wide internet? Well, gusto.com is what I'm going to write everyone towards. And if I can be helpful, you know, I do a little bit on social, but more than anything, you know, my focus is on helping the team as much as I can. All right. I appreciate it.

Starting point is 01:05:17 This has been Twist. Of course, like, comment, subscribe. We come to you live. We come to you on every podcast app, video service that is out there.

Starting point is 01:05:23 We appreciate you. Everybody, we'll talk to you soon. Bye.

This Week in Startups - Overcoming SMB Roadblocks: Expert tips from Gusto's Josh Reeves | Episode 1988

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.