Gusto

“It might not have hurt to sell Gusto. I think Gusto's a great business, but I think, you know, they were valued at ten billion at one point, and I think they're still gonna be a strong business. I don't know if they're gonna have explosive growth from there.”

“The normal has changed. We used to think about, hey, you go, like when we did Samsara and you know, Gusto and some of these companies are like, yeah, triple, triple, there you go, triple, triple, triple, double, double, right? And you look at these companies a…”

“Yeah, that fund is one of our Two or three best funds, and just to tell you what was in it was Livongo was in that, Snap was in that, Circle was in that, Gusto I think I'm missing a few others. It's probably gonna end up being a, you know, 13 to 15 X fund.”

“I lost a Series A of Stripe. I lost a Series A of Samsara. I lost a Series A of Snap. And the first one I won was a Series A of Gusto.”

“You don't really want to compete with Gusto because Gusto is still a modern, really good payroll system. There's not like a lot of vectors into competing with Gusto.”

“There was a lot of ideas came out, which were just like taking consumer grade product and design and applying it to just like the Slack kind of thing. The Slack, Stripe, Gusto, et cetera.”

“I think having multiple founding journeys for me, having Josh and Eddie, having previous startups, it helps you by one, knowing how to avoid some mistakes. So you don't repeat the same mistakes. So for me, like I can give you a bunch of mistakes. We can talk a…”

“When we started the company, one of the insights that we had was, you know, I talked with like, I closed myself in a room, I mean like in a walking closet when we were, where we were living. And every day I was like, I'm going to, for a whole hour, I'm going t…”

“When you think multi, multi-decade, you put down your value. It makes sense for you to codify your values, put them down, make sure that you hire according to them, and you reward people according to them. Starting very, very early, like your first, second, th…”

“Payroll data is very, very powerful because onboarding is so complex. There's so much that you need to, we need to know about you as a company in terms of your employees and where, Where, where they work and how much they get paid and like your company address…”

“The last slide was all about that. It was about, hey, we're starting from payroll. The next step is benefits and HR. And from there, it's going to be a full what we call their people platform. So everything, you know, to help you start building, grow your busi…”

“I actually went, personally onboarded every single employee, every single one of these, the first, I want to say, 50 companies.”

“It ended up being that the inside is that payroll, the pain from payroll was across industries. It was not just startups. And the pain was strong enough that even if we did not have a personal network with dentists dentists love gusto.”

“So for a full self-service product, so full meaning, you know, you could onboard, run payroll probably took a year until that. And then the folks that used it before that year, that full year you know, kind of used me as an interface in a bunch of places. So w…”

“Having a monthly release means that you're building backwards instead of building forward. So you have like, hey, by the end of this month, here's the stuff we need to ship, right? And those things you can talk later about how you know what to ship, but like, …”

“The thing that really helped us is this idea of like having a weekly founder one-on-one. So what we did is every Friday we had three one-on-ones you know, Josh and Eddie Tom and Josh, Tom and Eddie. And in those conversations and this was from the very, very e…”

“Most payroll services back then actually split that job to two different things. There's one which is paying your employees, and there's two is paying your taxes. There was two different workflows, two different situations. Some companies just did one and not …”

“Once we saw we had product, or we had like a very high NPS, over 85, that was kind of what we knew that would be, you know, the customer love we need, and then we kind of expanded.”

“I remember sitting in a room and calling 20 of Gusto's customers that I thought could be a good fit for it. And I was pitching them like, Hey, we're going to build this. You know, here's how much it's going to cost. Can I sign you up? And I got like, 17 out of…”

“Multi-state used to be something that, you know, only large companies cared about. So it wasn't like, it wasn't, it was kind of on our roadmap, but it wasn't like that important for us. And then all of a sudden with COVID, a bunch of people working remotely an…”

“I don't think it's a market win all, win most. Like, our big competitors when we started are still around and are doing really well. Like you know, Intuit, ADP, Paycheck all have really large payroll businesses still today.”

“We did not do like a big market analysis. We actually, I didn't even know. We, I don't think we knew so much how hard it is to switch payroll providers. We took us a few months to actually, while building the flow for it, we're like, wait a minute, this is a l…”

“Yeah, I think because it wasn't totally clear what would be the business model around it, because compliance is a set of hundreds of thousands of interactions, and the way we kind of did it was every time we built something, well, we made sure it was compliant…”

“It took me years, like maybe five years until I felt like, huh, ok, this is going well. So it may be like post-series B, like, you know, I don't know, like the tens of millions of AR, when I felt like, ok, this is actually, this is going well.”

“I think I underestimated both the founder and the openness of the market to switch and I'll say something else, the willingness of investors to pay up quickly for that, such that it got outside my price range very quickly, right? Stuff happens, you know, and y…”

“Like, about 40% of companies were doing it manually and getting fined every year because you have local, state, federal.”

“Eddie, Eddie slept and lived in that closet for about five months, and it fit a air mattress you know, like I said, it had a skylight and it was also where my other roommate stored all of her clothes, though, so it was kind of both a natural closet and a quasi…”

“So the first set of companies that onboarded to Gusto, and we had a different name at the time than Payroll what that meant was we would go to your house and You would type into, it was typically Tomer one of my co-founders, and we love to say you can't spell …”

“So there was a really clear scoping here to companies in California that had never used payroll before, were paying employees for the first time. They were all salaried employees.”

“In that first month through end of January, we added over a hundred customers, and the hundred customers, the majority of which, set up, onboarded without talking to us, you know, they could do it on their own”

“Even today in 20, 25 with, you know, over 400,000 companies on Gusto and us adding A lot every year. Organic, word of mouth, remains the biggest driver of leads in Tupper Funnel for us”

“Gusto isn't going to make like, you know, five percent more money. They're going to make zero, like literally zero money from every incremental GPU or CPU after a certain point. This is not the case for anyone who is training models. And it's not the case for …”

“Within, like, a week we had a prototype where you could basically Call a number. It would ping us. We'd have it route effectively. You could just buy some keywords on Google, and then all of a sudden start, you know, getting real people calling you with questi…”

“You interviewed, I remember you interviewed with this idea and we accepted you and behind the scenes we were more excited about the team.”

“So by the time we started YC in January, we were already building a payroll system.”

“40% of companies in the U.S. Were making mistakes and getting penalized every year.”

“We're also gonna add the pressure of, well, we won't pay ourselves until we can use our own system to pay ourselves.”

“There's about six million employers in the U.S., and so, you know, if you're going to get to real, real volume in the space, you have to go into many, many industries.”

“After demo day, we actually did not launch the product. That was also kind of a non-obvious choice we made. We'll probably talk about the seed round we did, but we actually didn't launch publicly where you could like come up as a stranger who we've never met, …”

“You had this amazing combination of, you know, some big incumbents like paychecks and ADP worth, you know, over a hundred billion dollars together at that point. So like clearly big, big incumbent market presence in terms of like economic value, but also an in…”

“We had, I think, like, over 11 VC firms offer to invest. We actually chose to do the round with no VC firms. It was all angels, so we raised from, you know, twenty-plus CEOs and founders. It was, you know, the CEOs and founders of, you know, PayPal and Stripe …”

“Kevin is a friend from college, and Instagram, I mean, he's an investor in Augusto, so, you know, it was fun to talk to him about some of the scaling stuff, but actually, I think, ah, you know this more than anyone, like, tech is pretty broad, so even back the…”

“Small business, you know, they want an opinionated partner, right? They don't want just a tool. They want just a set of menu of options. They're super busy. They're wearing many, many different hats, and they don't, frankly, have the resources to go hire all o…”

“We had just invested in Gusto, which was a competitor that was growing not quite as quickly as Zenefits. But the reality is Gusto has endured and become a massive company, and Zenefits didn't.”

“They are not always expensive, but they are often expensive. So if I look back at our portfolio, Gusto was expensive. Zoom was expensive. Yammer was expensive. A lot of the good ones, Ironclad was expensive. But some of them weren't. Viva wasn't expensive beca…”

“We changed our like salaries and gusto to 500 dollars a month.”

“We totally made this market with the help of gusto in our early days.”

“So if you wanted to be completely full stack or bundled solution, you also had to become an RIA. Becoming a registered investment advisor means you have to register with the SEC. The SEC has all of these different things. Now you have the SEC, the IRS, and the…”

“And they can be start to finish. It was eight minutes. And that was just like unheard of in, in the four one K lens.”

“So if you have one or more employees in California, you now have to meet this mandate, which is just a huge, that's 200,000 small businesses across Gusto and Intuit alone.”

“We also, though, at that, for that segment, we have a very large channel business as well. Think like Gusto. They're Payroll providers, Gusto, Paylocity, where we're embedded in that experience. Same for applicant tracking systems like Greenhouse or HRIS like …”

“I mean, you're at, like, you know, over five hundred million in revenue, nearly ten billion valuation, over 300,000 customers selling to, like, SMBs, which is just absolutely mind-blowing.”

“There's about 500,000 new employers each year in the U.S., and only about half make it to year five.”

“When we started Gusto, you had close to 40% of companies in the U.S. Doing payroll by hand. You had close to that same percentage, you know, 30 to 40% getting fined, penalized by the government for making mistakes. You had billions and billions of dollars of p…”

“When Gusto went live, And I know we'll talk about this shortly, about a year after we got started. Like it was a product that was just for new companies in California with full-time employees who had never, you know, paid someone before and they could just do …”

“We chose payroll to start because it is the de facto system of record for employee data, and it's the least optional part of the stack. Another way to think of it is, like, if you don't pay someone, they quit, and so it is the medicine, not the vitamin”

“Like we had a fantastic fundraising moment in that spring where, where we did a six million dollar seed round.”

“So we've gone to around, I think like, 50, 60 companies using Gusto prior to launching. But once we launched, we had a hundred companies sign up that we had never talked to all across California who we had never met.”

“So when we did our Series A, which I know is fast-forwarding a bit in 2013 we still had like two-thirds of that seed round in the bank”

“It was 20 founders, CEOs that You know, did that seed round. It was the founders of PayPal and Instagram and Mint and Eventbrite and Stripe and Nest and a whole bunch of really incredible businesses Box and Dropbox.”