Aug 22, 2021 · 18m · top-founders
Gusto Killed Their $3m Business, Pivoted to $7.8m ATS Business in HR Tech Space
Jason Maxwell · 8m spoken Nathan Latka · 6m spoken Frank Bien · 4s spoken Eric Yuan · 4s spoken Vivek Bhaskaran · 2s spoken
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Jason Maxwell, founder of MP, discusses how he pivoted his bootstrapped company from a commoditized payroll provider into a thriving human capital management agency, scaling to nearly $10 million in ARR with zero software engineers.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 43.3% of the talking time here. How this is scored →
Nathan as informed peer 6.2 Guest teaching 3.8 Guest disagreement 1.5 Nathan pushing back 4.0
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 12:20 Jason insists on revenue multiple valuation
Jason rejects the premise that agencies only sell on EBITDA, insisting that ecosystem peers trade between 2.5x and 5x top-line revenue.
Hardest push from Nathan ▶ 12:18 Nathan challenges agency valuation metricsNathan openly expresses skepticism about top-line multiples for non-proprietary service businesses, pushing back with standard EBITDA benchmark expectations.
Biggest teaching moment ▶ 3:54 Jason explains payroll commoditization driverJason walks Nathan through the specific macro shifts between 2008 and 2012 that rendered standalone SMB payroll obsolete and necessitated integrated cloud HCM workflows.
Nathan holds their own ▶ 8:13 Nathan calculates MRR and deal sizing on the flyNathan demonstrates high financial acumen by multiplying logo counts, seat averages, and per-employee price tiers in real time to deduce monthly run rates.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| Pricing Per Employee Preview | 6 | 4 | 1 | 4 | Nathan probes Jason's business model immediately upon hearing the company doesn't build proprietary software, categorizing them as an implementation and distribution partner rather than a pure SaaS vendor. Jason openly acknowledges his service-oriented structure and lack of internal engineering staff. | |
| Pivoting from Commoditized Payroll to Mid-Market HR Tech | 6 | 5 | 1 | 4 | Nathan presses Jason to explain why pure payroll became unsustainable and forces him to state concrete historical revenue numbers from 2011. Jason provides clear context regarding market commoditization caused by entrants like Gusto and the resulting transition toward mid-market HCM services. | |
| Client Metrics, Average Contract Value, and Revenue Growth | 7 | 4 | 2 | 5 | Nathan actively calculates seat counts and monthly recurring revenue live on air based on Jason's logo count and seat pricing. Jason gently corrects Nathan's base-tier calculation by clarifying the average pricing per employee is $13 rather than $8, pushing monthly run rate higher. | |
| Sponsor Break: Pilot Bookkeeping and Financial Services | 7 | 5 | 3 | 6 | Following the mid-roll ad read, Nathan challenges Jason on agency valuations, asserting that service agencies typically trade on EBITDA multiples rather than revenue multiples. Jason stands firm, asserting comparable businesses in their ecosystem trade at 2.5x to 5x top-line revenue. | |
| Organizational Structure, Churn, Quotas, and CAC Payback | 7 | 4 | 1 | 4 | Nathan drills into churn, Net Dollar Retention, and unit economics, questioning the strain of a 20-month CAC payback period on a bootstrapped business. Jason explains how six-year customer lifetime and expanding revenue retention help absorb upfront acquisition costs. | |
| The Famous Five Rapid-Fire Questions | 4 | 1 | 1 | 1 | Nathan runs through the standardized rapid-fire 'Famous Five' questions and finishes with a concise recap summary of MP's growth and unit metrics. Jason provides succinct, cooperative responses throughout. |
Statements from this episode (13)
Maxwell: MP uses non-proprietary tech, distributing the iSolved platform
“We approach the space a little bit differently in that our technology is non-proprietary. We support a platform called iSolve which is a human capital management suite that encompasses onboarding.”
Maxwell: Gusto commoditized SMB payroll through low pricing and CPA channels
“The pricing power of the large players in the space was really commoditizing the industry. And then you had, you know, the introduction of companies like Gusto which came in with, you know, really low pricing working a lot through the CPA channel. So especiall…”
Maxwell: MP's largest client pays roughly $400,000 annually
“So our largest client pays us about 400,000 dollars annually. They subscribe to a Basically all of our services.”
Maxwell: MP will cross $10 million in recurring revenue in 2021
“And we'll do ten million in revenue this year. So we'll, we'll cross the ten million in recurring revenue mark in 20, 21.”
Maxwell: MP grew only 4% in 2020 due to client downsizing
“Twenty-twenty was an interesting year really because a lot of our clients downsized. So we only realized four percent growth last year, which was our lowest growth year in terms of, you know, year-over-year numbers.”
Maxwell: MP is targeting $25M recurring revenue within five years
“Pursuing a path of twenty five million dollars of recurring revenue in the next five years.”
Maxwell: HR service agencies trade at 2.5x to 5x revenue multiples
“Typically companies like us trade anywhere from two and a half times revenue to, you know, five times revenue.”
Maxwell: MP account executive quotas range from $400K to $650K ARR
“Typically it averages around 400,000 dollars. For newer AEs they scale up to that level. For more experienced account executives, it could be as high as 650,000 of annual recurring revenue.”
Maxwell: MP averages 4% controllable churn and 6-8% non-controllable churn
“So controllable churn for us is, you know, clients we lose to rivals. So in a given year, that average is about four percent. And then we typically experience six to eight percent of non-controllable churn, which is, you know, our clients get acquired or they …”
Maxwell: MP will achieve 105% net revenue retention in 2021
“So we will be positive net revenue retention this year by a modest amount. So a 105% net revenue.”
Maxwell: MP breaks even on customer acquisition costs at 20 months
“So our client acquisition costs our average deal value is, you know, 6500 and it costs us about 11,000 to bring on 6500 of revenue. So typically we break even at like the 20 month mark.”
Maxwell: MP nets 8% margin while spending 26% on sales and marketing
“So, you know, we've really got a model where we, we're investing about 26% of revenues back into sales and marketing, and we're bringing eight percent to the bottom line. So it's pretty predictable from that standpoint. And we keep our average client For more …”