Jessica Livingston and Carolyn Levy, the "Social Radars," interview the three founders of Gusto, Josh Reeves, Tomer London, and Eddie Kim, a successful Y Combinator startup that provides payroll, HR, and benefits software for small companies. They begin by delving into Eddie's early entrepreneurial journey, starting with his first startup, Pickwing, in the 2008 YC batch. Eddie recounts his persistence in applying to YC, fueled by Paul Graham's essays, and the eventual pivot of Pickwing due to its shrinking market and challenging unit economics.
The conversation then transitions to how the three founders met and decided to collaborate. Josh and Eddie, Stanford classmates, reconnected at a half-marathon, while Josh met Tomer through a Stanford alumni mentorship program. All three shared a desire to tackle a larger, more impactful problem than their previous ventures. They applied to YC with an initial idea of "experts on demand," but after receiving feedback that the idea wasn't strong enough, they pivoted to focus on the payouts aspect of marketplaces. This ultimately led them to explore payroll, recognizing its ubiquity and the frustrations faced by small businesses with existing solutions.
During YC, the Gusto team, then named ZenPayroll, dedicated themselves to building a functional payroll system, setting a goal to pay themselves using their own software. They focused on creating a user-friendly and accessible system, contrasting with the cumbersome processes of incumbents like ADP and Paychex. A key aspect of their approach was gathering real-time feedback from early users to refine the product. The software was initially offered to startups in the Y Combinator batch to use.
They raised a $6 million seed round after demo day and began building up their customer base after their public launch. The initial challenges involved navigating the complexities of payroll regulations, compliance, and ensuring accuracy. To manage this, they started with a narrow market segment, gradually expanding their features and capabilities over time. They emphasized the importance of technology, such as cloud computing and mobile accessibility, to serve small businesses effectively.
In 2015, ZenPayroll rebranded as Gusto to reflect their expanding services beyond payroll, including health benefits. The decision involved calling all 10,000 customers to ensure they were not freaked out by the name change.
The founders also discuss the key factors contributing to their healthy co-founder relationship. They emphasize the importance of low egos, open and transparent communication, and alignment on core values such as a growth mindset, humility, and a service orientation. One practice they implemented was regular one-on-one walks where they would provide each other with feedback, express gratitude, and address concerns. These walks promoted trust and helped them avoid festering issues.
The conversation shifts to the challenges and opportunities that arose during the COVID-19 pandemic. Gusto pivoted its focus to helping small businesses survive, assisting them with PPP loan applications and navigating complex government regulations. They also addressed the cultural shift from an in-person, apprenticeship-based environment to a more decentralized model. They even used their credit and capital to ensure that employees of the clients of their payroll would receive the funding that was due.
The episode concludes with a discussion about the importance of internal company communication, the cultural traditions in the office, and the future of Gusto. The founders express their commitment to expanding Gusto into a comprehensive platform that enables entrepreneurship by simplifying the complexities of starting and running a business. They highlight the company's values and their dedication to serving their customers while also building a strong and successful team. The founders mothers also became friends.