How Gusto Hits $1B Revenue and Why A Trillion is Next | Term Sheet

0:00 Small business is responsible for creating nearly nine

0:02 out of every 10 net new American jobs.

0:04 We think we can build a trillion dollar company in small business.

0:08 Small business is booming.

0:09 It's also drowning in paperwork, and there's just way too much compliance.

0:14 Heading federal paperwork costs small businesses $81 billion a year,

0:17 and 80% of that comes from the IRS alone,

0:21 the agency issued more than 1.1 million payroll tax penalties.

0:25 Our first product was payroll.

0:26 If you don't pay someone, they quit pretty fast.

0:29 And half a million small businesses right

0:31 now are running their payroll on gusto,

0:33 a billion of revenue, 500,000 small businesses.

0:36 And Josh Reeves thinks he can do it 1000 times over.

0:39 Welcome to term sheet.

0:40 I'm Allie Garcia now before we get to my interview with Josh,

0:46 onto this week's news and the topic is anthropic,

0:49 my sources have been telling me that anthropic funding

0:53 round valuing the company at $900 billion is coming together,

0:58 and that there is an absolute feeding frenzy for anthropic shares.

1:02 Now remember, this is all happening in the secondaries market,

1:05 mostly in a shadow market.

1:07 There are very few people who are directly texting with Dario saying,

1:10 Ah, yes, I've got some shares.

1:12 And you're sitting here thinking, Well, why does this matter?

1:14 Well, we're headed towards what I believe will

1:17 be a summer of reckoning for the private markets.

1:19 When the SpaceX IPO goes out,

1:21 that is going to be the first real test of what the secondaries

1:24 market can ultimately handle and what actually was real to begin with.

1:29 And anthropic is also probably going to be tested later in the year,

1:32 or at least is widely expected to go public.

1:34 I'm going to be really real with you guys.

1:36 I do not know if the $900 billion

1:39 price tag for anthropic totally makes sense to me.

1:41 I'm not saying it will never make sense.

1:43 I'm saying it maybe doesn't make sense right now, unless I suppose it does so.

1:49 My question is, what would you be willing to pay for a share of anthropic?

1:53 What's your pain threshold?

1:54 How bullish Are you on the future of that company and of open AI and of SpaceX?

2:00 Drop a comment.

2:01 Send me an email.

2:02 I would love to know and now on to my interview with Josh Reeves.

2:07 Josh Reeves, welcome to term sheet.

2:09 I'm excited to be here.

2:10 I'm excited you're here.

2:11 You know, we have known each other for a while,

2:14 since I probably started writing term sheet,

2:16 give or take, we've lived an entire life

2:19 in the AI hype cycle over the last two years.

2:22 I'm very excited.

2:22 You're here for a couple of reasons.

2:24 One, I think you're an example of somebody who

2:26 has grown a company to be quite large to scale,

2:29 but you've done it really thoughtfully, pretty much every step of the way,

2:32 and you've been very honest with me about all kinds of friction,

2:34 and we're here to break some news.

2:36 Is that right?

2:37 Yes, we are.

2:38 So gusto has passed $1 billion dollars in revenue.

2:41 You guys passed 1 billion AR last year,

2:45 and you've also passed 500,000 customers.

2:47 I mean, that's the stat I'm most thrilled about,

2:49 like 500,000 small businesses that trust us to be a key partner in their life.

2:54 And I always say to the team,

2:55 if you have a good business model, which we've always cared a lot about,

2:59 that equates to then obviously the company getting more revenue,

3:02 and so really proud about both milestones.

3:04 Well, walk me through what is behind that 1 billion revenue number.

3:08 What do you see when you see that number?

3:10 I mean, first off, these are like, pinch me type numbers.

3:13 I mean both a billion of revenue, 500,000 small businesses.

3:18 There's almost a dynamic where it's like a number, it's hard to process.

3:23 For me, it's each individual story of each individual business owner,

3:26 and that's where then I get more connected to it,

3:30 every single business, the team, the person,

3:32 the owner who chose to work with us,

3:35 gusties, the people that have joined my company,

3:37 our company, and helped us build our product so that we can deliver it.

3:41 That's the term.

3:42 We call ourselves, gusties.

3:43 You know, you get to a billion.

3:45 Okay, what happens after that?

3:47 There are millions of small businesses out there,

3:49 and it's still way too difficult to be a small business owner.

3:51 So at the same time that these are almost pinch me type numbers,

3:55 I know to my very core that the potential is there for gusto to get

3:59 to $100 billion of revenue in the future

4:02 to go serve millions of companies in the future,

4:04 and we have to go do the work to earn that.

4:07 But we're still early.

4:08 What is the biggest lesson you have learned in the journey to a billion?

4:12 Ooh, so my mental model is it's like climbing mountains.

4:15 Climb like the mountain that's in front of you, that's what's directly there.

4:19 You reach the top, you feel proud, you feel excited,

4:21 but there's then another mountain right there in front of you,

4:24 and that's the type of person we try to bring into guesto.

4:26 So from a hiring and team building lens, people that have this growth mindset,

4:31 have this desire to go impact the world in a big, big, big way.

4:35 Want to be proud of how they get there.

4:37 But have this hunger, this desire to go,

4:39 never be done, like we're never finished.

4:41 There are so many things we can get

4:43 better at, and as long as small businesses are

4:45 still in a lot of pain and mostly dealing with a lot of stuff on their own,

4:50 alone, we feel like we have a lot of work ahead for us.

4:53 Who does gusto serve?

4:54 And what does gusto do?

4:55 And why?

4:56 So we love, love helping small business the why behind that.

4:58 You know, we.

5:00 Had prior small businesses startups that we ran as founders.

5:03 I have two other co founders.

5:05 We had family running small business.

5:07 We just deeply, deeply connected when we started the company

5:11 with the goal of, let's go help this audience.

5:13 Small businesses, broadly, you could think of as one to 100 person businesses.

5:17 Our first product was payroll.

5:19 We think of that as the least optional part of the stack.

5:22 If you don't pay someone, they quit pretty fast.

5:25 It's a factual statement you would think, you would think, and it's verified.

5:29 If you don't pay someone, they quit.

5:31 It actually is hard to pay people.

5:33 Payroll is famously hard, yeah, and it's very tricky, difficult,

5:36 obviously, you know, we wanted to go make it easy simple.

5:38 This is when we started the company.

5:40 Use modern software, take kind of those two,

5:43 three hats off the business owner's head and say, We got this.

5:46 We'll be your partner.

5:47 We'll make this thing that's hard,

5:49 complex, difficult, full of compliance, dramatically simpler.

5:52 The employee matters in that as well.

5:54 So one of the early insights was thinking

5:56 of the employee as an equal stakeholder to the employer.

5:58 You know, a fun way to think about

6:00 that is the employer is paying themselves too,

6:02 and as we launched additional products like

6:04 health insurance and for 1k you know,

6:06 they're actually giving health benefits to their family and their kids,

6:09 and they might have retirement savings for them

6:11 and their wife or partner, spouse, husband.

6:13 So, you know, we've expanded what we do quite a bit over the years,

6:18 and frankly, especially now with AI.

6:20 This is the most amazing time in my life to build

6:24 we're dramatically expanding the breadth and depth of gusto as a product.

6:27 But it's it's not for the sake of it.

6:29 We think about, you're a small business owner.

6:31 Most small business owners are 345, employees.

6:33 What are the pain points in your life?

6:36 What's hard, what's difficult?

6:37 And as long as there's something difficult or painful,

6:39 we think about, how can we make that thing easier and simpler?

6:42 It's not like every entrepreneur in Silicon

6:44 Valley is sitting there saying, Ah, yes,

6:45 I really would like to build HR software for small businesses,

6:48 I mean, or just small business in general, yeah.

6:50 But I, I would argue it's the most exciting segment

6:54 market to focus on, because they are all around us.

6:56 But the sort of enterprise SaaS playbook for a long time was

7:00 you get these giant contracts and they're reliable over a period of years,

7:04 we've, of course, been watching that collapse

7:06 a little bit under the pressure of AI, do you have a saspocalypse take?

7:10 I mean, my saspocalypse take is, very simply,

7:13 there's pure software, and then there's companies that do actions.

7:15 I think pure software is in more duress,

7:18 because now anyone can build software faster, easier than ever before.

7:21 Everyone can have access to it, though.

7:23 So the companies that do have products customers traction,

7:26 if they go move and are able to build as quickly as others,

7:29 maybe they still have a path to long term success.

7:32 But pure software is a scary place to be right now.

7:35 If you're doing actions for the customer,

7:37 I think you got to look at what the actions are for gusto.

7:40 Those actions are compliance actions,

7:41 and it's again, putting our name against it.

7:44 Do I think open AI or anthropic want to be responsible for that tax

7:50 filing put their name against it and liable if it's done incorrectly?

7:53 I don't think so.

7:54 And does a small business owner want to be responsible and liable?

7:58 No, they actually want to focus on building their business product.

8:01 They don't want it to be a burden for them anymore.

8:03 They want it to be done and done correctly.

8:05 And so I actually, again, come out of that for gusto,

8:08 being really bullish that what we do has never,

8:10 I mean, it's always mattered if you don't actually do the filings correctly,

8:14 if you don't actually, you know, set up a four, 1k the right way,

8:17 if you don't set up health insurance right,

8:18 and your kid gets sick and they don't have health care by accident,

8:21 like these things have always mattered.

8:23 They matter today.

8:23 They're going to matter in the future.

8:25 So I feel like there's a bit of an orthogonal dimension to it.

8:28 But absolutely, there's a lot of noise at mid market enterprise.

8:32 There's a lot of noise in pure software.

8:34 I guess I can like eat popcorn and watch the show a little bit,

8:39 but mostly I like to spend time just building gusto,

8:42 helping small business, improving our product, expanding our product,

8:45 and that's what really gets me going,

8:47 frankly, well, you say something really interesting,

8:49 which is this idea of responsibility, liability,

8:51 being able to say it's not just the software, it's the actions that matter,

8:56 and that there's maybe a moat around That ultimately.

8:59 I mean, look, actions and outcomes come from what you show and what you do.

9:04 In my opinion, absolutely like we now process,

9:07 and have processed, you know, several 100 billion dollars of payroll.

9:11 That's other people's money that we move and take very seriously.

9:15 We help over 500,000 small businesses like,

9:17 as long as we focus on actions that, you know,

9:22 the business owner doesn't want to do, that we can do on their behalf,

9:25 and as long as we can be that partner for them and give them superpowers,

9:29 you know, I kind of like, again,

9:31 that a lot of folks focus on mid market enterprise.

9:35 We think we can build, like, a trillion dollar company in small business.

9:38 And so we're only one decade in we have decades to go.

9:41 Walk me through the very beginning.

9:43 Let's go back in the day.

9:45 I had less white hair.

9:47 I had no kids.

9:49 This is in my 20s.

9:50 We came together, me Tomer and Eddie, and the three of us are as committed,

9:54 as involved today as we were back then.

9:56 You guys lived in a house together, living in a house in Paul.

10:00 So two of us were living there with other roommates.

10:02 Eddie was actually living in San Francisco.

10:04 Early on, all we wanted to go prove was we could build a product that worked,

10:09 that actually helped the customer.

10:10 How did the three of you meet again?

10:12 Eddie was an undergraduate classmate at Stanford.

10:15 Tomer came out for grad school, and we had all had prior startups.

10:19 Tomer became my roommate.

10:20 So we were living together.

10:22 Eddie and I ran into each other at the beginning of a half marathon race that he

10:26 was dared to run by a friend of his with no training and no practice whatsoever.

10:31 Wait, what that?

10:33 I didn't know, and so that's fortuitous,

10:35 like we had kept in touch, but also not been super close.

10:38 Literally, ran into each other and then

10:41 grabbed lunch together and realized we were

10:43 at this point in life where we wanted

10:45 to tackle a really big problem, make it better.

10:47 And again, small business really connected for us,

10:50 because you had we had family,

10:51 working and helping small business, we had our own prior startup experience,

10:55 and we really wanted to tackle something

10:57 that wasn't just going to be for Silicon Valley, that was important to us.

11:01 And you have to think back to this time frame,

11:03 2010 2011 Instagram had just got bought by Facebook,

11:06 and there was a lot of attention on what was called social,

11:10 mobile, local, if you remember.

11:11 And we just really, I've always had a mindset of like,

11:17 go to first principles, think about like, what the actual root cause need is,

11:21 and if that happens to be against what's

11:23 popular at the time, so much the better.

11:25 And what was popular at the time was doing stuff in social, mobile, local.

11:29 And so when we did YC, we were part of the YC winter 2012 batch.

11:34 Like we were the outlier company that was

11:36 kind of like doing stuff for businesses.

11:38 It was like back office.

11:41 Thing in YC that year, iPhone apps for social media and social networking.

11:46 It's a different market, different segment,

11:48 not you're being more diplomatic than I am,

11:50 but I imagine there are only so many companies out of that batch that survived,

11:54 let alone have reached the scale of something like gusto.

11:56 It does, I ask because it does make me wonder about all

11:58 of these people who are going through accelerators right now who are like,

12:01 we're doing AI for enterprise X,

12:03 and I'm kind of like, I mean, my advice when I meet founders I know you share,

12:07 this is, what is the thing you're trying to fix?

12:10 What is the underlying problem that really deeply activates you,

12:14 where you almost feel like you have to start a company to go fix it,

12:18 and that's the best way to fix it,

12:20 but like, you're trying to go fix something, right?

12:22 I don't think companies exist for the sake of it, any company gusto included,

12:25 we exist to go make something better and and we just really got excited.

12:30 I didn't know if we would be excited about small business to be honest, right?

12:34 Like, obviously, that's a learning that happened

12:35 in those first few weeks months.

12:36 But as we spent more and more time talking, interviewing,

12:39 getting their feedback,

12:40 asking about what they were frustrated about related to payroll.

12:43 To start, you know, that's one big input.

12:46 We realized, wow, there's a lot of pain and frustration here.

12:48 Then it was, can we build something

12:50 actually useful to your earlier question, like,

12:52 if you find a pain point amazing, if it's a big pain point, so much the better.

12:56 But if you can't fix it, you don't have a company, right?

12:59 You have no purpose to exist.

13:01 You have to make it better.

13:02 You have to actually do something where the customer goes.

13:05 This is amazing.

13:05 You've made my life.

13:07 XYZ, so much better.

13:08 So we didn't know that until a few months in.

13:10 So we were building, building, building.

13:12 Eddie was actually living in SF,

13:14 commuting two hours a day when your three person team doesn't make sense.

13:18 So we had a spare closet upstairs in our house,

13:21 and he actually lived in that closet for three months.

13:24 Our roommates decided to charge him rent.

13:26 Oh, well, that's very rude.

13:28 I mean, I mean, I see how they got there.

13:31 It's logic.

13:31 Yeah, in the house, he is in a closet,

13:34 though it did have a skylight and it fit a queen air mattress.

13:38 It's actually a pretty big actually, for it.

13:40 Like, if we're talking about New York apartments,

13:43 there are news very spacious, like, um, but, but our other roommate did have all

13:49 of her clothes and shoes and stuff in there too.

13:51 Still, I hope he didn't pay that much in rent.

13:53 It was a couple $100 there's a couple 100 bucks.

13:55 That's still a lot for a closet.

13:57 I would say, good for Eddie,

13:58 though he really, you can't say Eddie didn't commit.

14:01 The first kind of user of gusto was ourselves.

14:03 We actually didn't pay ourselves till we could do it using our own product.

14:07 We felt like that was just additional incentive.

14:09 So it was really exciting when we could start paying ourselves.

14:12 Do you recommend that to other entrepreneurs?

14:14 I mean, you want to have skin in the game you?

14:16 I mean, if you're a founder, you already have skin in the game.

14:18 But like, yeah, I liked that dynamic, actually.

14:20 Then we talked to family, friends, that was where our first 510, customers.

14:25 But I would say the thing that I'm most most was

14:28 most important for us was when we launched and we had,

14:31 you know, a website that you could come to, set up,

14:34 run payroll in a very intuitive self service way.

14:37 If you had questions, you could talk to us, Tomer Eddie,

14:39 or I would pick up the phone and help you.

14:41 But like, when we started having customers sign up

14:43 who we did not know we had never met,

14:45 and we started finding out they heard from someone else who was using gusto,

14:48 that's when we knew we're on to something really interesting.

14:51 But you started to see the network effect, yeah, and like even today,

14:54 the biggest way we grow is through word of mouth.

14:56 It's literally through small business

14:58 owners telling other small business owners.

15:00 Are there accountants and bookkeepers telling other accountants,

15:02 bookkeepers, you should go check out gusto.

15:05 Family is still really important to us.

15:07 They have since retired, but Eddie's mom ran a doctor's office.

15:10 His dad was the doctor,

15:13 and so he had a lot of exposure to them running payroll as a child.

15:18 Absolutely they became customers of gusto when the practice was still live.

15:22 And one of the funny anecdotes there, she would call into our customer care,

15:28 customer support team, more to, just like, stress test the system,

15:31 and then at the end of a call, messing with you guys into the call,

15:34 she would be like, by the way, I met his mom.

15:36 She even, at one point, like,

15:37 bought a local ad in her newspaper and created her own ad for the company.

15:42 Walk me through what it took to get from we're building the product,

15:47 yeah, so it's good enough that we can at least pay ourselves with it.

15:50 Yes to we're getting phone calls now from people.

15:52 We don't know what was the space between those two things.

15:55 So I think we ran payroll for the first time in like,

15:58 March of 2012 we onboarded, I would say,

16:03 friends and family in those following several months.

16:06 So we actually didn't launch publicly like you

16:09 could go sign up for gusto and not know us at all till about December

16:13 of 2012 So December 2012 was our launch moment,

16:16 and that's because we knew, first off,

16:18 that one of the biggest things for us to prove wasn't, I mean,

16:21 step one was that we could build a system that was easy to use,

16:25 intuitive, obviously, was accurate, reliable, could scale,

16:28 could process millions of dollars, do tax filings, tax calculations, correctly.

16:32 But the next big thing we had to prove was,

16:35 since we're focused on small business,

16:36 this has to be an inbound engine where word of mouth drives top of funnel,

16:41 and then you have a onboarding

16:42 experience that takes something that people thought

16:44 of as very complex and messy and has a lot of very sensitive data, right?

16:48 You're giving us information about your business, about you as an individual.

16:52 It's bank information security numbers,

16:54 it's your children's information, if and so.

16:57 And then, you know, five days later, guess what?

17:00 We're debiting $10,000 from your bank account right

17:03 for payroll to pay taxes, to pay your team,

17:05 but the trust that's required for that, we knew it

17:08 had to be a system that was very easy to use,

17:11 so that the customer could just go through it and have it be this magical.

17:15 It was that fast.

17:16 It was that simple.

17:17 And I remember, actually, when we did the run payroll flow for the first time,

17:21 it would just run and it'd be done.

17:23 It would say, you ran payroll, and we had customers early on going.

17:26 It's not possible for payroll to be run that fast,

17:29 and so we put in like a loading animation, and it didn't do anything.

17:33 It was just a delay to give the person

17:35 the sense that actually it was being done correctly.

17:38 What is the lesson in that?

17:40 The lesson is, you gotta listen to the customer,

17:42 give, you know, give them a chance to give feedback.

17:45 But like, software done, right?

17:47 That was a magical experience.

17:49 Literally, it just being done.

17:50 They set up, they ran payroll like that was it?

17:52 They thought it.

17:53 They thought it was fake.

17:54 Thought it so you had to backtrack and create an animation that basically said,

17:58 Okay, this is taking a minute everybody to sort of create.

18:02 I mean, I wonder about it in terms of adoption of AI stuff too, right?

18:07 Because a lot of people are like, Oh,

18:08 that can't be right, or I would never use that.

18:11 But maybe sometimes people want a little bit of friction.

18:13 I mean, I think people for me that there's two insights.

18:17 Maybe one is when software truly, truly changes the game or technology and makes

18:21 something that was hard into something dramatically simpler.

18:24 For us, it was like a lot of our customers never had run a business before,

18:28 and even today, this is our first time being a business owner.

18:31 And like, they have intimidation or fear of what could be wrong or not,

18:34 difficult and hard to do.

18:35 And when we make it easy and simple, that feels like magic.

18:39 So there's like, this core of like,

18:40 if you don't get magic when you're building software and technology,

18:43 you're probably not adding enough value yet.

18:45 But second is you got to really obsess over the user

18:48 experience and make sure that you're not going too far ahead,

18:51 so that they can't follow, right?

18:53 Because also, in that case, like,

18:54 they just needed to know and have confidence that we're doing this correctly.

18:57 And it helped for a little bit for some folks to just

19:00 see the gears spinning and know like complex calculations were happening,

19:03 even though it literally took us a microsecond to do

19:06 the calculation you've talked before about minimum lovable product.

19:09 Yeah.

19:09 What is the distinction between minimum

19:11 lovable product and minimum viable product?

19:14 How did you know when you'd reached minimum lovable product?

19:17 I mean, the most simple, I would say, difference is,

19:20 if a minimum lovable product like you

19:23 have that word of mouth customer love flywheel, which for our business, again,

19:27 was critical to us actually getting more awareness and actually driving growth.

19:31 For some companies, it might not be as important,

19:34 but you can think of it through the lens of NPS.

19:36 If you and your listeners are familiar,

19:39 is this someone that it's not just it worked or it was clean or it was simple,

19:44 but like their heart starts racing with this, oh my god.

19:47 Like, this is amazing.

19:48 This is incredible.

19:49 And I still think that's what anyone that builds software should aspire for.

19:52 I think a lot of times when I use software in products,

19:55 I feel like I'm being told what to do or told how to use it.

19:59 And.

20:00 Software built correctly, gives you superpowers.

20:02 It literally makes you feel and become like,

20:04 dramatically smarter and more capable than you've ever been.

20:07 And that's our goal.

20:08 I mean, that's how we build gusto, and we hope to keep hitting that goal.

20:11 Do you vibe code sort of to this end?

20:13 What do you think of vibe coding?

20:15 What so to jump there?

20:16 Really?

20:16 Yeah, I didn't mean to come in, but we're here.

20:19 That's the terminology.

20:19 I what I like to say is, like, literally anyone now can build

20:23 software without knowing they're building software.

20:25 Now that's an incredible, you know, empowerment dynamic.

20:29 I also like what I read or heard somewhere,

20:32 which is the most popular programming language

20:34 of the moment is just natural language, English, right?

20:38 Or whatever language people use.

20:40 I think that's fantastic.

20:41 Now, I'll caveat that by saying, obviously,

20:43 there's different skill levels in building software.

20:46 Yeah, like, you couldn't vibe code payroll software, or could you?

20:49 I don't think so.

20:50 I mean, I can break that down so software,

20:53 like the interface piece of it, has now become easier than ever to build, right?

20:57 That's amazing.

20:58 Gusto has never been a pure software company.

21:00 We go do actions for people.

21:02 That means that we go, not just show you how to give us information.

21:05 We take that information, we then go do the tax calculation.

21:08 We go determine what filing to do.

21:10 We though, go then do it for you.

21:12 We put our name against it and say we'll make sure it's done correctly,

21:15 and if there's any follow up issues or challenges,

21:17 we're responsible to go fix it.

21:19 So I think there's a big difference

21:21 on this topic between pure software companies,

21:24 where it's just like a web application and a database,

21:27 and you can go do stuff and it helps you, but you kind of just use it as a tool,

21:31 versus companies that do actions on your behalf.

21:33 I call it a system of actions.

21:35 Gusto has always been a company that does actions for the customer.

21:38 I think that's a big difference between the two.

21:41 So like, we're using a lot of these tools and technologies

21:44 to build more product faster and quicker for our customer,

21:47 and that's really, really exciting.

21:48 But I'm with all the change that's underway,

21:52 I'm more excited than I've ever been,

21:53 because it feels like the ingredients are there for us

21:55 to go do more for small businesses faster than ever before.

21:59 So now gusto did not start out as gusto.

22:02 It started out as Zen payroll.

22:04 And then in 2015 you rebranded to gusto.

22:07 Can you tell us a little bit about that trajectory,

22:10 that change, because most companies do not successfully rebrand at all.

22:14 Yeah.

22:15 So the backdrop is, when we were in 2012

22:18 we had about 10 minutes to choose a name,

22:21 because we're focused on building the product.

22:23 We looked on godaddy found a name for, I think it was like seven or eight bucks,

22:27 and it was in payroll, and we knew that was going to probably be a placeholder.

22:31 But now that we have a name, we can focus back on building the product.

22:34 Fast forward to 2014 we discovered and got really excited about the name gusto.

22:40 It's a more flexible vessel.

22:41 My philosophy on naming is,

22:43 ultimately what you do with your product is what matters.

22:45 Like, do you actually deliver value,

22:47 but you want a vessel that has the potential for you to tell your story,

22:50 and gusto is just a better vessel for our company.

22:54 We then did the change in 2015 we coupled

22:58 it with the launch of our second big product area, which is health benefits.

23:02 And then we had about 10,000 customers at the time,

23:05 and you called all of them, right?

23:06 Yeah, we wanted to make sure they all knew

23:08 we were the same company with the product they loved.

23:11 And wanted to obviously keep using and that there's no surprises here, right?

23:14 It's nothing is.

23:15 What is this gusto company that has shown up on my bank statement,

23:19 we're gonna debit money from their account.

23:20 We wanted to create causes.

23:22 We wanted to be very intentional about it.

23:24 And so, yeah, we thought of with about 150 people at gusto.

23:28 At that point, 10,000 customers.

23:29 We did the math.

23:30 We're like, hey, let's everyone, the whole company, me, the entire company,

23:35 just do phone calls to every single customer,

23:37 share with them that, you know, we made a name change.

23:41 We're the same company.

23:42 You know, give us feedback if you have any.

23:44 And you know, we're launching this additional product around health benefits.

23:47 Let us know how we can help you better.

23:50 And it was a really, really fun couple days.

23:52 How much job dislocation Are you seeing from Ai?

23:55 Like, what can actually what is clear through

23:57 gusto data and what is kind of hazy?

24:00 Yeah, so what's clear in our data, which, again, is small business.

24:02 Small business data, is the pace of hiring in companies.

24:06 You know, if a company might have previously gone from two

24:09 to three employees in this time period and then three to four employees,

24:12 that's slower than historical, or maybe they would have jumped, you know,

24:17 to four or five employees, and they're not making that jump as fast.

24:20 So we see less of that ramp in head count.

24:23 We think that's logical.

24:24 That actually doesn't affect our business model very much,

24:27 because again, for us, most companies stay very, very small.

24:30 Anyways, what do you think is most

24:32 misunderstood about the state of small businesses?

24:35 I guess for me, it's just, you know,

24:37 maybe putting on the capitalist hat like it is an enormous market.

24:41 I think everyone feels the what gets us going is the heart part of it.

24:46 Like, I love being at events, activities.

24:48 We hosted a bunch of customers yesterday,

24:50 and obviously we hosted them at a restaurant

24:53 that happens to be a customer as well.

24:55 So, you know, small business being all around us,

24:57 it being a joy to help them has always.

25:00 Been true.

25:00 We've had this blip of 150 years of large

25:03 companies having lots of control and lots of power,

25:05 and I think it'd be amazing if that shifts back to small business.

25:09 We see some of that happening today.

25:10 I think it's going to continue.

25:12 How do you think about going public?

25:13 No timeline to share.

25:14 But I would say if we're going to build for many decades,

25:17 you know, the companies I most admire respect are public companies.

25:20 And I think there's a huge one of the positives of being public is,

25:25 how cool would it be for many of our small business customers to, yeah,

25:29 right, and actually be able to like, love gusto,

25:32 tell their friends about gusto, but also buy stock in gusto.

25:35 That's probably the most positive thing I can think of.

25:38 And like, again, no timeline to share.

25:41 We're focused right now,

25:42 especially with AI on how to bring all these amazing tools and technology

25:46 to bear to help accelerate and bring

25:48 more gusto product to more small businesses.

25:50 But at some point in the future, it'll make sense for us to be a public company,

25:54 and I'd be really excited to have many, many of our small business customers,

25:57 or even non customers, own gusto in the future,

26:00 Josh, you have a unique distinction in sort of my career.

26:04 You are one of the few sources, few people I've ever covered whose mother I

26:09 have actually met and spent some time with.

26:11 Your mom is a really important part of your story.

26:14 Your families are a really important part of the story.

26:16 You Tomer and Eddie all come

26:18 from immigrant families in some capacity or another.

26:20 Can you talk a little bit about how that's

26:22 influenced you and how it's influenced the trajectory of gusto?

26:25 Yeah, absolutely.

26:26 My mom's an immigrant from Bolivia.

26:29 Eddie's parents are immigrants from Korea.

26:30 She's lovely, by the way.

26:32 Yeah, yeah.

26:32 You met, obviously, you met.

26:34 You met Eddie's mom, and you met his mom.

26:36 Hi, Tom's mom.

26:37 The core concept there that I really,

26:39 really deeply believe in is a mindset of turning nothing into something.

26:43 And I think anyone that knows an immigrant or has an immigrant in their family,

26:47 obviously you can have this mindset if you're not an immigrant,

26:50 but it almost is a requirement if you're an immigrant,

26:52 you're going to a place you don't know anyone,

26:54 and you're going to have to figure out and learn you know how to live there.

26:58 My mom happened to have to, like, learn a new language.

27:00 She was in University at the time, so she put herself through school.

27:04 And so this idea of turning nothing into something,

27:07 taking on that responsibility, taking action,

27:10 going and doing something that hasn't been done for her, it

27:14 meant being the first in her family to go to college.

27:16 For my dad, it meant being the first in his family to go to college.

27:19 It meant both became teachers.

27:20 This has nothing to do with tech and startups.

27:22 To me, entrepreneurship is this concept

27:25 of going in, turning nothing into something.

27:27 They were entrepreneurs, to me, in their life,

27:30 even though their livelihood became teaching.

27:34 And so that mindset, to me, was a big exposure to how I was raised.

27:37 It happened to be the same for Tomer and Eddie.

27:40 You know, for me, the way we apply it in like,

27:43 the context of software and technology, is we're builders.

27:45 But you know, any company that is creating

27:48 something for the first time is doing this dynamic,

27:51 is turning nothing into something, and today,

27:54 we've turned a lot of these ingredients into, you know,

27:57 helping over 500,000 companies.

27:59 Tomer Eddie and Josh's moms all hang out.

28:01 They've went, been on trips to Disneyland together, for example.

28:04 And I was sort of as someone who's been very influenced by my own family.

28:07 I really believe in that old southern saying,

28:09 You got to dance with the one who brung ya.

28:11 And I do think that our families do distinctly

28:13 influence not only how do we see the world,

28:16 but when something is the right choice for us.

28:18 Like I don't think it's an accident, for example,

28:20 that there's a lot of small business in your families.

28:22 I don't think it's an accident that you come from immigrant backgrounds,

28:26 and specifically went on to build gusto.

28:28 It's kind of like art, in that way,

28:29 the art could have only been made by the artist.

28:31 I mean, I think there's a connection there.

28:33 For me, it's like core value system,

28:35 like, and it's not just about founders, right?

28:37 Like, when we think about growing the team, when I give advice to founders when

28:41 they're hiring their first employee, second employee.

28:43 Today, gusto has, you know, over 3000 teammates, gusties in the company.

28:48 It's this, what what brings you together?

28:50 It should hopefully be a shared purpose,

28:52 but what is the underlying life philosophy that brings you together?

28:55 And if someone's not aligned with gustos values, they're not a bad person,

28:59 it just means they'll be more successful in a different company.

29:01 Now, where do values come from?

29:03 It comes from your life experience.

29:04 It comes from family.

29:05 Comes from parents.

29:06 It comes from the life you've lived, what you've done,

29:09 the experiences, the activities that you've you've had.

29:11 And so, you know, this is, to me, the whole bucket of the how,

29:15 the what is important, the how is also important.

29:17 And in our case, probably it just adds even more like magic to the mix,

29:23 because small businesses themselves have so many incredible,

29:26 interesting stories to tell, and you know,

29:28 we're in a position to connect with them and tell those stories.

29:31 It reminds me of something you once said to me,

29:33 where you're like, we we are not a family business,

29:36 but we do try to treat each other like family and be informed by family.

29:40 I would say, yeah, yeah.

29:41 To unpack that, I don't think family is a good analogy.

29:44 Yeah.

29:44 For businesses, I agree business.

29:46 I think team is a good one.

29:47 Yeah, right.

29:48 Like team is where you come together.

29:49 Because, you know, there could be teams where they come together do amazing,

29:52 you know, either work or compete,

29:53 if they're a sports team, and then at some point it makes,

29:56 doesn't make sense for that team to be together.

29:58 There's next chapters for those folks.

30:00 To have in their life.

30:01 So I like, I like the team metaphor, analogy, and it's fantastic.

30:04 It's wonderful when there's gusties that have had,

30:07 you know, multiple chapters inside the company,

30:10 and we celebrate, you know, these different gustaversaries,

30:12 whether it's five years, eight years, 10 years.

30:15 I think of life as chapters.

30:17 And like, one can have many chapters in one

30:19 company and or they can have chapters across many companies.

30:23 Life is long.

30:23 We've talked a lot about some very serious things,

30:26 from the state of small business to the possibility of the public markets,

30:30 but I have been very important final question, shoes,

30:36 what is up with the shoe policy at gusto or lack thereof?

30:40 It seems like there is a policy.

30:42 Tell us about the shoe.

30:43 Optional policy at gusto, yeah, I just think it's telling for the audience.

30:48 I'd say there's going to be two camps here.

30:49 If you were raised Tomer Eddie and I happened to be

30:52 raised by our parents taking our shoes off in our homes,

30:56 then this will probably connect.

30:57 If you were raised wearing your shoes inside, you might be more confused.

31:01 So I was a shoe.

31:02 I was I was I was a shoeless home as well.

31:05 Yeah.

31:05 So again, no right or wrong for us.

31:07 We were in this house in Palo Alto, where we were living and working.

31:11 All of our roommates had the same policy.

31:14 So it was kind of very clear that our little upstairs,

31:18 kind of spare bedroom office, was going to be a shoes off workspace.

31:21 We then moved to a loft in San Francisco.

31:24 No one lived there, but we had our first, you know, set of teammates.

31:28 We actually grew up to about 20 people in that loft.

31:31 It got pretty tight, and because it kind of had that home feel to it,

31:35 we had a shoe rack at the entrance.

31:36 And, you know, our first hire also was like,

31:39 Can we keep doing the shoes off thing.

31:41 And so it just kind of became this organic dynamic where

31:44 then when we moved to kind of a more formal office,

31:47 the team literally said, Hey, Josh, like, can we keep this going?

31:51 And I was like, Well, sure, if this is what people prefer.

31:54 And so the way it evolved at scale was,

31:57 you know, there's cubbies at the entrance of the office.

31:59 If you're a guest, we can give you socks or slippers,

32:03 but we kind of treated the office the way people treat their home,

32:07 and that actually affected the design of the office too.

32:10 We have couches, we have lots of soft seating, dining spaces,

32:13 tables, and so today, I would say it's a more optional policy.

32:18 If someone wants to wear shoes in our spaces, they can,

32:21 but there are still gusties who treat

32:23 the office the way they treat their home environment,

32:25 and they walk around in slippers or socks.

32:27 I have never taken advantage of that, but I would

32:29 actually love to wear some some slippers in an office.

32:32 Maybe I'll try it here.

32:33 Well, fortune, let me Well,

32:34 we'll find out I can be an entrepreneur and just do it,

32:38 start a company expressly for the purpose of wearing shoes never.

32:41 When I talk to VCs, one of the first things they always say when I ask,

32:46 How do companies how do companies break up?

32:48 The answer is always, yep, the co founders have a falling out.

32:52 You.

32:53 Tomer Nettie, have hung in there for a long time.

32:55 You still seem to really hang out as well.

32:57 From what I've gathered, we love each other.

33:00 What has been the key to maintaining a good relationship.

33:03 There's a couple ingredients, and then there's a couple of very

33:07 concrete things that we've been very intentional about.

33:09 I think ingredients are like core values, core motivation, you know,

33:12 literally, like the three of us independently and then together.

33:16 It just amplifies really,

33:18 really want to dedicate our working life to helping small

33:21 business like we want and care about the same mission,

33:25 and that's what really, really matters to each of us.

33:28 So that's a fantastic ingredient.

33:29 If that isn't in sync with other founders,

33:31 I can see why that would create issues early on.

33:34 Value system ties to how we debate, discuss, the way that we solve problems,

33:39 this customer obsession, this service mindset,

33:41 this combination of like, very competitive and ambitious,

33:44 but also very kind with humility that we've spent time talking about,

33:49 which kind of comes from our families and how we're raised like,

33:51 that's a very aligned underlying philosophy

33:53 that also affects how we do company building.

33:58 So those are the ingredients.

33:59 I think the things to invest in are how we give feedback to each other, right?

34:03 And like, this might sound like I'm just repeating what people would do in like,

34:08 couples therapy, right?

34:09 But like, it's a relationship is, like America,

34:11 it is a relationship that we would like to last decades,

34:16 that has deep, deep connection around shared purpose, but lots of discussions,

34:21 work projects and activities pretty analogous to like, you know,

34:26 spousal relationships and like those, you know,

34:29 what makes them work really well is being really direct.

34:32 If something is in disagreement, you engage in that discussion,

34:35 you have a foundation of deep trust.

34:37 But you know how you navigate those disagreements

34:40 is what usually defines the strength of that relationship.

34:43 And I love the fact that we don't agree all the time.

34:46 We have lots of debates, we have lots of discussions,

34:48 and from it, we get to better ideas.

34:50 That's how we run gusto, right?

34:51 We don't want everyone nodding their heads saying, Josh is right.

34:54 Let's agree with him.

34:54 We want to have debates.

34:55 We want to have discussions, whether it's founders, leaders or broader company.

34:59 Then we want to.

35:00 Make decisions, then we wanted to lock in and go

35:02 deliver on that thing that we're committing to.

35:04 So that's been really helpful.

35:05 And then there's probably some random type of stuff.

35:08 I mean, Eddie would probably say one of his funny

35:13 spotlight we were at a panel with customers yesterday,

35:15 like, you know, one of the things I initiated,

35:18 which I'm grateful he has continued to support is

35:21 after any one of our Tomer Eddie Josh work sessions, we end with a long hug.

35:27 Literally, you all just like group hug, like a long group hug, and like,

35:31 Eddie is always the one that's most uncomfortable earliest,

35:34 and we just years later, long hug it.

35:36 Years later, he still does it.

35:38 He bails first.

35:39 Yeah.

35:39 So, so basically, what you're telling me is,

35:41 next time we should bring Tomer and Eddie,

35:43 we should put all three of you on this we will long hug on camera,

35:47 and you will long hug on camera.

35:49 Perfect.

35:49 Josh.

35:50 Thank you so much.

35:51 Grateful to be here, grateful to celebrate small business.

35:54 We're still early in the journey.

35:57 That interview was really a reminder that as we have the conversation

35:59 about how AI is going to reorganize labor over the coming years,

36:03 that we really need to be watching small businesses,

36:05 not only because they are important, but because they will be an indicator.

36:09 That's it for Term Sheet.

36:10 I'm Allie Garfinkle, see you soon.