Gusto Rejects VC Offers to Raise Record YC Seed Round From Angels

Gusto拒绝VC投资，靠天使投资创下YC最高种子轮融资纪录 Gusto通过涉足主流科技创业者忽视的冷门且分散的市场拓展其薪酬软件业务，利用高自主权的产品团队与AI自动化来提升小型企业的存活率。 在本次访谈中，Joshua Reeves详细讲述了Gusto的发展历程：从2011年初放弃按需专家咨询平台，转型进入复杂的小企业薪酬与合规领域。他探讨了在加州打造最初极简产品的策略限制、完全由知名天使投资人而非传统风投筹集创纪录种子轮融资的经历，以及利用自主“泳道”模式成功转型为多产品公司的过程。Reeves还探讨了Gusto三位联合创始人长期合作的经验，AI将如何让该平台成为小企业有主见的合作伙伴，以及公司旨在提高创业存活率的长期使命。 Gusto 联合创始人最初向 YC 申请的项目是一个按需专家咨询热线，但在两周内发现用户主要咨询占星与情感建议后，果断放弃并转型切入痛点极深的中小企业薪酬管理领域。 (0:50) 为在缺乏行业经验的情况下从零构建薪酬系统，团队初期将业务严格限定在加州的新设立公司，并设立倒逼机制：在系统能够成功为他们发放工资前，三位创始人绝不领取薪资。 (7:55) 参加完 YC Demo Day 后，Gusto 刻意推迟了近一年才正式向公众开放，并拒绝了全部 11 家风投机构的邀约，完全由包括 Stripe、Instagram 和 PayPal 创始人在内的 20 多位知名天使投资人完成了当时 YC 史上最大规模的种子轮融资。 (10:23) 面对多产品扩张与行业竞争，CEO Josh Reeves 强调应通过设立高度自主的小型“泳道”团队保持创业初期的速度，并指出在高度分散的市场中，竞争是对商业机会的积极验证，关键在于执行力与差异化策略。 (17:49) 创立 13 年后三位联合创始人仍全职留任公司，未来他们计划利用 AI 充当主动型后台专家代理，以帮助更多小微企业跨越创立前五年的生存挑战。 (21:11)

Gusto co-founder Josh Reeves argues that building an enduring technology company requires identifying painful, unglamorous back-office problems that founders are emotionally obsessed with solving. By narrowing initial product scope and competing against slow legacy incumbents, Gusto turned an overlooked compliance service into a modern multiproduct platform. Finding Traction Through an Unglamorous Pivot (0:50) Before launching Gusto, co-founders Josh Reeves, Tomer London, and Eddie Kim initially applied to Y Combinator in late 2011 with an on-demand telephone marketplace for expert advice. After building a prototype routed through Google keyword ads, they discovered inbound calls were dominated by requests for astrology and relationship guidance. Realizing they lacked passion for those subjects, the founders pivoted in late 2011 before their YC batch started in January 2012. Looking into marketplace payout mechanisms led them to examine small-business payroll. Reeves explains that choosing a startup idea requires both logical viability and an emotional obsession with the problem. While contemporary founders in 2011 focused primarily on consumer mobile apps, the team discovered that back-office operations across the United States were heavily reliant on pen and paper, with 40% of small businesses incurring annual tax penalties. They deliberately embraced this complex, unglamorous domain because of its massive mainstream reach. Constrained Early Execution and Alternative Seed Funding (7:55) Because the founders had zero background in payroll, they proved their concept by aggressively constraining the product's scope. The initial system launched solely for newly formed companies in California without historical tax records, limiting development to four core functions: tax calculations, tax filings, tax payments, and direct deposit. The founders imposed a forcing function on themselves, pledging not to take salaries until their software could process their own paychecks, before manually onboarding a handful of cohort companies ahead of YC Demo Day. Following Demo Day, Gusto avoided opening access to the general public until December 2012, spending months testing with familiar users. Despite lacking conventional week-over-week revenue metrics, Gusto raised what was then the largest seed round in YC history. Incumbents ADP and Paychex held less than 30% of an estimated $100 billion market, leaving most businesses underserved. Instead of taking capital from 11 interested venture capital firms, the co-founders raised exclusively from over 20 angel investors and tech executives—including the founders of Stripe, PayPal, Instagram, Yelp, and Mint—who personally understood small-business pain points. Autonomous Multiproduct Scaling and Asymmetric Competition (17:49) When expanding from payroll to employee benefits, Gusto aimed to preserve startup velocity by forming a dedicated, autonomous five-person team. Reeves notes that the central organizational challenge in going multiproduct is deciding when to reallocate engineering resources away from the core offering. To prevent execution bottlenecks as headcount grew, the company structured teams into separate, highly autonomous 'swim lanes' working directly with existing customers to test wireframes and prototypes. On navigating crowded spaces, Reeves views competition as a positive signal that confirms market demand. In his view, market rivalry is only dangerous if a competitor controls 90% of the space or if a startup shares an identical roadmap with a faster, better-capitalized competitor. Because legacy payroll incumbents moved slowly, Gusto focused on out-executing them through consumer-grade software that blended automation with human warmth around sensitive moments like employee compensation. Long-Term Alignment and AI-Driven Compliance (21:11) Reeves attributes the founding trio's 13-year retention to shared values, active communication, and what they term 'productive discontent'—a disposition of being proud of existing progress while urgently pursuing next steps. Looking forward, Reeves characterizes artificial intelligence as an operational catalyst. Rather than presenting business owners with complex software menus, Gusto intends to use AI as an opinionated back-office agent that proactively handles compliance and payroll tasks tailored to a company's specific industry and stage. In its second decade, Gusto aims to directly influence small-business survival rates. Reeves cites data showing that roughly 550,000 new employers launch annually in the United States, yet only about 52% survive through year five. Through initiatives like its Compliance Hub, Gusto plans to automate statutory obligations, tax administration, and benefits, removing administrative failure points so early-stage enterprises can endure. Gusto's trajectory outlines how strict operational constraints and deep problem obsession can overcome an initial lack of domain expertise in regulated industries. However, whether software and AI automation can meaningfully lift the historical 52% five-year survival rate of U.S. small businesses remains an unverified objective that will depend on Gusto's execution across increasingly complex state and federal regulatory frameworks.

Gusto联合创始人Josh Reeves回顾了公司从问答平台转型为百亿美元级薪酬服务商的过程，指出创业者不仅需要在逻辑上验证真实痛点与商业模式，更需对未被满足的底层需求保持长久执着。通过极简可行产品、天使轮融资网络以及独立团队架构，Gusto在被老牌巨头忽视的分散市场中实现了持续扩张。 转型与选题逻辑：切入薪酬痛点 (0:50) 2011年底进入Y Combinator孵化器前夕，Josh Reeves与联合创始人最初尝试建立基于电话关键字广告的专家咨询平台。然而，两周内他们发现用户咨询集中于占星与情感建议，团队对此缺乏长期投入的热情，随即果断放弃。在探索平台结算机制的过程中，他们注意到承包商支付直接关联着传统薪酬发放的复杂痛点。调查显示，当时美国大量小企业仍依赖纸笔处理薪酬，每年约有40%的企业因薪税计算失误而面临处罚。Reeves提出，创业者在评估方向时需兼顾理性与感性：理性上需验证痛点真实度、解决方案有效性与分销可行性；感性上则必须对该领域具备近乎痴迷的热情，从而甘愿在当时移动社交应用主导的科技潮流之外，深耕冷门且繁琐的企业后台服务。 极简MVP验证：以自身发薪建立倒逼机制 (7:55) 面对缺乏薪酬行业背景的现实，Gusto团队选择将首款产品范围压缩至最低限度，以此作为进入市场的“主入口”。为了避开处理存量企业繁杂的历史税务导入工作，他们将早期系统严格限定在加利福尼亚州的新成立公司，且仅实现四项基础核心功能：税费计算、报税申报、缴税支付以及雇主到雇员银行账户的资金划转。为确保技术闭环并施加执行压力，三位联合创始人立下契约：在系统能够成功为自己发放工资之前，团队成员一律不领薪水。达成该里程碑后，他们通过手动引导部分YC同行企业入驻，在Demo Day之前完成了真实业务流水的验证，向投资人证实了零起步团队在重度合规领域交付可行软件的能力。 拒绝传统VC与构建创始人天使网络 (10:23) 2012年孵化结束后，Gusto（原名ZenPayroll）并未急于公开上线，而是直到当年12月才向完全陌生的客户开放。当时美国薪酬市场呈现出鲜明特征：尽管ADP和Paychex等传统巨头合计市值超过1000亿美元，但二者仅占据20%至30%的市场份额，其余大部分市场处于手工记账或高度分散的状态。Gusto主张通过云端化、无纸化、移动化及搜索引擎获客等方式重构小企业服务流程。值得注意的是，尽管收到了11家风险投资机构（VC）的投资意向，创始人依然选择拒绝所有传统VC，转而由包括PayPal、Stripe、Mint和Instagram创始人在内的20余位知名天使投资人与CEO全额认购种子轮，创下当时YC历史上的最大种子轮融资纪录，并借此获得了深刻理解小企业后台痛点的行业资源支持。 独立泳道机制与人性化软件设计 (15:05) Reeves强调，薪酬与员工福利软件承载着关乎生计的关键时刻，因此系统不仅需要高效自动化，更应体现温度与人性化，而非冰冷的机械界面。随着业务扩展，从三人单点产品转向数百人多产品线成为关键挑战。为了避免过早扩张导致资源分散或过晚扩张遗失市场，Gusto在推出员工福利产品时抽调5人组建高自主权的“泳道”（swim lanes），以此在大型组织内复制早期创业团队的高敏捷度与客户亲近度，并借助既有客户反馈迭代原型。关于市场竞争，Reeves认为竞争反映了商业机会的存在；在非单一对手占据90%份额的分散市场中，只要自身策略不与动作敏捷的大型对手重合，初创公司即可凭借更快的执行效率超越反应迟缓的传统巨头。 创始人协同机制与AI驱动的合规愿景 (21:11) 创立十三年以来，Gusto的三位联合创始人始终保持全职投入与协作。Reeves将这种稳定性归功于共同的核心价值观和“建设性不满”（productive discontent）——即对既有进展感到自豪的同时，持续渴望攻克下一阶段难题，并通过坦诚沟通维护团队信任。展望未来，Gusto将AI定位为小企业的“决策型伙伴”，旨在依托行业与规模数据模式匹配，主动预测并解决后台合规问题。针对美国每年约55万家新设立雇主中仅有约52%能存活至第五年的现状，Gusto推出了一体化合规中心（Compliance Hub），力图全面承接薪酬与福利等行政负担，以期在未来十年内切实提升小企业的设立基数与五年期生存率。 Josh Reeves展示了重度监管与复杂后台赛道中，初创企业通过严格限定范围、依托创始人网络及独立泳道实现规模化突围的路径。然而，随着产品线向多州合规、全球招聘及深度AI代理延伸，系统如何在高度复杂多变的政策监管下保持轻量级体验与极低错误率，仍是Gusto在第二阶段发展中持续面临的运营考验。

[7:55] we won't pay ourselves until we can use our own system to pay ourselves. [15:05] cold frictionless sterile machine that just works and hums [15:05] magical moments to be a part of [17:49] it meant we had to pull five people off of payroll. [17:49] swim lanes [21:11] productive discontent [21:11] opinionated partner [23:51] Compliance Hub [23:51] One-Stop Shop [24:54] Summer Fellows

[0:00] I love being in Sach you know I went to [0:01] Stanford I studied electrical [0:02] engineering I've lived in BRE Software [0:05] since I was young but there was [0:06] something that all three of us really [0:08] were drawn to which is like tackling a [0:10] problem that you know wasn't just for [0:12] silicon Val right something that was [0:13] like across the country across the world [0:15] frankly when it came to what we were [0:17] doing around like enabling you know [0:19] payroll to start to be easier simpler [0:21] this is a mainstream small business [0:22] customer it's people we were talking to [0:24] that we connected with like we looked at [0:25] the lay of the land and saw how painful [0:27] and frustrating it was you saw how many [0:29] folks were doing it on pen and paper [0:30] still 40% of companies in the US were [0:32] making mistakes and getting penalized [0:34] every year like when we saw stats like [0:36] that we were like oh good God like we [0:38] could help these people these small [0:41] businesses these mainstream business [0:43] owners and that just resonated with us [0:46] [Music] [0:50] more hi everyone I'm hge tagger one of [0:52] the partners here at Y comor and today [0:55] I'm very excited to be joined by Josh [0:57] Reeves co-founder and CEO of gusto um [1:00] I've known Josh for almost 15 years now [1:04] um and we met when he went through y [1:06] combinator with gusto in 2011 welcome [1:09] Josh excited to be here looking forward [1:11] to chatting why don't we start by just [1:13] telling us a bit about what does Gusto [1:14] do yeah so our purpose is to make [1:17] entrepreneurship easier and more [1:18] accessible what that means today in [1:20] terms of our product is we do things [1:22] like payroll we set up health benefits [1:24] we have a whole bunch of products around [1:26] hourly Workforce things like time [1:27] tracking shift scheduling we also some [1:29] make it easier for you to hire in [1:31] different locations could be multi-state [1:33] could be International contractors [1:35] employees and there's a whole bunch more [1:37] but broadly in this world of back office [1:39] and more um people Centric products [1:41] today but more to come let's like rewind [1:44] and go all the way to the start um you [1:46] actually apply to White Comin with a [1:48] very different idea to Gusto can you [1:50] tell us about um tell us about that tell [1:52] us what you applied with and why did you [1:54] change the idea so I'll take us back to [1:56] 2011 this is kind of when we were [1:58] talking about you know when we connected [2:00] um I had uh I have four kids now I had [2:03] no kids then um I had definitely much [2:05] less white hair more time more time I [2:09] was living in Paw Alto um now Augusto [2:11] was started by three co-founders so toor [2:14] was my one of my roommates uh and Eddie [2:17] was living in San Francisco at the time [2:19] and we had all had prior startups and so [2:21] when we came together we were really [2:23] excited about wanting to tackle [2:25] something that we could spend decades on [2:27] and then to your question you know you [2:29] got to start iterating find problems [2:32] build Solutions so one of the first [2:34] things we got excited about was actually [2:37] uh and not surprising many people think [2:39] to their own personal experience you [2:41] know my mom is a teacher but you know at [2:44] that point I had a lot of friends [2:45] contacting her for advice on having [2:47] children uh Eddie's mom is it U actually [2:50] helps the her his dad who's a doctor a [2:53] lot of people were pinging his dad for [2:54] medical advice so we we thought of this [2:57] like paino around accessing EXP experts [3:00] who are not going to write and you have [3:02] to think back to 2011 they're not going [3:03] to write blog posts they're not in the [3:05] online kind of web environment like how [3:08] do we make that knowledge more [3:09] accessible to people and so we started [3:12] brainstorming from there within like a [3:13] week we had a prototype where you could [3:15] basically call a number it would ping us [3:18] we'd have it route effectively you could [3:20] just buy some keywords on Google and [3:22] then all of a sudden start you know [3:24] getting real people calling you with [3:26] questions they have that they want [3:28] expert advice on and and what we [3:30] realized within a week or two was uh the [3:33] questions were not related to the things [3:34] we really were interested in helping [3:36] people with it was a lot of questions [3:37] around astrology and um relationship [3:41] advice and none of us felt equipped to [3:43] answer those questions first and [3:45] foremost uh but also we we thought about [3:47] you know is this the the type of space [3:50] we want to be in given what we in [3:51] initially see as the the signal on the [3:53] type of of questions people are going to [3:55] have so this was all actually within [3:58] like November December of 2011 you [4:01] interviewed I remember you interviewed [4:02] with this idea and we we accepted you um [4:04] and behind the scenes we were more [4:05] excited about the team team is good but [4:07] worried about this idea which you know [4:09] might still be a good idea to some folks [4:11] but wasn't the right one for us uh do [4:14] you the batch started in January did you [4:17] when exactly did you change the idea so [4:19] all before the batch started so like I [4:21] think of the exact mapping here it's a [4:24] while ago but like we were thinking [4:26] through this expert thing you're going [4:27] to have multiple stakeholders they're [4:28] going to be contractors you got to pay [4:30] them as well as like connect them with [4:32] who that person is calling in so that [4:34] kind of became more of like a payments [4:36] concept and then there was like [4:37] marketplaces in general at that point [4:39] not just expert marketplaces so then it [4:41] was you know how are payouts happening [4:44] in all of these marketplaces and then [4:46] from payouts you go well that's just for [4:47] contractor like what's actually the way [4:50] people get paid well that's called [4:51] payroll and so you know it was it was [4:53] actually you know all within a few weeks [4:55] of like that that bridge to well you [4:58] know payroll we all used payroll [5:00] products is that really a broken system [5:02] is it you know in need of a better [5:04] solution and we realized um after [5:07] talking to a bunch of other small [5:08] business owners family and friends that [5:10] like there actually was something really [5:12] broken here that we could start working [5:13] on so by the time we started YC in [5:16] January uh we were already building a [5:18] payroll system I I think like tactical [5:20] advice and details of this phase of [5:22] trying to find ideas is really helpful [5:24] for people who want to be Founders so um [5:27] when you're in that phase like you you [5:28] already had an idea [5:30] you're like maybe this isn't the idea [5:32] and you're trying to find new ones like [5:34] what does that look like dayto day like [5:35] how much time are you spending [5:37] continuing to work on the idea even [5:39] though you're not fully like bought into [5:41] it just what what's your advice to [5:42] people who who are in there right now so [5:45] I think there's like all the logical [5:46] stuff and I'm going to get to like my [5:47] actual answer is in the separate bucket [5:49] but like you got to prove that there's [5:51] actually something broken and painful [5:53] then you have to prove that you actually [5:54] create a thing that makes it better and [5:56] fixes it otherwise you're not creating [5:58] any value then you have to kind of prove [6:00] or have line of sight to like a business [6:01] model where you're actually a company [6:03] not a project and then eventually you [6:04] have to have a way to like scale it and [6:06] like acquire and serve those customers [6:08] in a way that you know again makes sense [6:10] um so those all need to happen otherwise [6:13] there isn't a business but like we [6:15] obviously didn't explore all of that in [6:16] two weeks yeah with the whole expert [6:18] idea what we proved was like you could [6:20] build something and it would somewhat [6:21] work to connect people but the other [6:24] bucket I think is actually even more [6:25] important when you're early on and it's [6:27] that you're going to be living and [6:29] breathing this problem space and not [6:31] every problem space is for everyone and [6:34] why we shifted only after a few weeks to [6:36] a different problem space was we just [6:39] weren't obsessed and it wasn't deeply [6:42] internally like keeping us up at night [6:45] this whole idea around connecting [6:46] experts and so that's where within even [6:49] a few weeks of signal it not resonating [6:52] gave us reason to start exploring other [6:54] things now when it came to what we were [6:56] doing around like enabling you know [6:58] payroll to start to be easier simpler [7:00] this is a mainstream small business [7:02] customer it's people we were talking to [7:03] that we connected with like we looked at [7:05] the lay of the land and saw how painful [7:07] and frustrating it was you saw how many [7:08] folks were doing it on pen and paper [7:10] still 40% of companies in the US were [7:12] making mistakes and getting penalized [7:14] every year like when we saw stats like [7:15] that we were like oh good God like we [7:18] could help these people these small [7:20] businesses these mainstream business [7:22] owners and that just resonated with us [7:25] more I love being in Tech you know I [7:27] went to Stanford I studied electrical [7:28] engineering I've lived and breathed [7:30] software since I was young um but there [7:33] was something that all three of us [7:34] really were drawn to which is like [7:36] tackling a problem that you know wasn't [7:38] just for Silicon Valley right something [7:40] that was like across the country across [7:41] the world frankly so this definitely met [7:44] that um trait um I think we probably [7:46] also liked a little bit that it like we [7:49] took pride in the fact that it wasn't [7:50] what everyone was focused on it's kind [7:52] of fun to like jump to the stuff that [7:53] isn't popular at the time I'm glad you [7:55] brought that up because um absolutely [7:58] during that era [8:00] 2011 everybody want to work on a mobile [8:02] social app and a characteristic of [8:04] working on that sort of application is [8:06] it's very easy to just get going if like [8:08] if I want to build an app to find my [8:11] friend's favorite restaurants I just [8:12] like start building the app yeah um [8:15] starting a payroll company especially [8:17] then was just a lot more complicated [8:20] like how once you got the excitement [8:21] okay we want to do [8:23] payroll you had no experience running [8:25] payroll right had you ever you no domain [8:27] expertise we we got really excited about [8:30] this you know broader back office like [8:33] paino space but like my advice to [8:35] Founders and it was to us too was you [8:37] got to start with like one thing so [8:39] payroll was always going to be our first [8:40] product it's uh what we will call our [8:43] our primary front door um but we always [8:45] thought we'd be adding more products [8:47] over time but focus focus focus is the [8:49] key so uh first thing we had to prove [8:51] not just to you know potential investors [8:53] around demo day but to ourselves was [8:55] like could we even build a functioning [8:57] payroll system so we actually scoped the [9:01] um the solution we were building you [9:03] know to the bare Bare Bones it had to be [9:05] a way to go do tax filings it had to be [9:08] a way to go do tax payments it had to be [9:10] a way to go obviously do tax [9:11] calculations to drive that it had to be [9:13] a way to go move money from like an [9:15] employer account into an employee [9:17] account you know actually that's that's [9:19] the basic building blocks and so that's [9:22] all we focused on doing like building a [9:24] functioning system um in California you [9:27] know you could scope there too because [9:29] every single state has different roles [9:30] and requirements for a new company that [9:32] had never paid people before so you [9:34] don't have to do any historical tax [9:36] import and you know fortunately this [9:39] mapped to to our company right so we [9:41] also then added the additional incentive [9:43] of well well we're not just going to you [9:45] know try to get there you know for all [9:47] the good reasons of wanting to build a [9:49] business um we're also going to add the [9:51] pressure of well we won't pay ourselves [9:53] until we can use our own system to pay [9:54] ourselves um so that was kind of the [9:56] first uh few months so once we did that [9:58] we did onard some other companies in YC [10:01] um and that was a very manual process [10:03] because we had only Built This backend [10:06] but we at that point could say uh [10:08] accurately honestly that we are now [10:10] processing payment to the tune of you [10:12] know thousands of dollars tens of [10:14] thousands of dollars but when you do [10:16] that over an annualized basis millions [10:18] of dollars of payroll which was one of [10:20] the key messages I wanted to be able to [10:22] tell during our our demo Day [10:23] presentation how did you convince these [10:25] early customers to trust you so I think [10:27] there's like two phases of like how to [10:29] answer this one is you know we had [10:32] fellow companies in YC there were also [10:34] new companies who had never paid [10:36] themselves who were based in California [10:38] and so that was just the loow hanging [10:39] fruit now that obviously wasn't going to [10:42] be our long-term strategy there's not [10:44] enough we knew that there's you know for [10:46] backdrop there's about six million [10:47] Employers in the US and so you know if [10:50] you're going to get to real real volume [10:51] in the space you have to go into many [10:53] many Industries it was going to be more [10:55] of a horizontal solution but after demo [10:57] day we actually did not launch the [10:59] product that was also kind of a [11:00] non-obvious choice we made um we'll [11:03] probably talk about the seed round we [11:04] did but we actually didn't launch um [11:07] publicly where you could like come up as [11:08] a stranger who we've never met right all [11:11] the other YC companies we had met and [11:12] knew but like a stranger who we've never [11:15] met could come to our website could set [11:17] up could add employees could go run [11:20] payroll and it would all work and if [11:22] they wanted to call us they could but it [11:24] would actually all be there um uh ready [11:27] for for them to use we didn't actually [11:29] do that till December of 2012 so several [11:32] months later you mentioned the SE drown [11:34] as I remember it at the time you [11:37] actually ended up raising I think the [11:38] largest SE round any YC company had [11:40] raised at the end of the batch around [11:42] demo day um but as you said you didn't [11:43] actually launch into officially launched [11:45] until after the badge and so you didn't [11:48] have sort of like this obvious traction [11:50] story here were like growing Revenue [11:52] week over week at by 10 15% so what did [11:56] you do to convince investors and and why [11:58] did it go so well [11:59] I think couple building blocks number [12:01] one um I think we stood out simply [12:04] because we weren't like everyone else so [12:07] that was interesting at least to some [12:08] folks who were kind of ready for like [12:10] tackling or evaluating or meeting [12:12] Founders who like had a business with a [12:15] straightforward business model like we [12:16] were going to charge our customers for [12:18] using the product it's a SAS business [12:21] but if you look at the space we're in I [12:22] think this is where you know folks that [12:24] aren't in the space aren't aware of this [12:25] but you had this amazing combination of [12:28] you know some big incumbents like like [12:30] paychecks and ADP worth you know over [12:32] hundred billion dollar together at that [12:34] point so like clearly big big incumbent [12:37] Market presence in terms of like [12:39] economic value but also an incredibly [12:41] fragmented market like ADP and paychecks [12:44] at that point were you know less than [12:46] you know 20 30% of the customers out [12:49] there so you had tons of folks on pen [12:51] and paper and so we had a I think a good [12:53] story to tell on like this is a real [12:55] paino people get that and then there's [12:57] this big disruption happening which [12:59] we're going to be leveraging and the [13:00] disruption is in both technology and go [13:02] to market on the technology front it's [13:04] you know at that point it was um uh [13:07] Cloud uh paperless and mobile um three [13:10] Trends we didn't create but we [13:12] definitely leveraged to our benefit and [13:14] on the distribution side it was um [13:17] search like SEO and then social no one's [13:20] ever cracked the small business side of [13:21] this Market um there's these technology [13:24] changes and distribution changes [13:26] underway that typically benefit a [13:28] disrupt RoR not the incumbent and now [13:31] maybe now is the time finally when like [13:33] small business will start getting [13:34] amazing software and they won't just be [13:36] into it as the one example of a company [13:38] that like cons serve small business and [13:39] I would actually argue investors are [13:41] pretty much always excited about big big [13:43] markets with like clear business models [13:45] and then always a hypothesis if you're a [13:47] seed stage on like how are you going to [13:49] go capture that market um but we had I [13:51] think like over 11 VC firms offer to [13:55] invest whichi chose to do the round with [13:57] no VC firms it was all Angels so we [14:00] raised from you know 20 plus CEOs and [14:02] Founders um it was you know CEOs and [14:05] founders of you know PayPal and stripe [14:08] and you know um mint and Instagram and a [14:11] whole bunch of amazing businesses and it [14:13] was great to have them be um sounding [14:15] boards so I think that that helped with [14:17] the story but I would always say like no [14:19] matter what's hot at the moment um I [14:21] think most Founders or most investors [14:23] are pretty excited about you know huge [14:25] Market um you know Industries going [14:28] through disruption and and a you know [14:31] new company coming in that has a pretty [14:32] good strategy at least at that point on [14:34] how to go turn it into reality so I [14:36] think I personally have been getting [14:38] paid through Gusto for over a decade at [14:40] this point um and what's always stood [14:42] out to me as a user is just your product [14:44] has always had this sense of like fun [14:47] and Whimsy and just design um which is [14:49] obviously not what you associate um with [14:51] the payroll companies that came before [14:53] you um can you speak to like when did [14:55] that start and why has that sort of fund [14:59] design sort of heart being important to [15:01] you yeah we think of it as like warmth [15:03] hopefully cuz you know it it's obviously [15:05] still a really business critical task [15:07] we're doing reliability accuracy is you [15:09] know stuff that we're obsessed with you [15:11] know that's more I think a byproduct of [15:13] how we view what like software should be [15:15] right like you know there's a world [15:17] where like software you know is is hard [15:20] and difficult and you kind of feel like [15:21] it's a cumbersome thing to navigate um [15:24] there's also a world where it's like [15:26] this cold frictionless sterile machine [15:29] that just works and hums uh for our [15:32] product product space our problem space [15:34] like we just really believed you you [15:36] need both like the stuff we abstract [15:38] needs to be super automated and like [15:40] very powerful but like we're going to [15:41] ultimately be this partner to you in [15:43] navigating really important decisions [15:45] like you know paying someone choosing [15:48] their pay or the employee side getting [15:50] paid like these are magical moments to [15:51] be a part of it just we didn't even [15:53] debate it it just felt weird like why [15:54] wouldn't you want to bring warmth and [15:56] Humanity into that interaction during [15:59] that time I hadn't thought of this [16:00] before but like you were building a [16:02] company that wasn't the typical type of [16:03] company people were building during this [16:05] era so did you have like a peer group to [16:07] lean to where this sort of stuff like [16:08] figuring out compliance in multiple [16:10] States um growing like to small [16:13] businesses and doing sales and getting [16:15] them on board like were there other [16:17] Founders you could lean on for advice or [16:19] were you sort of figuring this out a lot [16:21] for yourselves why everyone else is [16:22] building photos sharing apps um well [16:25] Kevin is a friend from college and [16:27] Instagram I mean he he a investor in [16:29] Gusto so you know it was fun to talk to [16:31] him about some of the scaling stuff but [16:33] actually I think uh you know you know [16:36] this more than anyone like Tech is [16:38] pretty broad so even back then right [16:40] like was everyone building mobile [16:42] showing ars no like Jeremy stalman from [16:44] Yelp is one of our Angel Investors he's [16:46] been passionate about small business [16:47] forever right Dar Shaw from HubSpot [16:50] cares a lot about small business he was [16:52] also one of our Angel Investors it was [16:53] fun to talk to him about how they [16:54] approached the front office component to [16:56] this Max Lin PayPal you know obviously [16:59] fintech and that was you know predating [17:01] that time period but like really cool to [17:03] talk to him and Keek out on how he [17:04] approached companyb building Patrick at [17:06] stripe was an angel investor so we [17:07] actually had plenty of like again folks [17:09] I would have honestly paid money to to [17:11] give us advice and said they gave us [17:12] money but they also got stock [17:15] so fine for that but like no we felt [17:16] like we had a really good network of [17:18] folks that honestly I think part of why [17:20] they got excited about investing um was [17:23] they they realized how foundational this [17:25] problem is right they had all felt it [17:26] they're all founders and building their [17:28] companies when they were small like all [17:30] of that complexity that compliance that [17:32] back office headache type stuff all the [17:34] things that are manual like you know we [17:37] talked about it and then we had to go [17:38] prove it but like we were clearly going [17:40] to be a company obsessed with how to go [17:43] make that stuff easier and simpler and I [17:45] think a lot of them just got excited [17:46] about like making that mission real you [17:49] launched your first product um when it's [17:51] three of you in a house um and you [17:53] launch your second product when you have [17:54] hundreds of employees and um uh lots of [17:58] more investors and just like a lot more [17:59] going on like what are some of the big [18:01] differences between those two and and [18:03] how do you keep the startup speed when [18:06] you're launching you products at scale [18:08] so some of the first similarities are [18:10] like the benefits team at Gusto started [18:12] as like a small team of five people you [18:14] know with the same dynamic as when we [18:16] were just five people and the painful [18:19] part was it meant we had to pull five [18:20] people off of payroll so that's the you [18:22] know puzzle when you shift from one [18:24] product to multiproduct you do it too [18:25] early and you're spreading yourself too [18:27] thin you do it too late and you're kind [18:29] of just not helping your customer with [18:30] all these things you could help them [18:32] with and so we had to make sure we were [18:34] you know still have tons to do even [18:35] today around payroll and there's a lot [18:37] more coming there in terms of um [18:39] Innovations and payroll but you know [18:41] separate at the team create a separate [18:43] swim Lane give them lots of autonomy [18:45] align on like that deep deep connection [18:47] to the customer it was a little bit [18:49] easier actually because it's not [18:51] prospective customers these are existing [18:52] Gusto customers when we say can we talk [18:54] to you about doing benefits most were [18:56] like oh yeah we're happy to give you [18:57] feedback let me tell you exact would be [18:59] awesome let me react to your you know [19:01] spec your you know wireframe your [19:03] diagram your early like beta usage and [19:05] like there was a lot of like that'd be [19:07] incredible that'd be amazing we'd love [19:08] for you to do that please do it faster [19:10] and so um you know you still face the [19:13] the challenges of like how do you [19:15] allocate money in a company how do you [19:17] allocate headcount um but the the [19:19] mindset of like create different swim [19:20] Lanes actually persists today like we [19:22] have many many products now and most of [19:24] those teams operate as different swim [19:26] Lanes inside the company and we want [19:27] people that are in that swim Lane to be [19:29] obsessed with that paino that problem [19:31] and solving it uh and frankly there's [19:33] other guust has focused on you know the [19:35] other problems that we're solving [19:36] especially as you've got multiproduct it [19:38] also means you run into more competition [19:41] and competitors um at the very very [19:43] early stages I often feel like one of [19:45] the things I hear a lot from Founders [19:46] when they're trying to pick in idea oh [19:48] I'm worried there's too much competition [19:50] um how do you think about that like how [19:52] what your advice to Founders on should [19:53] they should they be worried about [19:55] competition or not thinking about it at [19:56] all so I think when you're really really [19:58] early you know you got to look at like [20:00] the market and like if and this wasn't [20:02] the case for Gusto like someone has like [20:04] 90% market share that's definitely like [20:07] trickier right like the cool thing for [20:10] us was in all of the products we've done [20:12] so far they are massively fragmented [20:14] markets so you know I would be weirded [20:17] out if there wasn't competition because [20:18] that means like almost we're somehow the [20:21] only ones that saw the Insight that you [20:22] could build a big business here so [20:23] competition is good it means that people [20:25] also see the opportunity you have um but [20:28] you know fragmented Market means there's [20:30] a lot more opportunity to focus on what [20:32] you're doing versus get distracted by [20:34] what someone else is doing and then you [20:35] just got to make sure you have you know [20:37] a strategy that's unique to you and then [20:39] you know beyond that you just got to [20:41] execute like at the end of the day build [20:43] the best product build the best go to [20:44] market like be you know the one that's [20:47] winning the most market share based on [20:50] like you know conversion retention Etc [20:53] and and the rest you know Works its [20:54] Works its way out I think it's it's more [20:56] challenging if you have the same [20:58] strategy as someone that's much bigger [20:59] than you who has more money and [21:01] resources and is moving as fast as you [21:03] in our case it was there was definitely [21:05] companies bigger than us but they're [21:06] moving much much much slower than us and [21:08] so we could just really focus on [21:09] executing as fast as possible so [21:11] speaking of Founders you have three [21:12] co-founders um and all three of you are [21:15] still very actively involved in the [21:17] company and every time I see you it's [21:19] very clear that all three of you are [21:20] very like pumped and excited to work on [21:22] the company and with each other we're [21:24] early we have so much to do well I I [21:26] think it's pretty unusual to see like a [21:28] three Co Founders actually stick at the [21:29] company for this long [21:31] um what's your secret there like did you [21:34] guys get lucky and the Stars aligned or [21:36] did you something behind the scenes [21:38] that's made it work so well so I think [21:39] there's like luck for sure but there's [21:41] some things that have to align like one [21:43] way to think about it and make it you [21:44] know actionable for everyone is like how [21:47] do you build long-term relationships [21:49] well you know it takes work and there's [21:52] like ingredients that have to be there [21:53] already so the three of us like loving [21:56] technology wanting to dedicate our eles [21:58] to building products to go solve [22:00] meaningful problems deriving a lot of [22:03] Joy from like helping others and like [22:06] also really having this deep like we [22:08] call it today productive discontent like [22:11] we're just constantly both you know [22:13] proud of the progress slash like really [22:15] eager to get to the next step The Next [22:17] Step The Next Step because there's so [22:18] many people we could help there's so [22:20] many more problems we could solve um you [22:23] know those were the ingredients I had to [22:24] line up and then you know you got to [22:26] invest in good communication had to give [22:28] feedback to each other um but but yeah [22:31] you know 13 years in like we're even [22:33] more excited and more focused on like [22:35] how can we do more faster um and I'm [22:39] really grateful to my co-founders for [22:41] the important roles they play in the [22:42] company the number one thing never wants [22:44] to talk about at the moment is AI um how [22:48] how do you think about AI impacting both [22:50] Gusto's business and the product but [22:52] then also Gusto the organization we've [22:55] always said like small business you know [22:57] they want an opinion ated partner right [22:59] they don't want just a tool they want [23:01] just a set of menu of options they're [23:03] super busy they're wearing many many [23:04] different hats and they don't frankly [23:07] have the resources to go hire all of the [23:10] Specialists that a big company has so [23:12] they're either left on their own [23:13] Googling it or you know they start [23:16] working with a company like Gusto um and [23:19] so uh what AI enables us to do is is [23:22] turn that Vision in reality even faster [23:24] right like you can imagine um Gusto as [23:26] we continue to add more and more [23:27] capabilities [23:29] and keep evolving our interface to kind [23:31] of become that back office agent that [23:34] you know set of capabilities for a [23:36] business owner that's highly [23:38] personalized unique to their needs [23:40] pattern matching on their industry [23:42] growth rate and profile and like being [23:44] proactive in helping solve pain in their [23:46] life not just waiting for them to log [23:48] into our website and go click some [23:50] things final question for me just um [23:52] yeah you're you pass the first decade of [23:55] Gusto into the second decade like what [23:57] what is the second decade look like like [23:59] what what do we have to look forward to [24:01] and what's of your vision of of Gusto 10 [24:03] years from now yeah I mean two stats [24:05] I'll just share um there's about 550,000 [24:08] uh new employers each year in the US and [24:12] the historical stat is that about 52% [24:15] make it to year five so you know 500,000 [24:18] new employers have make it to year five [24:21] like we want to increase both numbers [24:22] and that's the simplest way I can put it [24:24] so there's a whole bunch of product [24:25] behind that I won't do any secret unveil [24:27] right now something we did announce [24:29] recently though is a compliance Hub so [24:31] just like a One-Stop shop for all those [24:33] compliance tasks pain points like could [24:36] be payroll could be benefits could [24:37] ultimately be anything like we're going [24:39] to be the company that takes care of all [24:40] of that for you um and you're going to [24:43] see uh us be pretty aggressive in that [24:44] area well thanks so much for the time [24:46] Josh this is a lot of fun yeah thank you [24:48] [Music] [24:54] thanks I'm excited to announce that this [24:56] summer YC will be giving Grant to [24:58] college students to work on their own [25:00] technical projects we're calling these [25:02] the summer fellows grants we think now [25:04] is the best time for students to spend [25:05] the summer working on things they find [25:07] technically interesting ambitious [25:09] technical college students can now build [25:12] something important before the summer is [25:14] even over the grants will be $20,000 in [25:16] cash and another $90,000 in compute [25:19] credit from Microsoft Google and Amazon [25:22] each summer fellow will get to attend [25:23] YC's AI startup School in June and we'll [25:26] also host some in-person co- working [25:28] days at the YC office in June and August [25:31] at the end of the summer you'll present [25:33] what you've built to everyone we're most [25:35] interested in funding technical projects [25:37] that are using AI in new ways but we're [25:39] happy to find anything that smart [25:41] programmers find interesting the grants [25:43] are available to any undergraduate [25:44] computer science or engineering students [25:47] including freshmen and students outside [25:49] the US our goal is to give you the [25:50] freedom to work on your own projects [25:52] independently and meet some other smart [25:54] students while you're doing it if this [25:55] sounds interesting to you please submit [25:57] an application telling us about the most [25:59] interesting technical project you've [26:00] worked on so far and what you're [26:02] thinking about working on this summer if [26:04] you don't have a project in mind yet [26:06] just tell us about the technical things [26:07] you find interesting and have been [26:09] thinking about recently thanks