118: Josh Reeves, Co-Founder and CEO of Gusto, The 3-Part Alignment Framework Every Founder Needs...

In a startup, I sometimes say you have to be running the train while building the train while laying the tracks, while trying to make the train go faster. And so that's building to me. And some people get really excited about that. And others go, 'Wow, that sounds really terrible.' That's a pretty good self-selection right there. Is someone excited to be in that environment or do they want more of that stability around them?

Yeah. It's not good or bad people, right? It's just simply figuring out and sussing out is someone going eyes wide open into what is needed.

Great to be here. Thanks for the invite, Alyssa.

Well, Gusto, we are a company that serves over 300,000 businesses. We offer the people platform and yeah, excited to get into all the early days, all the stories, all the learnings. So we started the company about 12 years ago in 2011, me and two co-founders, and we wanted to tackle a real pain point, something that was very broken, painful, and try to spend hopefully decades making it better. And so our insight was really around the experience of having been prior entrepreneurs with startups with small businesses and having gone through the process of building a team, setting up payroll, setting up state tax registrations, setting up health insurance and finding it more complicated than we felt it needed to be. And also our experience with family having run and worked at small businesses and really believing that there was an opportunity to make that experience so much easier and simpler.

I would say on behalf of the three of us, Tom, Eddie, and myself, I actually think one of the shared traits we have had then and have now is it's fun to fix stuff. It's fun to problem solve. It's fun to take something that's broken and think about how to make it better, how to improve it. You know, all three of us studied engineering back in school, which is a lot focused on that type of thinking, right? Problem solving, solutions, brainstorming, and then building something, right? Not just thinking about it, but actually doing something about it. And so, when we came together in 2011, it wasn't just our pain point, frankly. We did some research. At that point in time, you had over 40% of companies in the US trying to do payroll by hand getting fined, penalized, making mistakes. And so, we really wanted to tackle a mainstream pain point. So, even though we had felt a connection to it, when we saw how many people were in pain or frustrated, that's actually what got us most excited, plus obviously some ideas of how we can make it better. And then we didn't really get excited until we started actually making it better.

Yeah. So, I was born and raised San Francisco Bay Area. My mom is an immigrant from Bolivia. My dad moved out from Pittsburgh, Pennsylvania. They're both the first in the family to go to college. And they both became teachers. My dad was a high school teacher in SFUSD, San Francisco Unified Public School District, and my mom was an elementary school language teacher. And so I would say one of the things that definitely impacted me from that experience was having a value that we have at Gusto called service mindset. You know, really instilled quite early on this joy, this excitement to be of service to others, to help others. When you have parents that are teachers, you get exposure to that mindset very early on.

Yeah. So, I think of entrepreneurship as more of a mindset. I think some people associate it more with tech and startups. You know, my mom came here again when she was 18, didn't have anything, didn't speak any English, and found a way to put herself through university, found a way to get a job, found a way to create a community, found a way to learn the language, got a scholarship. You know, all of that to me is entrepreneurial. This idea of turning nothing into something is entrepreneurship. So, definitely felt inspired by their example. Neither to be clear had any connection exposure whatsoever to the tech startup ecosystem. Actually I was the one that got really interested in math and science. Both are much more on the humanities side of the spectrum. But I really love their example of through hard work and also pushing yourself to think about what's possible you can change the world around you.

Yeah. And you know, even my dad came out from Pennsylvania. He did move 3,000 miles west. You know, didn't have any relationships here either. And he had to find a way to go create a new life for himself as well. And so yeah, really grateful to both my parents' example both on the service mindset dimension also on that kind of mindset of see the world around you, think about what you disagree with and then go do something about it and that action, that call to action is something that I've tried to put into my life definitely in the startup journey which requires lots of building.

These days, org charts are all in software, and so there's no real simple visual. I think if we went back in the past and did have a paper-based org chart, I would put myself at the bottom, but really the mindset here we're trying to communicate isn't just about me and my role. It's about what is leadership and what is management in a company. And at Gusto, we actually have a concept called people empowerment. So this idea is that yes it's important for a leader to be very intentional to delegate when needed, to be directive when needed, but if we've done our hiring process correctly we're actually bringing in people to the team, we call ourselves Gusties, who already care about this problem, already have an aligned value system, and already have a relevant skill to help us move forward and they want to keep growing and developing in the company. That's really, really valuable. But if that's already in place when we hire someone then the role of empowering them is not just managing. It's actually about how to unblock and enable them to go reach their potential. That's a mindset that we have across all aspects of leadership in the company, including how I approach my role.

First off, we have a framework here which I'll share kind of a mental model for hiring. And then I think there are tactical ways to be on interviews assess someone's talent. It can be when I'm hiring, doing things like reference checks or doing case studies. But there's always a leap of faith on both sides there when it comes to joining a business. For the candidate, it's hey, is it going to be as it's promised in terms of the way we actually work and for the company, it's is this candidate going to actually contribute what we expect and want because neither party at that point has actually worked together. But I think that's a healthy dimension to the relationship and it always should have that backdrop to it. So in terms of that mental model that I alluded to, we really think about hiring as a search for alignment. It's not a company convincing someone to join or a candidate convincing the company to hire them. It's kind of both stakeholders figuring out can we do something amazing together. And then we assess that alignment on three dimensions. I alluded to this earlier, but values alignment, motivation alignment, and skill alignment. And so values alignment is really more of a conversation around how someone approaches partnership, collaboration, what they get energy from, what drains them. And we have very opinionated set of values at Gusto that we're assessing if someone aligns with. If they don't align with our values, they're not a bad person at all. It just means they'll be more successful, more effective in a different organization where that values alignment is there. And so we do think a lot about making sure that that alignment's there up front. And I really believe people don't have personal professional values. They just have the values that guide them. And again, we want to make sure that that alignment is there from the beginning. Motivation alignment we also alluded to earlier I think is such a critical one because it ties to interest, passion for our problem space. Right? We're trying to go make healthcare more accessible and affordable. We're trying to make it easier for entrepreneurs to start new businesses. We're trying to improve that employer-employee connection and relationship. Those are parts of the mission we have at Gusto. Not everyone in the world cares about those topics and that's okay. But we do want to find folks that do align with those topics. We look for examples not just them saying it but demonstrated interest in those areas based on their prior experiences. And then skill set alignment is the one I think most folks gravitate towards. And that's where depending on the role you do a variety of things to go assess does this person have the skill needed to be effective when they join the organization. But I spend more time frankly on that values motivation alignment bucket because the skill set alignment piece is the one that tends to get too much attention.

Yeah. So the main mindset I have to that conversation is it's really a conversation to get to know each other better opportunity and I usually just ask why a lot. So, we'll typically be talking about a prior chapter, a prior project, an activity, either a crisis or a big successful milestone. And I want to understand what the person did, what role they played, when it was working or not working, why. And I keep asking why is kind of the way I think about it. And I'm trying to get people from answering what they think I want to hear into just sharing. And when you get someone in an interview in just sharing mode, just answering, talking, opening up on their thinking, their thought process, it gives you a chance to then assess is that alignment of values there or not. So, it really depends on the topic and the person. To be clear, I don't have a single templated type of question, but I'm mostly diving into prior experiences and then really trying to get into that second, third order backdrop of what drove them to take that specific action.

Yeah. So I'll just put two of ours on the table and then we can go through both. But we have a value around service mindset I mentioned earlier. We also have a value around curiosity, asking why, really wanting to, we think of it as ownership mentality, like understand the reason behind something so they can improve it, make it better. So for your experience, I would be really curious, you alluded to why you went. There was something there around this community you were a part of. And I'm curious like, why were you interested in connecting with these folks? And in particular, were you the one that was benefiting? Did others benefit? Tell me more about who else was a part of it. Tell me more about whether you wanted to do it solo or whether you thought it was important to be doing it as a part of a broader service trip. That would give me more of a signal on do you have this authentic passion for helping others, frankly.

And I would probably in that then dive into the why piece, you know, were you a driver of that or a passenger? So like was that just what was assigned to you? Did you say that's what you wanted to do when you were there? Like what made you enjoy it? And I can tell if someone's describing that, I would imagine if you're describing the actual details of that experience, do you get really excited and kind of remember how meaningful that was to you or is it kind of more of like this thing you did because it was just a part of the program?

And it's a conversation. Again, there's limited time, limited topics to cover. It's more of just trying to get a sense of what gives this person energy, how they tick, why they tick that way, what's intentional, unintentional. And again, we have a set of values at Gusto. Someone aligns, amazing. If not, they're probably still a wonderful person. It just means that they might be more successful in another organization because these values drive how we collaborate. They drive a large part of how we make decisions. They drive a large part of how we connect as teammates and so they're pretty important for us to be aligned around.

Yeah. So, we would on more of a motivation alignment topic dive into like what are some of the proudest moments you've had in your work life or just life in general and what are the topics that you gravitate to, why are you interested in joining Gusto really gets to the heart of it and we try to assess if someone's saying again what they think they want to hear versus what they authentically care about and are excited about and then again same exercise it's kind of asking why getting into the second, third order reasons behind the answer. You know, if someone starts going off about healthcare and maybe because of a family member, maybe because of a parent, maybe because of an experience in the healthcare system, and then they talk about an internship they did or they talk about a volunteer project they had or they talk about a school project they did. Just again, if someone says they've been passionate about healthcare, the very easy quick follow-up is, well, tell me what you've done in healthcare. And so, it's just trying to get into not just the words piece of it, but the actions piece of it. It doesn't have to have been that they worked in healthcare. It could be that they have a favorite article, a favorite book they read, something that demonstrates intrinsic interest and motivation to have that thing be a part of what they want to go impact, make better, and improve in the world.

Today is getting close to around 2500.

Yeah. So it's had multiple phases as you can imagine. Up through about I would say the first 50, 60 people at Gusto, I did interview every person and I did focus on a lot of the topics that we've been discussing because I was just one member of a hiring panel and there was other folks on the panel focusing on things like skill set alignment if I wasn't the hiring manager. And then we went through a phase where I knew a few Gusties who had very similar types of interviews they did and it was probably around 150 people that we had to formalize a program. So today we have an interview at Gusto that people get trained on. It's called the Values and Motivation Alignment interview. So the VMA. And it's a program we have people that commit to spending a certain number of hours a week in the company doing this interview. Every candidate at Gusto has a VMA interview as a part of their hiring panel experience. You know, as a part of the training process, shadowing, reverse shadowing, there's a set of content, like a couple hour workshop. And so it's now a program that's scaled up. When we look at, I'm still a part of hiring committee, we look at all the different offers going out every week, all the candidates that we're contemplating making an offer to rather. It's one of the first scorecards I look at is the VMA scorecard. So definitely not involved in every interview at this point, but the program does scale as long as there's intentionality around the training and then bringing in new folks that can kind of carry that same interview format forward.

Yeah.

Yeah, I'm going to try to break it down into a couple of phases because 12 years to your point, there's been many, many changes over that time period. But I would say the earliest phase is probably the one most people can relate to. When you're a three-person team, five-person team, everyone every day is doing the very heart of building which to me if you're a software company is you have people writing code. You have people obviously if they're creating a website writing marketing copy. You have if you're interacting with a customer in a sales call you're doing a sales conversation. If they're calling in to customer support you're doing a customer support call. This is the act of building, right, is all these things that impact customer directly or indirectly and make your product better and are there to serve the customer. So I was in that context I was initially doing some software engineering and then also in the subsequent phase really focused a lot on our go-to-market and more of our company operations side of things. So building out our marketing team, building out our sales team, hiring the first folks to those teams, thinking through which roles, responsibilities, what projects, and on the company operations side, really trying to enable as much of the company as possible to be focused on customer-facing building work. So I was working with our accountants. I was working with our lawyers. I was working with our, all the stuff kind of behind the scenes, our environment team, how we order food for folks in the office, our office spaces, everything that kind of is what we call foundation, but kind of the building blocks to enable folks to go do their work to help customers. Now, next phase from there on all of those, you can imagine I had a saying then which I'll repeat now. My job was to fire myself from as many of those jobs as possible. That's just purely scaling, right? Like I couldn't be the person that was doing almost all the sales calls or ordering almost all the lunches and also setting up a lot of the marketing copy. That just doesn't work when you have more and more work to get done. And so it was about hiring folks to those teams. And then as we got even bigger, it was making sure we have leaders of those specific teams. And so at that point once we had leaders of these different areas, my job shifted a lot more into really two buckets I would say and maybe three buckets. It was number one making sure we had the right leaders. So team building and giving them feedback, coaching and if necessary making changes, but really trying to help those leaders be successful. Number two was we have to make sure we're all going towards a common direction. So there's something in bigger companies we would call planning, but early on it's really just prioritization like what are we doing now versus what are we doing later? And that gets more and more sophisticated as you get larger. So today we have these three-year planning arcs. We have our fiscal year planning. We have our QBR and MBR process to do quarterly and monthly business reviews. We have OKRs, lots of acronyms to kind of navigate how to set goals. All becomes useful when you're a bit larger, but really it's just prioritization. And then the third thing I would add there is I'm still connecting to all Gusties, how we evolve our all hands, how we evolve our onboarding. And then, frankly, that phase has continued just with more people, right? I'm still focused on leaders and helping them be successful. I'm still focused on planning and prioritization, what we're doing now versus later. And I'm still focused for sure on how we connect as a broader community, how we equip Gusties to be informed so they can go execute and do their work to the best of their ability. So that's just a quick walkthrough of some of the evolution.

Well, I think I was definitely not perfect in hiring. So, a lot of that is kind of a question of when we bring in leaders for various roles, are they the right person? Are they effective? Are we setting them up for success? But also, are they going to be able to deliver and do what's needed for the business? And, you know, there can be great talent that joins, we had this happen, amazing talent that we hired when the company was too small for that talent. And so then that's a misalignment of the phase of the company relative to the person's skill set and ability to have impact. So in those moments often I'm jumping in right on the person when we are making a change in leadership that they will jump in if it's someone that I'm more directly empowering or managing to go do that job for a time. But I know that purely from a time prioritization lens, the only way I'm going to be able to keep scaling the company and myself is to make sure that we bring in the right leader for that specific area. So definitely not perfect scorecard by any stretch, but always trying to learn and improve every step of the way.

Yeah. So I'll get into the symptoms. Maybe one thing I'll add right before is just especially for the folks that are listening that are founders or aspiring founders just I really want to make it clear this work of making sure that we have the right talent and we're helping them be successful that's the majority of the CEO job and I really find it incredible to have a chance to do it like being able to witness and see someone when they've joined or have been here for a long time tackle a project and be successful and grow and learn and stretch themselves and overcome some blocks or barriers and see the customer benefit but also see that person grow as a part of it is an amazing, amazing thing to be a part of. It's one of the reasons why I love the role I'm in frankly and I think if that resonates with the listeners that's actually again something that can't be forced or be faked. It has to be authentically something that excites someone because again when you're scaling as a founder leader a big part of the job is all about team. So yeah to your question now on symptoms, this is why it's complicated, right? Part of me always wants to believe in the potential of every person I'm working with because I truly believe that people have growth mindset. We hire folks at Gusto who have growth mindset. So it's not a surprise to me like they want to improve. They're looking for feedback. They're excited to grow and gain new skill. And that's definitely what we want in people that join our team. Now, the complicating factor is people can be growing, but sometimes the company and the role is growing faster than they're growing. And that's where I think to the heart of your question, symptoms can develop. And often the symptom can be someone is working really, really hard and trying their very, very best and they're feeling overwhelmed and they're running out of time in the day and the answer is not creating more time in the day. The answer is changing their thinking, their thought process. They might have the capacity to do that on their own or it might be amazing to bring in someone who's seen some of what they're navigating can join and do that work for this next phase and be a mentor, a guide, help this person grow and learn and so much of our journey in life is about learning and growing from those around us. And so, for me that's come a lot from our board, our advisors, our angel investors. But I think that concept exists for all people or not even just leaders, right? As an individual in a role, how does one think about growing, gaining new skill and frankly both pitfalls can happen. One is getting complacent and kind of it becoming very static and easy and the job is very simple. Well that's perhaps good in some ways but also going to lead to lack of growth. On the flip side if the job is getting harder and harder and harder and maybe that growth isn't happening fast enough well the solution isn't perhaps exiting from the company. It might be just changing one's role and getting a different set of responsibilities.

Yeah, I would sometimes describe I think there's two dynamics there. One is just the phase that they're joining. And so some people might be more familiar with different infrastructure being available. And if they've never had to build that infrastructure, let's say you're running or someone's running a marketing program and they kind of are used to having all the instrumentation ready because they've been in a huge company where that stuff was done years ago, then there might be a gap in their skill set. Now, they could hire someone to help them fill that gap or the gap might be so large that actually they don't know where to start. In which case, that's a good example of someone perhaps being a better fit maybe a few years later down the line when more of that infrastructure is in place. I think a separate topic though I care a lot about if you're focusing here on hiring from bigger organizations is you can still find folks that are builders, right? I think there's a difference between being a builder and being a manager. Builders need to also be great at leading people to be clear, but there is a pitfall for some leaders in bigger companies to be really good at managing the system that's there today. And in a startup, I sometimes say you have to be running the train while building the train, while laying the tracks, while trying to make the train go faster. And so that's building to me. And some people get really excited about that. And others go, 'Wow, that sounds really terrible.' That's a pretty good self-selection right there. Is someone excited to be in that environment or do they want more of that stability around them?

Yeah. And neither is that good or bad people, right? It's just simply figuring out and sussing out is someone going eyes wide open into what is needed because for a startup and to me again startup is more of a high growth company. You can be high growth at bigger and bigger scale if you're in a huge market. The change is not happening for the sake of it, right? Like there's change needed. The train needs to be rebuilt and the tracks need to be kept getting laid because the world is changing. We're adding more customers. We're expanding our product mix. So, there's a lot of change happening due to those things. And the whole goal is to be able to maintain quality. Obviously, deliver a great experience while expanding your customer segments, while expanding your product mix so you can help your customers with more pain points so you can fix more things in their life. But all of that drives change. And so again, someone's going to either be excited about that and go, 'Wow, that's building. This is a chance to go make my mark and see how my work matters and how I can change something from just the status quo or incremental improvement.' And others, I think, really want to be in large established systems where you tweak something and it might lead to a billion of revenue or something. And that's good, too. That's not a bad thing. But it's just a different mindset and a different way of thinking and working, frankly.

I would say probably the definition of my leadership style is something we should ask the team more than myself. I would say I aspire to and this hasn't changed, think of myself as there to enable and empower like that concept of people empowerment we introduced when we were less than 50 people so it's been a guiding principle from the early days the idea that I'm here to be of service to the team and try to through hiring very intentionally based on values, motivation, and skill alignment help Gusties achieve their potential. We had that mindset from when we hired the first employee. Again we haven't been perfect in implementing it. We're always trying to learn and improve how we implement it, but the mindset hasn't really changed.

Too much. I mean, what has changed is obviously what I spend time on day-to-day. What's changed a lot is my knowledge and learning around specific areas. One of my favorite ways to learn, by the way, is when you do hiring. You know, when you're opening a role for a specific area, it's a chance to meet a bunch of incredible leaders in that area and understand what's going to work best for your company. And so, you know, early on I obviously had not ever hired someone to lead finance, never hired someone to lead marketing, never hired someone to lead all the different functions in a company. 12 years in now, I've done a bunch of that hiring. So, there's a lot more knowledge and pattern matching there. But I would say that the core philosophy has stayed the same.

Yeah, I'm a big fan of the situational leadership framework if you're familiar with it.