$10B Gusto CEO: "Imagine Describing Your Idea The 10,000th Time, Will You Still Be Excited?"

I remember we're making like $1,000 a day in ad revenue. We're building these kind of useful little applications, but whenever I got asked by friends, 'Hey, what are you working on? What are you up to?' I would just say, 'We're in stealth. We're in stealth mode.' Which sounded cool at the time, but in hindsight, it's just an absurd way of saying I don't know what we're doing.

Well, whatever gets us there. I'm really excited to be here. Thrilled to chat, thrilled to hopefully share some learnings, lessons, thrilled to learn. I'm always trying to learn myself.

I can go back to then. Let's go back. So, I studied... Yeah, I can go back further if you want. Let me start with like a little bit of childhood.

We don't have that much time. Everything, but the important things. Formative moments and formative impacts for me. Very much my parents. My mom and dad were both teachers. So, this format itself I love because I view it as a teaching opportunity. And my dad was a high school teacher and my mom was an elementary school language teacher. They're both the first in their families to go to college. And so, I grew up with a younger brother. My dad taught humanities. So, I loved math and science, but it was a very kind of innate curiosity. I did go to Stanford. I studied electrical engineering. I was there during the dot-com collapse. So, I remember starting freshman year in 2001 and talking to some folks and it was just obvious at that point. There's no future in software. It's all done. The internet is over.

Which obviously was an absurd statement, but a good kind of reminder of not following conventional wisdom or what's popular at the moment, because that was kind of the conventional wisdom in 2001. And then, I actually worked at a startup to answer your question. I joined a startup called Zazzle, an e-commerce company.

I mean, I got excited about the ability for anyone in the world that was creative to go create products on Zazzle. Initially, it was just things like cards and posters and shirts. Now, they have many products. And then anyone else could go buy those products. Zazzle would manufacture it on demand, but specifically, that creator would then get a percentage, basically a payment based on the product creation. So, to me, it was, you know, 2005, 2006, Web 2.0 was just coming about. But this idea that the internet actually was this incredible distribution platform sounds very simple in hindsight. But to me, I got really excited about the chance for folks to kind of go make a living doing stuff they love.

So, I was there for about two to three years. I was a product manager. So, I got my first kind of exposure to how to build software with professionals, with engineers, with designers. Again, using a different tech stack than what we use today, but definitely kind of the beginning of this next big internet boom that started in '05, '06. I was on High Street in Palo Alto. Down the street was Facebook with like less than 50 people. It was a very interesting time. TechCrunch was just getting started. I remember going to some of the barbecues in the backyard of the owner.

So, I have Zazzle as a chapter where I learned how to kind of build software in a more professional environment. Decided not to do the PhD in electrical engineering, so only finished with the master's. And then I have a startup chapter between Zazzle and Gusto. And it's a useful kind of story because it was very much a different... It's a good contrast to how we've approached building Gusto. So, in 2008, me and a friend started a company. And why did we start a company? Because our friends were starting companies. And I would say it's a very quick learning from that. That's not a good reason, in my opinion, to start a company.

No, there was no purpose. There was no kind of longer term mission or goal. Facebook platform had just gone live. We started building apps on the platform. We started making revenue. I remember we were making like a thousand dollars a day in ad revenue. We were building these kind of useful little applications, but whenever I got asked by friends, 'What are you working on? What are you up to?' I would just say we're in stealth. We're in stealth mode, which sounded cool at the time, but in hindsight, it's just an absurd way of saying I don't know what we're doing.

We're doing stuff. And or like my mental model that jumped to Gusto was, you know, the problem we're trying to fix, the mission we have. I'm so into it that I want to tell every single person I know, and that's one of my advice points to founders is imagine when you're describing what you're doing the 10,000th time you're describing it, will you be as excited as the first time? And you almost kind of want to not be able to hold yourself back from saying, here's the problem we're trying to fix. Here's the thing we're trying to make better. And then you got to go deliver on that. Obviously, that's the hard work, and then do it in a scalable business. But the problem to me was the main takeaway I had from that chapter, and so, you know, fast forward to 2011, me and two co-founders started Gusto, ZenPayroll at the time. We had all run these prior startups. So, my prior startup I had set up payroll, health benefits. I had felt some of that pain and frustration. So, that's actually how we got some of the exposure to the problem space was literally running these prior small businesses. And then also having family run small business. And we said, 'Hey, this seems like a real problem. Maybe we can try to make it better.'

Yeah, there was two things that... Oh, go ahead.

I mean, two things jumped out at us. You just hit both on the nail on the head. I know it's relevant to why you do this podcast, too. One was just, yeah, small businesses weren't getting access to great technology, great product. But two, the systems almost felt like they treated people like transactions. Like people were assigned ID numbers. There was all these acronyms. And especially in a small business where, you know, two-thirds of employers in America are less than five employees, like these are not P&L transactional company systems. This is like four human beings coming together, a business owner and a team trying to go create something useful. It's a labor of love. And so just thinking about it more as human moments. Like who's joining my company? What should they be paid? How much should I allocate towards benefits? How do I think about performance? How do I reward people? And we got really excited about that human lens to the conversation, which I think again in small business comes very authentically. And ironically doesn't get done as well as it should in bigger companies often, but matters just as much in bigger companies as well.

Yeah, I mean, we used to joke, you know, the three of us are PhD dropouts. Like when we were in elementary school, our dream was to go build HR software. No. Obviously, we had no idea what HR software was. We want to fix problems. We want to fix broken things that cause pain. And we realized when we started interviewing all these small businesses, the sheer amount of time that's being wasted in all of our... Tom, one of my co-founders, his dad runs a small clothing store. Eddie, his mom and dad ran a small doctor's office. My mother-in-law did payroll for small businesses. Like you interview and meet small businesses are all around us. And you realize, 'Ah, this is really hard.' Their journey is difficult. They have so many different hats they have to wear. And if we can make their life easier and better, that is what gets a lot of Gusties, which is what we call ourselves, excited. Like that is our progress, is actually making their life easier and better so that they can survive, not just be around in a year or two, but actually maybe grow and be around in five or 10 years.

We dive in. We dive in.

And so, first thing we had to do was figure out... I mean, we had to figure out could we build a functioning... We started with payroll, so you know, we brought in the product quite a bit. But the first product we built was payroll. We view that as kind of the least optional part of the stack. If you don't pay yourself, or if you don't pay your teammate, they quit pretty fast, right? So, we knew that was going to be the required part of it. And we actually set up a goal where we weren't going to pay ourselves till we could use our own product to pay ourselves. I don't know if you knew that.

So, a little added incentive.

Yeah, dogfooding, right? It's, you know, basically, if you are a relevant target customer of your product, then hopefully you use it yourself, obviously. So, we were a small business. We were focused on small business. We paid ourselves. We paid some friends' companies, and then we quickly wanted to expand to mainstream kind of small businesses we never had met who just heard about us through others. And when we launched in December of 2012, you know, we had 100 small businesses sign up, onboard, set up in minutes, pay themselves, pay their team, and we were like, 'Ah, now we're onto something.' Because they told us how easy it was, how much time it was saving them. And then we knew, 'Hey, now this is becoming interesting. Let's keep trying to make it better and better and better.'

You know very well that there's over 10,000 different payroll rules across the country, and it's because you have local, state, and federal. And the US in many ways is more like 50 countries. There's no coordination across states. And so even if you're a two-person company in two states, you double the amount of paperwork, compliance overhead, filing requirements, calculations you have to process. And when we take a step back, and this is very true about part of what we do, there's just a lot of stuff that the business owner shouldn't have to become an expert in, right? A lot of it has to do with compliance. But if you don't follow it and do it correctly, you get fined or get in trouble. So we kind of think of it as, 'Can we take, you know, I used to say two of the 20 hats off the head of the business owner?' Now I say maybe we can take 10 of the 20 hats off and just take on that responsibility, give them peace of mind, save them time, save them money, so that they can focus more on their product and their people, right? So back to kind of people are the core of every business. A small business owner, especially with a small team, they know everyone on that team. They care deeply about each of the individuals and obviously them staying if they're good or if they're not giving them feedback on how to get better. Yeah, small businesses I think are much cleaner, simpler when it comes to talent and people than a big company because you have that much smaller scale.

Yeah, I mean I would say more of lessons for entrepreneurs, you want to take whatever tech trends are underway and have a belief on how they help you. So when we started Gusto, you know, this is now back in 2011, 2012, I would say then things like, you know, mobile, cloud, paperless enabled us to create a dramatically easier, simpler to use product. And then from a distribution lens, things like search and social gave us the chance to grow through word of mouth and have organic be the main way that we get more customers to Gusto. And that's still the truth today, organic word of mouth is the majority of how we grow. To your question, AI absolutely is an incredible tool now, a new technology. And in our case, we actually see it as a huge tailwind. It enables Gusto to be even more of a teammate, even more of a partner, even easier to use as Gusto is more conversational, more proactive, more of a partner, more of a teammate to the small business owner. But all these are technologies, again, the goal's how do you go to the small business owner and concretely describe the way you now are saving them more time and money. That's still going to be the outcome that we all strive for or help them at least make better decisions or maybe attract a better team or retain their team better. These are the concrete actions that matter most to a business owner.

I mean, yeah, we three folks who had never ever built product or software in this domain until we again did it for ourselves. The first question anyone asked me was can you even build it? So, you know, big milestone was being able to build it. Big milestone was then customers loving it. And then it becomes how do we scale it? And a lot of that comes back to people and how we actually build the team.

So, we're very, in hindsight, very mature about it, but I would say some of the reason for that is each of us were second-time founders. So, I would definitely not say I was as mature about it in my first startup, mostly because I was much more naive, but there's this reflection, growth, chance to learn, improve. It's why I'm a big believer in second-time founders. For us, each of us had these prior startups, but when we came together, we really wanted to tackle a big problem. We wanted to try to spend decades of our life making it better. We wanted to make sure it was really clear the value we were providing. And that's what drew us together. And so then we had conversations around yes, where each of us are going to focus. Initially, we're all doing technical work, but Eddie was very clearly kind of the engineering lead. Tomer was much more of the product design, customer experience lead. And once we got the product live, I shifted to be much more focused on go-to-market. So, how we acquire customers and then also kind of just generally call it the back office, but running the business. How we do all hands, how we do hiring, how we do onboarding, how we do all the different nuts and bolts of day-to-day moving the business forward. And so we had direct conversations on roles, responsibilities. You know, I was going to be CEO. We were all three co-founders. We also had direct conversations. The other big topic to tackle early on usually is ownership. We're equal ownership when we started the company. And my advice to founders is both roles, responsibilities, and ownership, have that conversation as early as possible. I mean, if it's uncomfortable, good, have it even earlier. In our case, it was relatively smooth, but definitely a fan of having that convo as early as possible.

Make assumptions, yeah. Disconnects can develop like any relationship. Founder relationships, you know, we're 14 years in. The three of us are as close if not closer than when we started the company. We're as committed now as we've ever been. And I'm not surprised by that, but it's hard work. There had to be the ingredients of like mission, purpose, but also even when we were three people, we would have weekly meetings one-on-one, me Tomer, Tomer Eddie, me Eddie, where we would go on a walk and give feedback to each other. And like, you know, we have lots of code to write, we have lots of product to build, but going on that walk and just highlighting, you know, three things I'm really excited about and that I think is working well in our partnership, three things that I feel I could get better or improve. Having that direct dialogue when we were just three people, I think again is great advice I give to founders. You want to make sure you create the time for those conversations as well.

When we were living... So, we were in Palo Alto. Tomer and I were roommates. We had four other roommates not involved in Gusto. Eddie was living in San Francisco. You know, commuting an hour each way when he's one-third of our entire team didn't make sense. So, he actually lived in the upstairs master bedroom closet for like four months. I kid you not.

He lived in the closet. To give us defense here, it fit a queen air mattress. And it had a skylight. But our roommate still used it as her closet, so all of her clothes and shoes were in there.

And we were highly productive working most of the day. But yeah, when we were living in that house, that was when we started that tradition. And again, it's not complicated, just not letting things build up, the chance to release that pressure valve, have direct open dialogue, have that trust be the foundation. You know, we were still getting to know each other from a work lens. And as we progressed in these first few months, those were actually really useful conversations for us to have. And then as the business progressed, we kept kind of seeing the potential of maybe we can actually spend decades doing this. And now we're one decade in, we have decades to go.

And it showed up when we were thinking of hiring our first teammate. So the three of us were there from the beginning. But when we were approaching now hiring our first teammate, you know, there's, hey, we need a designer, we need an engineer, that's the skill. But we also really wanted to figure out what about the way we're working that we want to keep. And that has much less to do with skill. That has more to do with things like values. And so, I just to close on the founder piece of this, like I will say, you know, you can explore that values alignment early on when it comes to if you're founding something with someone. You know, motivation matters, like deep passion for the problem space, obviously that has to be there, too. And then there's luck. Obviously, there's still going to be luck. Like we all hope humans grow throughout their whole life. And you hope you and a friend, you and a partner, you and a spouse, you and a founder grow together. Sometimes you might grow apart. But, if all of those ingredients line up, then yeah, you know, we can be 14 years in, you know, more excited than ever about the chance to work together. But, a lot of that was based on the building blocks that I just mentioned.

So, we started by trying to codify, like just write down, like what are our values as a team. And like it wasn't a cerebral exercise. It was like, what about the way we've been working for the last several months that, you know, when we have disagreements, how do we resolve it? What about when one of us is tired, how do we talk about that? When one of us has a strong opinion on something, how do we navigate that? And when we need to divide up responsibilities, how do we navigate that? Like what about the way we've been working has made this so much fun? Because we really loved those first several months. And it wasn't just about the product, it wasn't just about creating something useful. It was clearly also about the way we were working together. So, I call that the how. The what is, you know, your product, your business, your business model, your pricing structure, whatever. There's a lot of important what topics. But the how is more where this is about. So we wrote down our values and then we said, 'Hey, now we're going to meet potential people to join this company. And when we're meeting them, let's not just focus purely on their skill set. Hey, we need an engineer. You're an engineer. Or we need a designer. You're a designer. But instead, on top of that, also explore through their work experience. We weren't experts on this. We just really talked to them about prior work, like prior chapters, prior companies, prior internships. And like we wanted to figure out did they have the same values that we have? And so, you know, we eventually codified this as kind of a values interview and a motivational alignment interview and then that became a part of how we scale. But for the first couple dozen people, it was just us and especially it was an interview I did with every candidate, really trying to figure out like what makes this person tick? What makes them get excited? When they're doing their best work, what are the reasons for that? What are the conditions for that? At a minimum, are they reflective and can they even talk about it? Sometimes people can't even talk about it, which means they haven't even thought about like what are the drivers behind that? And then second, as they talk about it, does it align with our approach? And if it doesn't, it just means they'll do better work in a different company. It doesn't mean they're a bad person at all. But we wanted to figure out could we de-risk that when they do join, you know, you're always taking a leap with a candidate and having them join the company, they're believing in you and joining your company and you still haven't done any work together yet. And so you want to as you start working together, actually see the potential become real. We wanted to create that to be more likely. And we weren't perfect by any stretch. There were some hires we made that weren't the right fit. But I think thinking about the values piece of it and the motivation piece of it early on, not just the skill, was super helpful to ensure that we were bringing in folks that were more likely to be successful in the company.