Hi everyone. Welcome to another episode of Truth Works. I am your host Jessica Neil and I'm here with someone that I met many years ago who I really admire. It's one of those conversations that sticks in your head and you think about them occasionally. This is that guy for me. I have Josh Reeves on the show. I'm going to have him tell you all of what he does, but he is a CEO and founder of Gusto. We met through our network and they connected us to have a chat. What I loved about Josh is how he thought about his role as a founder and how he thought about culture. You're just a rare bird. There's not as many of you out there as there should be. So welcome to the show. I'm happy to have you. I'm sorry it takes a podcast for us to reconnect.
Well, whatever gets us there. I'm really excited to be here. Thrilled to chat, thrilled to hopefully share some learnings and lessons. I'm always trying to learn myself.
Me too. So let's dig into it. If I remember correctly, you came out of Stanford. Did you have a job before Gusto or did you just do Gusto right out of school?
I can go back to then. Let's go back. Yeah.
Yeah, I can go back further if you want. Want me to start with a little bit of childhood?
Sure. Let's hear your whole story. I want to hear the whole story.
I won't go through everything. We don't have that much time.
Not 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. My dad was a high school teacher, my mom was an elementary school language teacher. They're both the first in their families to go to college. I grew up with a younger brother. My dad taught humanities, so I loved math and science, but it was a very innate curiosity. I did go to Stanford. I studied electrical engineering. I was there during the dotcom collapse. I remember starting freshman year in 2001 and talking to some folks. It was 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 reminder of not following conventional wisdom or what's popular at the moment, because that was 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 out of college.
Yeah, they're still around.
Yeah, they are still around. You get coffee mugs and t-shirts. 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. Anyone else could go buy those products. Zazzle would manufacture it on demand, but specifically that creator would then get a percentage based on the product creation. So to me, at 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. I got really excited about the chance for folks to make a living doing stuff they love.
Makes sense. And so you're at Zazzle for how long?
I was there for about two to three years. I was a product manager. I got my first 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 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 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.
TechCrunch. Okay. And so then you're there, then do you just kind of get an itch?
So I have Zazzle as a chapter where I learned how to build software in a more professional environment. Decided not to do the PhD in electrical engineering, so only finished with the masters. And then I have a startup chapter between Zazzle and Gusto. It's a useful story because it was a very different contrast to how we've approached building Gusto. So in 2008, me and a friend started a company. Why did we start a company? Because our friends were starting companies. I would say a very quick learning from that: that's not a good reason to start a company.
Yeah, just because your friends are doing it doesn't mean you need to do it. There was no purpose, no 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 $1,000 a day in ad revenue. We were building these useful little applications. But whenever I got asked by friends, 'What are you working on?' I would just say, '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.'
Yeah. My mental model to jump to Gusto is: 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. One of my advice points to founders is: imagine when you're describing what you're doing the 10,000th time, will you be as excited as the first time? You almost 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. So fast forward to 2011, me and two co-founders started Gusto. At the time, it was called Zen Payroll. 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. That's actually how we got some of the exposure to the problem space was literally running these prior small startups, small businesses, and also having family run small businesses. And we said, 'Hey, this seems like a real problem. Maybe we can try to make it better.'
Yeah. And I mean, as a consumer of these products, it's a space that often doesn't get a lot of innovation and attention. Maybe more so for enterprise, but small business, not so much at all. The things that you can get are really not that great.
Yeah, two things jumped out at us. You just hit both on the head. I know it's relevant to why you do this podcast too. One was just that small businesses weren't getting access to great technology, great product. But two, the systems almost felt like they treated people like transactions. People were assigned ID numbers. There were all these acronyms. Especially in a small business where two-thirds of employers in America are less than five employees. 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. So just thinking about it more as human moments: 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? We got really excited about that human lens to the conversation, which I think 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. It makes sense that it was sort of transactional because I think for a very long time that was the relationship between employer and employee. It's transactional. I pay them to do this and it's administrative. It's not strategic. Nobody was coming at it from a human lens perspective. I'm so glad that you did and that you are because our systems have not been able to keep up with the progression of how people are approaching the workforce and culture. Things are catching up now because of people like you. But for a very long time, the space was very fragmented and not a lot of great engineers wanted to go work on HR software.
Yeah, we used to joke, the three of us are PhD dropouts. 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. All of our, you know, Tomer, 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. You interview and meet small businesses are all around us and you realize 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 we call ourselves, excited. 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.
And so the three of you decide to do this and what happens?
First thing we had to do was figure out could we build a functioning product. We started with 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. 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.
I didn't know that. That's good. I like that.
So a little added incentive.
Yeah, right. I mean, it's got to work, right? And you got to use your own product and be part of it so that you can build a better experience.
I hope all founders are doing that.
Yeah. Dog fooding, right? If you are a relevant target customer of your product, then hopefully you use it yourself.
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 small businesses we never had met who just heard about us through others. When we launched in December of 2012, we had a hundred small businesses sign up, on board, set up in minutes, pay themselves, pay their team. And we were like, 'Ah, now we're on to 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.'
Yeah. And if you think about that, it sounds like a simple process, payroll, but it's really complicated. The folks that you were able to get to do it were pretty antiquated and not very sophisticated. When you're off for an employee by even a dollar, that's a big deal.
Yeah. I mean, the complexity, you know, very well. There's over 10,000 different payroll rules across the country. It's because you have local, state, and federal. The US in many ways is more like 50 countries. There's no coordination across states. 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. When we take a step back, I think 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. A lot of it ties to 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, 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. 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.
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.
I was as you were talking, I'm sure on this compliance side AI now is playing a big part in helping relieve a lot of that administrative burden, is my guess, and you're infusing that in the product is my assumption.
Yeah. I mean, I would say more 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, this is now back in 2011, 2012. I would say then things like 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. 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 is how do you go to the small business owner and very 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.
Yeah, time and money are very important. Okay, so you're doing the payroll thing. You then start to see some success. I'm guessing it's not as easy as I'm making it sound. I'm sure there were some days where you were very uncertain.
I mean, yeah, 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.
Yeah. How did you and your co-founders decide lanes that you were all going to take or not? Did that happen naturally or were there some conversations that you guys had to have around what really made sense for you as individuals and for the company?
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 the 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. Tor was much more the product design, customer experience lead. And once we got the product live, I shifted to be much more focused on go to market, 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. 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. And if it's uncomfortable, good. Have it even earlier. In our case, it was relatively smooth. But definitely a fan of having that combo as early as possible.
Yeah. Because when you don't, you can get into situations that aren't quite functional for the company. So it is important to have those.
Well, people make assumptions. Disconnects can develop like any relationship. Founder relationships. 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, Tor, Tomar, Eddie, me, Eddie, where we would go on a walk and give feedback to each other.
And like it, we have lots of code to write, we have lots of product to build, but going on that walk and just highlighting three things I'm really excited about and that I think is working well in our partnership, three things that I feel like 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.
Yeah. No, I love that. When did you guys start doing that? Like how early?
When we were living in Palo Alto. Tomer and I were roommates. We had four other roommates not involved in Gusto. Eddie was living in San Francisco, 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. It fit a queen air mattress.
Also, our roommate still used it as her closet. So all of her clothes and shoes were in there.
Okay. So he had to sleep with the clothes and shoes, but he could fit a good bed and he had sunlight.
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. We were still getting to know each other from a work lens. And as we progressed in those first few months, those are 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.
I love that because to do what the three of you are doing is incredibly hard. Hardly any folks are successful at doing it. There's so much failure. But when you have trust and respect and admiration and you can work through conflict, your chances of success are just higher because those are all the things that are going to be thrown at you every day. And when you have a good foundation, you can navigate those things much more easily than when you don't. And I think as you're building the company, that sets the tone for what you expect of employees as well.
