Early days building a decacorn

What's up, everyone? This is Alex, the host of Founders Journal. As you may know, I built Morning Brew from my senior year of college until we sold the business in 2020. And now I'm building a variety of businesses in different spaces and different stages. I'm basically averaging 1 to 2 new businesses per year. And because of that, I have had the opportunity to test a ton of different products and services, ultimately landing on a core software stack that serves as my business operating system whenever I start a new company. I have my go-to banking service. I have my go-to formation service. I have my go-to domain hosting service. But probably the most important of them all is my HR service, Gusto. If you're a longtime Founders Journal listener, you know how much I think about people in the context of business. A business is nothing without its people, which means a platform that helps me manage and take care of my people is invaluable. And that means I've tried every HR platform under the sun, always with the same exact goals in mind. First, I want a product that's intuitive and delightful to use. As a non-HR person, I find the intricacies of payroll, benefits, taxes, compliance, and expenses to be painful. So I just want something that makes my life easier. Second, I want it to be affordable. I'm a bootstrapper at heart. I started Morning Brew with $0 and I started StoryArc with $0 as well, which means I don't have infinite dollars to drop on SaaS products. And third, I want a platform that acts as my one-stop shop for all things people. I want it to handle payroll, benefits, hiring, onboarding, and taxes, all while integrating with all of the other tools in my business stack, whether it be QuickBooks, Slack, or Google Workspace. Well, Gusto hit the trifecta, which is why I am a customer and use it for every single one of my businesses. Yes, this is a paid sponsorship by the amazing team at Gusto, but I would sing their praises even if I wasn't being paid to do so. So if you're looking for a platform that takes the pain out of payroll benefits and HR, I highly recommend you check out Gusto. And if you sign up at gusto.com/alex, you will get your first 3 months free. Now onto the episode. What's up everyone? Welcome back to another episode of Founder's Journal. I'm your host, Alex Lieberman, and I'm pumped to be introducing a new format of the show today. Today we're going to be doing a guest journal where I hand the mic over to an accomplished entrepreneur and they provide an unfiltered view of their startup journey. And today's guest couldn't be more perfect to kick off the series because he is what I would consider to be the quintessential entrepreneur. He's built a $9.5 billion company over the last 13 years. He has 2,500 employees and supports more than 400,000 businesses nationwide. He values family as much as he values his professional pursuits, and he has deep clarity around his journey and the myriad lessons entrepreneurship has taught him. I am so proud to introduce Josh Reeves, the co-founder and CEO of Gusto. Gusto is an all-in-one people platform that makes it incredibly simple to run everything from payroll to benefits to HR at your company. I use Gusto at all 4 of my companies. It's why I'm working with them as a sponsor for this podcast. And after this conversation with Josh, I think I'll be a Gusto customer for life. And I think you'll see just why after listening to this guest journal yourself. Josh is going to take you through the first 12 months of Gusto as a business while pausing at key milestones along the way to share important lessons that you can apply to your own business. Now, without further ado, here's a guest journal from Josh Reeves, co-founder and CEO of Gusto.

It's great to be here. I love sharing advice with entrepreneurs or aspiring entrepreneurs. A lot of folks have given me advice over the years and the pay-it-forward dynamic, you know, my parents are both teachers. This is my chance to do a little bit of that. So thanks for having me on. So in the context of sharing more about myself and Gusto and our journey, I really wanna focus on the first 12 months of the company. So we have to go back in time. Right now it's 2025, but Gusto was started in November of 2011, so 14 years ago. And when I think about that early days of a company, I had 2 other co-founders, I still do. We're all actively 110% engaged and involved today in building Gusto. I really think of it as, you have all of these ingredients, right? It's ingredients on what's possible, ingredients on your market, your ideas, but really you haven't done anything yet when you start. And so prioritization is key. And those first 12 months especially are about how do you de-risk? How do you hit very specific milestones to increase the likelihood that you'll be around for the next 12 months? And so that's how I want to kind of break down the early journey at Gusto. And we have 5 or 6 kind of key moments and concepts to go through. So starting out with the first one, um, why start the company in the first place? I have a really strong belief, my founders share it, that companies don't exist for the sake of it. We exist to go fix something, something broken, something painful. So there's a whole bucket of how do we even get into this problem space? In our case, we had all run prior businesses. We had been founders. You know, I had used in my prior company a different product. I had done state tax registration. I had set up payroll very manually. I had set up health benefits. It had been very frustrating. So there was literally this experience of using something, feeling frustrated, it being painful. And so then the next step is, was it just us that felt this pain? At least we know that the 3 of us had felt it, but do others feel this pain? And so for us, what that meant was both top-down research, looking at how many employers are there in America and what products do they use for things like payroll, and how many are doing it manually and how many are getting fined every year? And we were shocked, like about 40% of companies were doing it manually and getting fined every year because you have local, state, federal So we're like, oh, that's interesting. Like, 40% of companies making mistakes, getting fined. No one likes to get fined by the government. That seems interesting. But then there's the bottoms up. Like, how do we ground this in actual concrete experiences? So we went out and interviewed everyone we possibly could. My mother-in-law happened to have run payroll for 20 years for different businesses. So I sat with her during a payroll run and just watched her run payroll for a company with Uh, you know, over 100 employees and just, you know, took lots and lots of notes through that experience. We then were living in Palo Alto, which is about an hour south of San Francisco. There's small businesses everywhere. And so we went and met small businesses, cafes near us. We also met accountants and bookkeepers, which are often the folks that are doing payroll for these small businesses and sat down. I remember with one individual and just asked her tons and tons of questions. And one of my memories from that period was just the amount of frustration people felt, right? There was just a lot of this, this is a tax, literally, not just on people, but also on time. It's kind of this onerous task. You know, you have all this, it's a regular activity. So it kind of creates stress and anxiety. You're not sure if it's going to be done right or wrong. And it kind of almost feels like you're beholden to the, to the schedule of what, what payroll was in that case.

And so.

We felt like we had validated some of the pain, right? Like, hey, it's not just us feeling it, others are feeling it. There's some data to support. There's a broader market here because we are technologists. We had all studied electrical engineering back in school. We love using software to go solve big problems, and we wanted to tackle a problem that we could spend decades making better. That was another really important part of that early moment, was alignment as founders on why do we even want to do this? And when we kind of started feeling like, hey, there's something interesting here, it's a Big problem. It might take decades to really fix this because it's not just payroll that small businesses are feeling pain with. Like the whole journey of being a small business owner is painful, right? They were telling us about all the other things that are stressful, hectic in their life, all the stuff that they have to do by hand. They can't afford specialists, they can't afford experts. And so we're like, ah, this is really interesting. Small business feels like a focus for us. And we also happen to have family who had run small business. My co-founders. Eddie, his mom ran payroll. His dad was the doctor, and it was a doctor's office. And, you know, in a family business like that, you know, everyone's involved. And Tomer, his dad ran a small clothing store. And so that's kind of that first chapter area we got interested. Now what's next? Let's dive into like the next big milestone. So second milestone here is you got to go build something, right? If even if there's pain, great. Like, go make it better, go improve it, go have at least a few customers tell you, this is amazing. Like, you've made my life better. I will pay you for this, especially in B2B. If you create lots of value, people will pay you for that value. When I meet founders where they tell me, hey, you know, people aren't paying me for my product, or they don't want to, my first question is, are you creating enough impact in their life? Because if you create a lot of value for someone, especially in B2B, they will likely pay you for that value. And so for this, we really needed to scope down, like, what is our first set of milestones? And we knew we were going to start with our first product as payroll. It's the least optional part of the stack. If you're a small business owner, it's the one thing you have to do. if you have employees, if you don't pay people, they quit. It's pretty factual. And so we knew we were going to start there. But we had no background in building payroll systems. We had been in technology companies, we had built software. And payroll is not just software. You have all these compliance components, you have all these different government agencies you're working with, you have filings to do, you have money to move, right? It's a fintech business too, because you're moving money from the employer to your accounts to then into the employees' accounts, but also to different government agencies. Government agencies aren't very tech savvy. They don't have beautiful APIs and wonderful technology interfaces. So there's lots of different kind of things you have to do to adjust the different processes and systems out there. So we scoped it down. We said, first off, we want to just have a functioning system on the backend. That meant having a tax filing system. That meant having a tax calculation system. And that meant having a money movement system. So put aside all the front end, right? Which might sound weird, but like, we just need to prove that we can get the backend systems to work. And we're going to start by paying ourselves, right? So to add a little bit more, we already had a lot of motivation, but to add a little bit more to that, we're like, we're not going to pay ourselves till we can do it with our own system. So then we're like, wow, now we really need to get going because we're not making any income. And so, um, at that phase, we were living in Palo Alto. Um, you know, it's kind of a classic, you know, if you're in your mid-20s living with a bunch of roommates in a house where we're all paying rent for our room, you know, Tomer happened to be one of my roommates, although I knew him before that. Um, and Eddie was living in San Francisco at the time. And so that's an hour north of where we were living. And now we're going to just hunker down and focus on pure product building, right? We have to build out these systems. We have to do lots of engineering. We have to connect to these different government agencies in California. We were going to scope us to California because obviously that's where we were. And so Eddie, you know, traveling back and forth 2 hours each day just didn't make sense. So we didn't have a spare bedroom in the house, but we did have a spare closet. It was a large closet. It had a skylight, you know, but yeah, Eddie slept and lived in that closet for about 5 months and it fit an air mattress. You know, like I said, it had a skylight. And it was also where my other roommate Um, stored all of her clothes though. So it was kind of both an actual closet and a quasi-bedroom for him, but we were very productive back then. Um, you know, we really wanted to build. That's all we had to do at the point to then see if this could work. I would say our lifestyle was primarily, you know, working. I would cook, we would make a salad at lunch. We'd rotate who would make it in this big bowl and then just kind of share it with each other. Uh, and then we'd go to the gym every day. We were all Stanford alums. Stanford was pretty close by and we kind of just You know, wrote code, researched government compliance rules, ate our lovely salads, and went to the gym. That was our daily routine. Um, and so we did, you know, run payroll for ourselves. That was a big milestone. That's, you know, let's see, we started in November 2011. I think we ran payroll for ourselves kind of in the March of 2012 timeframe. Uh, and at that point, that's, that's really amazing. We had now moved money, we had done filings, and now we go, How about let's go do it for more people, right? Not just for ourselves. So this next milestone is our first set of customers. And for our first set of customers, we were really focused on validating with an obsession to quality and accuracy that we could do this for a handful of companies, call it 5 to 10 companies. And these were going to start with the companies we knew very well, because again, reminder, there was no front end. It was a backend system. So the first set of companies that onboarded to Gusto, and we had a different name at the time than Payroll. What that meant was we would go to your house, you would type into— it was typically Tomer, one of my co-founders. And we love to say you can't spell customer without Tomer, because he's always been obsessed, as we all are, with how do we help the customer. But you would type into his laptop, you would get his cell phone, and you would basically call him to run payroll, call him to add employees, and he would come over to your place, On a moment's notice, whenever you needed him. It was the highest touch service you could possibly imagine as a small business, completely unscalable. But it was a really productive way with companies we knew. These were other smaller tech companies. These were new businesses. We were in YC at the time, so they were all running payroll for the first time. So there was a really clear scoping here to companies in California that had never used payroll before, were paying employees for the first time. They were all salaried employees. And so that was how we, uh, got our first few customers using the product. We were then at that point now moving, you know, millions of dollars through the system on an annualized basis. We were doing filings for dozens of employees, and a lot of these can be every week, every 2 weeks, every month. So you get a lot of opportunities to make sure the system is working. And we had really high customer satisfaction, but again, we knew none of that was scalable. We weren't going to go serve 1,000 or 100,000 customers with that approach. But we validated that we could actually do this now for a number of businesses at the same time. So think of that as kind of our big kind of third milestone. Then we knew that from there we had proven we could go run payroll. We could— we raised our seed round of funding because we had now proven that we could actually build a functioning system. But the big hypothesis, the big thing to de-risk next was Could we do this in a scalable way that's cost effective, that's best for the small business? And small businesses are incredibly busy. They don't have lots of time. You know, my experience with my prior company, when I had set up payroll, the the payroll sales rep had wanted to come meet. We grabbed coffee. They were a lovely human. We talked about a lot of stuff. They gave me all the paperwork, and the whole time that I was with that person, it was about thirty minutes at a cafe. I was thinking, "I'm busy." I have like, code to write. I have a business to build. Why am I here? Can I just go do this on my own from a computer on a website very intuitively, very easily? Like, this is, you know, at that point it was 2008, 2009. Like, you know, Web 2.0 had happened, modern SaaS apps were being built. And so we knew that for this next big milestone, the thing to validate was, could we build an experience that was so intuitive, so easy to use, that a small business owner could come set up, onboard, run payroll without ever having built a business before, without ever having run a business before, and potentially even without even talking to us, right? If they wanted to, we were always going to be available. They could call us, email us, et cetera. We're going to give them incredible service. But can this be built in a way where anyone can use it? It can be intuitive, it can be easy. We take care of all the heavy lifting behind the scenes. Why should they become responsible for that? And so So that was our next big sprint. And to do that, we knew we had to build a lot more software. So we started adding some more employees to the company. And this is again, kind of middle of 2012. And we had slowly been adding more of our friends' companies, nearby companies, just to kind of keep doing regular payroll. So we were now at, through that rest of that year, you know, 20 to 30 to 40 customers. But again, that wasn't our focus. It was more We got to build out the front end. We got to build the software now so that we could have a website, you know, we could launch. We were still kind of not launched yet. Um, and that, you know, we could actually try to see, could small businesses we didn't know, not our friends' companies, but small businesses we didn't know, start using Gusto? Um, and so December of 2012 was that next big milestone moment. Uh, we had built out the front end, we built out the website, we built out the onboarding experience, we built out the ability to go run payroll. Uh, and we felt like it was a very intuitive, easy-to-use experience. We had shown and iterated on that experience with those first 40, 50 customers. And so we did our big announcement, uh, that, you know, ZenPayroll is here. We have, um, we had raised a seed funding round. So that was part of how we did some of the PR. And we, you know, launched to the world, but again, only in California was our customer focus, only new employers who had never run payroll before, and only with salaried employees. So there's lot of scoping here to make sure, like, can we go do this now in a way that these businesses, there's plenty of them, can go use Gusto or use nPayroll at the time and make it very intuitive. So we launched, we were now eagerly waiting to see what would happen. And it was a wonderful month because in that first month through end of January, we added over 100 customers. And the 100 customers, the majority of which set up, onboarded without talking to us, you know, they could do it on their own. And what we saw happening pretty quickly was, uh, we would start seeing pockets of like a small business, you know, signing up in Southern California, like in Santa Barbara or Orange County. And then all of a sudden, you know, a few weeks later, there'd be another business in that region signing up and we weren't doing any advertising or promotion at the time. So we knew that word of mouth was really driving growth. And so, um, that first, that first year really was about, and that's like maybe the 5th milestone here. Like, let's prove out we can actually not just serve these customers well. So the customer experience, the word of mouth is a good indicator of that. We started tracking things like NPS. We also just talked to customers and kept saying, like, are you loving this? And they would tweet about it. They would share on social how easy and how much time we were saving them. So we knew we were onto something there. But also, can we cost-effectively get new customers in the door? There's a lot of companies, especially in SaaS, but on small business, where you can build a useful product, But if you can't build a scalable go-to-market engine, then you really can't also grow the way you want. And so really seeing that word of mouth develop, seeing that set of social sharing take place, that meant we were onto something interesting. We actually didn't do any paid acquisition for that first year of launching. So pretty much all of 2013. I think a lot of companies sometimes will jump to paid acquisition too early, and then you don't really know if you've built something useful that customers love. It's very easy to turn $5 into $1. And I like to remind founders, that's, that's, in my opinion, just never a good idea. That's more of the gambling dynamic, where you kind of want to make it up at scale. Given what we were doing, where there's compliance, given that we wanted to build a multi-decade business, we really had to validate that this could be an organic, kind of more word-of-mouth-driven go-to-market engine. And then after that year, we did start doing paid acquisition to augment that. But even today, in 2025, with, you know, over 400,000 companies on Gusto and us adding a lot every year, organic word of mouth remains the biggest driver of leads and top of funnel for us. So that engine can scale if you get it working right. And one of my favorite anecdotes, though, I guess I should make it clear, there's in that first year, 2013, there was one paid activity. Eddie's mom, who lives in Southern California, did buy— she made herself and then bought an ad in a local newspaper because she wanted to get more customers for her son's She did that without telling us. She then sent us the photo. It was adorable. We were very grateful. But, but yeah, that was kind of a fun memory from that time period. So to bring it all together, you know, we just walked through in not too much time, you know, and obviously living it, there's a lot more detail behind it. But that was the first 12-ish months of our company. And to help you all kind of relate and hopefully make that actionable in the business you're building, you know, there's always going to be more to prove. So we had by that point, You know, at the end of those 12 months, we knew that there was again a clear pain point. We had talked to customers pre-launch, we had experienced it ourselves. We knew we were authentic to this pain point. We loved the idea of making the journey of a small business owner easier and better. So we could see ourselves doing this for a long time. We had built a product that was useful. Customers liked it. They were voting with their actions. They were, you know, sharing it on social. They were telling their friends to use it. They were starting to pay us for the product, which is obviously really important. We also knew we had a viable way to grow because in small business, given that you make less revenue per customer, that organic is really, really key. So, and we also had maintained quality, accuracy. We knew that we could do this now to the scale of tens of millions of dollars moving through the system, you know, doing thousands of filings and tax forms. And that all of what I just said was, was not true when we started the company. We had no background in this space. We had built software, but we hadn't done fintech. And so So what are the milestones left? Well, I really want to make clear, you're not done at that point, right? So if you've proven that there's a real need, you've proven a product that can be useful, you have a good business model. We've always cared about good unit economics, things like customer acquisition costs, gross margin. We had proven part of our— one of our big hypotheses was, hey, why does everyone feel frustrated and angry with this type of product? When you look at ingredients, the building blocks. On one side, the employee side, people are getting paid. People like to get paid, right? This is the system, the product that literally sends an email that says, you got paid today. That's an incredibly special moment to be a part of. So we spent a lot of time designing that email and making sure the employer could add some commentary to it. And on the employer side, it's the chance to show appreciation, gratitude, and for someone who's dedicated time and hours of their of the last 2 weeks to building and contributing to your business. This is a chance to reflect back to them, you know, the appreciation, the gratitude, and the compensation for that work. And so it was also really fun to see, you know, a lot of that emotion was, was joy, was love. It was excitement. It was, this is amazing. It's saving me time. So we had proven some of that early on, but if you've done that with your business, you know, what's left? What's left is scaling, right? And ultimately, what is scaling all about? If you're a software company, it's about technology. Yes, but it's about people. So what we haven't talked about, but I think will hopefully be very clear and very useful to all of you, the job of leadership, the job of, in my case, being CEO, head of Gusto, is all of what we've been describing with an amazing team, but also who are we bringing onto the team and how are we making decisions and how are we doing all hands, et cetera, are also really, really key components as well. And once those are all lined up, the chance to go solve a problem, do it with people that share your values, Um, have an impact. Technology gives us leverage to go solve pain for lots and lots of people. At Gusto today, we're solving lots of pain, lots of different products for 400,000+ businesses across America, more in the future, including around the world. But yeah, really excited to share some of these learnings with you all. Wish you all the best in your entrepreneurial journeys. And, uh, if we can be helpful to you at Gusto, please let us know.

And that was our first guest journal from Josh Reeves, co-founder and CEO of Gusto. As always, thank you so much for listening to the pod. If you have any feedback on this guest journal format, or you have any requests for future entrepreneurs you want to hear from, shoot me an email to alex@storyarb.com. Thanks again for listening, and I'll catch you next episode.