Gusto Co-Founder Josh Reeves: How Focusing on Delivering Customer Value Generates Business Value

For the talk today, really trying to focus more on lessons learned. Uh, we're trying to get better. A lot of folks have given us advice, wisdom over the years. And so really trying to help, hopefully, you all with some tips, some advice, some learnings that I've had in the 10 years of building Gusto thus far. I still feel like we're early in this journey, but it is kind of crazy to say that we're about 10, 11 years in at this point. So, the first thing I wanted to focus on, and I get asked this a lot, why start Gusto? But for all of you, you know, why start a company? Why does a company exist? And when I try to really simplify that topic to its simplest answer, for me at least, it's a company doesn't exist for its own benefit. A company doesn't exist for its team or for any one of the shareholders involved. It exists to go fix a problem, right? There's something painful or broken, and a company is created by a team— we'll come back to that— to go try to fix or make that problem go away, to solve that problem for the customer. And so I really believe that to my very core. That's obviously a big part of what we're trying to do at Gusto. And so my advice to you as, as founders, aspiring founders, already founders, or even folks joining entrepreneurial endeavors, is to imagine when you're asked, you know, the 10,000th time, why did— why do you care? What is this thing about your company that motivates you, that drives you? You know, will you be as excited answering that question as the first time? And for me, that starts always with the problem. It starts with the thing you're trying to fix, the customer problem you're trying to make better. And if at the 10,000th time you're not authentically passionate and excited about that pain point still, then you can't fake it, and it's gonna show. So I just wanted to kind of start with that point about purpose, motivation, why a company exists in the first place. There's obviously a lot of other things to solve along the way in terms of scaling and business model, also important, but it starts really with solving a problem. Next piece of advice, I have 5 or 6 of these, is really focused— I think there's the term MVP, minimum viable product. We did not create at Gusto the term minimum lovable product, but it's something that we talk a lot about. And my co-founder Tomer, who leads our product efforts in particular, has really been an evangelist of this principle really from the early days at Gusto. And I think this is a principle that applies to a lot of companies, maybe all, I'm not sure, but especially when you're in a space that has compliance or really solving mission-critical activities. For us, it's like getting people paid on time correctly, accurately, making sure taxes get done correctly, accurately, setting up healthcare correctly, accurately. There's a mindset here of, of there is no beta. It has to work right. And it's not just what gets it out the door, it's actually making sure you pass over that confidence level of it's actually something you're going to be proud of and actually especially for us serving small and medium-sized business, that it's gonna drive word of mouth. It's actually gonna be a wow moment that drives an emotional connection, an emotional reaction, and hopefully again a positive one. And sometimes that takes time. You know, in our context, you know, it took from our starting of the company to a public launch, we obviously had some early customers, friends using the product, but to a public launch, It was about a year and a half, and that was time when we obviously were eager to be in market, but knew we had to get certain pieces of the product correct, even though we had scoped it just to California, just to new companies. Um, just wanted to share that example. Now, another concept that comes to mind, Gusto today is about 2,600 people. Uh, we serve, uh, in the range of, you know, 5 to 10% of companies in the US. We're really proud of that progress. We're still early, like I said, in the journey. There's lots of pain out there. We hope to go help. But I get asked also, you know, how do we think about this balance between growth? The term growth at all costs sometimes gets brought up. I think especially in Silicon Valley, the term land grab can be used as a way to rationalize kind of throwing out every business practice and just doing whatever it takes to win. That doesn't actually lead, in my opinion, to really long-term durable businesses. It can be a big pitfall, frankly. So the mental model I have, and I hope it is useful to all of you, is you gotta start first with, you know, why grow? And in some companies, maybe some of you are doing these types of companies, obviously a lot of the small and medium-sized businesses we serve, their goal is not to grow. Their goal is to survive, thrive, succeed, maybe stay 10 people, maybe stay 20 people. And just be around for the next couple of decades, provide a meaningful product or service to their community. That's amazing. But if we're talking now about companies that are tackling big problems, big pain points, and so there's this opportunity to go do something much bigger, the reason to grow is the desire to solve that pain. Hopefully that's a consistent message you hear that I care about, right? Like, why leave people in pain if there's a way for you to go help more folks, whether it's geographically in more places, or whether it's different adjacent customer types, or maybe the expansion is around adjacent product lines. If there's pain, there's opportunity. So for me and for us, it starts with, well, yeah, we want to grow, we want to go do more for these customers and prospective customers because we want to help them. So that's where the draw, the driver comes in. But the check and balance, again, oversimplifying a bit, to me falls in 3 buckets. The first one, and I listed here, customer experience. If you have— and at times we've had to slow down growth because of this— if you're starting to degrade the quality of your product, the promise you're making to your customer, that's a great reason to slow down growth, right? Because you're going to be sacrificing long-term viability for short-term benefit if you try to keep on that gas pedal. Second big dimension is business model. You know, I would argue when you're in experimentation mode, seed stage, learning, iterating, that's when you can actually be proving out, are you actually solving a problem? Do you have a viable product? What's your business model to support that? But if you're going to scale it, right, before you scale it, you have to prove out the unit economics. Because if you scale something with poor unit economics, it just means you're going to have a small bad business become a big bad business. right? And sometimes that can work. I have seen it. It's not our approach at Gusto. I really view that approach as mostly gambling, right? You're kind of betting on a specific set of conditions staying true. What's much more in our control, and I hope in your control, is the choice of when to scale based on business model. And that means for a SaaS-based business, things like revenue retention by cohort, right? CAC payback, gross margin, You know, basic, basic numbers, basic concepts that are prerequisites to wanting to scale. And if those are going in the wrong direction, that's a good reason to slow down. And then the third one here is employee experience, right? We all know that there is a rate of growth on how many people you can add to a business to ensure them being set up for success in terms of onboarding, aligning around role and responsibility and expectations, and then giving them the chance to grow and also help deliver more value to your customer. So just wanted to share that as another, uh, learning insight I've had over the last 10 years of building. Next one here is really just at the core, and I think in a lot of businesses this is a challenge. In SaaS especially, it feels like a very logical situation. And I did not invent this framing by any stretch, but I'm happy to propagate it. I think if you can have a business model where The more value you provide the customer, the more you benefit. It's a really amazing alignment of incentives. SaaS has that in spades, right? And it's not just Gusto. I hope many of you come— many of your companies, if they're in SaaS, obviously share this. You know, the more value you provide, the more delight you can give your customer, right? And we're paid monthly. The longer they'll stay using your product. It could be 5 years, could be 10 years, could be longer. And the more trust you build with that customer, the more credibility you have. As you offer additional land and expand activities for them to benefit from, the more they'll choose you, right, as that partner. And that can mean ACV expansion. And so to me, this, this is something that comes part and parcel with SaaS. If you're not in a SaaS business model, I think it's definitely viable. It might be trickier, but it makes it easier to say the due north is serve the customer, make their life better, and do it in a sustainable way. And so the advice here, if you're early on in your journey, is identify pain, solve that pain, and then make sure that you upfront validate, are you actually solving that pain? If you are, then people should be willing to pay you for that solution, right? And if you're not really solving the pain or they really don't wanna pay you for it, especially in B2B, then you could argue perhaps you're not really delivering much value, right? That value should equate to a willingness to pay. Next concept ties a little bit more to, I would say, getting into mid-stage, later stage when you're scaling. Again, when you're really early on, I think focus— focus always matters, but when you're really, really early on, you're probably only doing one thing at a time, right? You have a target customer, you're trying to prove out the product, prove out the business model, start scaling, build out the team. But when you're at a bigger stage and have an opportunity to expand the breadth of a product, We also didn't invent this concept. We use horizon planning at Gusto, but it's really the ability to think about what are we doing today for our core customer, our existing customer, existing product, our existing route to market, our existing revenue streams. And we're obviously investing a lot there. But what are we doing to also open up adjacent customer segments, adjacent routes to market, adjacent product lines? And then what are we doing? And this is Horizon 3, to add orthogonal revenue streams, orthogonal customer types to what we're trying to do, all aligned with the mission and the vision of the company. So I really think of it as kind of a nested set of concepts. You have vision that really is why you exist, the vision of the future that we all want to go prove, right? Like it's a hypothesis on what the future could look like that's different than today. And, you know, it's not going to be 100% accurate, but the goal is over time through the actions, through the feedback through the data, through the adoption you get, that you start making that future into reality. But the sequencing of how you get there is a really, really important topic to debate. Again, it's super easy to try to do too much all at once. And so that's what planning is all about. It might sound like a non-sexy term, but prioritization, planning, focus, what to do this year, what to do next year, what to do this quarter, what to do next quarter. You know, we do 3, 4-year horizon arcs at Gusto that works backwards into 1 year. Planning with an 18-month financial window. And then we obviously execute, you know, day to day. We have targets that we try to hit every day. But my advice here is try to manage it as a portfolio. Sometimes people think about the Horizon 1, 2, and 3 as kind of a 70-20-10 split. Find what's right for you. It is a budgeting exercise, but more importantly, it's also an operational activity. How do you go do activities in Horizon 1 versus 2 versus 3 is quite different, different talent. Different metric for success, different approach to milestone-based outcomes. So, again, a lot of different insights here. If you haven't heard that term before, you can just Google it. Horizon planning can be a really useful framework to try to fight that innovator's dilemma puzzle that can hit companies once they've got past that early stage. Next concept for me focuses a little bit more on the how. So we talked, Gusto, a lot about You have the what, that's business strategy, that's your product, that's your route to market, that's your business model. But the how has more to do with the fact that this is a people business. Every business, you know, right, is a people business. It's a group of people coming together, hopefully with a shared passion, interest in a specific problem, and a desire to go make that problem go away, make it better. And, you know, the how for me falls in a couple buckets. Each of these I could expand upon for hours. I'll try to limit myself to a few remarks. But values is the one I really want to come back to. I'll talk about that more shortly. Traditions are the things that form naturally. They're not read in a book. They're probably not in some case study. It's really just the things that develop in your organization that are celebrated and reinforced. And then what you reward in particular, right? So the incentives you set up, and this obviously includes things like compensation, but there's a lot of forms of reward that aren't just monetary and making sure that's consistent as well. On the value side, my kind of bit of storytelling here, and again, we have Gusto values, I list them here. I want to make clear there's no perfect values, there are no values that every company should adopt or use. We try to think about values at Gusto as a filtering process in our, in our hiring. We really think about hiring as a search for alignment. It's alignment around values, alignment around motivation, alignment around skill. And if someone's not aligned with our values, they're not a bad person at all. It just means that they would be more successful, they would do better work in a different company. And we want to help them hopefully find that company. We're not going to probably actively help them find that company, but by making it clear that it's not the right fit at Gusto, that's hopefully helping them get down the path to finding where there is the right fit. And so values at Gusto, we spent time on when we were just 3 people as founders hiring our first teammate. We call ourselves Gusties, hiring our first Gustie. We wanted to figure out what's the framework we're going to use to guide how we hire, because if it's just about skill set, hey, we need to do more software engineering, let's add more engineering. We need to do more design, let's add more design skill. We need to do more sales, let's add sales. That's kind of just accepting anyone with a skill set, right? There has to be more to it. And so that's why we came back to values. And these are values that we screen for, we have an interview to screen for, it's part of our hiring panel, it's part of our hiring committee. We've blogged a bunch about this if you're curious about some of our best practices, but again, I encourage you to find for your own company what are the values you stand for? What part of the how makes you unique? And then you want to maintain. Maybe some parts of it you're willing to change, evolve, have go away over time. But what parts are unique that you want to maintain no matter what size you are, whether you're 50, 500, 5,000? And then it's not going to stay consistent unless you work really, really hard and are very intentional about keeping it that way. Otherwise, it's going to become something that's lost. And so, again, just wanted to give you some backdrop here on values and why it's so important. If you haven't done it when you're 50 people or 100, that's OK. Now's a good time to start. But really try to think about what are those values, what are those principles you stand for, and then bake them into your hiring process, your onboarding process, and your compensation and rewards philosophy. Otherwise, it's just going to be lip service to have the words without them being backed up. I mentioned this earlier, I just really want to expand upon it. It's been really, really helpful for us, and I hope, again, if it resonates, it's helpful for you. But we really do think about hiring as a search for alignment. I don't really believe companies convince people to join, and I don't believe candidates, frankly, their job isn't to convince a company to hire them. It's actually both stakeholders trying to figure out, can we do something great? Can we collaborate and build something and deliver something that we're proud of? And so it's always a choice on both sides. And so again, what does that mean in terms of tactical? Values alignment, we just talked briefly about. Motivation alignment. Why does someone care about joining this business? Why do they care about joining this endeavor? And there could be a lot of reasons, but hopefully one of them, and for us it's a filter, is actually being really interested in solving the pain points we're trying to solve, right? Do they want to make healthcare more accessible? Do they want to make it easier to start a business? Do they want to make it easier for an entrepreneur to go build a team, right? These are some of the problems. Tackling, for example, and I'm sure many of you are tackling many other problems, right? And it's not an academic exercise, like, why are they interested? What drew them to that pain point? Maybe it's a family problem, maybe it's a business issue they faced, maybe it's a curiosity, maybe it's something they studied, but there should be an authentic way they connect with that problem space because if someone really cares about the problem that a company is tackling, it makes motivation once they've joined Very, very different, right? We call the concept of a manager at Gusto PE, people empowerer. We call it people empowerment for a reason. If someone joins and is already aligned with the values, already cares about the problem, and already has a relevant skill set, then the job of a manager isn't to motivate them, it's actually to help unlock and empower them to go do their best work. The last one I already alluded to. If we only hired for the first two, we'd have a lot of people. Cheerleading in the company. So, yes, skill set matters. Yes, we have to have a sense right off the bat of how this person's gonna contribute. But the goal is that that skill set grows over time. People wanna grow and develop and gain more abilities. And hopefully that aligns with needs of the company. And if that can be done correctly, and it's hard because of the pace of scaling, then it can be a win-win outcome. Another one here I wanted to jump to kind of extending from the hiring concept is fundraising. And again, I know there's some luxury here of folks that have had more flexibility with fundraising, others have had more challenges. I have no judgment here, and ultimately it's a very unique individual journey. But when I say that fundraising is like hiring, what I mean is if you can, try to apply the same logic I just shared about, about hiring a teammate to fundraising, right? This is someone that's gonna join your company, albeit part-time, not full-time. Although a lot of our investors I've wanted to hire full-time, they just happen to want to stay an investor. And you're actually not gonna be able to fire them, right? So really think intentionally about why you don't want to just accept whoever offers you capital. Really try to understand their values, their motivations, their skill set, what they bring to the table. Same framework is actually the approach I take. And if that alignment's there, You know, then I think it can be a great opportunity for alignment and then success and actually business building. And so I try to separate those two to be tactical. You know, get to know an investor if you can when you're not fundraising. I think it oftentimes can be a really great message. You know, when I've sent a note to someone and said, I've heard good things about your background, your relevant domain expertise, maybe this person introduced us. We're not fundraising right now, but I want to get to know you better. And understand, like, what drives you, why you're an investor, what attracts you to the broader space we're in, it actually can be a very positive, positive response and a very positive interaction. And then when there is a moment, if you decide to go down that path of doing fundraising, then you already have that established relationship, that rapport, you're not trying to kind of do that all at once over a very short period of time. And so, yeah, again, choose wisely is my advice when when it comes to investors. It is someone joining your team is the way that I really encourage you to think about it. So kind of summary for me, you know, a couple of thoughts. Again, 10 years in, I feel like we're very early in this journey. Focus on the customer. I think there's a lot of debate that happens. Maybe this is from 5 years ago, maybe it's still happening, I'm not sure. But, you know, is a company going to be engineering-driven, sales-driven, Product-driven, marketing-driven, whatever department you wanna name. And I would argue, you know, fundamentally at least Gusto, and I think a lot of companies can and should be just simply customer-driven. All these different functions, roles play an important part in actually delivering at least our product and our service. And so how do you manifest that? Again, not just words. How do you keep that as a part of your hiring process, your onboarding process, your all-hands process, your leadership training process, your accountability and performance evaluation process. Those are the dimensions in which you can make that real or not real, frankly. And we're still working on that, right? It was a lot easier when we were smaller. How do we as executives or leaders in a company maintain that customer centricity? Part of it means just allocating time, spending time with customers, especially when we're on Zoom all day. And that's something you can programmatize, frankly. Aligned business model, we talked about. I think this hopefully is easier in SaaS, but still don't take it for granted. If you can create that dynamic where more value for the customer means more value for you, then it's not a choice, right? We can talk at least a gusto about wanting to go serve, you know, millions of SMBs and help hundreds of millions of people. And if we do that with a good business model, right, we can create a company worth, you know, tens and tens of billions of dollars. but that's a byproduct. That's not what keeps me motivated or what I dream about. What I love is serving the customer and solving their pain, and if you have a good business model, the other piece comes with it, right? It's a byproduct of that motivation, and that can make, I think, decision-making quite a bit simpler, frankly. Be proud of the how. To me, again, it comes back to values, but also then how you make those real. I don't know about you, but if you hope to do something for a long period of time, we spend a lot of time at work, We hope to do Gusto, I hope to be a part of building Gusto for many decades. I can't think about why this topic wouldn't be on the table, right? Life is short, you wanna live it in a way you're proud of. If it's gonna be a big part of what you do, then obviously these topics matter and it takes time and it is worth spending time on. But again, in most of your companies, I'll assume talent, people are the majority of your cost, right? Then it hopefully is pretty rational. Why this is a topic worth spending time on, because it's a people business. Most of these companies, most software businesses, are actually people businesses when it comes down to it. And then long-term mindset. I mentioned earlier, you know, some of the tactics there when it comes to planning, budgeting. If any of you are interested, I'm happy to unpack a lot more best practices here that I've been learning. There is no one-size-fits-all, but trying to be thoughtful about when you make investments, right, how you organize the team, how you fit talent to the various needs you have. How do you maintain that, that perspective? Choose the ratio, the portfolio, whether it's 90 or 80 or 70-20-10 or whatever ratio works for you around horizons, if that's a framework that resonates. But you got to actually invest in the time there as well. Otherwise, you know, all the incumbent companies that you're disrupting, the ones that we've been disrupting that have been around for decades, it's It's very easy to end up becoming an incumbent company, and then that gives someone else the opportunity to disrupt you if you don't maintain that mindset. And so, yeah, kind of in closing here, I just want to say congrats on building something. I think it's amazing to take that leap, to see a problem and want to go make it better. Success, hopefully for you as much as for us, is measured by every customer you help and the feedback they give you and the chance to get better and improve over and over over and over again. I would say again, it's— you're not alone if it ever feels lonely. It's always a team effort, whether that's through co-founders or obviously the people that you have joining your organization. And even beyond that, you know, the broader community that we're all a part of, something that's— I've really believed in and got exposure to from having been here most of my life in the broader Silicon Valley region, that is, is that it's not a zero-sum game. The number of folks have reached out, or I've reached out to, and have helped me over the years. They really want to just go make problems go away and make these systems better. Has always been inspiring to me, so I'm just trying to pay that forward in a small way. And I hope you also have a chance to pay that forward as well. So thank you very much.