S13E8: Designing Payroll for Small Businesses with Gusto’s Co-Founder, Tomer London

small business software is absolutely like a huge space that is totally underserved. And payroll specifically is just absolutely terrible right now. When you asked, so we did a lot of customer research. We spent a lot of time talking with small— we didn't call it customer research, we just talked with small businesses.

Yes.

The nice thing about selling to small businesses is that they're everywhere. You can talk with them. Like if you wanna talk with a small business, just walk down the street and start talking, right? And I love doing that, by the way. Like I think like that's, that's the thing I love most about just past 20 years of doing what I do is talking with customers. It's the best thing. Talk with customers, understand their problems and build something to help them solve their problems and then talk with them again and see how— what do they think about what you just built and how you can go and improve and make it better like that. That loop is— I'm addicted to that. I love that.

Welcome back to season 13 of The Room podcast. Claudia, can you believe we've been doing this this long?

No, it's been 5 years. So many episodes, so many incredible conversations telling the stories of some of the world's most iconic founders and funders. And whether our listeners are new for the first time today or have been with us from season 1, we're so grateful for the community we've built.

Completely. Uh, we've had the mission to open the door to the room where it happens for those entire 5 years and have been able to do so over 120 episodes with hard-earned lessons from some of the top technology and consumer founders of our time.

And we've been through a lot personally as well.

We have indeed.

I built, scaled, sold my startup Priv. You were our first investor, so you've been there through the entire journey and you've also recently graduated from HBS. You're now building at Vercel, and through it all, we've brought the funder and founder perspective.

Yeah, it's really been an incredible journey, and I'm thrilled that I'm back full time in San Francisco and we're probably here to stay. That means that there's more for us in terms of growth, both inside and outside of the physical room. But what's important to have really out there is these stories, and we've been able to do so over incredible guests from the CEO and founders of Flexport, Perplexity, Particle, Zapier, Zillow, Vanta. I could go on.

These guests and their enterprises have generated over $100 billion enterprise value and really, frankly, moved the markets and growing, especially in 2025 with everything that's going on in AI. So I'm so excited to share Season 13 stories that are maybe a little bit more AI-focused than past seasons.

Absolutely. And you can find us IRL and URL, especially with our events such as our annual conference, Inside Summit, or upcoming SF Tech Week events and beyond.

And if you want to get information information around those events, subscribe to The Room Podcast and subscribe to our newsletter at theroompodcast.com.

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Welcome back to The Room Podcast.

I'm so excited for this week's episode where we're sitting down with Tomer London, co-founder and CPO of Gusto. Tomer grew up in Israel, where his father ran a small clothing shop, and as a teenager, he taught himself to code and built his first piece of software to help manage the store's inventory, an early sign of his lifelong mission to make work feel simpler and more human. After moving to the US as an international student, Tomer experienced firsthand the friction of payroll, benefits, and immigration, pain points that would later inspire Gusto's origin story. Since launching in 2011, Gusto has grown from a 3-person startup to a platform powering over 400,000 small and medium-sized businesses, all built around one radical belief: that taking care of your team should feel joyful, not just compliant. In our conversation, Tomer shares the insight behind Gusto and what sparked the early product and company, his immigrant experience shaping the company's empathy-driven product design, betting on small businesses when most startups chased enterprise, which became Gusto's greatest advantage, and how he's navigating the next frontier of people operations in the age of AI, where automation meets care. This episode is about building with heart, scaling with integrity, and reimagining what it means to be a founder in service of others. So let's open the door to the room with Tomer London, co-founder and chief product officer of Gusto.

First of all, Tomer, thank you so much for joining us in the room today.

Yeah, super happy to be here. Thank you.

We're delighted to have you back in the heart of San Francisco, just down the street from the Gusto offices. We're excited to start at the very beginning of your personal story. So tell us, where did you grow up and how has that shaped your view of the world?

So I grew up in Israel and my parents have a small business, a clothing store, for over 40 years now. So I really grew up around that, you know, environment, feeling the day-to-day ups and downs of small businesses. My grandfather had another business down the same street, a small— like another clothing store for a different audience. Wow. My aunt had another small business down the same street. So that was like just like a huge part of my upbringing. That means that, you know, when you speak over like in the dinner table, you talk about how did the day go, like you talk about cash flow issues, you talk about employees issues and things like that. And like, it's not just the kind of the, you know, the kind of substantial stories and the content. It's also like the emotion and, you know, starting your own business and running your own business is incredible amount of responsibility. Often small business owners are not like trying to do this to like similar, like, you know, like technology companies are trying to build a billion-dollar brand or something like that. They're trying to just provide for their families. They're trying to take a passion, something they love, and they want to make a living out of it. And that's something that, you know, I just grew up around all, you know, all of my, all of my childhood. So, you know, I didn't obviously know that a couple of decades later I'll be starting a company focusing on small businesses. But life did bring me, you know, gave me that opportunity. So, you know, that's a huge inspiration for what we do at Gusto today.

You intimately understand the customer base that Gusto goes after based on your own family experience. But for you personally, did you always think that you were going to become a founder yourself?

You know, I loved building things, so I didn't know what a founder means or tech, or I didn't know what product management means and all that stuff.

Who does at 10, right?

Yeah. So, you know, I grew up in Haifa. It's like, again, lots of small businesses, support city. It's like a lot of kind of blue-collar folks around us. And, you know, my default in my career in life would be to take on my dad's clothing store and to keep working in that store and I had many, many, many hours. I worked like, I went to the store almost every day after school and I knew that's not what I wanted to do. So quickly, on the other hand, what I did know is, you know, I got to learn about software and software development early age, like I want to say like 13 or something like that. And my dad had this issue where, you know, basically keep track of inventory. There was no software been used. There's no spreadsheets or anything like that. It was just lists.

Yeah.

And I was thinking, you know, and I was in charge of those lists for a while and being in charge of the list, being a kid, I lost them sometimes. Or they— I remember like one day that, you know, we were— we just washed the floor and then the list just dropped on the floor and then like it's all water and like we need to kind of recount all the inventory and all that stuff. So, so for me it was like, okay, well, I know that software can do it because I had a computer, I had a 386 at home, so I knew computers can remember things and track things. How can I build like a, like something that we can use, an app that we can use? It wasn't called an app, like something we can use to track the inventory. And I went to a, we had a bookstore. So next to my dad's shop, there is a falafel shop. It's in Israel. Nice. Very good falafel. And, but right next to that, there's a bookstore. And I went there and I asked the guy who worked there, who very, very luckily knew to recommend me Visual Basic 6, a book about Visual Basic 6. Back then it was like, the simplest way of building something. And it was actually quite simple for someone with no experience at all. Remember, English is my second language, so I had to like learn a lot of English along the way. Like, you know, I learned English at school, but like you have another barrier if you're like a software engineer, if you're building software and you're not like American or something like that, language is another barrier. But anyway, I built this very simple piece of software. I showed it to my dad. He got so excited about it that he bought a PC to his store just to run it. And for me, you know, as a kid, it was a huge deal because I knew computers are expensive. So I think I fell in love in software and in building that moment. And then I took that from there and, you know, kept building stuff. I had like a bunch of other kind of mini project startups along the way, but that was kind of the moment. But I did know I want to build something. So of course it would have been like, okay, well, I have a fallback to work in the clothing store. Yeah, but like if I really get my way and, you know, work really hard and kind of work on these projects, maybe I get to build software one day. I didn't know what it means more than that.

Right. Like the idea of a founder is so abstract. And honestly, even today it's become so glamorized and popularized. But at the time, you just knew you had this instinct to build and you wanted to build problems, build for problems that were real and right in front of you and your family.

Yeah, exactly.

And kind of along the way, you know, spoiler alert, like you found yourself in the United States post, post this experience. And I'm sure you ran into some headaches that expanded beyond just, you know, helping your dad with running his shop. Right. You had immigration, you had HR benefits. So we're going to get into what does Gusto do, but like peek behind the curtain of some some of these early pain points you had in your own career journey that might have birthed what became Gusto?

I came to the US inspired by a speech, a commencement speech that Steve Jobs had done in 2005 at Stanford. And he was, you know, if you haven't seen it, you should watch it and rewatch it. I rewatched it probably 50 times at this point. It's incredibly inspiring. Talks about like kind of life's purpose, like talking about like, hey, you can influence things around you. You don't, you know, you don't have to kind of sit in this little box. And, you know, he's obviously the founder of Apple, extremely successful at that point of time. iPad, iPhone and all that stuff. That was that moment. And I was like, where is that Stanford place? You know, where is that place? It seems like, you know, he went there to do his commencement speech. It must be, must be something. I thought it was in England. Seriously? Yeah, because Stanford sounds like, you know, sounds British. So, but I quickly learned that it's not. And it's in Silicon Valley and this place called Silicon Valley. And, you know, So I got— I was lucky enough to go to Stanford for a PhD program and like with the dream of like, okay, one day maybe I'll take some of the technology that we developed there and maybe build a company out of it or build a product. But as an immigrant, you know, coming in, it's really cool actually, like to have that immigrant experience because you have like a— you, you kind of A/B test reality a bit. Like you see the pre— you see, you know, there's an alternative for the current reality that people kind of take sometimes for granted because that's what they've seen their whole lives, right? So for example, I remember like as an intern coming into my first American job as an intern was a YC company actually called Bump.

Okay.

I don't know if you remember that. That's like the—

uh-oh.

So iPhone just came out. Yeah. And, you know, it was this beautiful device and they were just like, they just launched the App Store and it was all about like, okay, let's see which cool apps people create. And this was like the poster child app for like something really cool you can do with the iPhone. Okay. And you basically take a photo on one phone and you bump literally physically bump two phones together and then you move the photos from one phone to the other phone. Okay.

We kind of do that today. Yeah, we do.

We do it with NFC and things like that. Yeah. Right. But that was like, the cool thing was like a, like a, like a bump motion. So it's kind of like, you know, like Cheers, you know, had that, that physical manifestation. So anyway, it got like, uh, you know, Steve Jobs talked about it on, on his, uh, keynotes and things like that. So it was really, uh, a really kind of cool company. But anyway, that was my internship. And I remember on the first day in the internship coming in and you need to fill the forms of like being an employee. Mm-hmm. And I could not believe what they want. They asked me to do— it's like the I-9 is like multiple pages, W-4, withholdings. Like, I had no idea what any of these words even meant, you know? And there wasn't ChatGPT to just go and ask. You go to Google, no one knows. You ask around, you ask your peers, right? Like, what do you— what do you put in that number here? They're like, I just put zero. I don't know. I just don't know what to put there. You— and then, so, um, that was insane. And I think that you know, again, being from a, as an outsider, you just, you don't accept things like that so easily as everyone else because I've started, I worked at Israel, in Israel, and I never saw forms like this and it was very, very, very simple. So anyway, that's like an example of the sort of stuff you get to, to see as an immigrant.

Absolutely.

Yeah.

I'm an immigrant myself. My co-founder was an immigrant. So many of our friends are founders that are struggling with immigration or, right. You know, folks from other countries that want to join startups, but they don't think they can because they're not sure if they're able to get authorization in addition to the hundreds of pages of forms. And exactly, it really is a barrier to entry. As you— as we kind of dive into that problem space a bit, maybe tell us a little bit about an aha moment where maybe you had a conversation with someone or, uh, you kind of dug a bit deeper into the problem space where you realized, hey, there's something here that's solvable that my past experiences or or what I've built in the past might be a good fit for solving.

Looking back, there's a lot of different kind of components and things that kind of got to the place where we, where we figure out like, hey, you know, small business software is absolutely like a huge space that is totally underserved. And payroll specifically is just absolutely terrible right now and somebody needs to solve it, right? So, but it, you know, the thing that got, got us to get to this and I say us because not just me, it's me, Josh and Eddie when we started the company, that made us feel like this was absolutely correct is when you asked. So we did a lot of customer research. We spent a lot of time talking with small— we didn't call it customer research. We just talked with small businesses.

Yes.

The nice thing about selling to small businesses is that they're everywhere. You can talk with them like if you want to talk with small business, just walk down the street and start talking. Right. And I love doing that, by the way. Like, I think like that's, that's the thing I love most about just past 20 years of doing what I do is talking with customers. It's the best thing. Talk with customer, understand their problems and build something to help them solve their problems and then talk with them again and see how, what do they think about what you just built and how you can go and improve and make it better like that. That loop is, I'm addicted to that. I love that. But anyway, so an example. So we ask them what their problems like, tell me about your day, what's going on, what's working, what's not working. Very, very quickly we saw there's two types of problem people face often. It's cash flow stuff and it's people stuff. And specifically in the people stuff, it kept coming back to the systems around like the systems make things, made things harder. And then specifically payroll is the sort of thing that when you ask people around, like one of the most popular payroll products and companies out there, like services out there, let's just call them ABC for a second, is I remember asking people about, you know, what do you think about your current payroll system? And like in a very on, like innocent, like question, non-salesy. I had nothing to sell. And they said, you know, we use ABC and my password to ABC is fuck ABC.

And I was like, whoa, that's Intense emotion.

This is emotion. Yeah, exactly. And as a product person, that's what you crave, right? You want to see the emotion. You want to either see people say this sucks or this is fucking awesome.

Yeah.

The things in the middle. Yeah. That's just people being nice to you, right? It's just not interesting. And it's very rare when you get that. It's very rare. So when you get that, like, you just jump on it. So that's like one example of like, you know, people were cursing and it's not one person. 3 people told me this. 3 different— and I didn't even ask people for their passwords or anything like that. Just like what— by the way, that's something that perhaps ABC should look into their passwords. That is a common password. Security.

Yeah, yeah, exactly. Well, when there's 3, there's normally 30,000 sometimes.

Exactly.

So the founder journey often gets mythologized. It's, you know, this idea that you have, you build a company, it grows, and you've become a household name. And Gusto certainly has become a household name. But tell us a little bit about maybe an early moment where where things didn't quite go as planned, or you were feeling, okay, maybe this isn't the path forward for, for us?

I'm very competitive. I'm a very competitive person. What that looks like sometimes is you kind of, you know, imagine— you just imagine that you just see yourself as— I guess that's like a— you can call it like, uh, imposter syndrome too. I think they're very connected because, you know, if you're very competitive, you kind of often see people around you like, oh my God, they're, they're crushing it. Yeah, we're totally behind. And I've had multiple times in it where I felt that. And in retrospect, that was untrue. But it didn't matter because it really actually motivated me, really motivated us. But it was painful. So some examples. We were part of Y Combinator Winter 2012. Like, I love the YC program. It's great, great, great program. Highly recommend it. But like during the program, we had like around 50 companies back then in the batch. And there's like, it's called Prototype Day. That's kind of the kind of a demo that you do in the middle of the batch, kind of show where you're at. And remember, and like, and it's just internal. So only the, you know, companies kind of hear each other's pitches. And I remember sitting there and I was like, oh my gosh, these are freaking geniuses building amazing products. They know what they're doing. And we're just like, I just hope we're not the literally the worst company in the batch. And I really, I was like, I was thinking in my head, I was like, let's at least be the middle. Let's at least try to take middle, you know? Yeah. And it's not that YC companies are competitive. There's no ranking or anything like that, but you just like as a competitive person, you want to, you want to feel like, you know, you're at least as good as like, at least I'm most really. So, so, you know, I remember that was a really difficult moment. And I, and I looked back in my emails recently and I found also in a similar vein, 3 months after we launched Gusto, this was like now a year later after, after this event, and we already had our, you know, did our seed round. Like we had like a few employees and all that stuff. And I look at our growth rate and our growth rate went down from like whatever the like 50, 40% week over week or month over month. I don't know, it was like an explosion. It was absolutely an explosion. Up it did, right? Like crazy. But then it ticked down like from the 50 to 40, from the 40 to 30, and I freaked out.

Yeah.

And I had this email and the subject line was like, uh, we are dying and if we don't do anything, we are gonna— this is not gonna go anywhere. And I sent it to like, you know, my co-founders. We talked about it, we had like a— we were like, okay, crap, like here's the stuff we're gonna do around it. Like obviously in retrospect it was just a blip. Like it actually did not mean anything at that point. But I think that, that kind of You know, these examples are examples of, I think, like the mythologized, like, founder journey has a lot of pain in it. Yeah, all the time. And the pain is coming from like feeling that you're behind, feeling like you can do more, like knowing that, you know, you have a very high bar. The opportunity is really large. If you don't do it, someone else will. And, you know, that then you take this with you all day. Like we've been working, you know, in the first several years of the company. Absolutely. You know, there was no night that at least a weekday, at least I would say that I didn't work until like 1 a.m. or something like that. And it was not like, oh man, I got to work until 1 a.m. It's more like, got to push to get the most stuff done today. Go, go, go, you know? And you're always feeling behind. So anyway, that's like, I think over time it's got a little better, but not, not significantly better.

Well, with that pain, there's this undercurrent of passion that's driving you forward. It's not that you're being forced to do something. And that's such a important early sign as startups go through those early ups and downs. I'd love to dig a little bit deeper into your customer segment and something that a lot of startups struggle with. It's kind of that market part of product-market fit. Yeah, similarly to my startup, we started with small businesses and then ended up realizing in order for us to command the ACVs we needed to have a repeatable sales motion, we had to go upmarket and kind of tackle the enterprise. But Gusco has really crushed with the SMB segment. Tell us a little bit about that strategy and how you were able to really build a repeatable motion around that customer base.

We have over 400,000 small businesses using today that we're using Gusto today. They're everywhere from like, you know, a single employee to like hundreds of employees and 1,000 employees. And they use us today for payroll and benefits and HR and time tracking and a lot of other things to really to run their whole back office. But we didn't start this way, right? So we started with you know, very, very tiny focused target audience. And the goal was like, hey, if we go there and if you prove it on that like little tiny segment, you build a product that people really, really love. The growth channel is going to come from customer love. It's not going to come from hiring a lot of salespeople who, who are, you know, amazing sellers.

Totally.

And that was a bet. Did we exactly knew that that was the bet we were making at the time? No, we just knew we built what we thought was right to build, which is like great product for that, that, you know, for a subset of customers. But what we learned over time is again, is that that kind of customer love is sufficient to kind of command the ACV. And I don't need very high like annual contract value in order to grow because I, I don't need actually sales team to go in and, you know, kind of grow like the growth came from like primarily an engine around customer love. So the first decision we had to make is like, are we focused on startups or focus on tech and tech companies, or we focus on like just small businesses at large? It was a, it was a tough call to make because authentically we knew a lot about startups because we were all, we came from startups. We also knew something about, we knew a lot about small businesses from our previous background, but like currently, like we are a startup and we understand startup extremely well. And there was a debate and then we decided, you know what, we're just gonna launch We're going to keep it vague, we're going to keep it open. We're going to say SMBs in some places. We want to talk specifically for startups and then we'll just see the signups we're going to get and we'll make a decision from there. It was a very difficult decision to make. I remember like going back and forth multiple times, you know, with Josh and Eddie on this. And I thought what's going to happen is that we're actually going to get a bunch of tech companies and for SMBs they're going to have like a bunch of things that we don't even know. And maybe one day we're going to go and expand to SMBs. And I was wrong. What ended up happening when we launched, that was like, you know, October 2012. TechCrunch article and a bunch of other articles and things like that. We got a lot of tech companies, but we also got people who are interested in technology who happen to own a small business. And they knew that, again, ABC sucks and all the other companies like they didn't like their current provider. So, so very quickly it became from like startups being like 90% of our customer base, like within like the first few months of the company to be the minority. And, you know, today it's like, I don't know, like you know, if you look at the population like today, Gusto's customer base really mimics small business in the US. And, you know, so most— there's more dentists in the US than technology startups. Yeah, right. We're still doing very, very well with tech companies, but it's just like less tech companies in the US. So that was like one, one kind of big, big early decision around, around segmentation.

A lot of founders will build a product, think it's perfect for a segment, and then through kind of organic usage, word of mouth, they realize that actually this slightly different segment is really where there is that 10x sort of resonance.

Yeah.

What advice would you have for founders who are maybe building a PLG motion or kind of navigating what their beachhead market is in kind of determining when that viral loop is starting to work and they should continue pulling on that thread?

Yeah. So there's several good like kind of methodologies of trying to figure out like, do you have the customer love? That can cause virality. And then there's also, is your market a market where that is enough? Because that's not true for all markets. So that's just one thing to consider. So, so for example, the easy answer is like NPS. Look at your NPS. If you have NPS like lower than 70, I would say like you don't have the passionate customer love that you need in order for people to walk around the street and like, right, you know, be out there talking about your business. And it's not that 65 is bad. It's actually world freaking class. 65 NPS, right? If like most companies you have Oh, but like a positive NPS is bigger than zero. Check, check, check. We're good. You know, but you know, I would say like you need to like for real to get that flame, like you got to go like over 70. So I'm looking into that when I talk with startups. There is like some fun, fun surveys. There's a Sean Ellis survey around like product market fit that I, that I like too, which is like you send a survey to your customers and you tell them, hey, we're— how would you feel if we're going to take— if we took away this product from you? You know, 1 to 1 to 1 would be like, whatever. And 5 would be like, I— this is terrible. I will not know what to do with my life. And you want to have like around half of people say 4 or 5, like, this is extremely painful for me if you take this away.

Right.

So these are two examples of like the sort of customer love you need to see. And then the second thing is to think about like, do you have examples of other— when you think about your customer segment, is this a segment that talk with one another about the products that they use? Small businesses do. They, that when a small, two, you know, small business owners meet, they often talk about how they run their business. That includes the tools that they use, right? And often small businesses are really friends like that. Their friend groups are other small businesses. It's connected, right? Developers, another great kind of sort of community that they talk a lot to one another very, very quickly. Like, you know, like a new tool gets judged by is it a good tool or not? But you know, some places that's not the case. So if you're selling, I don't know, IT software for like, you know, Fortune 500 companies, that may be like a long slog where you need to have sales team Right.

So there's kind of this product-led growth motion that is fueled by this being an inherently chatty segment where people love to talk about what they use. And I'm a former Gustoer. In my last firm, we used Gusto, and I love the feature of the emails. It just is a surprise and delight moment every Friday that you're— every other Friday that you're getting paid. I'm no longer using Gusto. It's not the payroll provider at my current company, and I'm sad. I miss my emails. How did you guys, from a product level, think about creating these emotional touchpoints with your end users.

Yeah, so the company actually started, um, with the name ZenPayroll. Okay. Um, we chose that name because we wanted on demo day in YC people to remember, the investors to remember what we do. So we wanted to have the word payroll there, but we also knew that we were going to need to change the name later on. We changed it to Gusto because it's the emotions that, the emotions that you feel when you do something that is you're passionate about, you're excited about, you work with gusto, you do it with gusto. So that's just a little bit about the word, uh, kind of the name. But our tagline was, um, A modern, delightful payroll.

Nice.

And the word was delightful. There was like, people were very like, what? How can payroll be delightful? Yeah, that's insane. Like, are you like, you're, you're, you know, you're delusional. But it's, it's, it's a part of our product and design philosophy. And that's why it was important. It would be that was right there. Right. So how do you make a product that's delightful that people really, really love is exactly those things. It's you capture those moments in the user experience and you try to connect emotionally with where the user is at in that moment. So for example, if you're now a small business owner and you're running a payroll, the first step is like, oh my God, it's anxiety. It's like, oh my God, do I have all the information? Is it correct? And it's all about reassurance, like saying, like talking with you and like, you know, the product needs to speak with you eye level saying, hey, here's all this stuff, here's the work I did for you, everything is here, here's what you should double check. And if you did this, this and that, You're good. And then you feel like, okay, cool. You do this work. Gusto gets me. They're not, they're not like telling me like, don't worry, it's all done when it's not done yet.

Yeah.

And they're also not, you know, not telling, not like stressing me out, figuring out what I need to do. They're telling me what I need to do and they're acknowledging my, my emotion. I can move on. And then at the end of the flow, you just finished running payroll. It's like, congrats. Yeah, you did it. Yeah. This was a big deal. It was on your list the whole freaking week. You did it. It works. People are gonna get paid. Yeah, great.

Good day in the office.

Exactly. Exactly. And the same thing when you get paid. It's an employee. It's the same thing. It's like, finally, I was waiting for this. People wait to see their paycheck coming in. They want to see it. They want to— that's a moment of celebration. They take a picture, they send it to their parents. So for us, it was like learning about that, that, that moment, connecting emotionally, seeing the opportunities to connect emotionally, and then go in and, and, and build that.

Well, that scaled rapidly. We talked a little bit about your early growth rates. But from the venture standpoint, you know, the VCs took notice too. You've been backed by incredible investors. You mentioned YC, General Catalyst, CapGee, and many more, I assume millions and millions of dollars at a $10 billion valuation. So first of all, just congratulations on getting to that scale and size. We're curious because we know every journey starts with an initial yes. Who was the first person to say yes to investing in you and your co-founders?

It was YC.

Oh, wow.

Yeah, it was YC. Eddie, my, my, my co-founder and CTO, he had a YC company's YC company like 3 years prior to that. So he really knew that. He really felt like, you know, it was a good program for us. And Josh and I were like, well, you know, we're kind of like second-time entrepreneurs at this point. We had like other startups and we felt like, you know, we can, we can build this on our own. We don't need like support. But he's like, no, no, no, no, you got to do this and here's why. And we were like, okay, fine, let's do it. Great. Feeling like, again, very, very fortunate that we did that because it's just like an incredible community of founders who help one another. Yeah, that's meaningful.

And community is so important. It can be a quite lonely journey, um, building and scaling something. And you've been at this for many years now. So you've talked a lot about the initial product offering of payroll and how that created this surprise and delight moment and that you were able to scale that, right? But you also mentioned that Gusto is much more than payroll now. It's benefits, it's HR support, employment, you know, just everything. So how did you know when and where to expand the core product offering, um, at scale?

Yeah, yeah, that's a great question. I think that our first big, like, expansion was to benefits. That was, that was like 2.5 years, call it, after launch.

Okay.

And I mentioned earlier that when we started the company, we really focused on a tiny, tiny, tiny audience. And it was like small businesses only in California who had less than 5 employees, who had no hourly employees and had no benefits.

Oh, it's a very niche market.

A very niche, little tiny market. And the goal was like, let's make them really, really love us. Got that NPS 85, 88, right? And then keep building functionalities to help kind of expand, right? So we started with, with that audience. And then the first kind of big expansion for us was like to move from like single state, just California, to like 50 states. And that took, as you can imagine, one state at a time. In the world of payroll and taxes, every state, it's kind of its own country.

That's crazy.

So it's like a big, big, big thing. But kind of along the way, we're like, okay, when are we going to start kind of with our next product and really build a platform? Because we didn't want to just be a payroll company. We felt, we felt like this payroll would be a great place to start because it has all the data about the employee. Employees. So now that you have all the data, well, you can add more services without like a huge, like a long onboarding flow or anything like that you need to go through.

Makes sense.

And also small businesses don't wanna have 1,000 different tools that they use. Like it's much, much better to work with a single tool. Step number one is like, can we do really well in California? Check. We did that. That's great. We're gonna keep expanding there, but we're feeling good. NPS is high. We know where to go. We know, we know how to sell. And then the second question was like, can we expand from a single state to multiple states? We got to, I wanna say, 8, 10 states. The first two states were like, holy shit, how do you do this work? This is really hard. We had to do rewrites multiple times, try a bunch of different architectures, but it worked eventually. And after we got to like state number 2, 3, 4, okay, 5, 6, hey, I think we know how to do this. 7, 8. All right, I have a team. Yeah, it's an excellent team that's going to keep going, taking us from 8 states to 50 states. But we're now starting to have like the mental, the energy, the ability to go kind of expand towards the next thing. And that's where we were working on benefits. And then quickly after that, HR and things like that. And the conclusion or the advice to founders, like when to go with your second product is don't do the second product if the first product doesn't work yet.

Yeah.

So figure out the first product, make sure it feels like, you know, you know how it's going to keep growing. But then on the other hand, like don't wait for like a competitor to come in or something like that to disrupt you. Like be the one to move towards your vision. And I think that's like, that's kind of the other side of it. There's another thing which is around financing that's really important. Like we had enough funding from our, from our seed round ground.

Yeah.

In order to, um, um, kind of have a new parallel team working on this. So, you know, if you can't have the— like, if you don't have the funding, obviously go get the funding first.

I feel like with AI and how easy it is to build features, there's a lot of early-stage founders that are saying, okay, we're going to build a compound startup, but from day one. And so it's really interesting to kind of hear that even with the ease of building features, that principle you're mentioning still holds true.

Well, think about it as a customer. Like, you know, if you have a single— like, if you, you come, you have a problem and you want to solve and you go to that, that product to solve a problem and it doesn't do a good job in that, like, why would you try to trust it to do anything else for you?

Completely. Well, you scaled Gusto to 400,000 customers, which you mentioned, which is like an incredibly exciting milestone. And you've done so over the last decade where we've had some curveballs. You know, we had a global pandemic.

Oh yeah, right. Yeah.

What about that for a minute?

And you said—

yeah, exactly. We had like a pseudo financial crisis. With SVB, you know, you're so at the core of these business decision moments. And in times of crisis, people are still making sure they're getting paid.

Right.

How did you navigate through some of these outside-of-your-control macro blips in which your customers were coming to you for answers?

Yeah. Yeah. You know, in retrospect, these moments actually are kind of like a jolt of energy.

Yeah.

To the company. Obviously, in the moment you're like, holy crap, what are we going to do here? And this is really difficult. We've never done anything like that. No one has ever done anything like this before. Right. But looking back, it's like these are kind of jolts of energy. So in COVID, you know, one memorable story is, you know, obviously, like, you know, it was like, you know, I think a Thursday and we were like, this is real, kind of a big deal. And I don't think we're coming back to work on Monday. I don't think anyone's coming back to work on Monday. So and we were all in office, all in office. So, you know, there's that transition. And the memorable moment for me was like, we were— I was very, I was very worried again, being very competitive, is that, oh crap, like, you know, like because we're not remote first, it's going to— we're— it's going to be really hard to get people to, to, you know, know how to be productive at home, you know, to kind of keep delivering for our customers. And I was absolutely wrong because what ended up happening is the pain of our customers was so obvious, like small businesses who have, you know, like storefronts, storefronts, you know, they had to shut down. That's like their source of income and all that stuff. The pain was so hard, so, so significant that Gusti's people who work at Gusto cared so deeply about this that they just plunged into work, honestly, probably like much harder than they've ever worked in their lives, at least at Gusto, for the, for the first, like, 9 months at least of, of the kind of post-COVID pandemic and created a bunch of really, really unique features and to help people get their PPP loans. We were the first one to— we actually helped define the PPP report, working with banks, working with the government to get money faster to small businesses. Yeah, that connection with the customer is something that was not like management top-down. You should do A, B, and C. Here's the plan, here's the roadmap. It was more like Gusty's like, hey, we want to— we want to help our small businesses. And that was just amazing. That was incredible to see. That was incredible to see. So, you know, I feel like that, that was like this kind of thing that that talks a lot about culture. Like, you know, if you like being opinionated about the type of people you hire in terms of their motivation really makes a difference in those moments.

Well, and then fast forward a little bit. I alluded to this, but then ultimately, like your own ability to provide the service of Gusto to your customers was threatened through the SVB crisis. I'm curious how you thought about in that moment communicating to your end user, how you just talk them through what was going on behind the scenes and help them not feel afraid.

Payroll is interesting because it's a little bit like that, you know, that iceberg of like, you know, you see the user experience, but then underwater there's so much like all the taxes, the filings, the payments, the connection with the government, the banking rails, all that stuff. Luckily, like, you know, we are— we have invested heavily in all these kind of infrastructure. We're very strong in infrastructure. That's why we actually have an infrastructure business that's separate. We didn't talk about it, but we have Gusto Embedded that helps other companies build payroll products. We have Symmetry that helps other payroll companies calculate taxes. So we do a lot of infrastructure stuff. But like, as a result of that, for example, we had multiple banks as a, as a, as a back, as a, you know, as a backup. So when SVB stopped processing ACH files, we basically moved to the other bank. And like, none of our customers were impacted other than the folks who banked with SVB.

Right.

And then for these folks, like, you know, it was a minority of customers, but for these folks, like, they couldn't make any bill payments, couldn't make anything because of because they relied on SVB for that. And for that, like, we had a special program to work with them and provide them credit. Like, I remember talking with customers on the phone like that entire weekend and trying to make sure, like, you know, we help them to make payroll on time. Making payroll on time is one of the most important things for small businesses. Yes. So we were, you know, we partnered with them to make sure that they were able to do that. And I feel like in both of these instances, both COVID and the way we showed up there, as well as like this SVB for these SVB customers, like you earn that NPS again, that customer trust, that customer love for forever. Yeah, like I have people still when I meet like small business owners, we use Gusto that still talk with me about COVID every time I meet them. Yeah.

Well, there's this little thing called AI also changing the way we work and live and play. What's so profound about Gusto is you guys have been spending years building these infrastructure pipes to meet the needs of SMBs. And there's a lot of talk about what AI will replace, what it won't replace. But at the end of the day, people are still going to need to get paid and many more things.

Yeah.

So how are you guys thinking thinking about balancing kind of the exciting parts of AI that certainly are going to be able to help Gusto scale and grow faster, but also keeping this deeply human connection that's so clear to the core of your business, right?

Yeah. I was never excited about any technology more than I'm excited about AI. And I think people in Gusto are like that across the board. And that's really cool. It's just cool. It's just fun. You know, I haven't, I haven't coded for 10 years because, you know, I have a different job now at Gusto. But now I can code again. I can vibe code, I can use cursor and it's just super fun. I just, you know, I just did my first pull request after 10 years. Wow. And now like PMs, product managers are also expected at Gusto to code and contribute to the codebase as well as like, you know, prototype every single thing they're working on, including our designers. So I think it's going to make— it is making already Gusties more effective. It is bringing in a lot of like a jolt of energy and fun to like we're changing these jobs. These jobs are going to be, you know, much more empowering. You don't need to wait for someone else to do something. You can just do it yourself often. And I think that's, that's true across the board. It's not just engineers and product and it's also, you know, you know, sales and customer care and so forth, accounting and all of that. For Gusto, you know how we think from a product standpoint for the customer, you know, AI is an opportunity to bring in like this great technology that everyone talks about in the news, not just like VCs and like tech people talk about it. Like everyone is talking about AI, everyone's using AI, right? So as a small business owner, you're asking yourself like, how can I use that too in order to help me run my business better? So we look at Gusto as the company to help small businesses with that. So we try to bring that into our, you know, into what we do. So whether it's like how you run payroll, whether it's like how you get paid, whether it's, you know, the interface that you use, like where— and then trying to bring that into the customer-facing stuff. And then there's the other side, which is the backend. Backend. And Gusto has, like I mentioned, like this, this kind of like you know, Iceberg. So there's a lot of backend that you can go in and automate. We're doing a lot of that too. So I, this is, it's going to be freaking awesome.

Yeah.

Yeah. It's going to be freaking awesome.

I was just going to say, we were here 6 months ago in this very room with the Factory AI guys who just announced their big raise this week. And I think we all have this conclusion that like, it feels fun to build again. And all of us are builders in our own way, different shapes or forms. And it's this inflection point in careers and it also in being builders. I have one more question for you and then I'm going to give it back over to Claudia, which is just around the excitement in the market. So we've mentioned AI as being one of those tailwinds, but also the recent Figma IPO just showing us that the markets are opening back up and there's some other exit opportunities that have been effectively closed for the last 2, 3 years.

Yeah.

How is that impacting you and the team's thoughts about where Gusto goes next?

Honestly, we don't think about that very much. Like, it's really— the focus is on helping our small businesses, helping grow. Like, this is like such a huge, huge market. So, you know, we're focused on how do we help more businesses start? How do we help companies survive longer? Like, half small businesses, um, you know, fold after 5 years. We We want to increase— we want to reduce that number so businesses survive for longer. We want to increase number of small businesses formed. I think with AI, by the way, like you're going to have much, many more small businesses because it's easier to start a company. That's really our focus on the financing side. You know, Gusto has been profitable for a long time now, so we don't need to go and do anything like that. Yeah, at least not yet.

The dream for every company. As we look to the future, I'd love to dig into what you see as Gusto's north star? Do you see Gusto being the all-in-one operating system for small businesses, or is the sort of vision evolving over time?

The answer is the key. The vision definitely evolves over time. And I think that's one of the coolest things. I didn't know that in the first, quote, like 5, 6 years of the company. I kind of felt like, you know, I was always like the head of product and I kind of felt like, you know, oh, you have the vision, it's this thing set of stone, you kind of put it on the wall and everyone's kind of working for it and like, that's it. And then you're kind of stuck with it. And then like at some point I realized, I realized like actually we can change our vision and it's not a big deal because people, you just tell them, hey, you know, so we evolve it. So, you know, you know, I think today because of AI, we're much more ambitious than, you know, we were like a few years ago. So, you know, I think Gusto could be, you know, the most important company in the world for small businesses. We're trying to— that's what we're trying to build. I'm not going to talk about like the, the kind of big product roadmap stuff we're going to be launching, but like we're We're very ambitious.

Well, we're excited to see those announcements come out soon. And as we kind of look at the future, I'd love to dig into what's next for you personally, Tomer.

What's next for me?

Yeah.

Gusto. You know, it's like, you know, I, I mentioned that earlier. I absolutely love this feedback loop of like talking with customers, seeing a problem, thinking about ideas like how to solve that problem, build something, show it to the customer. Get their feedback and go build again. And that just like fills me with energy. So, you know, I didn't know that when we started the company, that's something that, you know, like over a decade later, I'll still be like so engaged and excited and like energized. And, you know, Josh and Andy, my co-founders, are also the same. But we just— we get to do this thing, you know, that we really, really love. And that's really, really cool. And we get to do this thing for people who we really care about. And that's also really cool. You know, we just— we just had our showcase launch last week and that's like this big event we haven't in San Francisco with hundreds of small businesses and accountants coming in and learning about Gusto's new features. And we talked about, we talked about how does it feel to miss payroll and how difficult that is. And then we, we, we talk about all the solutions around, like new solutions around, for example, you know, instant payroll. So you just, you can pay on Friday to get your people paid on Friday, which is something that's like in Venmo, you're like, oh yeah, of course I'm paying someone to get money. But in payroll, that's just, that, that is a serious innovation. No one does this. Big, big, big deal. And then what happens if you don't have the cash flow because some, somebody, you know, your customer is paying you late. They will pay you a few days later. But like for your employees, they need the money on Friday. That's kind of what they expect for their finances. So we help people with, you know, a payroll, what's called payroll bridge to help, you know, and kind of bridge that gap for their cash flow. So we're going really, really deep into that. And like I mentioned earlier, like there's kind of two big problems for small businesses. It's, you know, people problems and it's cash flow problems. And, you know, So I'm really excited about what we're going to do across both of these things.

Well, we're so excited as well. And as we come up on time today, we'd love to ask you the hero question of the podcast. We ask this of all of our guests, and that is, who's a woman who has had a profound impact on your life and your career?

There's a lot of women, obviously, in my life that, you know, professionally who made a real big impact. But actually, the first person that comes to mind now when you said this is that is is Annie Duke, who is— who wrote this book around thinking in bets. So she's like a, like a, like a famous poker player. And she really changed the way I think about, honestly, the world and like decision-making. Highly recommend this book. It's basically a lot about, you know, as entrepreneurs, we often think about like, you know, you do kind of in a very kind of black or white way, like you choose a path. Thinks there's a right decision. There's like, here's the 5 options, choose either option A, B, or C, which one is better, pros and cons, boom, make a decision, move on. And like, in retrospect, good decision or bad decision, that's it, very simple. And she thinks about decisions differently, um, more like kind of like probabilities. So that means that, you know, you can make a decision, um, it could be the wrong decision probabilistically, you actually most chances it's going to be wrong, um, but it ended up being correct in retro— like it ended up getting the results you wanted, should you celebrate that or should you actually celebrate the fact— or should you say actually, you know, I got lucky, but really I didn't make the right decision. And what I should work on is in retrospect, when I analyze my decision-making, I should work on making the right decisions probabilistically as opposed to like what ended up making the right results. And that really changed my, my how I think about decision-making and product and company building.

You mentioned a graduation talk with Steve Jobs at the beginning, and Roger Federer gave one at Dartmouth, which is my alma mater, last year. I don't know if you've watched watched that.

Yeah, yeah, yeah, yeah, I did.

But he talks a lot about this, like he says that he only won 54% of his points. Yeah, but 84% of his matches. And so kind of knowing, to your point, the probabilities, right, when to lean in, when to learn, um, totally resonates.

So we'll have to link the book. Yeah, when we post this episode.

Yeah, sounds good.

Well, thank you so much, Tomer, for spending time with us today. It's been awesome having you in The Room and hearing your story.

Yeah, absolutely. Thanks for having me.

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