The Future of the Payments Industry with Eli Polanco

Welcome back, everybody, to another episode of Payrollin'. It has been a long time, y'all. I don't know. I don't even know. It's been so long that I tried to log into the analytics this morning to see how long it had been since we created an episode, and I forgot my login. So I'm waiting on somebody to send me my login information. But the reason why I'm doing another episode right now and why I've been— my fire has been reignited to record some more episodes of Payrollin' is because I'm lucky enough to have Ms. Ellie Polanco. Am I pronouncing your last name properly? I've never— okay, you are, you are on the show with me today. And we're going to talk about a bunch of things. We're going to talk about her entrepreneurial journey. We're going to talk about her company Novello, the problem they're solving and for who. They're in the payment space. I want to hear from her the future with obviously a ton of change happening in the payment space right now. I want to hear her perspective on that. We're going to hear just about her entrepreneurial journey, some of the struggles, how she's overcome those, building software, raising money. These have been questions I've been getting a lot lately is Should we build our own platform? Should we raise money? I don't think it matters if you're in the payroll space necessarily, um, to think about building software and whether or not you should do it. I think the struggles and the outcomes are very much the same across industry, but I'll be curious to get your perspective. And so that's the fun stuff we're going to cover. And let me just tell you this, Ellie, this is why I'm so excited to have you, because even before I met you, you're one of these people that I want to be in that when you were introduced to me by somebody else without you being there, they talked about how awesome you are. They talked about how polished you are. They talked about how cool you are. And then I met you and I was like, yeah, she's all the things. And so I hope that one person out there talks as kindly about me as the person who introduced you to me talked about you. So welcome to Payrollin'. Welcome to Payrollin'. The show where you will learn how to operate and grow your payroll business from the most dynamic minds in the business. If your company offers payroll services, this is the podcast for you. And now here's your host, Matt Vadie. Let's go.

Well, thank you. Well, I've already talked about you to other people that way, so. In case that makes you feel better.

That's awesome. And you seem to be surrounded by— I met you and your team out at IPPA last year, and shout out, um, that's what's also coming up here soon and will have me back in the payroll and wheelhouse here is, is, uh, getting ready for IPPA has got me thinking about all the industry topics, and we're going to get back into all that. Um, but you just seem to have a really cool team too. Everybody I met, just great energy, man. Like, yeah, I'm a big energy guy. When I'm around somebody, I could feel that positive vibe. You all just have that great energy about you over there. What is How are you recruiting for that?

Oh man, um, you know, actually one of the toughest things about starting the business was recruiting because when I had the idea for Novello, it was just me and it was, you know, April 2020, um, smack in the middle of COVID But I really, really wanted to build this. I was obsessed with the idea, uh, but everything had to be done remotely. Including finding the team. And I basically focused on people that cared about the mission, that wanted to build something big and important, and, and honestly leveraged my network a lot. I had been building technology for a while, had a kind of network of, of engineers and word of mouth referrals. Tons of Zoom, uh, was able to, you know, find a really, you know, cool tight-knit group of people that really cared about this big challenge that we're trying to solve. But it was, it was tough, and it was definitely like one of the first mountains to, to surpass, uh, when starting a company in a fully digital space.

Let's follow that story arc. So you've got this idea, what What was the idea? What problem are you solving? And then how did you bring that idea to market?

Yeah, so the problem that we're solving really is payments. I've been obsessed with payments since I had my first job. My first paycheck actually took months to collect, and it was, you know, it was 2009. I had just gotten a job as an investment banker in London. I was super excited. Left the US to go to London, and I realized I couldn't get paid for months because I couldn't get a bank account. I wasn't in London physically during training, and payroll admin hijinks meant, sorry, you can't get paid until you're physically there, you have a bank account. And even though I was, you know, doing investment banking, had a great salary, I actually had to borrow money to afford rent and groceries. And from the get-go as a professional, I became obsessed with how money moves and why it can be so broken. And that's really been a thread throughout my entire career. Um, after I did a stint as an analyst in investment banking, I actually moved into banking technology, specifically focused on money movement and building technology to make it, um, move faster and securely and avoid issues like I had. Um, and one of the, you know, the biggest, um, not only did I experience that pain, but as I worked in the space, I realized that the pain was felt throughout every industry. And so my obsession is around how to make sure people get their money where they need to go without delays and disruption. And I really wanted to build it for payroll because it's the thing that hits everyone. It's the plumbing behind everyone's life and the economy, and It's actually the largest business payment space in the US. It's a concentration of $10 trillion moving in and out every day. And as I mentioned, I love a big challenge. The whole team loves a big challenge. And that's our mission, make payments work. So what does that mean though?

So what does that actually look like in the day to day? Like if I'm using your product or service, What is the plumbing, if you will, that is being provided to me?

Yeah, so we specifically focus on integrating payment experiences into payroll systems, and we focus on 4 things that we want to enable. One is speed from how you collect money from your clients, whether it's for tax withholding or to ultimately pay out paychecks or to get your bill every month, we want to make sure we can collect fast. On the employee side, making sure that folks can get paid as fast as they want. We want to make payments digital. So, you know, we want to move to a world beyond checks. We want to move to a world where regardless of where you are, you can access the money and move money. So that's the second pillar. The third and really important one at payroll is secure. We want to make sure there's no fraud and there's security for the payment. It goes to where it needs to go and there's no kind of interloper fraudster diverting the money where it needs, you know, to where it needs to go. And fourth is flexibility, which is really important these days to, um, to really create good experiences for your clients. On the business side, clients want different ways to pay. They want to hold on to their cash into the last minute. So if you ask clients to pre-fund, to pay 1, 2 weeks in advance, it immediately, you know, can hurt your sale. And also on our client side, when they are thinking about employee turnover, they want to give employees different ways to pay. So depending on the industry, if you're a W-2 white-collar worker, you may not worry about, you know, getting paid 2 weeks into your bank account. But if you're in areas like, you know, hospitality, nursing, shift workers, they want to get paid right away. So it's flexibility. So speed, digital, secure, and flexibility. And we build a technology that integrates into payroll systems to allow that. Awesome.

Yeah. So you mentioned something right there. This might be a dumb question, but as you're talking about it, I'm thinking about it. So it's payment is happening faster and faster. And even when, you know, you look at the old model and I'll be careful how much I talk about this. I don't want to give scammers any more to work on, but they all seem to understand hand of the fact that like the same money that's moving into the bank account is not the same money that's coming out of the client bank account, which is how they reach out to so many payroll companies and try to run the scam of, hey, we're gonna shove all this money onto a bunch of bank cards and then move on. What does the plumbing look like on like the same-day payments and next-day payments? Like what funds are actually moving from where? This is again my own— as much as I am in this space, I don't pretend to know a whole lot about ACH or, or money movement. Like when you start getting those super tight time frames. I know daily wage access, that's not what you guys do, but that's become more and more of a, a hot thing. Like, how is that money moving so quickly? And, and is money moving quickly, or is it again sort of, you know, vaporized cash that is going to potentially have a lot of liability assigned to it if things go sideways?

Yeah, so, you know, to start, um, in the payroll space, there's really 2 types of payments that are happening, that the end-to-end flow of payments really happens between 2 layers. First is a service bureau, um, the payroll provider needs to collect the money from their clients, and that includes the tax withholdings, that includes the net wages. You first need to collect it, and then you need to hold it in this hot wallet We like to call them the payment space because money's moving in and out. And from that account, you ship it to your clients, to the employees, and, you know, ultimately to the tax authorities. Now, there's a lot of things that's happening in payments right now. The first is the introduction of things like Earned Wage Access and things like pay cards and what Those are payment types that simply look at the paycheck. They're trying to get the paycheck moved to that space faster, and they do it by using debt. Either Visa or a third-party provider like DailyPay will say, I'm going to put up $1 million so that I can get the payment out faster. So even if I haven't, you know, the payroll provider hasn't collected from the employer, that money will be there and I will take the risk. That's a faster payment solution only on the payout side, the direct deposit. In addition to that, there are a lot of new payment solutions that move the money faster without debt. And that's when you have things like same-day ACH, like real-time payments, like FedNow, like wires. And that is an account-to-account payment that is basically just the banks agreeing with each other to say, Hey, instead of settling this in 2 or 3 days, let's do it right away. And it's really just a rulebook that they all agree to and say, yep, we trust each other, Bank A, Bank B, so we're going to move the money faster. So there are a wide variety of ways for you to get the money from one place to the other faster. And the one that you choose really depends on whether you want to use debt or not. And, um, which bank is involved in the, you know, in the execution. One of the things that we do that is truly important right now is the ability to blend all of these things together. Right now in payroll, maybe 80% of the transactions are ACH. We're going to move to a world where it's ACH, wires, real-time payments, pay cards, all in that single system. So it's, it's, it's a nuanced answer because there's a lot of different methods.

Yeah. And I'd like to hear more about that, kind of where the puck is going in your mind. You think of what the best case scenario looks like, even if you can't execute on that, which I'm going to ask you to take off your, your hammer. All right. Like we always say, when you're, when you're a hammer, everything looks like a nail. Like the, you say that to our PEO sales guys, be like, get up out of here.

Not everybody's.

But the fun thing is you actually just mentioned something really important. You said hot wallet. Which was my nickname in prison. Now that is like, all right, so for everybody listening out there, that is the go-to dad joke. Anytime you get two funny words together, then you can just be like, oh, did you say rusty armchair? Like, oh, that was my nickname in prison. If, as you can see, it works every single time. That one and my other, I forget, I apologize if I've said this on here before, but you can substitute the most popular bands in here. It used to be Nickelback, and we would say, you know, there are two types of people in this world, Nickelback fans and liars. And now you have to— now you just throw Taylor Swift in there as kind of the go-to for that. But anyways, these are the dad jokes.

I like the dad jokes.

You come here for the payroll industry talk, you leave with the dad jokes. So I know that there— I can already picture Mike Ritzema right now starting to use the nickname in prison joke next week. But all right, so let's talk about that, because to me, like, the payments— to your point, the back end, the plumbing of this stuff, it's important for the last pillar that you mentioned to me more than anything else, right? Like the security of it. As a bureau owner, my number one concern is always security. I will take security over speed 100 times out of 100. Like a 2-day to me, we're unique in that the overwhelming majority of our clients are white collar. So like we don't, we don't offer a lot of daily wage. We don't, we might have like, I think we literally have one client that we rolled out daily wage for and then we didn't promote it to anybody else because we didn't want to mess with it. I don't even know if there's any money there or what. It's not worth it to us. We just, you know, less is more over here. But I do know obviously we've got stuff like MTL going on. Obviously the banking industry is going through a lot. We've had a lot of fraud cases and, you know, we've seen a lot of technology over the last, let's call it 10 to 15 years, right? Blockchain was a big one where it's like blockchain is going to remove all these issues. And then, you know, I'm the, I'm the most, I'm the first person to say the word blockchain in the last 6 months. Like, you can put that on record. Nobody's saying that word anymore. Um, so like, what is the— with all that being said, like, you don't need to be a great prognosticator because we've all been wrong, right? There's no— you know, NFTs aren't going to be the future of money movement. Blockchain's not going to be the future of money movement. But what do we think? Like, where is the puck going? What's happening right now that gives us some sort of a clear picture of what the changes to expect?

Yeah, I mean, for sure, there's no doubt about the fact that the workforce is moving to remote, you know, the first thing is, you know, where maybe 10 years ago, if you had a regional bureau, you may have known all your clients physically, and all those clients work physically with their workers in an office, which meant that, you know, the banking relationships were local. I was actually talking to someone who owned a bureau in Colorado And 20 years ago, he had a bureau in a small town. Everyone used the same bank. All the clients were in the same bank. All the employees had a bank account in the same bank. He would calculate payroll and he would take a briefcase to the bank and say, just move the money. The money would be moved that same day. That's the extreme of how the world was. The world today is there are no borders. And so you need to, even if you're a regional bureau, for you to provide an exceptional service, you need to be able to access different states and different, you know, depending on your industry, different global jurisdictions. And that means that obviously the tax compliance gets harder. But from a money movement perspective, it means that you do need to contend with things like money transmission licenses, which will vary depending on the state. It will mean that you will have to think about, well, does my bank have access to cross-border wire transaction. And I truly think the borderless nature of work has really pushed the industry to work to, to a more complex payment environment because you just need to reach more markets and those markets are more digital, which means you're not necessarily seeing your client, you're not necessarily seeing your employees. So there's more opportunities of fraud. And so the complexity just adds on and adds on. So now as a bureau, whether you're doing payments yourself or through another party, no one is just using one bank anymore as an ACH provider. Folks have multiple banks. They probably have a compliance team to deal with MTL. They now have a fraud team to make sure they're preventing fraud, and they're trying to do that all without sacrificing the speed of money. So because now everyone wants next day payroll, two day payroll, And so I, I think the digital and remote nature of work, it's what's driving the need for additional payment types. I think ACH will always have a huge place to stay because there's a huge, you know, it's, it's a low-cost payment system that works. All bank accounts are connected to it. But when you start to deal, when you want to move up market, for example, and you have clients that are asking for a large amount of payment volume. That's risk that you're taking on. So now you want to think about, should I be using ACH or should I maybe be collecting via wire? Should I be adding any type of underwriting in order to provide 2-day payroll? And again, as you are thinking about employees and, you know, that are kind of 1099 that are doing more contracting work, which is another shift in payments, you want to start thinking, okay, I should give flexibility about how they want to pay. It's all driven by client demand. Nothing would happen if we were still living in that same old world where everyone is in the same town, same bank. We wouldn't be having this issue, but that's why it's happening. It's digital, it's remote, and workers have a lot of— not everyone's a W-2. Folks are 1099, folks are multiple jobs working in different jurisdictions, and that's all driving that.

Dude, we're in such a wild place today. I had to set up a bank account for our travel baseball team, which is a whole other story. But I use SoFi and it took me a minute to set up a bank account. Like that was it. Had a bank account set up. There was no hoops to jump through, you know, the sort of normal 2FA and stuff bouncing around. Like meanwhile, I try to be a good steward of doing business locally, and I'm having to drive back and forth to a local bank 4 and 5 times just to keep things on task. And yeah, that doesn't really play with me. Like, I love being a local supporter, but I'm also not going to, you know, for example, Plaid has kind of taken over as the payment gate— I don't know what you call Plaid as an integration tool between payment systems and providers. What exactly is Plaid as a technology? What's that considered?

You know, we call it a banking aggregator. It allows you to, from a single point, give your clients access to their bank account. Right now, I think they have over 12,000 banks that you can connect to from a single portal. One of the things that we do, for example, is if you're a payroll provider, you can use Plaid so that you can always have a sense of what the available balance of your clients' accounts are.. So that if you're going to bill $50,000 payroll and they only have $5,000 in their bank account, you can know that today versus 4 days later when ACH returns and 2 days after you've already paid the worker, you know, because then that's a risk that you're taking. So, so Plaid just gives you real-time access to the bank account information of all of your clients. That's one of the ways that It's, it's really improving visibility. Yeah. In the world.

Well, it's funny, I didn't even realize you use them as part of your platform, but everybody does now. And this is the big hit. So it's created two headaches for me as a business owner in that, that new credit, the credit union that's local is not integrated with Plaid. And so therefore, when I go to pay my offshore team, any of the payment tools I use to try to pay them offshore, it now will take about a week to pay them versus if I pay them through a bank account that's integrated with Plaid, it takes about 20 minutes for it to hit their account.

Yeah.

Yeah. So it's a wild difference there in terms of what it does and the velocity of moving money. And again, I don't fully understand nor need to understand the plumbing on that, but it is definitely the convenience matter for somebody like me. And to your point, like, I mean, I'm just a small business. I got a couple of businesses. I got Guru, I got Underdog Digital, but we have teams around the globe. I mean, we have 15, 20 people offshore between the two companies and paying them is important. They're teammates of ours. They're not just contractors that we pay whenever the heck we feel like it. I mean, they are on our daily team calls. If we're late with their payroll, it's the same thing that you just described earlier. So if it takes one platform 7 days to pay somebody and another 20 minutes, I mean, it's an easy decision. This stuff matters and is critical to business owners.

And you know what's interesting? It's you know, and folks don't think about payroll that much. But when you look at business payments in general, payroll is actually the industry with one of the most sophisticated payment engines that exist. You know, forget, you know, just businesses as a whole, about 50-60% of all business payments are done via check. Compare that with payroll where we're talking, you know, maybe 10%. It's actually way advanced in terms of leveraging digital payments, which is why it's really exciting. Because I do think if you look 5 years from now and you look at payroll versus maybe healthcare, um, you know, brick and mortar, what have you, I truly think payroll would be at the forefront of all these new payment types come together. I think you guys are going to be the first to leverage it.

It's really funny, we talk a lot on this podcast and I get a lot of outreach. Actually, funny story, I don't even know I'm allowed to talk about it yet, but I had, um, I don't know if I've talked about it here before or not, but I was called to be an expert witness on a case that involved the embedded payroll market. And the reason being that there are not many experts on the embedded payroll market because there's, it's just not been around that long. And we've implemented an embedded payroll solution in our platform. We looked at every solution available on the market. And interestingly, I just went to one of them to kind of see, because one of the things that jumped out my conversation with them, to your point, was like they talked a lot about their really sophisticated tax engine and like they seemed to think it was going to have some value to the payroll provider to have a tax engine that was like available to do tax calculations that weren't involved in the actual payroll. I really was— it was very obvious they were a Silicon Valley-based company that had no freaking clue what they were talking about as it related to payroll, but they were probably great at fundraising and saw a market that had, uh, you know, some potential in it and does have a ton of potential. But interestingly, I just went to their website and it looks like they might be— have gone now direct to market at the end of the day. Yeah, payroll built for staffing, gig work, and employers of record. So kind of pivoting away, probably running out of cash, and, and, uh, Yeah, I'll be shocked if they make it. And I've been saying that since the first time I met them because they were singularly the most clueless as it relates to our industry. But it is interesting as a whole how much more any of these companies seem to care about how much money they had raised than what their industry experience was, which is, you know, again, a different world. So that'll segue us into talking about raising money here in just a second. But the You know, I do think it's— you're solving an interesting problem in an interesting way. And I love that you have the passion for it because I think that's really important. And I have a ton of conversations with people. You know, I've now been— I've been an entrepreneur from the jump. I sold worms to fishermen when I was a kid. I started a personal training business. I once I had a real job, I started a landscaping business while I was fresh out of college. Like, I've just always been trying to find what is the thing. And now we're 10 years in with Guru, so we've I wouldn't say we've made it, but like, hey, like, you know, we're not going out of business unless I do something really wrong. And so the— and, you know, Underdog is now picking up steam as well. So now we've got two solid companies. But so I get a lot of folks that I want to talk to about entrepreneurship, want to talk to me about it as well. And, you know, there's a handful of pieces of advice I'm always giving, but we're always talking about what are the struggles, right? What's the real— like, everybody says it's hard. And to me, look, like a lot of people aren't going to like this take, but I just had it with a friend of mine who recently sort of exited entrepreneurship and took a real job, quote unquote. And it's like, yo, that's just as stressful. Like your real job is just as stressful as entrepreneurship. It's just a different kind of stress. And like, you know, it is definitely, you know, it's just real. A lot of people want to act like entrepreneurship is some big act of valor. Like we're on a different planet than people who aren't entrepreneurs. And it's like, dude, no, like you're stressed at your job. You got to take care of your family. I'm stressed at my job. I got to take care of my family. Like, it's one and the same. But I will say that our challenges are unique.

Yeah.

Yeah. It's our challenges are unique and different. We tend to be like, you know, I've realized the more entrepreneurial circles I run in, it's like, oh, you, you are an outsider. Like you have always been an outsider. And I could have told you that from, you know, I just read a brief bio. It's like born in the Dominican Republic. All right. Moved to New York, moved to London. Yep. Like she's like, you know, if you were to say, hey, which, which circle did she fit in in high school? Right. It would be like, you know, Venn diagrams all over the place. Like we all run with a bunch of different circles. And we run all over and we're just always a little bit on the outside. And so, absolutely. I say all that to say, like, I say all that for no reason whatsoever, but other than just to tee up a question of like, what are some of the pieces of entrepreneurial wisdom that you've gleaned? You know, some experiences you've had. Tell us a little bit about your journey and some of those things as you're looking back and going, man, 4 years ago, if I'd have known this, things would be different.

Yeah. Mm-hmm. Well, I think one of the things to your point, talking about, you know, that embedded payroll provider vendor that you talked about, and one of the things that I was a little too optimistic on is this concept of minimal viable product, right? When you're building in tech, the wisdom is, build fast, break fast. Just get it out there. Just get people using. If it breaks, just like fix it. And I realized very early on that doesn't fly in payroll. Like payroll is too— it doesn't work in all markets. Payroll is too critical. The typical buyer in payroll, and, you know, and we work with service bureaus with payroll systems. These are, you know, folks that are holding the trust of their clients. They're just not going to go willy-nilly to any, you know, vendor regardless of what your balance sheet looks like. So the first thing that I underestimated is how end-to-end kind of robust a product needs to be in payroll for it to be considered version 1 viable. So that was the first thing. And And so for us, we realized early on, okay, our product needs to be fully functional. We actually spent years, spent like, you know, 3 years before we got like a viable product out to market. And we could only do that by putting our heads down, not even focusing on sales to start, focusing on— we had some— we did take in early investment and our first investors were angels. That came from the payroll space. With the help of those angels, we were also able to build an early group of design clients. These were clients that knew that they were going to go in, give feedback until the product was ready for market. And that was one of the biggest challenges because you want to think about cash flow, you want to think about growth, but it doesn't work that way in all industries. And I think case in point, that anecdote that you mentioned about look, you build in payroll, you burn some bridges because what you've built doesn't work and doesn't really think through the SLAs that you need. We don't want to do that. And I could have easily gone down that path if I didn't hear that feedback and I didn't listen to it. Because also in entrepreneur land, sometimes you're like, this is my vision, everyone get out of the way, I'm gonna make it happen. But you also need to know when to listen to those early clients. Yeah, so that was probably one of our first kind of challenges and learnings. It's a learning. I think of challenges as learnings, which is just, you know, make sure that V1 is functional end-to-end versus building a widget that works 50% of the time, you know?

So, yeah, and for those of you not familiar with the concept of MVP, minimum viable product, it's made famous by The Lean Startup written by Eric Ries about a 15-ish-year-old book now, I would guess. So it's even like, yeah, it's kind of run its course in that like it was all anybody talked about with product development for 10 years. Like, what kind of fool? And the analogy they give in the book is, you know, like a big company like an Intuit will spend 12 months building a product and then launch it and sell it and then find out they missed the mark completely with the product and then have to pivot and reverse course and make a bunch of changes. Well, as a startup, you don't have that level of runway. You don't have that level of time. You don't have that level of money. So you've got to build like, what is the one feature? What is the one problem I can solve to get this product to market as quickly as possible? And in our industry, you're absolutely right. So I got another thing I don't think I've ever talked about on here before. We actually, we built a first version of our platform. We built it on freaking WordPress. And like, we built an employee onboarding only system. I had some offshore developers build for me. It was terrible. I mean, the product was like cool-looking, functional-ish, um, like it would have worked really well if it worked. But to your point, like it became— we were only using it for this one thing and our existing system didn't have employee onboarding. So it was like, oh cool, we're just building this point solution. And but the number of calls we would take debugging and then waiting for the dev team to fix something for, you know, hours if not days depending on the complexity of the bug. And then like we were just a 2 or 3 person business at the time. So wait, like we weren't prepared mentally and physically and monetarily for like the build of what this was going to take. So I literally took that product and threw it in the garbage. It ex— you know, I have the codebase somewhere. I maybe like it's unusable. But the— but here's what I will say, because I want to counter that, because this is interesting, because we just had a conversation about this this morning of like, there is a I, I don't want anybody to pick the wrong part of your message because there is, you know, the way you said that could be the old model that we described, right? Build a full-service product and then, then market it, then sell it. You have to sell the ghost. And like the— so you, you know, whether that's to an investor, whether that's to your first customers, whether whatever that is. And this is like where so many people in this industry, because there, there are tons of people that start bureaus that come out of like accounting or come out of a bureau, a large national bureau, and they think that like, man, once they're ready and they hang the shingle, people are just going to show up. Well, that ain't it, man. You know, the number of conversations I have with payroll companies in a week that come inbound to us looking for white label software is a lot. And they almost always tell me, you know, I'm going to book, you know, 50 clients in the first 3 months and 500 in the first year. And I'm like, you'll be like the one person I talk to who does that. That. It is a lot more of a grind than you think. Even when you are pulling somebody else's white label software off the shelf and using it, it is just hard. So if you can't sell and you can't figure out what pro— you know what, what question I asked Ellie to open the conversation? What problem are you solving? We're not selling freaking vitamins, we're selling painkillers. Like, find the pain, sell to the pain. And if nobody cares, then you should save your time and money because you're going nowhere.

Where—

sorry, soapbox over, but totally agree.

And even, um, even when we were starting, you know, we saw some startups that would be, look, we're just getting design partners, $0 pilots, proof of concepts, just to get us started. We were like, no, no, we're charging for our pilots. It's, it's design partners that have a need, um, that are willing to pay for that need. And are proactive enough to want to be early on to give feedback on how to customize it. But if we couldn't have sold those early contracts as design partnerships, we weren't going to get anywhere. I totally agree. There's nuance to this. You need to be able to sell it, but you also need to be able to know you can meet their SLAs, right? Actually, to your point, our first iteration, we threw it in the garbage. It was full AI. AI fraud prevention. So you know how I mentioned speed, digital, secure, flexibility. Security was the version one for this industry. And that's where we lean on. And our first approach was AI fraud detection, all the bells and whistles, scoring of transaction algorithms, we're like, this is gonna be amazing. Then we realized, you know, No, does not work for payroll. AI for fraud prevention does not work for payroll because you cannot have, um, ambiguity around what the payroll processor client— you know, a client support specialist can do. You need to manage from onboarding to reconciliation, full deterministic system based on the fraud rules. Sorry not to get too deep into it, but totally up totally aligned with your messaging. Um, yeah, anyways.

Well, that is a really important thing for entrepreneurs to understand, is what you just mentioned. There are times when you've got to cut it loose, man. You got to kill the product, you got to kill the business line. You've got to be okay. And like, the mistakes you make year over year— again, sitting here in year 10 like an old man— it's like the You just add another zero to the mistakes, right? Like the $1,000 mistake I made in year one was a $10,000 mistake two years later. And then, you know, now it's $100,000 mistake. Like they're just the mistakes just keep getting bigger. They don't go anywhere. They change and evolve. And I don't make the same mistakes ideally over and over again. But I would be lying if I'd say I haven't made some of the same mistakes. And some of y'all have heard them play out in real time as you follow our journey here. So always fun, always fun to like make a big proclamation on air about something you're doing and then have I would, you know, run into somebody and be like, how'd that turn out? Oh, that blew up. That sucked. I, I burned that money and just lit it on fire.

So, um, that's so cool though to hear your journey because you're just like a multiple entrepreneur, successful and learning from it. This is, this is my first, um, company that I've started, and I love kind of chatting with people like you that have, that have the experience of seeing what works, what doesn't work, and have done it multiple times. So it's just really to hear your background.

Are my people, man. Um, the— so we talked about raising money. You said you've raised some money. Um, I think I've talked again— yeah, I hate to keep saying I wonder if I've talked about this on here. I guess I gotta again— maybe I need to go back and listen to some episodes just so I'm not saying the same stories over and over again. But we've raised some outside funding. Um, we went out, we did the song and dance, and one of the reasons why is was to build our own platform. So we've built a payroll, HR, timekeeping platform. And we— it was a tough raise for us because that's a very, you know, everybody says the same thing. Well, dude, there's 5,000 platforms that do this. And my answer was always the same, and that very few of those platforms are owned by the bureau, right? Among all the other reasons we said it's going to work for us, it's like, look, we, we are one of, you know, maybe 100 bureaus in the country that have their own platform. Everybody else is using some form of white label or wholesale. And but so I know what my struggles were raising money and some of the, some of the good that came from it, some of the bad. Like, what was your journey like to raise funds? What was it like, you know, looking back, what would you have done differently? Would you continue? Are you, are you positioned for another raise? I would assume at your point you're probably on that. You're either currently raising or you're determining whether or not you're going to do the next raise. So walk us through your fundraising journey.

Yeah, um, so it's interesting. We, um, so going back to that early period, um, had just left my old corporate job. I used to lead new product development at JP Morgan. I was like, I'm gonna do this, I'm gonna transform payroll payments. Um, COVID just started, I need to raise a team, just me and an idea. And I, I knew similar to you, this is software and technology. I need investment to get going. So I decided to raise versus bootstrap. And I first started reaching out to folks in my network or just cold LinkedIn people and really focusing on angels, folks that were entrepreneurs, folks that became angel investors. And through that, exercise, probably, you know, 2, 3 months of creating a pre-seed round, if you will. I actually was going out to raise half a million just to get started. And I was able to get some really good early backers, like, you know, folks, operators from Stripe, like Claire Hughes-Johnson, the CEO of Stripe at the time, Jack Hufford, one of the co-founders of Tenable, a bootstrap cybersecurity company that IPO'd, some operators in Plaid. And I was like, got it. I'm set. I'm gonna head down now and start building. What ended up happening is like right around that time, now we're at summer of 2020, there was this huge surge of interest from institutional investors in the venture capital space, um, looking to invest in digital payment infrastructure companies. And this is something that, you know, our angel started putting us in touch with some institutional backers. I did not think we were ready just yet to, to raise that type of money, and, um, And just, we ultimately got swelled up in that interest, and a lot of those investors were looking for pre-seed opportunities. And that summer was wild. We got a lot of interest, and we ended up raising a few million dollars in a seed round. Um, and, you know, our main partner is, um, Adam Nelson, who is a principal FirstMark, they invested in, you know, ChessWorks and Shopify and Airbnb, and they were like, no, this is, this is going to go places. And, you know, it was great because I was able to raise enough to then truly be heads down for, you know, a few years. And yeah, we're getting now to a point where we're thinking now about our, our next raise, um, which we wouldn't have been able to get to this point without out. I don't know how it would have gone if we had just, you know, raised the minimal amount, come back to market a few months, especially after that big learning of you need time with payroll. You need a little bit of time to build that initial go-to-market and product. That was our journey. And it was all over Zoom, all of it. A lot of cold reach-outs and a lot of it was opportunity There was just money in the market and we were building something that people really felt was compelling.

So a couple of things. I think this might be projection, an assumption, but like, I can tell, and you correct me if I'm wrong, that you have created a lot of runway because your team is very lean. So one of the things I would expect for somebody that's raised multiple millions of dollars is to see a bigger team than what you have. Was that very intentional? Like, I mean, that's the number one thing, like we burn most of our, nearly all the money's salary, right? Like, I mean, almost everything goes into people and that, you know, and then where they fit in the thing. And, you know, from our side, one of the biggest mistakes was following more of the venture path and trying to explode all at once without building a better foundation before, you know, aggressively spending. And so talk to me about your strategy there.

Yeah. Um, so we, it's super lean team, um, um, and my focus was to just invest in product development team, not focus on sales, not focus on, um, you know, operations. It was, um, I'm gonna do everything from sales and admin and HR, what have you, and every every dollar is going to go to finding rockstar engineers and product developers. And I never, you know, even though we, as you rightly called out, and, you know, in payroll, and when you look at who's building technology, it's a very vertical space, you know, you've got the companies like yours that are building your payroll system, got service bureaus as well that expand on that by licensing that software. But I always knew that sales distribution was going to be very like account management style, very tight and focused, wasn't going to go out kind of with a large sales force. It really was going to be product-led. So I decided this is where we're going to put our dollars. And then all the distribution was going to happen via the payroll system. But yeah, I was just thinking with scarcity in mind. And I, if I didn't have a good product, this wasn't going to go anywhere. So I just wanted to focus on that.

So you reminded me of an interesting conversation I had with an investor in there, and I think this is really relevant. I've fielded 3 emails this week from payroll people in the payroll space asking about building, asking about raising money or some combination of the two. And I had a con— like I used to, it used to drive me crazy when I would talk to investors because they would question whether or not what we're building was a SaaS. And I was like, how, like, what's the question here? I would ask him, I remember one specifically, I was like, what payroll system does your company use? And they said Paycom. I said, when you want to see how much you get paid, what do you do? He said, I log into the app or I log into the online portal. I said, so you're using their software as a service in addition to them paying you, right? It's not just a service, right? Oh, okay. I get it, Matt. But one guy took the time. And he said, Matt, listen, he's like, I get that part, but you can do that today with the white label system you're using, right? I said, yeah. And he said, a SaaS has a differentiator that is going to make your organization more scalable and easier. Like, it's going to give you an unfair competitive advantage versus using a white label system. So like, what is that unfair competitive advantage? Not just the fact that you own the software, which was a total mindset shift for me of like, to me, it was always like, hey, we own the software. Now we've created more value, like, awesome. Like, that is the 1 1 2. But what he made me realize is like, hey, I gotta show that in 3 years, I'm gonna need less people and less resources because of the SaaS, not just I own the platform, right? And then we could do this with anybody. Because as a matter of fact, you know, I had a guy I had a guy, I unfortunately, and I'm sorry if you're listening, bro. I told the guy, he reached out earlier this week about, you know, hey, what's going on in the embedded space? What do you think about looking at this, looking at that? And I had to get real with him on like, hey, here's how many tens of thousands of dollars this is going to cost you every single month to build a product that's inferior to what you currently use. And like, you better be in this for the long haul and have some money and have a dang good reason why you're building. Otherwise, if it were me, I would just just triple down on the platform I'm on and just keep plowing forward and then make your exit or your play or whatever you're going to do in a few years. But like, you're, you're going to bring your bureau to a screeching halt the minute you decide you're going to become a software company. And that's the piece that a lot of people don't understand. And to your point, like, you better get that damn product right because it's a, it's a lot to fix later on.

Um, yeah, I mean, and, and honestly With everything being on the cloud, everyone investing in open APIs, it's easier and cheaper than ever to use white label software, integrate what you need, and still control the client experience.

Well, and there's other ways, right? So the cool thing I've seen in the accounting space, and I don't know too, you know, I haven't dug super deep into this, is there are, well, A, there's a ton of firms getting bought up by PE and venture and everything else. But I mean, look, if you look at housing, whether it's a house or an accounting firm, they're buying everything now, so that's not like a super uncommon thing. But what I'm seeing though is people get investments to strap multiple systems together. So if I'm an accounting firm that's a little more progressive, I might be using Gusto for payroll, bill.com, QuickBooks, and now I'm going to build one solid interface on top of it for all my clients. And I've got an aggressive business development mind. Those, those companies are getting funded. And I know two guys in my network that were just dudes I knew that I didn't even know they were raising money to do this. And I was like, oh wow, man, That's a great call for you and for them. So that's a pretty good example. Like, they're definitely going to need developers and they're definitely going to have to develop, but they're not going zero to one here, man. They're just giving, putting a wrapper on top of some other products. And there's a lot of different ways to win the game nowadays. But in this industry, I got to say, I've almost done a full 180 as I go around the IPPA and like the same people I used to diss, like, you know, the guy up the road who's got 500 clients and has just been churning away for a while and just keeps adding payroll clients and does his thing. Used to be like, man, we're going to smoke that guy. We're going to be the most innovative, this, that, or the other. But he's just doing his thing, man. That guy golfs every day. He's loving life.

Yeah. I mean, it really depends on making a few hundred thousand dollars a year.

Like, yeah. Like, all right. Maybe I'm the idiot. Like, I just, I, I'm playing this game on hard mode. Um, all right. So last thing to wrap up here. I want to know, sorry, were you saying something?

My apologies. No, I actually was going to ask you, as you're thinking about those things that are going to drive the, you know, the biggest bang for your buck in terms of these services or, um, differentiation points that you want to bring to your clients, what is that going to look like? What are the key things that you're excited about over the next couple years?

Yeah, so the biggest thing that we're excited about right now is productizing our service. And so like, if, if you come to a let's just say a TriNet or a Gusto, we'll use two different options. So TriNet, PEO, Gusto payroll, obviously they do some other stuff, but like you just buy the platform. You could, let's use TriNet because they're a little bit more obvious. So like you jump on the PEO, you got a question for the HR person, they'll give you an answer, whatever. We're, we're building out all of our, hey, look, this is the performance review process you should use. Here's how the system automates it. And here's the consultation and guidance for this one way. Like, you know, oftentimes what we used to do is say, okay, hey, Ali, you need to— you're asking about rolling out performance reviews. Well, you can choose from A, B, or C. Well, no, like, we already know which one works and like put this into the system and great. Now we've got training. And so we're adding like that, just that little wrinkle of like, hey, what's the stuff that I wrote about in the book 5 years ago, 6 years ago, whatever it's been for onboarding. Onboarding, for performance management, for culture building, whatever the thing is like, hey, the reason you're going to pay us a premium on top of our platform is because of our knowledge and because it's different and we're positioning it in a different way. Like TryNight, you'll never go to their website and have them say, hey, look, use our proprietary employee onboarding framework for how to onboard employees and make sure that you drive your retention by 82%. Whereas we're going to say, hey, look, we've got a proven, proven proprietary onboarding system you can only get through Guru. That goes on top of your software, right? And so it's almost going back, you know, Back to the Future. There's a really good joke about how stupid that movie is. John Mulaney, look, if you're listening to this and you like comedy, uh, YouTube John Mulaney's Back to the Future joke. It's really good. But like, there's just a little bit of that, like, hey, so how do we actually— because it's a race to the bottom with the platform, right? Like, the— there's been very little change in payroll and HR platforms over the last 10 years. And you can keep, you know, we're all going to throw AI in there. We're all going to have LLMs making things faster and different and whatever. But like, it just muddies up where you can— where the only way we can really separate from them is saying, hey, we've got something proprietary in terms of knowledge on our side that is not—

That's awesome. That's very cool.

Yeah. So that's where we're at. And that's the big thing right now. The thing I wanted to ask you to kind of wrap up here is, so you've been in the payroll space now for, or hovering around selling into being a part of the payroll space for 4 years, if not longer, but with the startup 4 years of the company now, and it used to be a startup, now it's full grown baby. The, what do you see that you're like, ooh, that's really smart that people in this space do? And what do you see that you're like, man, like I've seen other industries like why does the payroll industry do it this way? Do, do any things come to mind when we think about that best and worst practices?

Let's see.

Little pet peeves when you're talking to payroll bureau owners, be like, man, why do they all think this way? Like, oh, there's so much.

Yeah. Look, I'm, I, I think there, there is no other industry that has connectivity to so many, I'm gonna call it wallets. Clients, and consumers, right? And you are connecting with them at the beginning of their financial journey. Granted, this is a compliance product, but we're talking about labor spend, productivity, and we're talking about livelihood and being able to afford rent, groceries, and anything. You're the first vendor they see I do not see enough payroll providers taking advantage of it and packaging not just things like HR services but financial products within it. I think there's a lot of opportunity, you know, payday cards, EarnWage Access started to scratch at it. But there is, you know, working capital lending, there is, you know, insurance products, banking products, there's, you know, things that really 10x your average revenue per client. And I don't see that being leveraged enough. And I do think those products change the game. You know, these are balance sheet products versus service products. But similar to white label payroll, there's so many providers out there that will help integrate it and literally help you 10x your revenue. With a client that will convert faster because they already have your trust. So that's something that I don't see being done enough, and I think, um, I do think it's going to be an advantage of the ones that do decide to be proactive about it. Um, so that is, I guess, on the, uh, pet peeves that I have that I want to see more of, that I feel like it's a miss. Opportunity. And then the thing that I, that I, that I like about what I see is it's just such a focus on just doing right by clients. You know, I think that this is an industry that knows that they're not going to have those client relationships if they're not a trusted partner. And the focus on resiliency, fault tolerance, like security, like it's not something that you see a lot honestly, I think, in, in call it software as a service. Um, and that's something that I think is admirable. And it's, it's a, it's a feedback loop. The only reason you can monetize your clients that way is because they trust you, because that's what you do.

So, um, it just needs to be a balance, you know, leveraging that to continue to, yeah, penetrate with your Yeah, and I relate to that first thing a lot because there's also just this like never-ending barrage of potential options to sell to clients, right? And so you have to pick and choose and like that's definitely become more of like a what's going to move the needle the most for them and us. And so like, and do we have the trust of the partner, etc.? And but now that's good stuff. We're at time. So listen, if you made it this far into the episode, good grief, dude, hit the dang subscribe button. Hit like and whatever other stupid buttons are on whatever you're listening to it on, because obviously you love the show. You would not still be sitting here at minute 57 if you didn't love what's happening on payroll. And so make sure you hit that subscribe button. And Ellie, it was an absolute delight. And let me just tell you, this is 100%. I don't care if anybody— I know you care if somebody listens to this, but like, this is 100% why I started this, because yeah, I just get to spend an hour with you and like pick your brain, and you're amazing.

Thanks for the delightful conversation. This was great. All right. Bye, Matt.