SPEAKER_27: Great. So welcome everyone to YC's founder fireside. My name is Anu Hariharan and I'm a
SPEAKER_06: Managing Director at Y Combinator where I work with our growth stage companies. I'm here today with Tomer London, the co-founder and CPO of Gusto. I've known Gusto for I think close to now seven years and work very closely with Tomer on the board. Gusto provides growing businesses with everything to take care of their team and was part of YC's Winter 2012 batch. Welcome Tomer. Hello, thank you. Thanks for having me. Thank you for joining us and today Gusto has
SPEAKER_06: a special announcement to make when you just released a blog post about it which is you're making it easier for software providers to bake compliance into embedded payroll as well as new which is really exciting because now SaaS partners that sell laundromats, tasks, construction, restaurants, they can all offer payroll more seamlessly through Gusto.
SPEAKER_18: Yeah. So congrats to you and your team. It would be good Tomer just to kick it off if you can just
SPEAKER_21: explain what embedded payroll is and what the announcement is today. Yeah, thanks Anu. Well
SPEAKER_19: again just excited to have this chat with you. Yeah, today is really exciting for me. I feel it's been in a way more than 10 years in the making. Basically what we're doing with Gusto embedded is to help basically take over 10 years of our experience building payroll software and compliance built into it and making it available to any software platform, any software company wants to ship their own payroll product to the market and it's not just the software side, it's also the service side and the operation side. It's everything that's happening behind the scenes. You know payroll is quite a complex thing. It's not just like a quick ux flow of you know you put people's names and you say how much you want to pay them and you click and you're done. There's a lot happening behind the scenes with filings and tax calculations and you know multi-year long conversations basically through this compliance flows with different state agencies. There's 50,000 plus tax codes out there in the US. So anyway there's a lot going on behind the scenes. It's not just the software. So anyway today we're announcing this really just a lot of great progress that's happening both in signing up a lot of new platforms across all these vertical SaaS players that you mentioned, whether it's construction vertical SaaS or dental offices, vertical SaaS or accountants and more and more and more but also a bunch of new features and functionality but we can talk about it later. I don't want to take all the time right now.
SPEAKER_11: Yeah and you know Toma you bring up a very good point about payroll. I didn't realize this when I
SPEAKER_10: first met you all maybe like seven years ago but you know for most YC companies we always say
SPEAKER_06: ship fast, get feedback, iterate and I remember very vividly you pointing this out to me
SPEAKER_06: which is I think in the first year of gusto you all had less than 100 customers and I asked you wow that's slow because usually in demo dev we often ask or before demo dev we often ask hey if you signed up 100 in two weeks can you sign up 1000 and I remember this point you made well
SPEAKER_09: if payroll doesn't work there is no coming back the customer will be displaced because they didn't
SPEAKER_06: get their paycheck so it's one of those unique products where you had to make it work perfectly there was no room for error and that's why you all took a lot of time to scale it.
SPEAKER_19: Yeah yeah exactly when you get payroll wrong someone is not getting paid or even worse than that in my opinion you know years later you may get a notice from the IRS saying that you did your taxes wrong and now you need to go back if you're an employee and fix your w-2 like you know get new w-2s and work with IRS or if you're an employer go back to employees who left you and are not a part of the company years now and go and work with their taxes so the the cost of being wrong is extremely high so I really think that there's a set of product and technology software out there that you really have to get it right in order for you to deliver the promise for your customers and if and the cost of not doing that is terrible for your customers and then terrible for your business. Great so I expect so many people today I see it on the Twitter space
SPEAKER_06: are actually founders and CEOs so before we dive into your launch today I'd actually like to take this opportunity to discuss how to build for new verticals and how to think about this as a founder and CEO since quite a few of them are actually probably in the very early stages in the audience so some background for the audience over the last 10 years Gusto has scaled to build for customer segments many customer segments I don't know how many of you know this but Gusto first started servicing startups then they started servicing SMBs starting with florist then accountants and now with Gusto embedded payroll developers of their customers who are embedding payroll directly into software so Tola can you go back and tell us your journey of starting with startups why did you start and if I remember right Gusto was a pivot in the batch it wasn't your application but when you but we'll save that for another time but when you decided that payroll software is what you're going to build why did you start with startups and how did you sort of think about customer segments especially in that first year? Yeah totally so I would say
SPEAKER_19: we started with this realization that you know Josh Eddie and I all come from small business families my dad has a clothing store for 35 years now and seeing and growing up in that environment seeing how it feels like to be a part of a business and running a business I learned that you know business owners and managers have all those different hats they need to wear it's just incredibly busy they need to be the salesperson and then the marketer and then the the cleaner and then the janitor and the accountant like it's all and want all these different hats so we knew that businesses specifically small businesses were very you know they really had this need of helping of getting more leverage and software can be really really really great at that we also knew that this we also really believe in this idea by building our own startup companies before gusto that the most important thing in any business is their people and that's what makes or breaks the business so if you kind of do this plus this together we ended up with this really grand vision of our goal is to help you know any business small large growing to help you know basically build a great place to work where and really serve the entire life of the employee life cycle so people can build great places to work so that's kind of the big grand vision so the question is the founder is like okay that's cool but where do you start um that's where kind of your story Anu comes in which is starting not just with i would say startups but also we it was even much much more narrow than that those first hundred customers were technology companies who are based in california who have no health insurance or any other benefits because we were not able to support it you know and were agreed to be paid you know nine days after running payroll so it's extremely extremely small group of target customer to start and that's really where we started and i think when you think about your own company and how to choose your customer segment there's three important things that have to happen first um you need to you need to make sure that you're choosing a segment where they have an important customer problem that they're trying to solve it's kind of this you know painkiller versus vitamin analogy the second thing is that you need to make sure that the product that you're building and you're starting small has to solve it and customers have to love it the third thing is that you need to be able to reach this customer right so important customer problem your product actually solves it and then finally you can reach this customer and startups was a or at least this really really tiny group of startups was a good place for us to start because um we could reach them we were at a part of yc batch a bunch of companies were around us a lot of our network and people that we know um was really really easy to get to and and um and more importantly um technology companies are very viral so when you start selling and if you do a good job solving problems for them you can you actually get really nice word of mouth um we knew that we can solve the problem for them because we really scoped it down to a problem we can solve with this initial product and then finally we knew it was an important problem because payroll is such a pain um for uh for businesses today as i mentioned earlier well that's fascinating i didn't
SPEAKER_06: know that in the first year you uh gave payroll nine days after the payroll was done so what was your competition like was i mean how before gusto how did startups pay employees yeah that's a great
SPEAKER_19: question so you know 10 years ago um i think um i could kind of paint the picture of back then the majority of the payroll industry um was companies like adp and paychecks and kind of really large more traditional companies and for you to run payroll what you had to do is you had to pick up the phone and talk with someone and tell them to run payroll you had to take you know use fax machines in order to send the hours back and forth you had to meet a person someone in person a wrap in person in order to sign you up so they believe you're a real business and underwrite you for payment so um it was the old kind of traditional world um and i think uh what what when we came in uh one of the insights was you know to this idea of hey all this process can be made so much easier to use and simple so that you don't need to be a professional to run payroll and you should be able to do it you know on your computer on the weekend in the evening without talking with anyone um and that that's kind of the the i would say the first insight the second insight was that employees are a critical part of the system and if we build a really great experience for employees um it's going to make the employer's lives easier so for example employees enter their own information when they log in as a or when they sign up and and to the to the company as opposed to the employers need to you know kind of go back and forth with them um and that was kind of the very very very initial thing and to your point like ask those customers who agreed to um take on this product despite the fact that we were 10 they took like you know like eight days to get paid um they did it because we solved the payment above that was much more important for them which is just the the complexity around payroll and they and for them this was important enough that's that yeah i was going to say i mean talk about product market fit if after
SPEAKER_06: all that friction they love the product and they're using that's the sign that you truly are solving a pain point um now let's so you were working with startups the majority of the first hundred startups as you said were tech startups based in california where you were taking more than nine days to process payroll but things were going really well i remember nps for gusto from the very early days was very strong so then why did you decide to build for smbs you could have pretty much just focused on startups why smbs right so as i mentioned earlier we started
SPEAKER_19: with this really big vision of we want to go and we want to serve um the larger market not just startup but even not just smbs but we had to start somewhere so we started with startups and specifically started this narrower version of startups um because that's where we felt we can get really great customer love with the product we were able to build but then as we spend more time and obviously started expanding not just california but multiple states not just you know eight like you know eight days to get paid but same day like next like two days then one day and then same day payments um and then obviously supported healthy trends and other things we felt we were ready to support um you know kind of take the next steps to our towards our product vision go to uh to small businesses the really important thing when you in my opinion when you move from one vertical and kind of start expanding towards your vision is you have to make sure that you maintain that early customer love um you know i know you mentioned like we had like you know the initial our nps's were always um in the high 80s and that's just one measure not that nps is perfect in any way but it's a measure to show um customer love was extremely high and that creates high word of mouth and trust and really creates a really great um kind of backwind for your growth and when you the risk of expanding too early is that your product is just not ready and then you're going to lose that so the way one of the ways that i think to know whether you're ready is to just look at your current customer base and look at the people who want to use your product the people who are using your product that perhaps are a little bit adjacent um to what you thought um you were supposed to serve and uh learn from them talk with them what do you like about the product and ask yourself whether you can um take a few um steps with your product to really double down on that and get a lot of customer love from this new segment so that the answer is already under your nose usually if you don't get traction and from like let's say you know you you build you have software for hairdressers today and you believe that you know the same software can be used by spas but you don't have a single spot customer and you just really hope it's going to work i don't think that's a good strategy i think you have to listen to your your current audience that's a very good point you make which is uh i think that's one of the common mistakes i've
SPEAKER_06: seen founders make when they expand to a new vertical is not deliberately but accidentally losing focus of the existing customer segment so how i mean tech startups are just very different from stars and florals so how did you maintain the customer love of the existing segment then what did you do to continuously measure that so when we launched the initial product although
SPEAKER_19: we started with a very small scoped audience we never used language whether or we never built a product or use language to say that this product is just for startups we've never done that it was always like this is for um you know businesses at different sizes um we did talk about sizes a little bit but it was never like just specifically startups um because we knew this it was coming it was coming so we didn't know perhaps if it would take one two or three years but we know that we knew that this is the next thing to do and perhaps like the the generalizable advice here is really think about your vision and make sure that you don't put yourself in a corner um when you do want to kind of move to the next uh to the next thing we had that by the way with our brand which is kind of another thing with there's you know with there's two types of expansions right you can expand customer audience you can expand the product set that you're doing and one thing that we uh what we did have in the beginning that we put ourselves in the corner is we started the company with the name Zen Payroll for folks who don't know for the first few couple years for the company it was Zen Payroll and then we rebranded to gusto and um that the reason what we quickly moved as fast as we could basically was because we saw that that initial name is not very forward looking if we're thinking about um our wider strategy around um you know creating this people platform um for every single activity in your in your workforce for all these different sort of companies so it's not just payroll it's also benefits and employee onboarding and software and hardware provisioning and it and um and everything else that that happens in the employee life cycle yeah i remember and it was not an easy transition but i think you all did it at the right time
SPEAKER_06: well i have three kids and i can tell you that naming the company renaming the company was a
SPEAKER_19: much harder exercise than uh finding the right name for my kids i'm sure so and i know because
SPEAKER_22: um you know acquiring smds is not easy and so when you're changing the brand name you know you have
SPEAKER_05: to put it pretty much you're starting from scratch um that was going to be my next question
SPEAKER_06: which is you know if you look at startups in general um they find most startups find it very hard and have struggled to tackle the smb market why do you think that it's you had i mean gusto is an amazing success i mean you serve close to 200 000 smbs you're a beloved product in the smb segment but why do you think that is why have people historically struggled yeah today we serve you know um lots more like much more than 200 000 businesses across all
SPEAKER_19: different sizes whether it's customers you know whether it's small business we just started or companies over you know around 500 employees um so yeah we reached a really a really nice scale across small businesses and scale companies the the i think the reason why it has historically been so tough is because smbs are so hard to reach right so it's these three points that i mentioned earlier at this point number three which is you know you can have a great product that people love but you can't reach the audience so small businesses were extremely hard to reach and i think something happened around that time when gusto started where small businesses there was a small businesses there was a generational shift where people started trusting the internet more and i believe that um for example internet banking was a really big part of it you know if you remember back that they in these days around 2010 and in the there's there's a couple of years around that area you got um just commercial banks pushing really strongly for people to use their online system and not come to the branch because it's just much much better for their economics better user experience and they basically educated an entire generation of smbs and um that they can trust the internet with things like money and then um payroll was it was it was the right time for people to say hey can i do my payroll online so you started looking at you know google search results and things like that and it was like hey interesting actually you know online payroll is becoming a thing people are actually looking like they're actually looking for something like this so this is my intuition around like what happened back then and you know why that was the right time for gusto to start i think if we were to start the company four years earlier it wouldn't have worked so well because people were not ready yet and educated so but back to today so what's happening today and if how do you do smbs i think so two things i think one um smbs are online small businesses are online they're looking for solutions they want to have their problems solved they have a lot of pain points as i mentioned earlier and there's a lot of great companies who are already serving them um but then that is already known for the past several years so what's coming next i think the next wave of this and if i'm now to build a new small business focused company i would focus on a vertical i think that when you truly understand a specific customer segment understand how they start their day how they speak with their customers how their business model looks like you know what's their common uh difficulties and competition looks like you can build a great product for them that's much that's really tailored to their needs and small businesses especially now with the recession potentially coming you know there's different points of view there but um in moments like this people want to consolidate and have everything in one place so if i were to start a new company today focused on smb it would probably be picking a vertical a specific small business segment that i understand really really well and going all in and building a great product for them that's what i would do and i think you can reach people really well this way because you know if you really understand like you know my dad's store clothing store right if you really understand clothing store you know where they hang out you know their language you know what speaks to them um and you should be able to find a great scalable way of finding them online that's a very nuanced well-tailored advice which is you're essentially
SPEAKER_06: saying vertical sass is going to be the new trend in smbs and catering end to end for each vertical are there i mean i'm sure in gusto you interact with all sorts of protocols are there some verticals you are more familiar with or more excited by the problem set that you see ah so
SPEAKER_15: there's so many and you know it's so fun so i get to work with through this embedded um payroll
SPEAKER_19: business i get to speak in the morning with you know vertical sass for spas and salons and then go to someone who's focusing on construction uh vertical sass and then moving to like dental offices and then you know uh lawyers and like laundromats like it's it's kind of really really fun to learn about all these restaurants like all these different small businesses um i would say you know if there's any i think there's some spaces that are just more competitive today so you know if you kind of take a step back and you ask yourself there's already probably companies that are vertical sass right we look at companies like square and toast for example and um so some companies some verticals are much more developed than others and probably the more exciting things i think that are uh earlier in the um in this space so verticals that were not they're not yet like kind of fully like modernized yeah yeah some of the ones you're pointing out like dental
SPEAKER_06: services or spine salon still have a lot of room to grow um that's true let me ask you this uh i want to jump to the third segment which is developers but before that you've served a lot of startups you've served a lot of smbs what's different about serving smbs from a customer lens whatever you notice they want versus that's different from what startups want is that any
SPEAKER_14: yeah yeah okay so different multiple things uh come to mind the thing when you build a business
SPEAKER_19: focus on startups um there is actually a risk there i would here's a note of caution is that startups with the the economics their work if you can scale with them because you know there's a high turnover company if you think literally think about a startup as a as a venture funded or hopefully venture funded company um they they come and go they die a lot when the funding stops and the the real economics similar to vcs how vcs work the real economics come from the big winners so if you're focused on startups i would say that probably starts as a good place to start your journey but you have to think about how do you scale up and keep those businesses with you when they reach thousands of employees or much much larger scale um that's not the same dynamic with small businesses so small businesses the difference is that the scale is just much larger there's a lot more of them there's six million employers in the us there's around 25 million if i remember correctly businesses that are not even employers um and some of them stick that stay along for a long long time again uh companies for that stay for decades family businesses and they never they actually don't grow some of them do but it's quite rare that they grow to thousands of employees so you need to build a business model that supports that situation so churn like you know just business closure is still a big thing obviously enterprise companies large companies um disappear much less so you still have this high turnover of small businesses but some of them stick and then and then the market is much larger so you need to build a business model that really works well for that uh dynamic and often it means thinking about things like share of wallet and increasing acv over time and things like that um there is you know a bunch of other things to talk through around like the custom the type of customer too and how they think about their business um and what their priorities are i would say with startups it's obviously growth really really matters the underlying premise of of a startup is that they can grow to not basically to grow out of being a starter and being a big tech company we're small businesses that's perhaps not the case and the needs that they have are as well as their um the way they they think about pricing um and their sensitivity to price is um more focused to other needs perhaps not about growth and more about maintenance and improved profitability and saving time so i can spend more time with my family as opposed to grow go grow and try to get to the next milestone yeah that's very good points you
SPEAKER_06: made and i think what you all did very well at customers like truly understanding your different customer segment and their needs and even building your you know support team uh to scale with that and keeping the lens of what the customer truly requires yeah maybe i'll say one thing about that
SPEAKER_19: support piece um i mentioned in the beginning that payroll is not just um technology it's also operations and service and i think that idea that concept actually applies to other places too and if you're building a company right now and you think about the solution that you're providing put yourself in the shoes of the customer and don't think just about their online experience because you're a developer and that's kind of or your designer or you know you just love technology and you just want to have everything online think about the entire experience including the people the service side the operation side um the end-to-end experience because the customer doesn't care about the fact that these are different departments or something like that they just have one brand for us it's gusto and gusto needs to be absolutely freaking delightful and awesome and fun to you so you talk about it to your fellow business owners um whether you talk with someone on the phone or email or whether you just use our new app that we just launched within our platform yeah that's such good advice especially as you scale because i think people forget um
SPEAKER_06: it's not just one feature it's like what's that how much friction are you removing from the customer and how truly is it delightful uh now let's talk about your next customer segment so recently gusto's added developers as a new segment i'll be honest i never predicted this in gusto's journey so why did you pursue developers and how did you decide to service them
SPEAKER_26: yeah so we've been working with development we our api was um we have had a public api since 2013 and
SPEAKER_19: i have a lot of tech partners using this api making just expanding the product functionality for gusto and for our customers but what this push with gusto embedded is really taking us to the next level so the idea here is again i have a really big belief in gusto has a big belief in vertical sas i think that in the end of the day what's best for the customer ends up in the long term being the um you know the reality so i believe that for many segments for many verticals it's actually much better to have an all-in-one platform for your to run your business so your small business and if that's the case then we want a payroll and hr and benefits and the entire thing around employee management should be a part of that platform so for us for gusto it's like okay great well we we know how to do this thing we've been doing this for um for 10 years for hundreds of thousands of of companies and uh we can take and basically everything that we've built not just the technology but again the compliance side as well which is extremely tricky um and bake it in and just basically bake it in as a product that's really easy to implement so if you're a new um a vertical sas player or your or someone who wants to expand their footprint to solve more problems for their customers you should be able to build a payroll product and ship it in 30 days 60 days instead of spending 10 years like like we did yeah that's you know that's really like i know payroll products takes a long time but i know it
SPEAKER_06: wasn't uh it wouldn't have been an easy way to do it but it's not easy to do it wouldn't have been an easy decision uh because if you think about it you were directly acquiring these smds as your customers and offering payroll and then hr and you know if you had to use the counter view to this which is embedded finance feels a little bit like you're giving up the customer relationship through the partner is that true how did you all think about it yeah totally well i think you know it's it's um there's kind of two things there's what there is
SPEAKER_19: there there is the how do you operate like first like what do you believe the future of the industry is and then you just you have you can't ignore reality that's the truth that's the truth you have to go and do that like the netflix exam the famous netflix example of moving the killing the DVD business moving to streaming because that's that's where they saw the future and what blockbuster stayed behind and all that that's great story um you know i'm sure it wasn't an easy thing to do at the time but they had to go through it um and then for for us what we when i think here you know i don't i don't know if it's going to be as big as in that kind of video streaming example but i do feel like there's a really big change here that's really great for customers so gusto is you know we can't we shouldn't be fighting it we should the other way around we should make it happen we should be the one to create that change so that's like the optimistic side now that okay now here's the hard part right which is like oh gosh like we have we have this great business it's going really well people are really really happy um how are we gonna why would we move resources or how are you going to remove resources from from this business and start building something new and i think that's one of these hard business decisions that make a difference um in the long run and um to do that you know that you're probably sacrificing growth in your core business because you're taking away resources from it but that's in order to make the long term um much more sustainable and like really aligned with what's best for the customer so that's why i feel for us since we and this is something that you know i knew we definitely talked about in the board a lot like this is a type of a decision that it's not it couldn't be a small product team that that wants to do this this is like all the way ceo executive staff board everyone needs to understand that hey we believe in this thing and we're going to go all in there and that's the future um so that's why we we did it and it wasn't an easy decision but i think it's the right one you made some two very important points there which is one you know how important
SPEAKER_06: it is to be see what's right for the customer and if the customer wants an all-in-one product you know you have to make this decision which we don't know time will show but make as you said may or may not cannibalize the current core business but it's it's like you have to if you use the lens of make something people want you know right you see that gusto has been around now for 10 years and you see how the trend is changing and you respond to it right so i mean i think kudos to you all to have made that decision and i know it was something that gusto proactively pushed uh you know it's like
SPEAKER_19: it sorry i knew you keep going good good good oh i was about to say you know and and the example
SPEAKER_19: of like why i think it's better for customers just to make it real it's so one obvious benefit is bringing it all into a single system right data is integrated it's all going in the same place you trust a single vendor for you to build your barbershop or your dentist shop um and then you just run the entire thing from it it's all connected but there's another thing which is you can actually build a better payroll product this way so for example if you are you know one of our partners called archy and um they basically focus on then this dentist space and they people there get paid as a percent of production um a percent basically of you know the revenue that they that they they create and if that's the case then you can get you could basically build a custom payroll system that just to focus on these type of workers which uh horizontal um you know solution like adp paychecks will not be able to augusto will not be able to do because they're not customized just for your your situation like we have the same thing with a company uh called you know companies that called sense that does the um kind of the laundromats um dry cleaning space and people there get paid by folds like number of um some of them get paid by number of basically again like the the activity that they create and the customer value they create and they can integrate that into the payroll system itself all connected so that's the some of the cool stuff you can build when you really understand the vertical you're in
SPEAKER_23: yeah well many in the audience i'm seeing are developers and some are founders so how should
SPEAKER_06: they think about who to partner with you know this is another thing uh which comes up as the number one question in yc officers build versus buy right or build right spot so when should they go directly to the industry and just build everything and and then when should they follow the embedded route right yeah so i think that the the kind of the the um i was the first step
SPEAKER_19: advice that the most basic advice is you need to own what is core and then the next question okay that sounds cool but what is core what does that mean how do you know what's core and i think the answer there is to think about what is the unique insight that you have in the software in the business that you're creating and you want to make sure you own your destiny around that insight and that could be hey we have like a um you know the system of record where we have all the data in one place and that's where everything's coming from so we really need to own the system of record that's really the innovation or it could be that the innovation is a sort of one of the user experiences or is a payment flow or is a technology back end like a security thing whatever it is that you're doing really uniquely and you think is the kind of the driver of your business you really need to make sure that that you own so that's core and then i would say um partner or you know buy the print kind of depends how you define it but you know use like an external vendor for things that you want to uh first that you want to try out so you know you may think hey that could become a core one day but let's try this thing out and it's much cheaper to try it out with a partner uh instead um to kind of get to market quickly um or things that you just don't want to actually like reinvent the wheel and you just need to make it work so you know if i'm building a product that needs to send sms and it's that's just like one neat part of what i do but it's not a huge deal then definitely i'm going to use twillio for that i'm not gonna um rebuild the sms delivery or payments with stripe and so forth many examples like that so um the first question to ask and i think it's really important for founders and and product executives to be aligned on is what is our core what do we have to where do we innovate and where and everything else let's not uh spend our resources there because we are so resource constrained and then in terms of how to choose a partner what i would advise is look at this from the customer lens so ask yourself like for my customer what would be a successful product here and make sure that the product that you're the company that you're um partnering with fulfills that those needs so for the example of payroll just to use that as an example a if i am a if i am you know a vertical sas like vagaro that has uh stylists you know and they kind of in that space um and i want to go and uh and add be able to pay them because they've managed their entire business through uh through vagaro today other than payroll then i need to ask what is a good payroll system for them and the answer is not just like a place where i can plug in data and click a button and end up having a payment on
SPEAKER_19: the other side the next day but rather something that does not cause like that i won't get fined in the end of the year because i miscalculated taxes or i misfiled payroll or something that will not you know get my employees to quit because they're i screwed up their taxes so you really gotta think the end-to-end side of things like that could include support for example you get to make sure that whoever you partner with you really understand what happens when there's an issue and the customer is having um a problem so customer point of view that's my one-liner there
SPEAKER_06: yeah and in addition to what you said um you know about the resource constraint point which is very real for startups right they never have the scale of resources that they need and therefore to like try and do everything then you kind of drop the ball on a few things um so in addition to the resource constraint point i think the that's one that's real the other thing
SPEAKER_07: that um that you're highlighting here is what's not core right which is right something like
SPEAKER_06: having worked with gusto i could tell like it is so complex and so nuanced that i don't understand whether everyone will try to build payroll but sometimes it's like you need to know that to be able to figure out is it cool or not and is it worth putting your resources against that
SPEAKER_16: yeah yeah the the there there's been uh um i think that's a great great great way of uh
SPEAKER_19: really clarifying it i think maybe what we're talking about behind kind of to connect these dots is quality you've got to make sure if at the end of the day you want to shape a high quality product for your customers so whatever you own you have to put enough resources on so it's successful and really high quality whatever you everything else you make sure that it's high quality by bringing in the right partner so it's all about the end-to-end user experience in the end you got to make sure that you don't put that aside and you know one mistake that really often software companies do is they just quickly want to bring a partner up set up and just get something out quickly um and they end up actually losing customer fate because of it and kind of screwing themselves because it's not just that they don't get the right attach rate they also kind of lost customer confidence um in their in their product absolutely and for the audience i'd uh highly
SPEAKER_06: recommend you read this book by jeff lawson i'll ask your developer he actually has a very good framework for build was his partner with a lot of the stuff toma you actually touched on but he actually talks about how everything like most software is going to move towards embedded and why developer becomes the primary customer and then through the lens of the developer how
SPEAKER_04: you think about the end customer so it resonates a lot today in terms of what you're saying
SPEAKER_06: so switching gears a little bit i want to talk about embedded finance your announcement today makes it is is essentially saying that you're going to make it easier for software providers to make compliance into embedded payroll you also mentioned that many of
SPEAKER_06: your developers have been using the payroll api since 2013 i would assume that they would have assumed that compliance is baked in is that not true or what additional compliance work is going on to this yeah yeah it's a great question so there's a bunch of that's not there's we can't
SPEAKER_19: we counted in like just in the first three months there's over 16 there's around 16 that's the number i saw um new features and functionalities that were added um specifically around around this stuff so there's there's a long list but i'll give you the kind of the an example of what i mean so one of the things we launched and i'm really excited about is this idea of embeddable workflows so you so the way you use embedded so how does it actually look like to build your own payroll product with uh with embedded right there's kind of two paths paths number one is you have just everything is apis so you come in and you custom build every single thing exactly the way the user experience the way you want it so you it's really like every single thing adding an employee new employee doing a tax setup running reports running payroll um all these things are just completely um customized there's another way which is you and that's kind of one of the new things we're talking about here is um you actually use pre-built flows that we already built for you and you just integrate them into your app and then you can pick and choose hey to that conversation earlier with what's what's corn what's not here's the area that i want to innovate it could be for example run payroll but here's the area that i don't care much about and that like state's tax setup and um why that is important is because in kind of where compliance comes in is that when we when you use these pre-built flows we bring in a lot of our knowledge and experience in the past 10 years to make sure these flows are right for the customer not just in the way we ask you know for data inputs but also the way we do validations and the way we keep updating things because regulation changes every year for sure but sometimes every quarter and every month depends on the state and the local government so these components just update with the latest regulations you don't need to kind of keep track of that so these are this is an example of what i mean by you know built-in compliance obviously you know everything that we do in gust.com like just since day one is all about making sure that we protect the customer that's our job but here we make it really easy for developers to both ship something quickly out to the market and make sure that it's um it's compliant for the long term and no one comes back a few years later with an issue. Yeah did I even read this right on your blog post did you say like one third of the
SPEAKER_06: companies in the U.S. get fined for some kind of mistake on payroll? Yeah yeah that's really painful
SPEAKER_19: because um again like the bad payroll means you find and a third of companies in the U.S. today get fined every year for not doing payroll correctly and um that's that's pretty bad for for folks and pretty bad experience so um the goal is to make sure that as this industry goes through this transition and you have all these vertical SaaS companies integrate payroll they make sure that they protect their customers so they're not a part of that statistic.
SPEAKER_06: Got it and in general compliance is really hard right it's just not just for payroll it's definitely the hardest part of payroll but if you think about fintech companies that are building for various customers, lending, healthcare they all have compliance what advice do you have for founders who are essentially building in complicated industries focused on compliance? What did gusto do right in the early days that has served you well today? Right I think my first
SPEAKER_19: advice there is to understand which part of your product is like highly regulated and you really got to get it right and accurate and there's and then which parts of your product are not and that is important because of the way you set up your your culture and how you build software you know there's like this old kind of Facebook uh tagline around uh move fast and break things um and I think that um you know I know that they've changed sense but it does give like a sense of like this idea of like hey some things can be fixed later and but but the truth is there the complementary is that some things can't so you really need to make sure where you spend a lot of your time and you put quality first you don't you never ship anything to customer that's not absolutely perfect whereas on the other but also letting enabling your culture to have parts of the company that's much more iterative and fast and can quickly learn and adjust with new inputs it's not a monolith it cannot be a monolithic culture so that will be my my first kind of advisor on building engineering product design teams in this kind of compliance focused in a compliance focused area the second thing is to really embrace cross-functional work and what that means is early on your startup journey bring in like amazing like top top class um regulatory compliance legal folks I always say that in gusto our secret sauce is our is actually our compliance and legal team um because they're they are not just extremely knowledgeable but we choose folks who are also creative and they're builders so they come in and they work with our product teams to make sure not just how we how we you know protect the customer but also how do we innovate and make something better for them so bring that early on make sure they're a part of the brainstorms that all might mix the product great um and we've done that one of our very very first hires and you and I talked about it in another conversation uh was uh was you know a compliance uh person from uh from from paychecks and another person was someone who built the compliance uh was really in charge of the compliance for for two major uh other payroll providers so um really really uh important to bring that early on to the culture yes I want to double click on both for this group so number
SPEAKER_06: one you said you have to be clear on what can't be broken versus what can be um with your EPD engineering product design and data team so go back to the first year of gusto first or second year first two years how did what was your framework or guidance to your engineering team at the time like what aspects of payroll did you say was okay to like ship and iterate versus what aspects was not okay yeah yeah yeah it's a I love that okay so I'm going to bring myself back to
SPEAKER_19: that world in the very very early days and the first thing that comes to mind is that the the core of the tax calculations and compliance and in the end of the day making sure that the outcome of the the actual the payroll system in the physical world not the software the physical world right pay money moving and and and irs filings and things like that that has to be right and there's no cutting corners there zero right um so that's one on the other hand here's an area where it's totally fine um it took us I want to say a year and a half maybe or something like that to actually start charging customers and what we did is we basically never got around to build or it took us a while to get around to build a billing system for our customers now our customers chose to pay so they're already at that point of time everyone you know they were part of a paid package and they knew that they were paying but they probably noticed and didn't complain by the way uh perhaps that they were not getting actually charged in the end we did start charging them obviously so that's an example of something that can totally broken does not have like a customer impact if anything it has um you know um you know more impact on you but um totally the right way to prioritize looking backwards too um here's another place to kind of make it a little bit more nuanced which is user experience right so you could actually say another uh viewpoint is like hey what's important is the physical world then maybe it's okay to have a lower end ui in some areas and my answer there was actually is actually um that's uh that's a really tricky proposition because for us one of our core innovations was user experience innovation it had to look and feel and really um like 10x better than everything else out there in terms of the user experience so we were so we had a we didn't uh cut corners there in terms of where we wanted to get um kind of our goal but what we did do there is iterate really quickly and it was okay to ship something and then you know next day uh see the improvements and so forth you could move faster there without um you know kind of waiting for long launch times yeah and looking back would
SPEAKER_12: you have done anything different now yeah a lot of things uh a lot of things you know you learn
SPEAKER_19: so much through that to to any journey and uh this here's just one thing that comes to mind i'm happy to talk about other things too but first thing comes to mind to me is actually pricing i think um we completely under sold ourselves in the early days in terms of value we provide to customers you know you go to market you have you have a confidence problem you have a you're like oh gosh i really hope people want this and you start charging really really low that we we charge extremely low and um that was you know and then you start getting distraction and then you have to well is it because of the prices or not and then you get you know you're really worried about increasing prices so looking backwards i would really try to charge um you know my advice to founders is um try to go the opposite way start charging what you feel like is you know is the value that you provide and then uh perhaps fix downwards versus fixing upwards um because here's the issue with create this is i'm not talking about revenue um or like you know cash flow although it is extremely important in these days there's another thing that's even bigger which is just business model because if you end up underselling your core business the business may just not work in terms of the cost of acquisition and things like that so you have to make sure that you you walk towards a sustainable business model that can scale for many many many years and customers yeah and uh toma i don't know if this makes you feel better or worse but
SPEAKER_06: 10 on 10 yc companies all i always say they all are the challenge especially it's the most common thing i think every startup goes in and says oh should i up it by 30 percent and then no one blinks if you're truly adding value
SPEAKER_18: right totally that's totally true that's totally true well it's a confidence thing i feel you know
SPEAKER_19: you're stepping down known building a company is a lot of like you know you kind of um you have this really really big vision you see this really big mountain or hill ahead and you want to climb it but you know that you've never walked through this path before and you know in every corner of the road there's going to be a surprise and you just want to be ready for it um so i think um you know obviously you build confidence as you go through that path and i oh great i'm kind of you know i'm five percent in ten percent in i feel a little bit more confident in my abilities but i think confidence could still uh is something that people build um over their journeys and it's good because it needs to come with humility too because here's the issue as well the the market and the customers are always changing if you feel as a leader or a founder that oh i know this already i know everything i know exactly how things are going to go you're full of shit because you know everything changes so you have to have the humility of learning from from um from from the customer and learning from how the market changes around you so well said so well said well we are
SPEAKER_26: my last question it's going to be a meaty question but we have seven minutes so i'm going to turn it
SPEAKER_06: over to you which is what what does embedded finance mean to you like what is the market and i know you're very bullish on embedded finance but how should the founders here listening to us here be thinking about embedded finance and what's what do you how do you think this market evolves over the next five ten years yeah yeah i think it's correct so what we said earlier around um
SPEAKER_19: the basically what's good for the customer ends up winning and the idea with embedded finance the premise is pretty simple it's basically the create is you when you build a new software system for the customer the more end-to-end the more inclusive the more connected the system is for your customer the better it is an embedded product whether it's fine emitted finance or other type of apis you can bring into your to your system um enable you to do that fast and in high quality and i think that's the key so i am i'm extremely bullish on this idea of bringing in multiple components into your product driven by what your customer needs are so my advice there for founders is you know maybe um focus again on like look at your customer understand how the day-to-day look like connect the dots and see how might i build something that not just solves a pain like a specific um you know standalone um point of their flow but rather the entire flow on its own and that's the taking look at the customer side of things it includes you know finding a customer like being out there as well as um you know figuring out the the offer that you're gonna create for them um how do you price and package and how do you charge for it and finally also get paid through it and then how do you take it to accounting and then how do you reconcile that across everything else that happens to your business it's all connected in the mind of the of the of the business manager it's not seven different departments like enterprise enterprise often are um so connecting the dots i think is something that this new space is embedded finance really uh really enables i'll say one more thing about uh fintech and embedded finance also as a part of it there's a hole um which is especially now giving the everything that's happening in the markets people are starting to be more realistic about what are good businesses and what are bad businesses and one of the things that make a good business and that's that's going to sound pretty obvious for for people is you need to make more money than you than you that you then it costs you right then the goods cost you um per unit and it's really really important and you also need the cash flow to work out so it's not like money in the future one day versus money out you know money coming in the future today versus money coming out of your pocket today um so so in fintech there's specifically a potential place where founders can or product folks can get distracted which is you think you found product market fit because you gave away money for people or for businesses you give basically fun financing um um to to users and you feel like oh my god there's all these people who want this product that's amazing but make sure that you remember that every like you know uh that that's a cheap way of getting to product market fit um people always you know if you're walking down the street someone offers you 10 bucks and tells you you know pay me someday to maybe two dollars later of course you're going to take that offer it's not product market fit it's just free money so make sure when you build your your fintech when you build your your financial based product you really think about the unit economics don't get too distracted by what could look like a product market fit it's not product market fit if your product is not sustainable yeah that's a great example what you're essentially saying is if you are not making
SPEAKER_06: money on that lending product and you're essentially only subsidizing and kind of giving free money then you don't know this real product market fit if you can charge enough to lend and make money and if you can still retain the customer then there's some product market fit
SPEAKER_02: is that right yeah like what if you and i come out of this chat today and we build a new subscription
SPEAKER_19: startup we call it one dollar a month dot com and we basically you subscribe and we give the user one dollar per month and they just get it to their bank account i'm sure you and i are
SPEAKER_15: going to get millions of users really quickly but probably it will be hard to build a business out
SPEAKER_17: of that yeah that's that's that's very true in general but i can see how you're saying need to
SPEAKER_06: pay more attention in the embedded finance world like that's not happening let me ask you what are the kinds of outside of payroll in embedded finance are you seeing as products being offered
SPEAKER_24: by apis yeah totally so you know i think financing just to make it clear is an extremely valuable
SPEAKER_19: tool you can really help people make their cash flow work you know again if you look at b2b companies sometimes you get paid for services you provide in the future so if you can align the cash flow coming in with the cash flow going out to providing additional services for new customers it can really be a win-win situation so i feel like there is a lot of greatness happening there you just need to be careful and make sure that it makes sense from a business standpoint but that's that's kind of my higher level point i think insurance is another great example you know you go through different flows and different you know products you build online whether it's a service or whether it's a physical product like insurance is a is a good financial product enables people like the customer to mitigate risk and it's something that it's quite hard to build because on your own because you've got to really develop your underwriting knowledge and it's a good place to start to use like embedded insurance there's a bunch of interesting companies there i think um and there's again this space is brand new so there's there's tons of opportunity so i think there's a lot of um there's lots of interesting opportunities in that space today um and the pattern is a product that helps your customer build the like go through the end-to-end journey successfully and really solve multiple pain points for them but it's something that would take you 10 years to really figure out to do it in high quality and that's where you go and you outsource really to that um that partner absolutely well we're at time thank you so much toma for sharing
SPEAKER_07:
SPEAKER_06: all of the perspectives right from the early founding days of gusto to expanding to new sectors and embedded finance and congrats again to the entire team i know you all worked incredibly hard to launch the new partnerships and the vision for embedded finance for anyone looking to learn more please visit gusto.com thanks anu
SPEAKER_27: Hi everyone i hope you all can hear me i'm waiting for the cue from the YC team
SPEAKER_09: great so welcome everyone to YC's founder fireside my name is Anu Hariharan and i'm a
SPEAKER_06: managing director at Y Combinator where i work with our growth stage companies i'm here today with Tomer London the co-founder and CPO of gusto i've known gusto for i think close to now seven years and worked very closely with Tomer on the board gusto provides growing businesses with everything to take care of their team and was part of YC's winter 2012 batch welcome Tomer
SPEAKER_20: hello thank you thanks for having me thank you for joining us and today gusto has
SPEAKER_06: a special announcement to make when you just released a blog post about it which is you're making it easier for software providers to bake compliance into embedded payroll as well as new vertical sas partners which is really exciting because now sas partners that sell laundromats fast construction restaurants they can all offer off a payroll more seamlessly through gusto
SPEAKER_18: yeah so congrats to you and your team it would be good Tomer just to kick it off if you can just
SPEAKER_21: explain what embedded payroll is and what the announcement is today yeah thanks Anu well again
SPEAKER_19: just excited to to have this chat with you yeah today is really really exciting for me i feel this has been in a way more than 10 years in the making basically what we're doing with gusto embedded is to help basically take 10 over 10 years of our experience building payroll software and compliance built into it and making it available to any software platform any software company wants to ship their own payroll product to the market and it's not just the software side it's also the service size and the operation side it's everything that's happening behind the scenes you know payroll is quite a complex thing it's not just like a quick ux flow of you know you you put people's names and you say how much you want to pay them and you click and you're done there's a lot happening behind the scenes with filings and tax calculations and and you know multi-year-long conversations basically through through note through this compliance flows with different state agencies there's 50 000 plus tax codes out there in the us so anyway there's a lot going on behind the scenes it's not just the software so anyway today we're launching that we're announcing this really um just a lot of great progress that's happening both in um signing up a lot of new platforms across all these vertical sass players that you mentioned um whether it's construction vertical sass or dental offices vertical sass or accountant or um and more and more and more but also a bunch of new features and functionality but we can talk about it later i don't want to take all the time right now yeah and you know tommy you bring up a very good point about payroll
SPEAKER_10: i didn't realize this when i first met you all maybe like seven years ago but you know for most
SPEAKER_06: yc companies we always say ship fast get feedback iterate and i remember very vividly you pointing
SPEAKER_09: this out to me um which is i think in the first year of gusto you all had less than 100 customers
SPEAKER_06: and i asked you wow that's slow because usually they're more than we often are or before they would be often ask hey if you signed up hundred in two weeks can you sign up thousand and i remember
SPEAKER_09: this point you made well if payroll doesn't work there is no coming back the customer will be
SPEAKER_06: displeased because they didn't get their paycheck so it's one of those unique products where you had to make it work perfectly there was no room for error and that's why you all took a lot of
SPEAKER_08: time to scale it yeah yeah exactly when you get payroll wrong someone is not getting paid or
SPEAKER_19: even worse than that in my opinion um you know years later you may get a notice from the irs saying that you did your taxes wrong and now you need to go back um if you're an employee and fix your w2 like you know get new w2s and work with irs or if you're an employer go back to employees who left you and are not a part of the company years now and um go and work with their taxes so the the cost of being wrong is extremely high so um i i really think that there's a set of uh product and technology um software out there that you really have to get it right in order for for you to deliver the promise for your customers and if and the cost of not doing that is terrible for your customers and then terrible for your business great so i expect so many people today
SPEAKER_06: i see it on the tourist phase are actually founders and ceos so before we dive into your launch today i'd actually like to take this opportunity to discuss how to build for new verticals and how to think about this as a founder and ceo since quite a few of them are actually probably in the very early stages in the audience so some background for the audience over the last 10 years gusto has scaled to build for customer segments many customer segments i don't know how many of you know this but gusto first started servicing startups then they started servicing smb starting with florist then accountants and now with gusto embedded payroll developers of their customers who are embedding payroll directly into software so toma can you go back and tell us your journey of starting with startups why did you start and if i remember right gusto was a pivot in the batch it wasn't your application but when you but but we'll save that for another time but when you decided that payroll software is what you're going to build why did you start with startups and how did you sort of think about customer segments especially in that first year yeah totally so
SPEAKER_14: i would say we started with this realization that you know josh eddie and i all come from small
SPEAKER_19: business families my dad has a clothing store for 35 years now and seeing and growing up in that environment seeing how it feels like to be a part of a business and running a business i learned that you know business owners and managers have all those different hats they need to wear it's just incredibly busy they need to be the salesperson and then the marketer and then the the cleaner and then the janitor and the accountant like it's all and want all these different hats so we knew that businesses specifically small businesses were very um you know they really had this need of helping of getting more um leverage and software can be really really really great at that um we also knew that this we also really believe in this idea by building our own startup companies before gusto that the most important thing in any business is their people and that's what makes or breaks the business so if you kind of do this plus this together we ended up with this really grand vision of our goal is to help you know any business small large growing um to help you know basically build a great place to work where um and really serve the entire life uh of the employee life cycle so people can build great places to work so that's kind of the big grand vision so the question is the founder is like okay that's cool but where do you start um that's where kind of your story and who comes in which is starting not just with i would say startups but also we it was even much much more narrow than that those first hundred customers were technology companies who are based in california who have no health insurance or any other benefits because we were not able to support it you know and were agreed to be paid you know nine days after running payroll so it's extremely extremely small group of target customer to start and that's really where we started and i think when you think about your own company and how to choose your customer segment there's three important things that have to happen first um you need to you need to make sure that you're choosing a segment where they have an important customer problem that they're trying to solve it's kind of this you know painkiller versus vitamin analogy the second thing is that you need to make sure that the product that you're building and you're starting small um has to solve it and customers have to love it the third thing is that you need to be able to reach this customer right so important customer problem your product actually solves it and then finally you can reach this customer and startups was a or at least this really really tiny group of startups was a good place for us to start because um we could reach them we were at a part of yc batch a bunch of companies were around us a lot of our network and people that we know um was really really easy to get to and and and more importantly um technology companies are very viral so when you start selling and if you do a good job solving problems for them you can you actually get really nice word of mouth um we knew that we can solve the problem for them because we really scoped it down to a problem we can solve with this initial product and then finally we knew it was an important problem because payroll is such a pain um for uh for businesses today as i mentioned earlier well that's
SPEAKER_06: fascinating i didn't know that in the first year you uh gave payroll nine days after the payroll was done so what was your competition like was i mean how before gusto how did startups pay employees yeah that's a great question so you know 10 years ago um i think um if you kind of
SPEAKER_19: paint the picture of back then the majority of the payroll industry um was companies like adp and paychecks and kind of really large more traditional companies and for you to run payroll what you had to do is you had to pick up the phone and talk with someone and tell them to run payroll you had to take you know use fax machines in order to send the hours back and forth you had to meet a person someone in person a rapid person in order to sign you up so they believe you're a real business and underwrite you for payment so um it was the old kind of traditional world um and i think uh what um what when we came in uh one of the insights was you know to the this idea of hey all this process can be made so much easier to use and simple so that you don't need to be a professional to run payroll and you should be able to do it you know on your computer on the weekend in the evening without talking with anyone um and that that's kind of the the i would say the first insight the second insight was that employees are a critical part of the system and if we build a really great experience for employees um it's going to make the employer's lives easier so for example employees enter their own information when they log in as a or when they sign up and and to the to the company as opposed to the employers need to you know kind of go back and forth with them um and that was kind of the very very very initial thing and to your point like ask those customers who agreed to um take on this product despite the fact that we were 10 they took like you know like eight days to get paid um they did it because we solved the payment about that was much more important for them which is just the the complexity around payroll and they and for them this was important enough that's yeah i was going to say i mean talk about product
SPEAKER_06: market fit if after all that friction they love the product and they're using that's the sign that you truly are solving a pain point um now let's so you were working with startups the majority of the first hundred startups as you said were tech startups based in california where you were taking more than nine days to process payroll but things were going really well i remember nps for gusto from the very early days was very strong so then why did you decide to build for smbs you could have pretty much just focused on startups why smbs right so as i mentioned earlier we started with
SPEAKER_19: this really big vision of we want to go and we want to serve um the larger market not just startup but even not just smbs but we had to start somewhere so we started with startups and specifically start the narrower version of startups um because that's where we felt we can get really great customer love with the product we were able to build but then as we spend more time and obviously started expanding not just california but multiple states not just you know eight like you know eight days to get paid but same day like next like two days then one day and then same day payments um and then obviously supported healthy trends and other things we felt we were ready to support um you know kind of take the next steps to our towards our product vision go to uh to small businesses the really important thing when you in my opinion when you move from one vertical and kind of start expanding towards your vision is you have to make sure that you maintain that early customer love um you know i know you mentioned like we had like you know the initial our nps's were always um in the high 80s and that's just one measure not that nps is perfect in any way but it's a measure to show um customer love was extremely high and that creates high word of mouth and trust and really creates a really great um kind of backwind for your growth and when you the risk of expanding too early is that your product is just not ready and then you're going to lose that so the way one of the ways that i think to know whether you're ready is to just look at your current customer base and look at the people who want to use your product the people who are using your product that perhaps are a little bit adjacent um to what you thought um you were supposed to serve and uh learn from them talk with them what you like about the product and ask yourself whether you can um take a few um steps with your product to really double down on that and get a lot of customer love from this new segment so that the answer is already under your nose usually if you don't get traction and from like let's say you know you you built you have software for hairdressers today and you believe that you know the same software can be used by spas but you don't have a single spa customer and you just really hope it's going to work i don't think that's a good strategy i think you have to listen to your your current audience
SPEAKER_06: that's a very good point you make which is uh i think that's one of the common mistakes i've seen founders make when they expand to a new vertical is not deliberately but accidentally losing focus of the existing customer segment so how i mean tech startups are just very different from stars and florals so how did you maintain the customer love of the existing segment then like what did you do to continuously measure that so when we launched the initial product although we started
SPEAKER_19: with a very small scoped audience we never used language whether or we never built a product or use language to say that this product is just for startups we've never done that it was always like this is for um you know businesses at different sizes um we did talk about sizes a little bit but it was never like just specifically startups um because we knew this it was coming it was coming so we didn't know perhaps if it would take one two or three years but we know that we knew that this is the next thing to do and perhaps like the the generalizable advice here is really think about your vision and make sure that you don't put yourself in a corner um when you do want to kind of move to the next uh to the next thing we had that by the way with our brand which is kind of another thing with there's you know with just two types of expansions right you can expand customer audience you can expand the product set that you're doing and one thing that we uh what we did have in the beginning that we put ourselves in the corner is we started the company with the name Zen Payroll for folks who don't know for the first few couple years for the company it was Zen Payroll and then we rebranded to Gusto and um that the reason what we quickly moved as fast as we could basically was because we saw that that initial name is not very forward looking if we're thinking about our wider strategy around um you know creating this people platform um for every single activity in your in your workforce for all these different sort of companies so it's not just payroll it's also benefits and employee onboarding and software and hardware provisioning and it and um and everything else that that happens in the employee life cycle yeah i remember and it was
SPEAKER_06: not an easy transition but i think you all did it at the right time well i have three kids and i can
SPEAKER_19: tell you that naming the company renaming the company was a much harder exercise than uh finding the right name for my kids um i'm sure so and i know because um you know acquiring smbs is not
SPEAKER_22: easy and so when you're changing the brand name you know you have to put it pretty much you're
SPEAKER_05: starting from scratch um that was going to be my next question which is you know if you look at
SPEAKER_06: startups in general um they find most startups find it very hard and have struggled to tackle the smb market why do you think that it's you had i mean gusto is an amazing success i mean you serve close to 200 000 smbs you're a beloved product in the smb segment but why do you think that is why have people historically struggled yeah today we serve you know um lots more like much more than
SPEAKER_19: 200 000 uh businesses across all different sizes whether it's customers you know whether it's small business we just started or companies over you know around 500 employees um so yeah we reached a really a really nice scale um across small businesses and scale companies the the i think the reason why it has historically been so tough is because smbs are so hard to reach right so it's these three points that i mentioned earlier uh this is point number three which is you know you can have a great product that people love um but you can't reach the audience so small businesses were extremely hard to reach and i think something happened around that time when gusto started where small businesses there was a generational shift where people started trusting the internet more and i believe that um for example internet banking was a really big part of it you know if you remember back in these days around 2010 and in the there's a couple years around that area you got just commercial banks pushing really strongly for people to use their online system and not come to the branch because it's just much much better for their economics better user experience and they basically educated an entire generation of smbs and um that they can trust the internet with things like money and then um payroll was it was it was the right time for people to say hey can i do my payroll online so you started looking at you know google search results and things like that and it was like hey interesting actually you know online payroll is becoming a thing people are actually looking like they're actually looking for something like this so this is my intuition around like what happened back then and you know why that was the right time for gusto to start i think if we were to start the company four years earlier it wouldn't have worked so well because people were not ready yet and educated so but back to today so what's happening today and if how do you do smbs i think so two things i think one um smbs are online small businesses are online they're looking for solutions they want to have their problem solved they have a lot of pain points as i mentioned earlier and there's a lot of great companies who are already serving them um but then that is already known for the past several years so what's coming next i think the next wave of this and if i'm now to build a new small business focused company i would focus on a vertical i think that when you truly understand a specific customer segment understand how they start their day how they speak with their customers how their business model looks like you know what's their common uh difficulties and competition looks like you can build a great product for them that's much that's really tailored to their needs and small businesses especially now with the recession potentially coming you know there's different points of view there but um in moments like this people want to consolidate and have everything in one place so if i were to start a new company today focused on smb it would probably be picking a vertical a specific small business segment that i understand really really well and going all in and building a great product for them that's what i would do and i think you can reach people really well this way because you know if you really understand like you know my dad's store clothing store right if you really understand clothing store you know where they hang out you know their language you know what speaks to them um and you should be able to find a great scalable way of finding them online that's a very nuanced well-tailored advice which is you're essentially saying
SPEAKER_06: vertical sass is going to be the new trend in smbs and catering end to end for each vertical are there i mean i'm sure in gusto you interact with all sorts of verticals are there some verticals you are more familiar with or more excited by the problem set that you see ah so
SPEAKER_15: there's so many and you know it's so fun so i get to work with through this embedded um payroll
SPEAKER_19: business i get to speak in the morning with you know vertical sass for spas and salons and then go to someone who's focusing on construction uh vertical sass and then moving to like dental offices and then you know uh lawyers and like laundromats like it's it's kind of really really fun to learn about all these restaurants like all these different small businesses um i would say you know if there's any i think there's some spaces that are just more competitive today so you know if you kind of take a step back and you ask yourself there's already probably companies that are vertical sass right we look at companies like uh square and toast uh for example and um so so some companies some verticals are much more developed than others and probably the more exciting things i think that are uh earlier in the um in this space so verticals that were not they're not yet like kind of fully like modernized yeah yeah some of the ones you're
SPEAKER_06: pointing out like dental services or spas salons still have a lot of room to grow um that's true let me ask you this uh i want to jump to the third segment which is developers but before that you've served a lot of startups you've served a lot of smbs what's different about serving smbs from a customer lens whatever you notice they want versus that's different from what startups want is that any
SPEAKER_14: yeah yeah okay so different multiple things uh come to mind the thing when you build a business
SPEAKER_19: focus on startups um there is actually a risk there i would here's a note of caution is that startups with the the economics their work if you can scale with them because you know there's a high turnover company if you think of literally think about a startup as a as a venture funded or hopefully venture funded company um they they come and go they die a lot when the funding stops and the the real economics similar to vcs how vcs work the real economics come from the big winners so if you're focused on startups i would say that probably startups is a good place to start your journey but you have to think about how do you scale up and keep those businesses with you when they reach thousands of employees or much much larger scale um that's not the same dynamic with small businesses so small businesses the difference is that the scale is just much larger there's a lot more of them there's six million employers in the us there's around 25 million if i remember correctly businesses that are not even employers um and some of them stick stay along for a long long time again uh companies for that stay for decades family businesses and they never they actually don't grow some of them do but it's quite rare that they grow to thousands of employees so you need to build a business model that supports that situation so churn like you know just business closure is still a big thing obviously enterprise companies large companies um disappear much less so you still have this high turnover of small businesses but some of them stick and then and then the market is much larger so you need to build a business model that really works well uh for that uh dynamic and often it means thinking about things like share of wallet and increasing acv over time and things like that um there is you know a bunch of other things to talk through around like the custom the type of customer too and how they think about their business um and what their priorities are i would say with startups it's obviously growth really really matters the underlying premise of of a startup is that they can grow to not basically to grow out of being a starter and being a big tech company we're small businesses that's perhaps not the case and the needs that they have are as well as their um the way they they think about pricing um and their sensitivity to price is um more focused to other needs perhaps not about growth and more about maintenance and improved profitability and saving time so i can spend more time with my family as opposed to grow go grow and try to get to the next milestone yeah that's very good points you
SPEAKER_06: made and i think what you all did very well at customers like truly understanding your different customer segment and their needs and even building your you know support team uh to scale with that keeping the lens of what the customer truly requires yeah maybe i'll say one thing about
SPEAKER_19: that support piece um i mentioned in the beginning that payroll is not just um technology it's also operations and service and i think that idea that concept actually applies to other places too and if you're building a company right now and you think about the solution that you're providing put yourself in the shoes of the customer and don't think just about their online experience because you're a developer and that's kind of or your designer or you know you just love technology and you just want to have everything online think about the entire experience including the people the service side the operation side um the end-to-end experience because the customer doesn't care about the fact that these are different departments or something like that they just have one brand for us it's gusto and gusto needs to be absolutely freaking delightful and awesome and fun to you so you talk about it to your fellow business owners um whether you talk with someone on the phone or email or whether you just use our new app that we just launched within our platform yeah that's such good advice especially as you scale because i think people forget um it's not
SPEAKER_06: just one feature it's like what's that how much friction are you removing from the customer end and how truly is it delightful uh now let's talk about your next customer segment so recently gusto's added developers as a new segment i'll be honest i never predicted this in gusto's journey so why do you pursue developers and how did you decide to service them
SPEAKER_26: yeah so we've been working with development we our api was um we have had a public api since 2013 and
SPEAKER_19: i have a lot of tech partners using this api making just expanding the product functionality for gusto and for our customers but what this push with gusto embedded is really taking us to the next level so the idea here is again i have a really big belief and gusto is a big believer in vertical sas i think that in the end of the day what's happening is we have to have a As you realize. What's going to being the reality. So I believe that for many segments, for many verticals, it's actually much better to have an all in one platform for your to run your business or your small business. And if that's the case, then we want to do payroll and HR and benefits and the entire thing around employee management should be a part of that platform. So for us for gusto, it's like, okay, great. Well, we know how to do this thing. We've been doing this for for 10 years for hundreds of 1000s of companies. And we can take and basically everything that we've built, not just the technology, but again, the compliance side as well, which is extremely tricky, and bake it in and just basically bake it in as a product that's really easy to implement. So if you're a new vertical SAS player, or you're or someone who wants to expand their footprint to solve more problems for their customers, you should be able to build a payroll product and ship it in 30 days, 60 days, instead of spending 10 years like like we did.
SPEAKER_06: Yeah, that's, that's really like, I know payroll products takes a long time. But I know it wasn't, it wouldn't have been an easy decision. Because if you think about it, you were directly acquiring these SMEs as customers and offering payroll and then HR. And, you know, if you had to use the counter view to this, which is embedded finance feels a little bit like you're giving up the customer relationship through the partner. Is that true? How did you all think about?
SPEAKER_19: Yeah, totally. Well, I think, you know, it's, it's, there's kind of two things. There's what there is, there is the, how do you operate like, first, like, what do you believe the future of the industry is, and then you just you have, you can't ignore reality. That's the truth. That's the truth. You have to go and do that, like the Netflix exam, the famous Netflix example of moving the killing the DVD business moving to streaming, because that's, that's where they where they saw the future and what Blockbuster stayed behind and all that great story. You know, I'm sure it wasn't an easy thing to do at the time, but they had to go through it. And then for for us, when I think here, you know, I don't, I don't know if it's going to be as big as in that kind of video streaming example. But I do feel like there's a really big change here. That's really great for customers. So gusto is, you know, we can't, we shouldn't be fighting it, we should, the other way around, we should make it happen, we should be the one to create that change. So that's like the optimistic side now that Okay, now here's the hard part, right, which is like, Oh, gosh, like we have, we have this great business, it's going really well, people are really, really happy. How are we going to, why would we move resources or how are you going to remove resources from from this business and start building something new? And I think that's one of these hard business decisions that make a difference in the long run. And to do that, you know, that you're probably sacrificing growth in your core business, because you're taking away resources from it. But that's in order to make the long term much more sustainable and like really aligned with what's best for the customer. So that's why I feel for us, since we and this is something that, you know, I knew we definitely talked about in the board a lot like this is a type of a decision that it's not it couldn't be a small product team that that wants to do this. This is like all the way CEO, executive staff board, everyone needs to understand that, hey, we believe in this thing, and we're going to go all in there. And that's the future. So that's why we did it. And it wasn't an easy decision, but I think it's the right one.
SPEAKER_06: You made some two very important points that which is one, you know, how important it is to be see what's right for the customer. And if the customer wants an all in one product, you know, you have to make this decision, which we don't know time will show but make, as you said, may or may not cannibalize the current core business. But it's, it's like you have to, if you use the lens of make something people want, you know, right, you've got to has been around now for 10 years, and you see how the trend is changing, and you respond to it, right. So I mean, I think kudos to you all to have made that decision. And I know it was something that gusto proactively pushed. You know, it's
SPEAKER_19: sorry, I knew you keep going. Good. Good. Oh, it's about to
SPEAKER_15: say, you know, and the example of like, why I think it's better
SPEAKER_19: for customers just to make it real. It's so one obvious benefit is bringing it all into a single system, right? Data is integrated, it's all going in the same place, you trust a single vendor for you to build your barbershop or your dentist shop. And then you just run the entire thing from it, and it's all connected. But there's another thing, which is you can actually build a better payroll product this way. So, for example, if you are, you know, one of our partners called Archie, and they basically focus on then the dentist space, and they people there get paid as a percent of production, percent, basically, of you know, the revenue that they, that they they create. And if that's the case, then you can get you can basically build a custom payroll system that just to focus on these type of workers, which horizontal, you know, solution like ADP paychecks will not be able to Augusta will not be able to do because they're not customized just for your your situation. Like we have the same thing with a company called, you know, companies that called sense that does the kind of the laundromats, dry cleaning space, and people there get paid by folds, like number of some of them get paid by number of basically, again, like the activity that they create and the customer value they create, and they can integrate that into the payroll system itself, all connected. So that's the some of the cool stuff you can build when you really understand the vertical you're in.
SPEAKER_23: Yeah. Well, many in the audience and seeing our developers and
SPEAKER_06: some founders, so how should they think about who to partner with? You know, this is another thing, which comes up as the number one question and why see officers build versus buy, or build right spot. So when should I found a good directly to the industry, and just build everything? And then when should they follow the embedded route?
SPEAKER_19: Right? Yeah. So I think that the kind of the the first step advice that the most basic advice is you need to own what is core. And then the next question, okay, that sounds cool. But what is core? What does that mean? How do you know what score? And I think the answer there is to think about what is the unique insight that you have in the software in the business that you're creating. And you want to make sure you own your destiny around that insight. And that could be, hey, we have like, you know, the system of record, where we have all the data in one place. And that's where everything's coming from. So we really need to own the system of record. That's really the innovation. Or it could be that the innovation is a sort of one of the user experiences or is a payment flow is a technology back end, like a security thing, whatever it is that you're doing really uniquely, and you think is the kind of the driver of your business, you really need to make sure that that you own. So that's core. And then I would say, partner, or you know, by the print, depends how you define it, but, you know, use like an external vendor for things that you want to, first that you want to try out. So you know, you may think, hey, that could become a core one day, but let's try this thing out. And it's much cheaper to try it out with a partner instead, to kind of get to market quickly, or things that you just don't want to actually, like reinvent the wheel, and you just need to make it work. So you know, if I'm building a product that needs to send SMS, and it's that's just like one neat part of what I do, but it's not a huge deal, then definitely I'm going to use Twilio for that I'm not going to rebuild the SMS delivery or payments with Stripe and so forth, many examples like that. So the first question to ask, and I think it's really important for founders and product executives to be aligned on is what is our core? What do we have to where do we innovate and where and everything else? Let's not spend our resources there because we are so resource constrained. And then in terms of how to choose a partner, what I would advise is look at this from the customer lens. So ask yourself like for my customer, what would be a successful product here and make sure that product that you're the company that you're partnering with fulfills those needs. So for the example of payroll, just to use that as an example, a if I am a if I am, you know, a vertical SAS like a Vergara that has stylists, you know, and they kind of in that space. And I want to go in and add be able to pay them because they've managed their entire business through through the guard today other than payroll, then I need to know what is a good payroll system for them. And the answer is not just like a place where I can plug in data and click a button and end up having a payment on the other side the next day, but rather something that does not cause like that I won't get fined in the end of the year, because I miscalculated taxes or I miss filed payroll, or something that will not, you know, get my employees to quit because they're screwed up their taxes. So you really got to think the end to end side of things like that could include support, for example, you get to make sure that whoever you partner with, you really understand what happens when there's an issue and the customer is having a problem. So customer point of view, that's my one liner there.
SPEAKER_06: Yeah, and in addition to what you said, you know, about the resource constraint point, which is very real for startups, right, they never have the scale of resources that they need. And therefore, like, try and do everything, then you kind of drop the ball on a few things. So in addition to the resource constraint point, I think the that's one that's
SPEAKER_07: real. The other thing that that you're highlighting here is what's not core, right, which is right, something like having
SPEAKER_06: worked with gusto I could tell like it is so complex, and so nuanced, that I don't understand whether everyone will try to do a payroll. But sometimes it's like you need to know that to be able to figure out, is it core or not? And is it worth putting your resources against that?
SPEAKER_16: Yeah, yeah. The there's been I think that's a great, great,
SPEAKER_19: great way of really clarifying it. I think maybe what we're talking about behind kind of to connect these dots is quality, you've got to make sure if the end of the day, you want to shape a high quality product for your customers. So whatever you own, you have to put enough resources on so it's successful and really high quality, whatever you everything else, you make sure that it's high quality by bringing in the right partner. So it's all about the end to end user experience. In the end, you got to make sure that you don't put that aside. You know, one mistake that really often software companies do is they just quickly want to bring a partner up set up and just get something out quickly. And they end up actually losing customer fate because of it and kind of screwing themselves because it's not just that they don't get the right attach rate. They also kind of lost customer confidence in their in their product.
SPEAKER_06: Absolutely. And for the audience, I highly recommend you read this book by Jeff Lawson, our ask developer, he actually has a very good framework for build was his partner with a lot of the stuff, Toby, you actually touched on. But he actually talks about how everything like most software is going to move towards embedded and why developer becomes the primary customer and then through the lens of the developer
SPEAKER_04: how you think about the end customer. So it resonates a lot
SPEAKER_06: today in terms of what you're saying. So switching gears a little bit, I want to talk about embedded finance. Your announcement today makes it is based essentially saying that you're going to make it easier for software providers to make compliance into embedded payroll. You also mentioned that
SPEAKER_06: many of your developers have been using the payroll API since 2013. I would assume that they would have assumed that compliance is paid pay. Is that not true? Or what additional compliance work is going on to this?
SPEAKER_16: Yeah, yeah, it's a great question. So there's a bunch of that. We can't we counted in like just in the first three
SPEAKER_19: months, there's over 16. There's around 16. That's the number I saw new features and functionalities that were added specifically around around this stuff. So there's a there's a long list. But I'll give you the kind of an example of what I mean. So one of the things that we launched and I'm really excited about is this idea of embeddable workflows. So you so the way you use embedded so how does it actually look like to build your own payroll product with with embedded right there's kind of two paths. Paths number one is you have just everything is API's. So you come in and you custom build every single thing exactly the way the user experience the way you want it. So you get to really like every single thing, adding an employee new employee, doing a tax setup, running reports, running payroll, all these things are just completely customized. There's another way which is you and that's kind of one of the new things we're talking about here is you actually use pre built flows that we already built for you, and you just integrate them into your app. And then you can pick and choose, hey, to that conversation earlier with what what's corn, what's not. Here's the area that I want to innovate, it could be for example, run payroll, but here's the area that I don't care much about. And that like state tax setup. And why that is important is because in kind of where compliance comes in is that when we when you use these pre built flows, we bring in a lot of our knowledge and experience in the past 10 years to make sure that these flows are right for the customer, not just in the way we ask, you know, for data inputs, but also the way we do validations, and the way we keep updating things, because regulation changes every year for sure. But sometimes every quarter and every month depends on the state and the local government. So these components just update with the latest regulations, you don't need to kind of keep track of that. So these are these an example of what I mean by you know, built in compliance. Obviously, you know, everything that we do in gust.com, like, just since day one is all about making sure that we protect the customer, that's our job. But here, we make it really easy for developers to both ship something quickly out to the market and make sure that it's it's compliant for the long term and no one comes back a few years later with an issue.
SPEAKER_06: Yes. Read this right on your blog post. Did you say like one third of the companies in the US get fined for some kind of
SPEAKER_04: mistake on payroll?
SPEAKER_19: Yeah, yeah, that's really painful. Because again, like the bad payroll means you find and a third of companies in the US today gets fined every year for not doing payroll correctly. And that's that's pretty bad for for folks and pretty bad experience. So the goal is to make sure that as this industry goes through this transition, and you have all these vertical SAS companies integrate payroll, they make sure that they protect their customers. So they're not a part of that statistic.
SPEAKER_06: Got it. And in general, compliance is really hard, right? It's just not just for payroll, it's definitely the hardest part of payroll. But if you think about FinTech companies that are building for various customers, lending, healthcare, they all have compliance. What advice do you have for founders who are essentially building in complicated industries, focused on compliance? What industrial right in the early days that has served you well today?
SPEAKER_19: Right. I think my first advice there is to understand which part of your product is rigged, like highly regulated, and you really got to get it right and accurate. And there's, and then which parts of your product are not. And that is important because of the way you set up your, your culture and how you build software. You know, there's like this old kind of Facebook tagline on move fast and break things. And I think that, you know, I know that they've changed it sense, but it does give like a sense of like this idea of like, hey, some things can be fixed later. And but but the truth is there is the complimentary is that some things can't. So you really need to make sure where you spend a lot of your time. And you put quality first, you don't you never ship anything to customer that's not absolutely perfect. Whereas on the other but also letting enabling your culture to have parts of the company that's much more iterative and fast and can quickly learn and adjust with new inputs. It's not a monolith, it cannot be a monolithic culture. So that will be my first kind of advice on building engineering product design teams in this kind of compliance focused in a compliance focused area. The second thing is to really embrace cross functional work. And what that means is early on your startup journey bring in like, amazing, like top top class, regulatory compliance legal folks, I always say that in gusto, our secret sauce is our is actually our compliance and legal team. Because they're not just extremely knowledgeable, but we choose folks who are also creative, and they're builders. So they come in and they work with our product teams to make sure not just how we how we, you know, protect the customer, but also how do we innovate and make something better for them. So bring that early on, make sure they're a part of the brainstorms that might make the product great. And we've done that one of our very, very first hires, and you and I talked about it in another conversation was, was, you know, a compliance person from from from paychecks, and another person was someone who built the compliance was really in charge of the compliance for for two major other payroll providers. So really, really important to bring that early on to the culture.
SPEAKER_06: Yes, I want to double click on both for this group. So number one, you said, you have to be clear on what can be broken versus what can be with your EPD engineering product design and data team. So go back to the first year of Guster, first or second year, first two years. How did what was your framework of guidance to your engineering team at the time? Like what aspects of payroll did you say was okay to like ship and iterate was is what aspects was not okay?
SPEAKER_16: Yeah, yeah. Yeah. I love that. Okay, so I'm going to bring
SPEAKER_19: myself back to that world in the very, very early days. And the first thing that comes to mind is that the core of the tax calculations and compliance and in the end of the day, making sure that the outcome of the actual the payroll system in the physical world, not the software, the physical world, right, pay money moving and and IRS filings and things like that that has to be right. And there's no cutting corners there. Zero, right. So that's one. On the other hand, here's an area where it's totally fine. It took us, I want to say a year and a half, maybe, or something like that. To actually start charging customers. And what we did is we basically never got around to build or it took us a while to get around to build a billing system for our customers. Now our customers chose to pay. So they're already at that point of time, everyone, you know, they were part of a paid package, and they knew that they were paying, but they probably noticed and didn't complain, by the way, perhaps that they were not getting actually charged in the end, we didn't start charging them, obviously. So that's an example of something that can totally broken does not have like a customer impact. If anything, it has, you know, you know, more impact on you. But totally the right way to prioritize looking backwards to. Here's another place to kind of make it a little bit more nuanced, which is user experience, right? So you could actually say another viewpoint is like, hey, what's important is the physical world, and maybe it's okay to have a lower end UI in some areas. And my answer there was actually is actually that that's a really tricky proposition. Because for us, one of our core innovations was user experience innovation, it had to look and feel and really, like 10 x better than everything else out there in terms of the user experience. So we were so we had a, we didn't cut corners there, in terms of where we wanted to get kind of our goals. But what we did do there is iterate really quickly. And it was okay to ship something and then you know, next day, actually improvements and so forth. So you could move faster there without, you know, waiting for long launch times.
SPEAKER_12: Yeah, and looking back, would you have done anything different? Now?
SPEAKER_19: Yeah, a lot of things. A lot of things, you know, you learn so much through that, through to any journey. And this is just one thing that comes to mind. I'm happy to talk about things too. But first thing comes to mind to me is actually pricing. I think we completely under sold ourselves in the early days in terms of value we provide to customers, you know, you go to market, you have, you have a confidence problem, you have a, you're like, Oh, gosh, I really hope people want this. And you start charging really, really low that we charge extremely low. And that was, you know, and then you start getting distraction. And then you ask, well, is it because of the prices or not? And then you get, you know, you're really worried about increasing prices. So looking backwards, I would really try to charge, you know, my advice to founders is try to go the opposite way, start charging what you feel is, you know, is the value that you provide, and then perhaps fix downwards versus fixing upwards. Because here's the issue with create this is we're not talking about revenue, or like, you know, cash flow, although it is extremely important in these days, there's nothing that's even bigger, which is just business model. Because if you end up underselling your core business, the business may just not work in terms of the cost of acquisition, and things like that. So you have to make sure that you you walk towards a sustainable business model that can scale for many, many, many years and customers.
SPEAKER_06: Yeah. And, Thobault, I don't know if this makes you feel better or worse, but 10 on 10 YC companies all I always say they all undercharge, especially. I think every startup goes in and
SPEAKER_06: says, Oh, should I operate by 30%? And then no one blinks if
SPEAKER_25: you're truly adding value. No, right. Totally. That's totally true. Totally true.
SPEAKER_19: Well, it's a confidence thing. I feel, you know, you're stepping down, known building a company is a lot of like, you know, you kind of, you have this really, really big vision, you see this really big mountain or hill ahead, and you want to climb it, but you know that you've never walked through this path before and you know, in every corner of the road, there's going to be a surprise and you just want to be ready for it. So I think, you know, obviously, you build confidence as you go through that path. And I Oh, great, I'm kind of, you know, 5% in 10% in, I feel a little bit more confident in my abilities, but I think confidence could still is something that people build over their journeys. And it's good because it needs to come with humility too, because here's the issue as well, the market and the customers are always changing. If you feel as a leader or a founder that Oh, I know this already. I know everything. I know that's how things are going to go. You're full of shit. Because, you know, everything changes. So you have to have the humility of learning from from, from the customer and from from how the market changes around you.
SPEAKER_01: So well said, so well said. Well, we are my last question.
SPEAKER_26: It's going to be a meaty question. But we have seven
SPEAKER_06: minutes. So I'm going to turn it over to you, which is what, what does embedded finance mean to you? Like, what is the market and I know you're very bullish on embedded finance. But how should the founders, you're listening to us here be thinking about embedded finance? And what's what do you how do you think this market evolves over the next five, 10 years?
SPEAKER_19: Yeah, yeah, I think it's connected to what we said earlier around that, basically, what's good for the customer ends up winning. And the deal with embedded finance, the premise is pretty simple. It's basically that create is you when you build a new software system for the customer, the more end to end, the more inclusive, the more connected the system is for your customer, the better it is, and embedded products, whether it's fine, fine, embedded finance, or other type of API's you can bring into your to your system, enable you to do that fast and in high quality. And I think that's the key. So I am extremely bullish on this idea of bringing in multiple components into your product driven by what your customer needs are. So my advice there for founders is, you know, maybe focus again on like, look at your customer understand how the day to day look like connect the dots and see what your customer needs are, and then look at the customer side of things, like, look at the dots and see how might I build something that not just solves a pain, like a specific, you know, standalone point of their flow, but rather the entire flow on its own. And that's the customer side of things. It includes, you know, finding a customer like being out there as well as, you know, figuring out the offer that you're going to create for it, and finally also get paid for it. And then how do you take it to accounting? And then how do you reconcile that across everything else, perhaps your business, it's all connected in the mind of the of the of the business manager. It's not seven different departments like enterprise, enterprise often are. So connecting the dots, I think, is something that this new space is embedded finance really, really enables. I'll say one more thing about FinTech and embedded finance also as a part of it as a whole, which is especially now giving the everything that's happening in the markets, people are starting to be more realistic about what are good businesses and what are bad businesses. And one of the things that make a good business, and that's that's going to sound pretty obvious for for people is you need to make more money than you then you that you then it costs you right then the then the goods cost you per unit, and it's really, really important. And you also need the cash flow to work out. So it's not like money in the future one day versus money out, you know, money coming in the future today versus money coming out of your pocket today. So, so in FinTech, there's specifically a potential place where founders can or product folks can get distracted, which is you think you found product markets fit because you gave away money for people or for businesses, you give basically fun financing to users, and you feel like, Oh, my god, there's all these people who want this product. That's amazing. But make sure that you remember that that you know, that that's a cheap way of getting the product market fit. People always, you know, if you're walking down the street, someone offers you 10 bucks and tells you, you know, pay me someday to maybe $2 later, of course, you're going to take that offer. It's not product market fit, it's just free money. So make sure when you build your your FinTech, when you build your your financial based product, you really think about the unit economics and don't get too distracted by what could look like a product market fit. It's not product market fit if your product is not sustainable.
SPEAKER_02: Yeah, that's a great example. What you're essentially saying
SPEAKER_06: is, if you are not making money on that lending product, and you're essentially subsidizing and kind of giving free money, then you don't know this real product market fit. If you can charge enough to lend and make money, and if you can still retain the customer, then there's some product market fit.
SPEAKER_02: Is that right?
SPEAKER_19: Yeah, like what if you and I come out of this chat today, and we build a new subscription startup, we call it $1 a month dot com. And we basically you subscribe and we give the user $1 per month, and they just get it to their bank account, I'm
SPEAKER_15: sure you and I are going to get millions of users really quickly. But probably it will be hard to, you know, to build a
SPEAKER_17: business out of that.
SPEAKER_03: Yeah, that's very true in general. But I can see how
SPEAKER_06: you're saying need to pay more attention in the embedded finance world, like that's not happening. Let me ask you, what are the kinds of outside of payroll in embedded finance? Are
SPEAKER_24: you seeing as products being offered by APIs?
SPEAKER_19: Yeah, totally. So you know, I think financing, just to make it clear, is an extremely valuable tool. You can really help people make their cash flow work. You know, again, if you look at B2B companies, sometimes you get paid for services you provide in the future. So if you can align the cash flow coming in with the cash flow going out to providing additional services for new customers, it can really be a win win situation. So I feel like there is a lot of greatness happening there. You just need to be careful. Make sure that it makes sense from a business standpoint. But that's kind of my high level point. I think insurance is another great example. You know, you go through different flows and different, you know, products that you build online, whether it's a service or whether it's a physical product, like insurance is a good financial product enables people like the customer to mitigate risk. And it's something that it's quite hard to build because on your own, because you got to really develop your underwriting knowledge. And it's a good place to start to use like embedded insurance. There's a bunch of interesting companies there, I think. And there's again, this space is brand new. So there's there's tons of opportunity. So I think there's a lot of there's lots of interesting opportunities in that space today. And the pattern is a product that helps your customer build the like go through the end to end journey successfully and really solve multiple pain points for them. But it's something that would take you 10 years to really figure out to do in high quality. And that's where you go and you outsource really to that. That partner.
SPEAKER_07: Absolutely. Well, we are at time. Thank you so much, Toma,
SPEAKER_06: for sharing all of the perspectives right from the early founding days of Gusto to expanding to new sectors and embedded finance. And congrats again to the entire team. I know you all worked incredibly hard to launch the new partnerships and the vision for a bit of finance. For anyone looking to learn more, please visit gusto.com.
SPEAKER_13: Thanks, Anu.
