How Gusto built a $9.5 billion company by identifying a burning problem
55:01 Share

Usually when people are spending time building a product, like they love the product. They love what they're doing. They're in love with it. So having someone step all over it is really difficult. For today's episode, I'm excited to sit down with Tomer London, who's the co-founder and chief product officer of Gusto. Tomer.

Tomer's family is full of small business owners. His father owned a clothing store in Israel, and Tomer got to see firsthand the ups and downs of entrepreneurship. My dad didn't give me much career advice, but the one thing he did tell me is, no matter what, don't start your own business because it's really, really hard. This inspired him to build better tools for these entrepreneurs.

which eventually led to Gusto. That upbringing gave me a lot of that push towards like doing something useful. But it took dozens of failed ideas, hundreds of customer interviews, and countless iterations to eventually arrive on payroll as the problem that needed solving.

In our interview, he shares how he built Gusto from the early days, manually onboarding customers, personally answering support calls, and the emotional customer reactions that guided him to build a product that people truly love. I actually went personally onboarded every single employee. It was an incredible experience. You wouldn't run paper without calling me. We would do it together. Let's dive in.

What were things like for you growing up? Yeah, so I grew up in Israel, in Haifa. My dad has a small clothing store. He's been running it now for over 40 years. So, so much of my upbringing has been, you know, after school, going and helping in the store, whether it's, you know, cleaning or answering phone calls or organizing or selling. So just like, you know, and I think that's like many small business families are this way. It's a family affair.

you know, everyone's involved when you are sitting around the dinner table, you talk about the day, you know, your, you know, my dad came, comes back home in the end of the day, you see like in the first like half a 500 milliseconds to see kind of the look on his face was a good day or a bad day. Um, in the end of the week, it's about closing the books and kind of kind of like looking at all the receipts and all that stuff. So, you know, I think the, this kind of the multiple hats of a small business and like, uh, was just a huge part of my upbringing. I saw it in my dad. I saw it also, I have

My father's dad, he also has a business and his sister also has a business like down the same street, like all clothing stores. Do you think it sort of shaped your desire to start a business? Yeah, well, funny enough, like my dad didn't give me much like advice, career advice. But the one thing he did tell me is no matter what, don't start your own business because it's really, really hard. And, you know, in a way, you know, I grew up with a lot of that kind of, I guess, noticing how...

emotionally difficult it is. I had my 386 computer and, you know, it was kind of early days, Windows 311, then, you know, Windows 95, Office 95. And you start seeing like, hey, you know, for consumers, for kids at home, I can make PowerPoints. There's so many tools around when I was, I want to say 12, picking up a Visual Basic book and building an inventory management software. So I built it and

And it worked really well, saved a bunch of time for him. He ended up buying a computer for the store just to run it. So definitely, you know, that upbringing, that kind of connection with small businesses then gave me a lot of that push towards like doing something useful when I started touching software. What about if you just sort of reflect back on those childhood experiences? If you didn't do that, maybe you were more of a conventional kid and you're just playing sports and not doing it.

Do you think it would have made you less successful as a founder? I think I kind of, the nice thing of trying things out as a kid or early or young is you kind of have very little to lose. I just had more at bats. So help me build confidence that I can start with like a big idea without like, I don't know exactly how I'm going to build this. I don't know exactly how I'm going to solve this. But I have a belief in myself that if I put a lot of time and energy and like something can come out of it,

I think you also learn about a bunch about your own limitation on the other side. Like one funny story is one of these projects, I was determined to finish like some sort of piece of software by like the next day. And I was like, for some reason, I was like, just, I'm going to finish it by tomorrow. And I ended up that night drinking seven cups of coffee. I think I was, I want to say 17 or something. And, you know, I, I got like, you know,

I ended up almost going to the hospital. It was actually quite bad for me. So I learned, okay, seven cups of coffee. That's what I'm going to start. You know, that's way too much. Six is the number. Exactly. Six is the number. But, um,

you know, and then I think it's the confidence. That's the thing that it gets you. What was your path from there to coming to Silicon Valley? Yeah. So I, I came here originally like 14 years ago now for a PhD at Stanford in electrical engineering. You know, I'm Israeli, so I can't just show up in the U S like there needs to be a, like a path. And for me, it was like that kind of student path, like a graduate student. The reason I ended up, I came here was there's kind of two, like three

three things that happened at the same time they're all like just like inspiration so the first one was the steve jobs commencement speech of 2015 i remember seeing that it's definitely the youtube video that affected my life the most i didn't know where stanford even is i thought that stanford from the name is actually in britain when i saw it uh but that speech is just you know just incredible he has that line around like you know there's this moment that you understand that you can

The reality around you is built by people similar to you and you can change reality. You can kind of poke at it and make changes in it. And that was just incredibly inspiring to me. The other inspiring story in why Stanford for me was the story of Google, the Google founders and coming into PhD and ending up with like a really great idea that ended up being really, really helpful for a lot of people and building great business.

And the third thing is actually I have one of my best friends ended up doing a PhD here and kind of landing here a few years earlier. And he said, "Hey, Tomer, you have to come here. It's really fun." I came in to visit and, you know, my first time in the US. And so he was like determined to help him to get convinced me to move here. And I had a startup company back in Israel when I was doing my bachelor's in the Technion. And before that, as I mentioned, a bunch of stuff in high schools and before. So I kind of knew that, you know, for me,

success and like kind of where I want to go is going to be something around building products that make people happy. I didn't know exactly what's the shape of it. And I actually thought I'll finish my PhD and take some of those learning and maybe build a company off of that. But ended up being just really, really lucky meeting Josh and Eddie in my first few months at Stanford. And then from there, we started the company. When you think about all of you being second time founders or certainly building multiple products in multiple companies, and obviously the

one that you spent the last 14 years plus building is an extraordinary business, very, very big business. The other companies and products that you worked on did not turn into great businesses. Do you think those experiences helped you grow into the founding team that allowed you to build this extraordinary business?

Or do you think there's a little bit, um, there's, there's a little bit of a luck element that you were in a lot of ways, the same, you had the same abilities, but it's almost like you were, um, drilling for oil, you know, and you were really good at drilling, but you like randomly in your first attempts set up a rig in Connecticut. Right.

And then in this, what ended up being Gusto, you just happened to set the rig down in Texas and struck oil. And that gave you the ability to sort of express yourself as founders. Yeah, I think to be successful, like you need to do a lot of things right and you need to avoid doing and making a lot of mistakes. So, and then sure, there's absolutely, there's a lot of luck involved as well, being in the right place in the right time. I think having multiple founding journeys for me, having Josh and Eddie having previous startups, it helps you balance

by one, knowing how to avoid some mistakes so you don't repeat the same mistakes. So for me, I can give you a bunch of mistakes. We can talk about it. But helping avoid some of these mistakes is one.

Two is it kind of gives you some shortcuts to doing things correctly, doing things right. So you don't need to do so much searching about, you know, how to do something because you've done this before. The last thing is absolutely like I think, you know, you can move faster in validating or invalidating ideas. But in the end of the day, you know, to strike gold, to get to that product market fit, to be the right, you know, the right team at the right time. There's an incredible amount of luck involved as well. So it's all these three things. Share a little bit more about that. Both some of the things that you you

you and the team learned in your previous companies? And then some of the ideas around some of the shortcuts that ended up being a part of your journey that, you know, you couldn't have figured out if you hadn't worked on other businesses before. So the first thing is around talent. I really think that in startups is this search, right? The search for product market fit. And for that, you need to, you need a team that can stick together through ups and downs, have confidence in their way, in their, and be very humble

around admitting when things are not working. And I think that in my previous company at Vizmo, I wasn't smart enough to hire for that. I wasn't hiring for humility. I was hiring for, you know, raw intelligence and like skillset. Like, hey, let's get the best software engineer we can find, get the best salesperson we can find and so forth. As opposed to thinking like about like, hey, no, we are actually a team together. We're going to go through ups and downs and we should be able to sit together every Friday and say,

are we on track or not and if we're not on track we just move on and we give each other direct feedback and we're honest with the title and we can we can stomach it and that's the thing that i think the biggest um lesson that then at gusto first it's like just knowing when i met josh when i met eddie knowing that they are the people hey you know i was in the middle of like a phd journey that i loved i loved my advisor i loved stanford i had such a great time there but

I know it's so hard to find these sort of people. I just got to stop what I'm doing and work with them. And then similarly, when we started hiring people, it was not about like, it was really trying to avoid like people who are like, you know, like toxic geniuses. And, you know, there's a lot of them. So trying to focus on people who are instead humble. What I mean by humble is self-critical in a constructive way. It's kind of a growth mindset, right? Like knowing that you are a work in progress every day,

you're supposed to be better, which means that when you look at yourself a month ago or a year ago, five years ago, you should be embarrassed. Like, oh my gosh, like that guy, you know, I know so much more today. And then similarly, when you look a year from now, five years from now, you should look at that guy and say, oh my, this is gonna be a huge difference for me and where I'm going to be. So we're always trying to learn. So that's the sort of stuff that we've been kind of trying to hire for since the beginning.

What about getting the company into product market fit in the previous startup? Was there any important things you learned about building and selling software? Yeah. So there is this analogy of like, you know, it should feel like there should be some sort of like a positive tension, like when you're pulling a rope, not like when you're pushing a rope, right? And in the previous company, there was a lot of rope pushing. So we're working with these enterprises. So, you know, I remember going to this one of the biggest companies in Israel, like a huge, you know, airliner.

And trying to convince them, like, hey, look, this is, here's how it's going to make your life better. Here's customers' life better. Here's your metrics better. And you kind of see that there was interest in the product, but like it just was not a priority for them. So it was a priority enough to keep getting us more meetings, but not priority enough to actually get to like a contract. And so the big lesson learned for me is, you know, when you look for product market fit, you know,

you know, first, obviously, but very important is spend a lot of time with customers. Speak with customers so much, in fact, that you, you know, you can just start predicting what they're going to say next, because you've heard it so many times before, right? When you start knowing that, it's like, oh, I've heard this before, heard this before, then you know that, okay, you have, you started having good intuition. That's number one. Number two,

is it's about the emotional reaction to what you're trying to sell. So a lot of people, especially in the US, are just very polite and nice. So when you go and tell them about your idea or show them the product, they're like, oh yeah, that's cool. Oh yeah, would you want to use it? Yeah, sure, sure, that's great. But the problem is that this politeness and nice, that's not actually how you can build a business. You need to build a business that's built on either

I want it right now. Can I get it? And then you put a price tag and they're saying, I will pay for it, right? So strong positive emotion or strong negative emotion. It's like, this is absolute shit. I would never use something like this. This is gold because that's where you can learn. When someone says that your stuff is absolute shit, it means that you can learn a lot from it, right? There's something in your mental model that was absolutely wrong here. Either it's the wrong customer or something about your service or the way you pitched it.

When someone is, you know, emotionally reacting with like engagement and excitement, you know, where can I sign up? You know, on the other side that you hit gold with that particular customer, and you should probably ask and learn what makes it so exciting for them. But 90% of the conversation in the middle, you know, there's not a lot of data in there and you should be very careful reading too much into people in that category. Why do you think the sort of first thing that you shared, which is...

spend a tremendous amount of time with customers such that you can model the customer in your brain. Why in 2025, when you talk to many good founders, they're not doing this. I talked to one customer last week. I can't for the life of me understand it's been drilled into everyone's head

Why is that not happening? It's hard. Even with product people. You talk to the average product manager at a great company. How much time are you spending with customers last week? I think it's hard. Listen, it's hard to speak with strangers.

You know, I think it's your job to speak with strangers. So you do a lot of it, but it's kind of hard. This fear of rejection is something that's kind of, you know, is very human. And when you speak with a customer, you kind of need to be in the mindset of seeking rejection. You go out there to learn. And again, the learning comes so much from rejection. So you got to go out there and seek that rejection. And it's hard. It's a lot of hard work. And you got to slowly develop that thick skin. You love, usually when people are spending time building a product, like they love the product.

they love the technology they love what they're doing they're in love with it um so having someone step all over it is really difficult um i think that's why i think it's coming from it's definitely not coming from laziness because these people sometimes work extremely extremely hard so i think in that repetition of of you know in your whatever you're doing right now and definitely if you're if you're a kid or if you're you know early uh young i

taking on these opportunities to experience a lot of rejection, whether it's, you know, customer facing, you know, selling or pitching your ideas or stuff like that. That's the sort of stuff that kind of build a thicker skin. I think is really important. The other point that you made that that is important is this this sort of general idea that you're looking for emotional resonance and you're looking for.

urgency. You want this sense, like the dream is that they're emailing you the next day. When can I try this? You know, versus you chasing them.

And again, most founders are in that middle spot of apathy. Yeah, sure, it's interesting. That's cool. You email them, they don't email you back, sort of. Maybe you could share more about maybe why you think that is, why that urgency element, that sense of trying to find something that they are asking you, when can I use this as such an important thing? The world is full of distractions and long to-do lists and things that people care about.

Like if you're trying to create something new and you need the world to act on it, you need your customers to act on it, you have to be in an important place in their brain. And that's kind of signified by this kind of sense of urgency. It is quite rare to get to that place where you get

this sort of like excitement and energy from a potential customer. So be patient, keep trying, change your ideas, get the hints, get the clues from the world, from all these interactions, adjust what you're doing and when you get to that place, you gotta stop everything and double down on that. When we started the company, one of the insights that we had was, I talked with like, I closed myself in a room, like in a walking closet where we were living

And every day I was like, I'm going to for a whole hour, I'm going to call up every single, or at least for a whole hour, I'm going to call up like a bunch of businesses using a Yelp page. So every day, like you just kind of start calling one by one and you try to understand, and you pitch stuff. So every day it's a little bit, you pitch something a little bit different because you learn a bunch of stuff from yesterday and you're working on stuff. So you're using that as an opportunity. - So what did it sound like? Hey, it's Barbara's salon. Hello.

Hey, this is Tomer. Nice to meet you. Do you have five minutes? I have like a, I have a product I have to tell you about. And you, you know, sometimes it works. You'd be surprised how many people actually are excited to speak with technologists. Most people,

Outside of Silicon Valley, like small businesses and real industry and people don't get to speak with technology stuff then that can build products. Why did you decide to focus on SMBs versus the payroll API idea? I would say the big one is the rope pushing and pulling.

I remember going to some of these big platforms and we were sure that they're going to eat this up. They're going to love this. We are solving a problem for them. They don't need to build all this payroll shit. Like it was really complicated. It's tens of thousands, hundreds of thousands of rules and regulation. And we're a good technology team. We can build this for you. You can focus on building a platform. And we just saw that they're like, yeah, this could be cool, but it's just not a priority. Right now the priority was to grow it. The priority was to add more products and all that stuff.

you know, all the regulation of like kind of situation with the States with 1099 versus W2 didn't start yet because it was early enough in that industry. So again, it felt more like rope pushing. Whereas when we talk with a small business, you know, it was very clear that they were craving something better. Now, not everyone, to be clear, like product market fit for me is that when you talk with 10 customers, two people are loving this and want this. That's great product market fit.

Now you need to figure out who's that to, what makes it special, who are those segments, and then you can pick 10 of those and then it's going to be 10 out of 10 or 9 out of 10. But like not the whole, like not every small business we talked with loved this. A lot of people were like, hey, it's really hard to switch payroll providers. It's kind of works, whatever. But there was people and specifically people who knew enough about using technology in their personal lives, like the Gmail and Dropbox. That was actually one of the big thing to know if somebody would be a good customer. It's like, what's your email address?

If you're a Gmail user, you're going to use Gusto. If you're Hotmail, it's not going to be. I don't know. Hotmail actually is fine. It's the AOL and other kind of things, yeah. When you were thinking about, okay, we're going to build this product for small businesses,

Did you think about how do we go from solving this problem to building a very large, enduring business? Or did you not overthink it? You spent a lot of time with customers. There was a clear problem. Let's go build something and let's see what happens. I think that's where my co-founder Josh has had like this incredible foresight. I think he was thinking in that, in like this narrative of building multi-decade company.

And it's not that every single day, every single decision you do is about, is this, you know, like when you choose, for example, the logo for your business and when you just start, you know, you can change that later. You can make it better. You know, it's not the end of the world. When you write this one line of code, it's not about, is this a multi-decade line of code or not? But there's moments, there's the specific decisions that you do need to think about that. So, for example, putting down the values of the company early on and then make sure that

when you hire people, like here's the five, here's the five values for the company. Here's how we're going to hire people. And, you know, and that's really important. There's so many companies that kind of messed us up, messed that up. So this is an example where you can, when you think multi-decade, you put down your value, it makes sense for you to codify your values, put them down, make sure that you hire according to them and you reward people according to them. Starting very, very early, like your first, second, third hire. When we were then a part of YC and we were like, okay,

payroll for small businesses, that's where we're going to start. And we started building and it was kind of, it was very clear after a while that

payroll data is very, very powerful because onboarding is so complex. There's so much that you need to, we need to know about you as a company in terms of your employees and where, where, where they work and how much they get paid and like your company address and like your onboarding process, like everything about your employees that it would be really easy to actually add additional products to it and solve more problems. So once you did, you know, payroll,

payroll onboarding, onboarding YouTube benefits, for example, is just a click. It's really easy. Getting your insurance is really easy. Time tracking is really easy. Basically almost every internal function that's around like back office and HR and people and all that becomes really, really easy. So for us, like easy in terms of onboarding. So then it was clear that, well, we have an opportunity if we do payroll extremely well and people really love this product, we're gonna have an opportunity to expand and offer more services.

So when we did our pitch in YC and like on demo day over there, it was like whatever the three minutes pitch back then. Today it's like one minute. It's one minute. The good old days. We had three minutes to tell the whole story. Exactly. The last slide was all about that. It was about, hey, we're starting from payroll. The next step is benefits and HR. And from there, it's going to be a full

what we call their people platform. So everything, you know, to help you start building, grow your business. That was very much the vision since that, you know, day one, we were just three people. Once you figured out we're going to go in this direction, what's the very first thing you built? Payroll was the first thing. And to do that, we, the biggest pushback we got from investors and white people did not believe the story and what we're trying to build is because it's really, really, really hard to acquire small businesses. So,

So there's a reason why, like back then, there was tons of companies focusing on software for enterprise. And there's tons of companies focused on software for consumers or technology for consumers. But it's not all small business software. It was like really three or four companies. And the reason is, well, it's just so hard to acquire them. You don't have enough ACV, like enough, like pricing. To have a traditional sales force. To have it, exactly. You can't afford the sales, but you're also on the other side, you know, there's less of them of consumers. So you can just like mass put it on billboards. So that was the biggest pushback from investors. And

for us, our hypothesis was, hey, we're going to build a product people love so much and a service people love so much that small businesses are going to talk about it all the time. And small businesses often have friends who are also small business owners. And that was the hypothesis. And, you know, again, a bunch of people disagreed and, you know, that was hard. And a bunch of people and some people were believers and joined us. That proved up to be to

to be correct, that if you build something that people really, really love in for small businesses, you get word of, you can get word of mouth and get the economics to really work. So it was all about like NPS of 85 and above, get something like only serve customers that do it. If you can do it really, really well, start really small. So say, Hey, you know, we're only going to do payroll for companies in California with just salaried employees in the particular segment. We're not going to serve anyone else.

Because every person we do serve, we want to make sure they love the product. And then that word of mouth continues. And then you slowly as that works, you start expanding. So who was the first customer? Yeah. So the first set of customers there. So we were just hustling and crazy, right? Trying to find who would trust the three of us to run their payroll. And there's kind of a few groups. There's kind of two groups. So one, we were part of the YC batch. So luckily, we just could just go to our batch mate and say, hey, do you have payroll?

no, great, would you, do you want to use us for it? And here's how it looks like. And the cool thing is that you can do it on your own using software. You don't need to call anyone or fax anyone. And I can just onboard you right now. Can I actually do it? What's your name? And that was kind of one set of customers. The other set of customers are just people we hustle, small businesses we knew through all these customer conversations and just being out there in the streets and talking with people. So, you know, we had like a swimming class for kids, for example.

that we knew we had like a flower shop actually, Eddie was buying flowers from this local vendor and he asked her, "Hey, who do you use for payroll?" And like, "I don't have that actually, I need to set that up." And we had that. So we kind of had those, both of these groups of customers. And for this first set of customers, they all had my phone number. I actually went personally onboarded every single employee, every single one of these, the first, I want to say 50 companies,

It was an incredible experience to learn what works, what doesn't work. You see them use the product, you see what's confusing, you write it down, then you go and you build something to make it better. And you get a bunch of insights from that that can really help build a better product. A bunch of that, like I still have, a lot of customers have my phone number, but back then it was, that was the thing. You wouldn't run payroll without calling me and we would do it together. Was there a tension in terms of, do we want to serve startups or do we want to serve small businesses in that first year?

Yeah, totally. I actually thought, and this was purely from like kind of theoretical kind of place, like my belief was that we should be the payroll for startups when we started. And the reason not because...

we're going to do this forever. We're more like, hey, you know, we have an in here. We know a bunch of companies. We can speak their language. Like the more tailored you are, the easier it is. But Josh had the other opinion. So, hey, you know, we're actually seeing a lot of love from these small businesses and we can always tailor it back down. Let's just start with our full vision, small businesses, put it out there and see what we get. And that was a really good decision. Like since day one, basically the moment we launched, like it was, we got,

really good traction across like verticals and industries and all that stuff. It ended up being that the insight is that payroll, the pain from payroll was across industries, it was not just startups. And the pain was strong enough that even if we did not have a personal network with dentists, dentists love gusto. You had a bunch of startups in the early days, but they were secondary. The core focus was SMBs or what was the balance there? We had both. It was like 50-50. And we, again, so we had, so that was PortsYC.

And we had like, I want to say around 50 or 80 customers, something like that. And then we took a whole, I want to say almost a year, like maybe eight months until we did like...

like an actual launch. And we kind of told the world about our fund, our seed round, and we big kind of tech crunch thing. And then we put out the website and put a waiting list. And then that was a real, that was the, that decision moment of like, what do we put on a website? What do you tell, what do you, how do you present yourself? We had like half of the customers were small businesses and half were like tech startups. Which, what are you going to do? And so we ended up with that kind of the broader small business. And that was, you know, again, that was the, that was the right

That was the right calling in retrospect because then you started seeing the wait list. And it was mostly small businesses, actually. And yeah, you know, definitely more and more startups. The pain from small business was enormous. How long did it take you to build the first version of the product that the flower store owner could actually use to run payroll? So for a full self-service product, so full meaning, you know, you could onboard, run payroll, probably took a year.

until that. And then the folks that used it before that year, that full year, you know, kind of used me as an interface in a bunch of places. So whether it's running reports or something like that. And again, it was great. That was a really good way of learning for customers. Were there other, you sort of explained that you got really close to customers. They had your cell phone number. You were effectively their customer success manager.

Are there other things like that that you did in the first three or six months that really had an enormous impact or if other people are getting going, I would definitely consider doing this type of thing that we did. So closing yourself in the, you know, in a room for an hour and calling people and making yourself having these conversations with existing customers or with new customers and prospects, just making yourself having those conversations is, I would say, golden. I would...

highly recommend it with people to people. You improve how you pitch, you learn a bunch, you learn about different segments. And if you keep doing it every single day, you know, over a year, you get a lot of repetition. That's really great. The other thing around this is the way we built the first project with Iran releases. So we had like a monthly release basically. And, you know, we're all working together in this small room and it's, you know, it's not that we start working and we see each other in the end of the month, but like

having a monthly release means that you're building backwards instead of building forward. So you have like, hey, by the end of this month, here's the stuff we need to ship, right? And those things you can talk later about how you know what to ship, but like, here's the stuff we need to ship for sure. And now we just got to figure out how to do it. And this is the time we have, there's no other way. And that helps you be very decisive about scoping, about, you know, what to build first and how to build it. And I think you can get

progress to progress really fast this way. So I, you know, this is, this was post YC, but like in the first stretch of call, like a year, every single month was about, you know, here's the thing that we need to ship. And this is in order for us to get to our goals. That was really helpful. A lot of the advice around finding co-founders is, you know, start a company with somebody you've known for 20 years and you went to college with, and you were coworkers and, you know, don't meet somebody over the course of a month or two and start a business. It's,

sort of, I would say, is conventional advice. You obviously didn't meet on Monday and started a 14-year journey on Tuesday, but it was a very compressed time and you've had this incredible partnership. Maybe you can reflect back, like, again, were you just beneficiaries of good luck? Is there anything that can be learned from those few months that other people that are thinking about starting a business with somebody else might learn something from?

Yeah, I think the reason that we ended up doing so well, I believe, together as a team, one of the reasons is not just that we had a good fit, but we knew it was a good fit.

And for you to know, to understand that this is a good fit, you've got to go through multiple other options and other situations, you know? So, you know, I would say that the advice here for every single, every founder is to try to build stuff with a bunch of different teams and a bunch of different people, you know, and kind of go through this iteration. Because then when you get someone that's like a fit for you, like it just, it's obvious and it's kind of, it's, you know,

you're everything I ever wanted in a partner. Let's go build this, you know? But you gotta go through some bad apples or not a fit, not even good or bad. It's just like, is this person a good fit for you and how you work? What did it feel like in that first month or two as you were prototyping and exploring ideas? Like what was the feeling that you all had together? So I think one, we were excited. We were having fun. We were enjoying building stuff.

I think too, is that we really enjoyed the, like, I remember, you know, brainstorming moments where every person brings their opinion. It was clear that no one is trying to like, like, like in terms of ego, it was clear there was no one. It was clear that everyone were aware. The three of us were aware of how to, um,

you know, control our ego, or in other words, know that we need to create space for the three of us equally in the room. Cause you know, for this to work, we need to really respect one another, enable each other to be successful. Um, so there's a lot of that. And I think that's kind of like the sort of, so it felt like a very mature kind of like, Hey, we're going to make this work. Was there conflict in the first three or six months of, of building the company? Or was this, there's sort of the sense of intuitive alignment and everything was hunky dory.

You got to have conflict. So, so we, the startup journey has a lot of ups and downs and, um, and the downs are difficult because you believe in it so much. So when things don't work out, you really get, you get annoyed. It's very personal. Exactly. And then also, again, you're dependent on other people. So, you know, you're asked, like all of you need to pull and do your part and,

We're not perfect. So I make mistakes and my co-founders make mistakes. And then how do you handle those situations? So the thing that really helped us is this idea of like having a weekly founder one-on-one. So what we did is every Friday, we had three one-on-ones, you know, Josh and Eddie, Tomer and Josh, Tomer and Eddie. And in those conversations, and this was from the very, very early days. And in these conversations, it was kind of a feedback session for how was the week. So

So, you know, we give each other, here's what I, you know, here's what I really liked. Here's what worked really well. And here's what I actually didn't like. And here's what didn't work for me. And let's talk, let's open up, let's talk about it. We do both sides. And it gave us a lot of repetition on having difficult conversations, which then builds trust. If you can talk about the hard things, then you don't just like keep things in, you know, and, and then things explode later on. We were just very open on things. So

I knew what Eddie, for example, didn't like about my work and where I needed to improve in Eddie's eye and in Josh's eye. And they knew exactly on the other side as well. And I think that's really, really good. And we still thought of ourselves as a work in progress. And then that continues, honestly, to this day. Like we, just on the way here on the car, I talked with Josh and we talked about these sort of things and give each other feedback. That is, I think, how we can help each other grow

and kind of, you know, again, keep that high trust situation. You talked in many different ways about how you love spending time with customers and that was a big part of the early journey and continues to be a big part of the journey at Gusto. If I were to listen to you talking to customers in that first year or two, how did you actually spend the time? How organic and improvisational was it? How scientific and precise was it? There was no, I didn't read a blog post, right? I don't know if there was a lot out there written about my customer experience

startup kind of customer discovery and all that. So, you know, I kind of learned while doing it and, you know, I learned that, hey, you know, if I ask a question in a leading way, I get the answer that I was leading to, but that's not right. And, you know, I used a lot of two things. So if you listen to me in these early conversations, you would hear me say a couple of things like often, like the first one is, hey, I'm a PhD student from Stanford and I have a few questions. Do you mind helping?

So that again really opens the other person to kind of, to being open. They feel like they're not being sold to or something like that. Then the other one is, you know, using kind of the fact that I'm like a foreigner, like my Israeli car is like, hey, you know, I'm actually not from here. Can you just explain to me again what does it mean? Like, I'm not from here.

Tell me more. So it kind of allowed, those two things allowed me to ask questions that are maybe more uncomfortable and the other person kind of not feeling awkward about it. So finding ways of disarming the other person, again, with the most positive intent possible. I was really not trying to sell. I was trying to learn. And then that was like two of the tricks, I guess, that I used in these conversations. Yeah. But, you know, it's there.

It's so important to do these conversations right, but it's 100 times more important to do the conversations at all. So don't let that to be any deterrent to you to start speaking and getting a sense of who these people are, what they care about, what is the role that your product could play in their lives today? - One of the interesting things about you all as founders is you didn't have domain experience.

In the sense of, yes, you had a connection to the core customer. You told the story that sort of went back to you helping your dad out in his small business. But you were not payments geeks. You didn't work at payments companies. You didn't work at Intuit or someone selling to small businesses.

Share sort of your reflections on sort of the fact that you didn't have domain experience and what does it ultimately teach you about founding teams and sort of that specific topic? Yeah, I think, you know, for us, the experience we had that was relevant and we relied a lot on is just understanding of small businesses as people and like the sort of challenges that they have in the day to day. But yeah, in terms of the payroll and taxes and calculations, all that stuff, we came into this understanding that there's a big customer pain, but

But we didn't know all of what it takes to actually build a payroll system. It ended up, to be honest, to be far more complex than we thought it would be. So in a way, maybe that was actually good that we didn't know everything that it entailed. It took us a decade. There's tens and hundreds of thousands of different tax rules, regulations. The tax code in America is very complex. Which is good for you, I guess. It means you can do a lot for your customers. Yeah.

it's a big problem for customers. So we're really, you know, really important for us to go and help them. You know, the fact that it's so complex for people who are focused full time on that is kind of insane because how, you know, that's what people expect of small businesses to figure out on their own. So it's just completely unreasonable, but again, that's where technology can really, really help, right? So proud of that. But, you know, kind of higher level reflection of, you know, the, I think kind of coming in with ignorance could actually help 'cause you can think about things from first principles.

Here's an example. When we started, it was clear when you think about payroll from a small business lens that the job to do is to pay your employees. So you want to think about it as a computer game, right? You go in, here's the person, here's their salary, or here's how much they worked, and you click a button and they get paid. That's what you want, right?

But if you're thinking about from the payroll industry lens, the job is very different. The job is to, you know, withhold the right taxes. The job is to pay the right taxes at the right time. The job is to, you know, pay them in the right frequency. Oh yeah, sure. Some money needs to go to the employees, like a check or direct deposit, maybe or something like that. But that's not the job of payroll. Payroll is about taxes. It's not about paying the employees actually is the primary thing. So as a result of that, when we designed the product from the first place, we designed that button that you click.

And you pay your employees and all the taxes just get done automatically for you. You don't need to think about it. Little did we know that was a very controversial thing to do. And most payroll services back then actually split that job to two different things. There's one which is paying your employee and there's two is paying your taxes. There was two different workflows, two different situations. Some companies just did one and not the other. And you had to figure out how to bring those two things together. You had to remember actually what taxes are due by when and what filings are due by when. So you need to do it on your own.

And sure, maybe some of the software helped kind of auto-populate a form, but they didn't actually do the work, do the actual job end-to-end. So when we built this thing, from day one, the V1 was back in the industry. Now I know it's called full-service payroll, which means we do the whole thing end-to-end. But that was controversial. And when we talked with accountants, for example, who knew more about payroll than we did in the early days, they're like, oh, why are you doing it this way? You know, like some other companies do it that way. Like that, here's all the advantages of the other way. And, um,

So for us, like not knowing actually how what is the way the industry has done it helped us be more customer focused, because instead of focusing on how it's done today, we could focus on the pain point and focusing on the pain point for the customer. How did you think about building your first handful of products? So not just everything you had to do, which is an immensely complicated, very deep product to actually do payroll and tax.

But once you got the early version of the product, how did you navigate? We're going to do this next and then this next and this next. OK, so kind of broad strokes. We started with payroll just in California, just for salaried employees. So to do a really, really great job for them. And then we started expanding states as well as type of employees and employment. Once we saw we had product or we had like a very high NPS over 85, that was kind of what we knew that would be.

you know, the customer love we need. And then we kind of expanded. So that was like called like chapter one in the company. Chapter two was to start becoming multi-product and expanding towards the platform. That's also when we changed our name from Zen Payroll to Gusto. The second product, I guess, after payroll was Benefits. And why Benefits for us, for me, was we had that list of, here's the potential stuff that we can build. And Benefits presented this really, really interesting thing, which is one, a huge problem for customers like

very much when you talked about health insurance back then with small businesses, it felt, it just felt exactly like payroll felt like, um,

People hated the experience. It felt junk, janky. It felt like you got to call people, you got to fax, you got to do a bunch of manual work. Why can't they just like do a few clicks and get health insurance? It's just so annoying. Can you just fix that for me? Right. And, you know, I remember sitting in a room and calling 20 of Gusto's customers that I thought could be a good fit for it. And I was pitching them like, hey, we're going to build this. You know, here's how much it's going to cost. Can I sign you up? And I got like 17 out of 20. It was crazy. Way, way, way beyond.

In fact, I was a little, I remember that I had a little disappointment actually after that, because I felt like our health benefits product should take a different route, should be like a different mode of benefits instead of small group health insurance, which is what's very popular. I thought it should be kind of more focused on the ACA, the Obamacare kind of individual insurance and kind of bringing money through an HRA or something like that.

But when I pitched that to these customers, they were like, this is way too complicated. Just do the thing that I know that I need.

So we ended up going with health insurance as this first product. And it represented this combination of a great, a really important pinpoint, but also a great revenue stream, which is also important. So we were getting to that place where we're like, okay, payroll is going well. I can see our team is executing. We're expanding state by state where we're kind of halfway, but it felt like we know that work. So now we're able to take some of the best people in the team, put them on a new kind of team, literally put them in a different floor,

have them all work together and create something from scratch and launch it in a couple of months. So that was the death work. And how long into the company's life did you do that? It's like three years.

Yeah. And you felt like it was the right time because you had a much more clear execution path on the core product? Exactly. Like the reason, the timing was 100% based on how well the payroll product was doing. Like it felt quite linear. We knew what we need to do. We need to expand states. We need to have the list of features of functionality. And I know we can do it. So since our

Our goal, our mission is to become this wider people platform to help with all these other things. Like now would be the best time to go and do it. With the benefit of hindsight and you think about the important products that you've shipped over the last 10 or almost 15 years now, is there anything that you wish you had done sooner?

Where my mind goes is funny. Like my mind is like, you know, I feel like there's so many important features that we've launched the past 10 years and I kind of wish we moved faster across everything. If I had to just really pick one, we really doubled down recently on the wider world of compliance and thinking about compliance and taxes is something that's not just about, you know, payroll compliance and benefits compliance and like, you know, onboarding compliance, but just think about how do you keep your whole company compliant?

you know, on the right track with the government. And it's something that I think took us, we heard a lot of over the years, but the thing really popped up in COVID.

So, you know, people started working across multiple states. Multi-state used to be something that, you know, only large companies cared about. So it wasn't like, it was kind of on our roadmap, but it wasn't like that important for us. And then all of a sudden with COVID, a bunch of people working remotely and like you start seeing like, you know, a company with seven employees in five states. So then there's like a lot of compliance work around like managing the state entities, for example, the registrations, all the different tax compliance regulation, every state is different.

So the problem, all of a sudden, you're talking with customers, you start hearing about this over and over and over again. So that's completely changed our prioritization and we brought this up. And I think, you know, we're spending a lot of energy on this now. And I think we have a really good product there around compliance. So that's something that we, I think, you know, in retrospect, is definitely a part of the holistic job to be done of what people hire Gusto to do. And I wish we were more focused on that. What do you think about the actual market setup for Gusto?

now looking back in the rear view, ended up creating such great circumstances for a phenomenal business to be built. I think where we were very lucky is timing. The moment we started, this is 2012, there was this interesting thing that just a few years earlier, small businesses and people did not trust the internet with financials. They used the internet for a bunch of other things, but

actually the thing that changed it in my opinion is bank is banking. So a lot of banks just went online with portals and people started, you know, using actually online banking for the personal life. So they started thinking about, okay, I can actually, if, you know, if these big banks tell me to use the online portal, I can start trusting it. Um,

So we came in at a time where, you know, we people trusted the Internet enough. So we didn't have that as a huge blocker for us to kind of onboard these customers. That's the first thing. The second thing is, you know, as I mentioned, the industry like, you know, payroll specifically was, you know, was not technology first. So it was very much a services like human first sort of moment.

for that industry. So kind of this, those two things together ended up creating a product opportunity and a go-to-market opportunity. What about the fact that you've developed a lot of power in the business? Meaning, yes, it's a very competitive space, obviously, but it's not like there's 10 Gustos that are these incredible businesses. Like you have consolidated power to a certain degree for the segment that you focus on.

Is there anything that you did or a property of that market that allowed you to sort of have

sort of this more winner take most type of dynamic? So there's one thing that's interesting in our industry is switching is difficult. So switching payroll providers is quite difficult. So the moment you get a customer, they stick with you. So that, again, could be a good thing or a bad thing. If you're the newcomer, it could actually be really, really difficult. So, you know, we spent a lot of energy on acquiring brand new employers or just starting out, right? So whether it's, you know, new small businesses or new startups,

And then, you know, our thought process is that there's half a million new employers coming in to the US every year. And if we do a really, really good job acquiring many of them, then over time, the industry kind of rolls over and we're actually going to have a lot of small businesses. Now, we also do a lot of switchers. So a lot of switchers do move to Gusto, but we are very aware of that kind of market dynamic. I will say, I don't think it's a market win all win most like

Our big competitors when we started are still around and are doing really well. Intuit, ADP, Paycheck all have really large payroll businesses still today. So why is that?

Well, I think it's because of those switching. That's the main reason. It's difficult to switch. It's a sort of a service that trust also is quite important. So, you know, sure, there's a lot of value in user experience. And that's like our innovation. Our main innovation starting out was user experience innovation. But there's also a lot of value and trust and trust of like, you know, a brand that you've used for many years or decades even. And you know, they're doing their job right. So that's also important. So Gusto is an interesting place today where we're kind of like we can have both.

We have, you know, we're absolutely aspiring and are aiming to be the most modern, best user experience possible for small businesses anywhere they go. But we also have like 14 years of doing this. So you know that, you know, you're not going to get the Gantt IRS agent knocking on your door and things are going to, we're going to do this correctly. Did you think about sort of the switching cost dynamic and...

you know, financial services on the internet were just becoming a thing as Wells Fargo had their portal. Was that a part of thinking about this opportunity or it was just very customer? There's a real pain point we can go after. The intuition to work on this is absolutely the, uh, the customer pain. Um, and we envision in our mind how a great online service, uh,

an online product that solves this end-to-end could look like. And we looked around and we saw that no one has built it and we could not understand why. So we decided to go for it. And that's kind of where it went. We did not do like a big market analysis. We actually, I didn't even know. I don't think we knew so much how hard it is to switch payroll providers. We took us a few months to actually while building the flow for it, we're like, wait a minute, this is a lot. It's a lot of data you need from customers. So I think we learned a lot along the way.

But that's the sort of stuff that, again, the kind of pros and cons, I guess, of starting without the specific experience coming from the industry. Why did it end up in the way that it did? Was it just non-obvious until COVID happened? Or like, why did it end up taking so long? Yeah, I think because it wasn't totally clear what would be the business model.

around it because compliance is a set of hundreds of thousands of interactions. And the way we kind of did it was every time we built something, well, we made sure it was compliant and we brought in as much as kind of tools and tips and experiences to make sure that you're doing whatever it's onboarding, if it's firing somebody, if it's onboarding somebody, if it's, you know, doing time off,

like all these things we try to bring in compliance into the flow. But I think the thing that I did not see is the need to take a step back and think about it as like, here's your compliance dashboard. Here's everything you need to know. Am I good? Am I okay? Just check yes or no, you know, and tell me what do I need to do to get to that. And I think

You know, in retrospect, maybe it's, you know, we didn't see, I didn't see how it all comes together around kind of that angle of compliance. And it took a few years and then that big pain point come from COVID kind of

I think what made it really clear, like, hey, there's something here that's quite important. When did you think as a founding team, you really had product market fit? I think we as a team and individuals are very self-critical and we see all the gaps all the time and we see all the stuff that needs to be done and less about the stuff that was done. So I think it took us years until we felt, I'll tell you for myself, it took me years, like maybe five years until I felt like, huh, okay, this is going well.

So it may be like post-series B, like, you know, I don't know, like the tens of millions of AR when I felt like, okay, this is actually, this is going well. And it's because there is so much to do. Even this makes me feel a little uncomfortable to say it right now, because I feel like looking forward, five years from now, when I'm going to look at Gusto today, and I'm going to listen again to this podcast, I hope that I'm going to say, wow, they were just

they were just starting out. There's so much more that they had to do. And why was he sitting here in a podcast and talking about all their success? Because all the work is in the future. I really think about that. Like, that's how, that's really how I think. So that means in terms of product market fit, like,

I don't think we knew in the moment. In fact, I have a bunch of emails, like old emails that I sent out to our team of like saying, like showing how nervous I was about we're not growing fast enough. We're not doing well enough. Like we don't get enough of these sort of customers. We don't get, you know, onboarding is taking too long. Here's what people are saying. We're not moving fast enough. So that's kind of, you know, performance anxiety, like we're not performing enough has been there the whole time. Do you think that sense of,

Being unsatisfied is a very important part of the success of the company or it's sort of off to the side? I think it's been really important and I think it's going to keep being important for us. Like we can't be complacent. Like this is technology is this amazing technology.

business, amazing industry that keeps changing all the time. And if you're not on your toes and try to disrupt yourself, innovate yourself and move fast, like, you know, you're going to lose. There's no question about it. This is not the industry to kind of sit back and, and, you know, hang out and think about the past. Now you gotta, you gotta keep going forward. So just to wrap up, wanted to end by asking you, who's the person that's had the biggest impact on, on who you are as a founder? And,

What's the thing that they imparted on you that is sort of a big part of the way that you think about building products or teams or your company? My brain goes to my dad. I saw him have countless interactions with customers and partners and vendors and competitors in his street and stuff like that running a small business. And I think there is something around

long-term orientation that I learned from him, just looking at how he builds these experiences. So it's like, you know, for the customer, it's not, it's not a transaction. It's a relationship. Like you, you know, you, if you sell something or if the person comes in and returns the thing that you, cause they were not, they were not happy. It's, you know, doing the right thing for the customer. It's like in the moment, you know, it's giving the right advice and

to the person that you're serving. With a competitor, it's building a relationship that you can be productively competitive and not destroy each other's business and both of you guys go down together. It's all the things that I think are around building something for the long-term in a respectful way that you feel proud of the how later, but without sacrificing performance. Like you still care a lot about performance because it pays for your kid's education and all that stuff. But you want to build in a way that

later on, like down the road, you're part of the how. And many small businesses are multi-decade businesses too. Again, this example, my dad's for over 40 years. So I think that's one inspiration for me. Good place to end. Thank you so much for the conversation.