December 16, 2024 • 38min

Josh Reeves: How Gusto Took The Pain Out Of Payroll

Pattern Breakers

In this episode, Mike Maples Jr. speaks with Josh Reeves, co-founder and CEO of Gusto, about building a $9.5B company that transformed payroll from a bureaucratic burden into a tool that helps small businesses thrive. The conversation covers Gusto's founding story, early challenges, founder dynamics, and key lessons learned over their 13-year journey.

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Key Takeaways

Problem-First Approach: Start with a clear problem to solve, not just a desire to start a company. The problem should be something you'll still be passionate about explaining the "10,000th time"
Focus & Scope: Gusto started extremely focused - only serving new employers hiring their first full-time salaried employee in California
Founder Dynamics: Clear role definition, equal compensation/ownership, and regular feedback loops between founders were critical to success
Product Evolution: Expanded methodically from payroll to benefits, focusing on perfecting core offering before expanding
Market Opportunity: When Gusto started in 2012, ~40% of US employers were still doing payroll manually
Human-Centric Approach: Viewed payroll not just as compliance but as facilitating important life moments between employers and employees

Introduction

In this episode, Mike Maples Jr. speaks with Josh Reeves, co-founder and CEO of Gusto, about building a $9.5B company that transformed payroll from a bureaucratic burden into a tool that helps small businesses thrive. The conversation covers Gusto's founding story, early challenges, founder dynamics, and key lessons learned over their 13-year journey.

Topics Discussed

Origins and Early Focus (00:00)

Josh Reeves and his co-founders identified a massive opportunity when they realized that approximately 40% of US employers were still doing payroll manually. Key points include:

Market Pain Point: Small business owners were spending nights doing manual payroll calculations and tax filings
Initial Focus: Launched only in California, serving new employers hiring their first full-time salaried employee
Validation: Strong word-of-mouth growth and customer love indicated they were solving a real problem
Timing: Solution required cloud-based, paperless, and mobile-friendly technologies to be mature enough

Founder Setup and Dynamics (19:51)

The founding team established clear structures for collaboration and feedback from the beginning:

Clear Roles: Josh as CEO, Eddie focusing on engineering, Tomer on product
Equal Partnership: Aligned on equal compensation and ownership
Regular Feedback: Weekly one-on-one walks between founders to share appreciation and concerns
Shared Values: Similar backgrounds as second-time founders with aligned values around ambition and humility

Managing Growth and Scale (18:21)

Gusto's approach to scaling involved careful expansion:

Geographic Expansion: Took 2 years to expand nationwide, ensuring comprehensive coverage in each state
Product Evolution: Added benefits only after perfecting payroll offering
Growth Metrics: Focused on unit economics, customer satisfaction, and organic growth before paid acquisition
Team Structure: Avoided creating shadow leadership structures between founders and executives

Board Management and Governance (26:53)

Josh shared insights on effective board management:

Meeting Structure: Quarterly 3-hour meetings focused on problem-solving rather than updates
Board Evolution: Shifted from investor-centric to including more independent directors with specific expertise
Founder Involvement: All three founders remained on board to maintain diverse perspectives
Size: Maintained relatively small board size of 5-7 members throughout company history

CEO Leadership Lessons (24:42)

Key insights on effective leadership as CEO:

Personal Management: Importance of sleep, compartmentalization, and being present
Transparency: Raw, direct communication in company meetings
Staying Connected: Maintained involvement in key processes like hiring and offer approvals
Balance: Managing tension between gratitude for progress and impatience for future goals

Building for Long-Term Success (33:53)

Advice for sustainable company building:

Hands-On Leadership: Better to be too involved and scale back than too disconnected
Investor Selection: Treat fundraising like hiring - focus on values and motivations
Problem Focus: Always maintain focus on customer impact and problem-solving
Operating Mechanics: Implement appropriate processes as company scales while maintaining directness

Conclusion

The conversation with Josh Reeves reveals how Gusto's success stemmed from a clear focus on solving a specific problem, methodical expansion, strong founder dynamics, and maintaining connection to customers even at scale. Key lessons for founders include the importance of starting with a clear problem, establishing strong feedback mechanisms, and balancing ambition with disciplined execution.

Josh emphasizes that entrepreneurship is fundamentally about seeing problems and taking action to fix them, rather than just starting companies. The most successful ventures maintain this problem-solving focus while building sustainable businesses that create real value for customers.