I sat down with Gusto co-founder Tomer London and talked through everything heâs learned scaling from zero to over $1B in TTM revenue.
(Note: not the typical $83M * 12 months, but $1B in realized revenue over the past year)
We also get into what their internal data says about AIâs impact on small businesses: a 10% increase in AI exposure increases revenue by 2%.
We go deep on how Gusto builds product, from obsessing over customers to shipping Gusto Cofounder with AI in eight weeks, surviving COVID, the manual world of payroll before software, what his dadâs 40-year clothing store taught him about running a business, starting Gusto out of YC, and how Gusto thinks about making acquisitions now that itâs crossed $1B in TTM revenue and how AI has changed its M&A playbook.
A great listen for anyone building products for small businesses or curious how AI adoption is trickling through the economy.
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Timestamps to jump in:
0:00 Obsessing over small businesses
10:09 Building Gusto Cofounder in 8 weeks
13:57 What AI is actually doing to small businesses
19:52 COVID and "the end of small business"
27:42 Why running a small business is so hard
32:21 SVB and why payroll can't be late
36:29 How GTM changes after 500,000 customers
39:27 Running payroll manually before Gusto
46:19 Why payroll and compliance are so hard
49:14 What his dad's clothing store taught him
54:00 Are we regulating small business out of existence?
58:04 Starting as ZenPayroll in 2012
1:07:28 Minimum Lovable Product vs MVP
1:11:28 How AI changed the way Gusto builds
1:15:58 Gusto's M&A playbook
1:22:52 Shimon Peres and "no room for small dreamsâ
Find Tomer on X / Twitter and LinkedIn
đ Stream on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Tomer, welcome to the show.
Tomer London:
Good to be here.
Turner Novak:
So Gusto is about 15 years old. Youâre doing over a billion in revenue. You have over 500,000 customers.
Iâm curious how the product has changed, how you build things inside of Gusto has changed, over the past 15 years.
Tomer London:
Yeah. Well, okay, well, there is a lot that has changed, for sure. But Iâll tell you what that, what did not change.
Because I think thereâs thatâs the secret sauce and the thing that really makes Gusto special, in my opinion. And thatâs just the obsession with the customer and understanding, building empathy towards the small business. Have a true understanding of how their day-to-day looks understanding their pain points, then going and building real solutions for them to just build a better business- Mm...
For them to... We talked about it earlier, right? Everyone has an entrepreneur inside of them?
Yep. Some people, go and build, technology startups, some people go and build, whatever, a baking business, some people go and build something else, and some folks, have this dream in the back of my mind, of their mind that one day theyâre gonna go and do it. Yeah.
And what weâre trying to do with Gusto is to make that dream come true make it Mm... For folks to take that dream, take that idea, and then go and build a whole business, behind it. So when we build products, we start with really focusing on the customer.
Now, I think I heard that expression when we started the company. So we started the company in YC, Yep... Y Combinator, and, I remember talking about âHey, itâs so important to focus on customers.
Donât forget to focus on customers.â Yeah. I remember just thinking âThis sounds such an obvious advice, Yeah.... How can you not focus on the customer?â
Turner Novak:
I also think itâs hilarious. So thatâs, itâs become a meme almost, but itâs so simple, and itâs actually really hard.
Tomer London:
Exactly. So why is it hard, though? Yeah.
Why is it hard? And I think when you work at a larger company, you understand that because what happens is you launch something or you build something, could be a pricing, youâre, youâre changing your pricing of your product, or youâre developing a new feature, or youâre building a marketing. Thereâs so much going on inside the company that just distracts you and takes your mind space every single day-
Turner Novak:
Mm...
Tomer London:
That you just sometimes the prioritization of the time that you end up spending on the customer just goes smaller and smaller and smaller over time. Yeah. Itâs think about it as a small business, right?
If youâre letâs say youâre selling, I donât know youâre selling lemonade in the street, right? Yeah. And itâs just you, and you have your little lemonade stand.
What do you do? Well, you talk to the customer- You talk to customers all day, right? Yeah, you talk to them all
Turner Novak:
Day, yeah.
Tomer London:
Exactly. But now you have a huge, now you itâs 10 years later, look at you have 5,000 employees and youâre still, your lemonade business now is this huge industry. Itâs huge you have multiple plans across multiple places in the country.
Yeah. Well, what do you spend all your time on? The operations, right?
The machines and the financing and the people and all that stuff. You forget about the customer.
Turner Novak:
Mm.
Tomer London:
I think thatâs one thing that startups are incredibly high potential in, is hey-
Turner Novak:
Yeah
Tomer London:
Focus on the customer, build great products for customer. And then the challenge is to, is how you do it, not just when youâre three people, out of Y Combinator, or when youâre just starting, but how do you scale it when you get to 2,000, 3,000 people?
Turner Novak:
Yeah. Well, and itâs, itâs almost at that point your customer is the coworker that youâre working with on your team, or your boss, or the vendor that you work with and whatever. Itâs not the end consumer of the product.
So you still talk to the quote-unquote customer, but itâs not the customer in the same sense that we think about when we describe this.
Tomer London:
Exactly, yeah. Youâre in the... Youâre not in the lemonade stand selling to the customer and asking them, âWhat do you think?
Is it too cold?â Yeah. Or do you... Or too sweet.
Youâre inside the office talking about with your coworkers about how do you make the next OKR meeting successful.
Turner Novak:
Yeah. Do... H- Have you been able to resist getting pulled into that world?
How do you guys stay focused on just building things that the customer, that the small businesses that run on Gusto actually need?
Tomer London:
I think it starts by just setting an example as a leadership team and just spending time with customers. And thereâs, in the company us, with a product us that, ours that serves again, hundreds of thousands of small businesses and millions of employees at this point, itâs not that hard actually to find a customer. - I can walk around with a Gusto T-shirt and people do say hi, and Mm...
They tell us, they talk with us, or talk with me about their experience. Or on social media and things that. So itâs not, actually not that hard to find a customer.
Not- Mm... Talking about your internal resources and everything. Mm-hmm.
So itâs really just you deciding to prioritize that time. And, one thing that we do, for example, in our, product meetings is just a simple question of âRaise your hands, if you if you talked with a customer in the past week.â And, if you have not raised your hand you gotta... Youâre feeling some pressure here.
âHey, Mm-hmm... Oh, crap,â Okay... âIâm probably not doing my job here.â
Turner Novak:
Yeah.
Tomer London:
And product managers need to, in my opinion, need to be the closest advocate for the customer. They need to bring in the voice of the customer- Mm... Every single day to what they do, and they need to inform everyone.
And then itâs not just âHey, my, a customer told me this,â or, âHey, hereâs some research,â and 10 quotes and some data analysis. Itâs, making it lively, making it real. And, but thatâs often actually taking videos obviously with permission- Oh, yeah...
Or bringing the customer in the office and have them speak with your engineering team. And, itâs incredible how, I would say inspiring it is for people across, no matter what function it is, to Mm... The actual customer and say, âHey I remember I remember Tomer said that when we talked with him, and Yeah...
Letâs go work and fix this because itâs gonna make a big difference for his life.â
Turner Novak:
Itâs super interesting the whole raise your hand if you didnât talk to customer. You put people on the spot of you force them-
Tomer London:
Yeah...
Turner Novak:
To do it.
Tomer London:
Yeah.
Turner Novak:
I, when I think a lot some of the bigger companies Iâve worked I donât know if I ever actually talked to any customers. Mm-hmm. I was just a low man on the totem pole.
My job was to update a spreadsheet or something? Yeah. I was an intern, and you donât actually talk to any customers.
Right.
Tomer London:
Yeah.
Turner Novak:
Thereâs a whole different side tangent of youâre just a cog in the machine-
Tomer London:
Right
Turner Novak:
Versus at a startup. But also thereâs just no thereâs no structures and incentives around âHey, make sure you guys are talking to the people that actually use our product every day.â
Tomer London:
We start every... So we have an all-hands meeting every two weeks. Every all-hands meeting starts with a conversation with a customer, whether itâs a live conversation or a recorded video talking with us about their business.
Again, itâs important not just to understand how they use your product, but also how they live their lives. Mm. Whatâs important for them?
What are the big challenges? How are they feeling about the economy? You just need to be able to be in their shoes a little as a part of this.
So thatâs just one example. The other example is when you hire people, you gotta... You need to see the motivation, around small businesses.
And itâs interesting, but everyone has something to do with small business whether someone whoâs running a small business or works at a small business or someone or your family or just you just have a favorite small business down the street that you walk to and go get your coffee or whatever that is. Yeah. People have small businesses in their, in as a part of their lives, and what weâre looking for when we hire people are people who are just genuinely interested in small businesses, in the entrepreneurial journey and in that day-to-day and that type of customer.
These are people that are not mercenaries. Theyâre missionaries. They care about the mission.
They wanna help small businesses succeed in the US. So, thatâs also a part of how you maintain that culture over a long time.
Turner Novak:
O- one thing we were gonna talk a little bit about how Gusto has incorporated AI into the product to go faster.
Tomer London:
Yeah.
Turner Novak:
You have this thing that you made recently that you launched, it was called Gusto Cofounder.
Tomer London:
Right.
Turner Novak:
I think there was five people on the team, launched in eight weeks. So what is Gusto Cofounder and how did that go launching this? Yeah.
And why did you do it?
Tomer London:
So I think AI represents a bunch of opportunities to do the job weâre trying to do better, right? Mm-hmm. So again, our goal, what weâre trying to do, is to make life easier for small business owners, for entrepreneurs starting their businesses.
We want them to be more successful. And as a part of that, again, weâve been doing this for 15 years, and over the past 15 years, thereâs been a lot of new technologies coming in, and every time a technology comes in, you need to ask yourself, âOkay, cool, what does this how does this enable us to solve the problem for the customer better,â right? And AI is a, obviously, a fantastic example, and thereâs a bunch of ways, right?
Mm-hmm. So our Cofounder is one particular way, which is around a new type of interface with the customer, right? So we have capabilities, and you have interfaces.
Mm-hmm. Capability would be, for example, that we help people instead of building their time sheets, for their employees in a manual way, you can click a button and boom Gusto already using AI, figures out the optimal time sheets for you or can rejig or things for you and things that. Just an example of a capability.
An example of a, an interface is Cofounder. So Cofounder is this idea âHey, what if instead of logging into gusto.com, you never needed to log in?â For real. And you could just text Gusto and run your whole back office through texting.
-
Turner Novak:
Itâs all in SMS
Tomer London:
IMessage? So we can do it on iMessage, you can do it on, use it on Slack, you can use it on WhatsApp, you can use it on... You could actually still log into CoFoundr and -
Turner Novak:
Mm...
Tomer London:
Text over there. But the idea in general is, to have a new interface for Gusto thatâs based on text, and then what does that actually mean? Because thereâs so many things that actually text is not a good fit for.
Mm. So with that comes a lot of, again, new concepts. So for example, this idea of proactive, messaging towards you, right?
So in the old SaaS world, you had to log in. You got, you have, thereâs a navigation, you need to click on the right navigation items first navigation- Thereâs multiple layers
Turner Novak:
Of
Tomer London:
Exactly to,
Turner Novak:
Find the one thing.
Tomer London:
Exactly. Primary, secondary, tertiary. You get to it, thereâs a modal, you gotta do some work, save this whole thing.
Turner Novak:
Yep.
Tomer London:
But in this new world of AI again, the concept here, the idea here is well, what if it was just, Gusto was just a person you can just text, âHey,â âchange this personâs salary. Hey, run a bonus payroll. Hey, pay contractor,â or âHelp me figure out my time sheets, and approving PTO,â right?
Turner Novak:
Itâs having a co-founder and be âHey, Tomer fix this thing thatâs, that just came up.â
Tomer London:
Exactly. And the co-founder thatâs most helpful is not someone whoâs just sitting there waiting for you to text them, but Mm they do stuff proactively for you and they ask you questions.
Turner Novak:
Mm-hmm.
Tomer London:
What kind
Turner Novak:
Of stuff?
Tomer London:
One of the things that we do, for example, is a co-founder wakes up in the morning and theyâre obviously within that data center somewhere,... Looks over your account and asks itself, âOkay, whatâs, whatâs, what can I do to help, really,â right? So it could be things âHey you have seven PTO requests that you need to approve before this payroll.
Those five look totally ordinary, so Iâm going to approve it for you, but those other two I need your input from.â all that happens over text, right? So thatâs the proactive experience. But it could also be something else, which is âHey payrollâs gonna run smoothly.
We got your benefits. Thereâs a new a new employee joining, onboarding is ready, so weâre all good to go. But I noticed that you started hiring more and more engineers and those, and, but youâre not claiming any R&D tax credits.
And these R&D tax credits is something that can save you $15,000 next year. Do you want me to go set this up for you?â âAll right. Sure.â Itâs a good thing, sure.
Turner Novak:
Sounds good. An extra 15K per person.
Tomer London:
Yeah. Exactly. And again, thatâs the stuff that if that co-founder was a human, you would say, âAh, this is a pretty good employee, pretty good person on my team.
Iâm happy that Yeah... Brought this in because I didnât know about it.â
Turner Novak:
I think you guys have some interesting data around AI adoption by SMBs.
Tomer London:
Right.
Turner Novak:
I think the number, you can correct whatever I get wrong here, but I think the number is a 10% increase in AI, I think, exposure. Iâm actually interesting, interested in how you define this, but that leads to about 2% increase in revenue every month.
Tomer London:
Yeah.
Turner Novak:
Yeah, so whatâs the data showing you about AI adoption by small businesses?
Tomer London:
Right. I have a, I have actually a post about this.
Turner Novak:
Okay.
Tomer London:
All right, so check this out. So in July, so there was a, the national jobs report came out, and the economy shed 23,000 jobs. It was very disappointing.
We lost 23. We lost 23,000 jobs in July, the whole, the US economy. Across the
Turner Novak:
Whole country,
Tomer London:
Okay. Which was major disappointing when, which, disappointment. There was a bunch of revisions downwards.
But when we looked at our picture, again, small businesses, the picture was really different. There was actually net growth of 32, 38,000 net jobs in July. And thatâs across every region, every sector, every company size and all that stuff.
Mm. And when you look deeper I think thereâs a good case to be said that actually AI is a big contributor to this, because what weâre seeing happening is that companies who, small businesses who end up using AI with, as they start their business, as they operate their business, they end up hiring more. They end up growing faster.
They end up being more successful and res, more resilient. So-
Turner Novak:
Mm...
Tomer London:
Thereâs a case to be said here that when youâre a small business, AI can be you can get the impact of EM, of AI much faster, and for larger companies, just much more complicated to implement AI, and as a result of that, small businesses actually benefit tremendously from AI. And weâre seeing it in numbers, in the economic numbers, so thatâs pretty interesting.
Turner Novak:
I think you currently have about, I think itâs 9% of all SMBs Right... The country that use Gusto.
Tomer London:
Yeah.
Turner Novak:
Of that 9% that you see and touch, they added the 38,000 jobs? Is that what you said? Versus the 23 that were lost across
Tomer London:
The whole economy. No. So what we do is we do this economic reporting.
Oh, got it. So that means statistically we look at all the customers on Gusto, we look at specifically a representative set, of the whole economy, we de-dupe, and then from there we project the economic numbers for the whole economy. Oh, got it.
Yeah. Thatâs the same way of people do surveying methodologies in general.
Turner Novak:
Yep.
Tomer London:
Yeah. You survey 1,000 people and that can tell you how the whole-
Turner Novak:
Yep.
Tomer London:
Okay... The whole nationâs gonna vote for something, for example.
Turner Novak:
The average small business, youâre saying, in general, was adding jobs-
Tomer London:
Exactly versus the average. And itâs across sectors- Yeah... And itâs across geographies.
Oh. And again, with that additional set about a knowledge about AI-
Turner Novak:
Mm...
Tomer London:
Thatâs quite interesting.
Turner Novak:
Yeah. And,
Tomer London:
And it I donât think, donât think people talk about this enough.
Turner Novak:
Yeah, âcause a lot of people, I feel the headline is, âAI is stealing your job.â
Tomer London:
Right.
Turner Novak:
Thatâs, thatâs the sound bite.
Tomer London:
Right.
Turner Novak:
But itâs super interesting in terms of if I have an SMB if I wanted to hire a marketer-
Tomer London:
Right...
Turner Novak:
Or if I wanna hire someone to do something, itâs a fixed unit of labor and you need to support someoneâs life, so you canât say, âOh, Iâll pay you $100.â Yeah. You have to pay them a livable wage. Right.
A unit of compensation that they can pay for rent and housing, and maybe they have a family.
Tomer London:
But- Yeah. These are serious businesses. If you end up using payroll and actually paying Yeah...
Yeah, itâs a serious business. Youâre youâre responsible for a livelihood for your Yeah... Even if itâs a team of one or two.
Turner Novak:
Yeah. And so you, if you hire someone even on the low end you, âcause thereâs a lot of taxes and everything youâre probably committing 30,000, 50,000 at a minimum of cash outlay for the business, versus if you wanna use a AI product to make some Instagram posts or something you might pay $2 to get that.
Tomer London:
Yeah. Yeah.
Turner Novak:
Itâs not the same commitment. So you, the accessibility of using AI to increase your productivity is actually, Pretty interesting from that side of itâs actually very accessible-
Tomer London:
Right...
Turner Novak:
For SMBs who donât have a lot of capital- Yeah... To test the Right... And use it, and if it works, theyâll make...
Theyâll Right... Revenue, theyâll get bigger, and then they can invest Right... And spend even more, either on hiring people or Right...
More AI tools.
Tomer London:
I think about it as two different profiles, two different moments, okay? Mm. So first you have the entrepreneur who is, again, has this dream in the back of their mind.
They wanna one day start a business.
Turner Novak:
Yep.
Tomer London:
How can AI help them? Mm. Actually, itâs super helpful.
Whether itâs the compliance stuff, so registering your business much faster than ever before, getting a bank account much faster than ever Mm... Paying yourself, figuring out get, getting up, setting up and going. Yep.
Getting a website much faster than before. Getting your customers through marketing automated marketing, posting, all that stuff, much Yeah... Than before.
So again you... Every part of starting a small business is now faster and easier to do-
Turner Novak:
Mm...
Tomer London:
Using AI. So thatâs, for that particular audience, great. WeâMm...
Weâre, weâre making it easy. If thatâs a funnel, right? Of some what it takes from just having an idea and an ambition to all the Yeah...
Of okay, Iâm running actually a business. That funnel, we optimize it a little bit using AI, right? Mm.
So thatâs first, audience. The second audience is oh, youâre already running a business, right? And then to your point if you look at all the different functions of the business, each one of them is already being...
Thereâs a bunch of tools out there to be accelerate, to accelerate using AI, whether itâs, again, itâs making marketing more efficient so you get more customers- Yep whether itâs service to make a service more efficient, whether itâs upsell additional products you wanna sell to your customer. So I think also AI improves, survivability, and I Mm... Thatâs why weâre seeing it across sectors.
Itâs Mm... A sector specific thing. Itâs not just whatever, just tech or just HVAC.
Turner Novak:
Are we gonna see more small businesses? âCause it sounds itâs generally, it generally helps them. Is there gonna be almost a resurgence of the small business across America or across the world?
Tomer London:
Thatâs what we hope, and thatâs what weâre seeing.
Turner Novak:
Yeah.
Tomer London:
I can tell you one thing that wasnât always the case, that it was... I would say at this point the, they say the numbers tell the story of small businesses are becoming more and more important part of the economy, as well as, I would say, just the sentiment of youâre seeing small businesses around you. Yeah.
But it wasnât this every single day. I remember in COVID- Yeah... For example, there was I, one of the most one of the major newspapers, I think it was Wa- Wall Street Journal, read with this headline, front page, was the end of small business.
Turner Novak:
Really?
Tomer London:
Yeah. And because with COVID, everything is closed. You see that picture- Yeah...
Of everythingâs blocked with whatever, So this was,... Pallets in place...
Turner Novak:
A couple weeks into COVID type of a timing of this headline?
Tomer London:
Exactly, whenever, and ev-everything- Wow... Was shut down. And, that was before the PPP loans or when people were talking about the PPP loans.
And- Yeah... That whole period, there was a period of at least call it nine months where, lots of major analysts and people out there were the consensus was small business is going to shrink and Mm... And shrink.
Because again, if youâre a restaurant, how are Yeah, itâs, itâs, itâs an obvious thing for a restaurant. If you, people canât show up because- Yeah... Theyâre stuck at home, how are you gonna, survive?
And, Iâll tell you that this was one of the craziest moment for us at Gusto as a company, not just because, okay, we all had to 1,000 people now had to go work from home, but just the very focus, our entire reason for existence as a company and our heart is focused on small businesses and how can we make them successful. And all of a Yeah... You see this headline in Wall Street Journal and youâre talking with people, and theyâre, theyâre freaked out.
So anyway, that was a difficult moment.
Turner Novak:
What happened over the course of March and April externally with your customers inside of Gusto? How did that go just the, throughout the going into COVID, the depths of it, coming out, what was series of events? Anything interesting that was showing up in the data initially where youâre âOh, wow, something is going onâ?
Tomer London:
Oh, yeah.
Turner Novak:
So what was the, that roller coaster of events?
Tomer London:
Well thereâs a bunch in there, but Iâll say, okay-
Turner Novak:
I wanna hear all the events...
Tomer London:
Data.
Turner Novak:
Okay.
Tomer London:
We look, we have an economic dashboard internally into Gus- in Gusto, and we see things hiring, we see things wages, we see PTO. We really see how they, how employment, works-
Turner Novak:
Yep
Tomer London:
In the world of small business in the US. And you saw, the rate of terminations just jump to at a rate that youâve never, weâve never seen anything even close.
Turner Novak:
Really?
Tomer London:
The rate of new hires dropped to all times low by far I donât know, it was five or eight times worse than the worst times. -
Turner Novak:
Was this by the end of March this was already showing up, or even before that?
Tomer London:
I... It was for sure by the middle of the year, but I, itâs hard for me to know exactly when it was, but call Okay... By June, I know that we definitely saw this.
Turner Novak:
It was within a couple months of COVID- Mm it was very clear in the data.
Tomer London:
Right. Exactly. Exactly.
Turner Novak:
Okay.
Tomer London:
And then, we similarly when we look at peopleâs cash flow, you can see also, we can see cash flow issues. We have access to understand that as well. So, all the economic indicators were quite bad in those first few months.
Yeah. But again, it made sense. Not surprising.
Itâs not you open the data and youâre oh my gosh, it was... This, you see this every day when you walk around, if you walk around or if you open the TV. So- Yeah...
Thatâs the first thing. Second thing is as a company- It was really interesting moment because, again, we were 100% in office and then we had to all move, all go home. So thatâs work from home.
That was interesting that not, weâre not the only ones there. We were around 1,000 people, I want to say at that point. So itâs not a small change.
But the other thing is, we just finished a planning cycle. And again, sounds big corporate thing, but actually itâs quite important. Itâs you decide what are the big efforts youâre gonna do this Mm...
What are the new products youâre gonna release? How, whatâs going to be your, where are you gonna put your energy as a team, right? And then COVID happened, and, we looked at this and we looked at the world and we just threw the whole thing.
We just threw it out, into the trash can and we asked ourself, âOkay, what do customers need right now?â And what customers needed when you spent time with small businesses, what they needed is this guidance. They needed reassurance. Mm.
They needed to understand, okay, so what do, whatâs the playbook here, right? Mm. Whatâs the playbook?
Thereâs Yeah... Thereâs a, thereâs a national or actually a worldwide pandemic. Whatâs the playbook?
And there isnât a playbook, but weâI was
Turner Novak:
Gonna say, yeah But- Itâs probably not happened very many times before.
Tomer London:
Exactly. So we tried to build a playbook for it. Oh, really?
We tried to say, âHey, here are the things the best practices across all companies we speak with, across our conversations with the with different government agencies. Hereâs the best resources available for you right now. Letâs make it really easy for you.â So there was a bunch of new I donât know if you remember, but there was a couple of weeks period or a few weeks period where every other day there was a new regulation or a new type of program that was launched by different states or the government in order to try to help people get through this.
So there was Okay... Furlough program of how do you maintain people through furlough? Thereâs a tax incentive program to keep your employees if youâre a small business.
And then there was the PPP loans, and each Yeah... Of those we, of these we went in really seriously and, we actually changed our-- We talked about left navs earlier in the conversation, right? We changed our left nav and the first item, was not run payroll anymore.
It was actually COVID-19 and what to do with it. Mm. So you click on it and then there was all these programs ready for you.
We try to be super proactive âHey, listen, in your state right now thereâs this new tax credit. Click here. Weâre gonna, weâll automatically fill out the form for you, fax this for the government- Yeah...
Get the answer back and make sure you got the funding that you need.â And then with PPP we spent incredible amount of time with banks, Mm... In order to quickly, take the requirements from the government and make money available for our customers and, I feel incredibly proud of that work âcause, âcause we were... I think itâs, itâs...
I think we were able to save quite a bit of businesses, quite a few businesses from, shutting down.
Turner Novak:
It sounds so you productized a lot of these pretty complicated things that were happening and just made it as simple as possible-
Tomer London:
Exactly
Turner Novak:
For your customers to access and get to them.
Tomer London:
Instead of you going to the government, the US government website, downloading a form, slowly filling it, trying to figure out from your data you Mm... Try to justify the size and the impact of the PPP loan. Mm.
Take that to your branch, talk with a teller, hope that they will do the right job, and then wait until theyâre, them giving you a response and all that stuff. You can just in one click, we pre-filled all this information for you. Thereâs a couple questions that you had to answer on the spot.
You click a button and youâre, you should get access to the PPP loan very quickly. Mm. So Itâs something that weâre really proud of.
And interesting in product land, we use NPS a lot over the years, and net promoter score. Itâs a number that we care a lot about less about the actual number, we in a, in an absolute term, and more about the trajectory, right? And the reading in terms of whereâs the momentum going, up and down, obviously.
Mm. What are the comments? So people who are promoters you, what promoters you, what are the comments and what are detractors say?
And then also segment it according to different type of customers. So thatâs how we use NPS. Something really special happened, we didnât expect it at all or in retrospect it sounds obvious maybe, but -
Turner Novak:
Yeah... NPS
Tomer London:
Just jumped up to I wanna say 88, 89, and stayed there for a very long time. And by the way, in our industry, if you have a positive NPS, meaning larger than zero, you are, youâre ahead of the curve. Okay.
So -
Turner Novak:
This is in payroll?
Tomer London:
The payroll. The world of payroll and HR and all that, where the NPS- Okay... Is very low.
Gusto, when we started the company first few years was always,... And still today actually our focus is, and our... Where weâre trying to get to and where weâre, weâre, what we call success in is when weâre above 70.
Turner Novak:
Mm.
Tomer London:
But, all of a sudden jumped to over 80, and when you talk with customers, you read what the promoters say, itâs all about âHey, I noticed that youâre, you were there for me.â Mm. Youâre a, at that point, a mostly a payroll product, but, for some reason you helped me finance my business through the pandemic. Yeah.
I didnât expect you to do that. That was really cool. It shows you care.
Turner Novak:
Yeah. I think a lot of people, if you donât run a small business, you donât realize how hard the financing aspect is. âCause a lot of times what happens youâre, youâre on the hook for, you employ some Yeah...
So you gotta pay them.
Tomer London:
Yeah.
Turner Novak:
You have suppliers that youâre paying.
Tomer London:
Yeah.
Turner Novak:
You have equipment that you need to buy. Right. And then you have some revenue coming in from your customers.
But at the end of the day, if youâre mostly selling to consumers in your community, you might have... If you hire someone on your team that is... You really donât usually think about it as a monthly liability overhang.
Itâs a perpetual thing. I have 10 people, I need to make a million dollars a year to pay them and keep them on my team.
Tomer London:
Right.
Turner Novak:
Then you also maybe have I got this big order, I gotta order all my stuff for the year, so itâs another million dollars. You might have a couple, you might have seven figures of, Right... Cash outlays that is coming.
And then suddenly when your revenue goes to Youâd thatâs, thatâs So if you can say âHey, weâll help you offset that.â Yes. âOr weâll help step in there for you,â I think thatâs... I could see why people were so, in love with Gusto after that.
Tomer London:
The interesting thing of how the world of product and I guess creative work happens some way, in some ways that you donât the, itâs very path dependent. So what does it mean? Mm.
So this is the first foray that Gustoâs ever had in call it lending, right? Mm. Loan.
It wasnât our it wasnât our money. We worked with the banks as partners. But we got into what youâre saying, which is this world of cashflow.
Understanding- Yeah... What does it mean when you have to pay this team, but you donât have income to use that for payroll. And by getting exposed to that world more and more and spending more time on that problem area, we ended up actually building a product late, years later, itâs called Payroll Bridge.
What thatâs solved is not the case of the pandemic, not, of a new Mm... Pandemic. But what that solves is something that happens all the time for small businesses, which is Mm okay, I need to go pay my employees this Friday, and I have this awesome customer thatâs gonna pay well more than what I need to pay for, but unfortunately theyâre gonna pay me on Monday.
Turner Novak:
Yeah.
Tomer London:
Iâm gonna get paid on Monday or Tuesday, the company gets paid on Monday or Tuesday, but I need to pay on this Friday, so what do I do? Yeah. Am I gonna tell my team that they canât, they canât, they canât go and do their groceries, they canât pay their Yeah...
Because they canât
Turner Novak:
Afford it? Is itâs technically illegal to not pay payroll or something? Thereâs a lot of laws-
Tomer London:
Of
Turner Novak:
Course... Around -
Tomer London:
Of course,
Turner Novak:
Yeah if you do. Is, I remember that was a big deal I think with SVB.
Tomer London:
Right.
Turner Novak:
When SVB happened- Right... Is it was on a payroll week, right?
Tomer London:
Yes.
Turner Novak:
Where... How did that go inside Gusto? Yeah.
Were you guys using SVB or exposed to it in any way?
Tomer London:
Weâre not weâve not used SVB exclusively. So what we did is at that moment, we had multiple banks the whole Okay that we use for payment processing. So if one bank goes down the other bank is something that we can rely on, Okay...
Thatâs exactly why you build resilience for cases that. Itâs not Yeah... I knew that SVB is gonna go down or anything that.
Yeah. But more resilience is so you want to have multiple, Mm-hmm so no, it was it did not affect us or the processor. However, some of our customers were banked with SVB.
Mm. So then when they on Wednesday had to go and say, âOkay, Iâm gonna go pay my employees, run payroll,â you Thereâs no bank...
Turner Novak:
Pull cash from the bank.
Tomer London:
Thereâs no, thereâs no bank to pull cash from.
Turner Novak:
Yeah.
Tomer London:
They obviously if we did not step in to help them, they would not make payroll for their employees. Mm. So, what we did is we reached out to, we identified all these people ahead of time, all these companies ahead of time.
We reached out to them, and we actually we researched and we understood that this is a temporary issue and itâs gonna be probably resolved in the next few days or a week, through the acquisition of the bank or whatever ends up happening.
Turner Novak:
Yep.
Tomer London:
So we knew that those dollars are there, theyâre just not accessible right now because Mm... The whole SVB collapse situation. So we ended up, extending credit for them.
We paid payroll for them. Mm. And we reached out to them and told them, âHey, youâre an SVB customer.
Youâre impacted. Weâre going to be you can run payroll safely. Weâre gonna make payroll for you, and weâre just gonna debit your account to get paid back next week.â Mm.
That worked extremely well. I spent several days on the phone with customers one customer at a time, calling them and a lot of people were very worried about it, obviously. So we went Yeah...
Helped them do that. And I think that, thereâs a couple of big learnings here, I think, which is if youâre building a social network for Itâs not, itâs okay to maybe not have redundancy. Yeah.
Yeah, itâs fine. Itâs gonna, itâs gonna be annoying if the, your service goes down for a few minutes- Yeah... Or even two days.
Yeah. Your
Turner Novak:
Dog is trying to check their phone, and they canât their other friendâExactly dogâs posts. Ah, itâd be a little unfortunate for the dog.
Tomer London:
Exactly. Exactly. The owners are gonna be pissed for a little Yeah...
But theyâre gonna forget a week later.
Turner Novak:
Yeah.
Tomer London:
If youâre running financial services, if youâre moving real money, if you calculate peopleâs taxes redundancy is the, and the system, stability is the name of the game, and thatâs really important to build it. And in fact, you should build it, I think thatâs so resilient that you can resell it later. Now whether you decide to do it or not is the business question, but I think when you build an internal system where the bar is, hey, this needs to be good enough to be its own product on its Mm you think about things differently, and thatâs what we ended up doing as well.
We have a business called Gusto Embedded, where we actually take a lot of our, payments processing, our tax processing, and we resell it as an embedded payroll product- Mm... For, large, platforms JPMorgan Chase uses it, and US Bank uses it, and Xero accounting uses it, and thereâs a bunch of other business platforms that, offer payroll through, thatâs powered by Gusto. - Okay...
And in that way the AWS thing, right? In that way, you can really ensure that you have an amazing internal system, if itâs truly at the scale of serving, external customers.
Turner Novak:
Thatâs interesting because you could say, thereâs different lenses to look through that product where Gusto should be going out and acquiring all these customers and getting them on your own platform. Y- is this a good or bad idea to be outsourcing it? Or you can also think of it as maybe Xero or JPMorgan is now a go-to-market partner essentially for the Gusto- Right...
Payroll rails.
Tomer London:
Yeah.
Turner Novak:
How did when it was okay, âcause youâre saying âHey, we were gonna try to acquire these customers, but now weâre US Bank is probably gonna get them for payroll.â
Tomer London:
Mm-hmm,
Turner Novak:
Yeah. How do you think through that, those that calculus of okay, this is probably the move to do?
Tomer London:
Totally. Yeah. Thatâs a great question.
So the way I think about this One, Gusto serves under 10% of the market today still. So thereâs This is,
Turner Novak:
Gusto customers?
Tomer London:
Gusto.com.
Turner Novak:
Okay.
Tomer London:
Small businesses. Only nine only 9% of small businesses, use Gusto today. So thereâs 91% more to go.
Turner Novak:
Okay.
Tomer London:
Itâs a huge market, Yeah... We are, this is a way for us to go and enable small businesses to reach and use Gusto, technology through other means. Thatâs one thing.
The other thing is small businesses, thereâs lots of different types of small businesses, lots of different reasons and ways of running your back office. I donât, I think that some people are gonna... Vertical SaaS, for example, is one area where I think, I still think, very highly of as a way for people to run their business.
There, and thereâs-
Turner Novak:
Vertical SaaS, this would be if youâre a bakery, thereâs a software provider that makes software thatâs custom-tailored to running a bakery.
Tomer London:
Right.
Turner Novak:
Does specific things that only bakers need. Exactly. And the payroll button.
Thereâs a payroll button in the software, just pay all your bakers, or pay the cashier, pay the employees.
Tomer London:
Exactly. Exactly. Okay.
So if youâre a spine salon if youâre, youâre a spa business, thereâs a bunch of those, kind Oh, yeah... Vertical SaaS Vagaro is one of them, for example, and they have that payroll tab there, and Mm-hmm... That payroll tab, you run payroll, itâs using Gusto.
And theyâre, so thatâs an example. There, so thereâs a bunch of businesses, I think, out there that, small businesses that will benefit from a business in a box, that, and then they will need payroll in that box, and Gusto is happy to be that payroll in the box for them. So thatâs how weâre thinking about this in terms of competitive landscape and all that stuff.
The other thing Iâll say is that Gusto is not just payroll. So this is Gusto embedded payroll at this point what weâre talking about. Gusto is way more than payroll at this point.
Weâre really doing a bunch of things around compliance of running your business, your HR compliance, your benefits, your time tracking, time sheets, all that stuff. Itâs really all about I mentioned cash flow, tax credits. So thereâs a bunch of things that weâre doing, way beyond, payroll.
So I think every business, can decide how they wanna run their back office, and it could be through one of our partners, it could be through Gusto. And then, by the way, again, the market when we started had, this is 15 years ago, right? Had ADP and Paychex as the biggest payroll, companies out there.
They still exist. Theyâre still doing really well. So thatâs quite interesting, right?
So Yeah... Thereâs, thereâs, this is a very large market. So thereâs a lot of different,...
Thereâs room for a lot of products.
Turner Novak:
So talking about back when you started it, so what was running payroll if when I think it was called ZenPayroll back then?
Tomer London:
Right,
Turner Novak:
Yeah. So ZenPayroll doesnât exist. How am I paying people?
âcause couldnât I just go to the bank and say âJust wire this money to this personâ? Right. Right?
What was so hard about running payroll?
Tomer London:
Thatâs a good question. Okay. So first what is payroll and how is it different than payment, right?
So okay, payroll is not just wiring someone money. Thatâs actually illegal to do if youâOh, you canât do that? Well, it...
Itâs crazy, right? The payroll means that you get somebody a proper, W-2 at the end of the year, that you as an employer withhold, Mm-hmm... That you pay the different government agencies in the right time.
You do the right filings the right time. So thereâs a bunch of taxes, thereâs a bunch of compliance, thereâs a bunch of payments involved.
Turner Novak:
Could you technically do all that yourself if you were calculating it in a spreadsheet or something? Totally. People used to do that, right?
Tomer London:
Yes, you could. Absolutely.
Turner Novak:
Then youâd have to go get the W-2 filings and fill them in-
Tomer London:
Also and make sure
Turner Novak:
They match the spreadsheet?
Tomer London:
Exactly. Okay. So the IRS has a fax machine you can use and the fax number you can use.
You can print in your printer and fax things in. The same thing you need to do for every state agency that youâre, that you are employing people in. So even if you have only one employee in a place New York or Washington State you may have four different agencies you need to report, on a quarterly basis, on an annual basis.
Mm. You need to pay them sometimes on a weekly basis, depending on your pay schedule. Mm.
So it gets complicated really fast in the US. So thatâs why payroll companies existed. We didnât invent payroll companies.
Turner Novak:
Mm.
Tomer London:
But when we started, to answer your question, the way it worked is that,... And this is itâs a funny story. So my co-founder, Josh, actually, has this story where in his previous company, he wanted to go set up payroll to pay himself and his co-founders.
Turner Novak:
Yeah.
Tomer London:
You go to their website. Obviously, thereâs nothing you can do on the website. You could just call.
So, Mm-hmm... You call. Then you get a get a person on the phone.
And for you to go actually pay yourself, you actually need to meet a salesperson in Really?... In a random coffee Really? In your area, in your neighborhood.
-
Turner Novak:
Itâs a dude in a suit with a briefcase.
Tomer London:
- A dude with a... With a briefcase that comes with a big stack of paperwork. Okay.
Explains to you asks you onboards you to payroll, asks you all the questions about -
Turner Novak:
Just live in the coffee
Tomer London:
Shop or something? Live in the coffee shop. - Okay...
Josh does not drink coffee, so Mm... The rep bought him a hot cocoa. So imagine a founder of a company sitting down with a hot cocoa with a rep of the other person, sitting there for hours and hours and hours instead of...
And heâs âDude, I have all this work to do. Why am I sitting here with this guy?â
Turner Novak:
Yeah.
Tomer London:
But, thatâs how... Thatâs how it was just to set up. So you had to meet in person and.
Then if you had the... Fill out the paperwork. You canât obviously pay someone on the spot.
It needs to go to the headquarters, and it takes a couple of weeks and to go. And then every time you need to run payroll, you need to call in the hours, Really?... Or if youâre techy, you can fax Wow...
The time sheet. So thatâs, that was how the big companies worked. Thereâs a bunch of there were a lot of, small mom-and-pop payroll processing shops that did similar things, but maybe gave you even more of a warm day-to-day number to call and ask questions about, HR stuff as well.
Okay. So these are local payroll bureaus. But thatâs how, thatâs how it looked.
I know today it sounds insane. -
Turner Novak:
Yeah. I remember my first big corporate internship I had. There was a payroll room.
Tomer London:
Oh, yeah.
Turner Novak:
There was four ladies who ran payroll all day.
Tomer London:
Yes.
Turner Novak:
Thatâs all they did. And anytime... I think I definitely had to go talk to them a couple times, which is usually I had different hours or something.
I had to change something. I had to literally go and tell them Yes... âHey, this numberâs different nowâ- Yes...
Or something.
Tomer London:
Yes.
Turner Novak:
This is thereâs probably a couple thousand people that worked at the company, and we literally had Four payroll ladies four payroll ladies. Yeah.
Tomer London:
Yes. And one of the craziest thing about payroll, I think, is whatâs the cost of a mistake? -
Turner Novak:
What is it?
Tomer London:
If you if youâre late, you can get sued obviously. -
Turner Novak:
In terms of the wire going to the employee?
Tomer London:
If Or- If, yeah, if you, didnât pay your employee on time, you can get sued. Can take down your business, âcause these are, these Oh, wow... Really important rules and regulations in order to protect the employees.
They make a lot of sense. -
Turner Novak:
Iâm assuming thereâs probably times throughout history where just people just straight up didnât pay their employees, and thatâs obviously bad. So letâs get some laws in there to make Th-
Tomer London:
... That doesnât happen... This thing is so important that thereâs literally verses in the Bible explaining what are the terms that you should be paying employees.
Turner Novak:
Really?
Tomer London:
Yes.
Turner Novak:
Okay. So this goes back to the beginning Yes... Humanity.
Tomer London:
Think about how important it is. Itâs Yeah... Hey if you hired someone to do a job for you should pay them on time.
Turner Novak:
Hmm.
Tomer London:
It, thatâs itâs, itâs itâs the stuff societies are built on.
Turner Novak:
Yeah.
Tomer London:
Right? So-
Turner Novak:
Why would I work for you if youâre not gonna pay me? Thatâs how it
Tomer London:
Works. That it, thatâs a part of the contract.
Turner Novak:
Itâs yeah,
Tomer London:
Contracts are society. And then, and hereâs the other thing that people donât think about, which is what happens if you, donât file your taxes correctly as an employer, right?
Turner Novak:
Mm.
Tomer London:
Imagine you paid an employee and then the payroll company or you, made, just put the wrong number in the wrong box in some a quarterly filings. Thatâs, you only figure out the mistake, that mistake sometimes it takes a year and a half for you to learn that you made a mistake. Why?
Why does it take so
Turner Novak:
Long?
Tomer London:
Because you put it in a, letâs say you put it in the beginning of the year. It only in the end process- it gets processed at the end of the year when you do your W-2.
Turner Novak:
Okay.
Tomer London:
Thatâs actually more than the end of the year because itâs April, right? Or even later. And then that employee gets that in their W-2 and theyâre âOkay, that looks good.â They go, they file their taxes with it, and only then it can get discovered.
So and then by the way, that employee at that point may not even work for you anymore. Oh. So the government comes back to you and say, âHey- You made this mistake, and you need to go fix it.
And hereâs the employee thatâs impacted, and you need to go and find that employee and tell them, âHey, theyâre now, theyâre now moved. Theyâre in a different part of the country, and youâre responsible to make sure that they know that they need to Wow. âHereâs your new W2, the W2C, the correction for your W2, and you need to refile your taxes with it right now.â Geez.
So these things are the, are incredibly complex, and the repercussion of an error is very high, and I think thatâs one of the things that I think software could be really good at, is ensuring accuracy, precision, reliability over the long tail for many types of customers, and thatâs why we spend so much time building our infrastructure. Mm. Thatâs why we build our embedded business.
Thatâs why this is something that weâre just absolutely insane about in terms of the reliability of the infrastructure that we build.
Turner Novak:
You mentioned that you can... It sounds a lot of faxing of stuff happens. So the, probably the average listener of this podcast is saying âIâve not used a fax machine in my...â Some people would probably be âEver.â
Tomer London:
Yeah.
Turner Novak:
Right? So why is that still going on? Why have we not made better tools?
Why hasnât the government fixed some of this stuff? Why is it so outdated seemingly?
Tomer London:
So the story of the US is a beautiful story. One of the parts of it is the fact that itâs incredibly... One of the principles that how distributed things are and how localized things are, right?
Turner Novak:
Mm.
Tomer London:
So you have, tens of thousands of localities from a payroll standpoint.
Turner Novak:
Really?
Tomer London:
-
Turner Novak:
Is this a county is its own
Tomer London:
Thing, Itâs, itâs, itâs a county based. In some states, itâs a county based. Some states, itâs, itâs, a school district based.
Turner Novak:
Thatâs true. Youâll sometimes get these just weird a couple dollars deducted on your W2 for Exactly... The city district, school district, or special interest district or whatever.
Tomer London:
Exactly. So you have streets in the US where at the end of, you look at the end of the street in a cul-de-sac, and you have three neighboring homes, and each one of them has a different set of tax codes.
Turner Novak:
Really?
Tomer London:
Yes. So you And so
Turner Novak:
Those all might work at the same or different companies that then need to figure that stuff out, right, when theyâre
Tomer London:
Paying them. Exactly, so you, I need to know which side of the street you are on in order to know how to calculate your taxes correctly. Mm.
So thatâs one crazy payroll fact. Another crazy payroll fact is some of these localities are so small, they donât have big, robust systems or something that. Itâs literally a person who is working on, in the office.
And thereâs a new resolution that was that was passed by the town committee about a new tax or a new thing weâre gonna do differently, and that person now updates the town, and the way they update the town is they put it on the bulletin board, and maybe thereâs a puts it on the local newspaper. How are you supposed to know as a small business who employs someone in that particular call it county, but this person is working remotely or something that, right?
Turner Novak:
Yeah.
Tomer London:
How are you supposed to know that? Thatâs crazy. So what Gusto does today, and itâs not just, again, I talk a lot about the infrastructure and the software, but thereâs also, there is also a lot of operations involved and these are, this is for example, people whoâs been in the industry for decades, and they know to call that lady.
They know their phone number, her phone number to ask her how her kids and grandkids are doing, and then ask her, âDid anything change recently that we should know about as a payroll processor?â
Turner Novak:
Mm.
Tomer London:
And then we bring it and update our software, with that. So you asked about faxes. I answered about hey, itâs actually much more than just the faxes.
Itâs these kind Itâs literally
Turner Novak:
Bulletin boards.
Tomer London:
Itâs, itâs bulletin boards. But Yeah... Thatâs the, thatâs the stuff that you, that we love doing because it saves the headache from the business owner to figure this out.
Yeah. And it gives them peace of mind that they donât need to know all this random shit. Yeah.
We got this for them.
Turner Novak:
I know your dad ran a clothing Yes... For 40 years. Maybe thatâs an outdated number.
I
Tomer London:
Donât know. Heâs still, heâs still running it. Heâs still running it?
Okay. Yeah, heâs still running. So, yeah, so I guess that would make now, yeah, over 40 years 40
Turner Novak:
Years. This was back home?
Tomer London:
In Israel. Yeah.
Turner Novak:
Okay. What else did you learn from your dad? Anything specific about, running a small business?
Tomer London:
The biggest thing for me is, to many hats that small businesses wear. Yeah. And when...
I think society right now for many people built thatâs feels so structured and built for you. So in other Mm... You graduate from school, you decide you wanna be whatâs your profession, and the many professions have a career ladder, and you go from one thing an analyst to a an associate and whatever that is, and then Yep you do a masterâs whatever that is.
Thereâs a career ladder. Same thing happens in so many professions, not just in a few. And, all of this is obviously made up.
Itâs all made up because, in the end of the day what matters is serving the customer, right? So the company created- Yep... All these, the companies created all these ladders in order to build an organization that ends up actually on the other side of Hmm...
Supporting customer.
Turner Novak:
Yep.
Tomer London:
Youâre, when youâre a small business owner, you donât have any of that stuff. What you have is yourself, and you need to figure out, how do I get customers in? How do I finance my inventory?
My dad has a clothing store. So how do I finance my inventory? How do I sell?
How do I know what sells so I can get more of, right? How do I price things? A new a new competitor moved in.
How do I deal with that? -
Turner Novak:
Heâs undercutting me or better product maybe or-
Tomer London:
Exactly. Exactly, different product. And then taxes are changing.
How do I do that? Again the interest rates goes up. All of a sudden I canât afford these the cash flow here.
Yeah. An employee stole some money from my from my from my, you Does that happen a lot? Definitely.
Really? That happens a lot for small businesses, yep. No, in large businesses, too, yeah.
People whether itâs cash, whether itâs cutting your time sheets reporting times incorrectly. So thereâs a bunch of ways-
Turner Novak:
Oh you give yourself an extra hour or something.
Tomer London:
Clock Yeah... A little bit later, clock in have somebody buddy clock you in -
Turner Novak:
Hmm...
Tomer London:
Clock for you, clock in for you.
Turner Novak:
Yeah.
Tomer London:
These are all things that, again, business owners need to think about. They need to protect. Thereâs a bunch of ways of doing Mm...
So this is not new. But, you as a small business owner need to think about every department- Yeah everything.
Turner Novak:
- Instead of having a, you hire a person, and thereâs all these different teams. Thereâs a marketing team. Exactly, yeah.
Thereâs an inventory team. Thereâs a fraud team. Itâs literally just you.
You gotta do
Tomer London:
It all. Youâre a team of one, exactly. Yeah.
Thatâs how you start. Now, then over time you obviously build, you do build teams. - Yeah...
And if you get really large, you do build these career ladders and all that stuff that we talked about. But-
Turner Novak:
Yep...
Tomer London:
The most incredible and, inspiring thing for me about entrepreneurs, builder, business owners, business operators is this point that there is no walls between departments. It Hmm... Just you, and you need to you need to figure out how do you serve the customer and build a good business and grow it.
And if you did it, great. You get the reward. If you failed, youâre out of a job.
Thatâs beautiful, I think. I think thatâs beautiful. I
Turner Novak:
Mean, yeah, thatâs thatâs the beauty of capitalism. And then if you did fail especially in San Francisco and Silicon Valley people are âOh, you built this thing. You did...
Well, come work for us.â - Yeah... So itâs thereâs almost a, thereâs a little bit of a safety net. Maybe thatâs not the right way to describe it, but as long as youâre ambitious I, he,
Tomer London:
He... Yeah. I think hereâs the real...
So I agree with you in startup world, but in real world SMB, small businesses, The sa-- the entrepreneurial dream is the safety net. - Mm... The make enabling having us as a society, as a as a country, as a state, making it easy for people to start businesses, that is the safety net.
Again, that, and thatâs why you see so many immigrants, for example, start businesses. Mm. Itâs not because you, Theyâre not being
Turner Novak:
Forced into starting a business you want to. Exactly. Itâs, itâs your dream almost in a lot of cases.
Tomer London:
Often itâs really hard. If youâre coming in, again, from a different culture, I came from Israel, youâre coming in from a different culture, itâs really hard to get a job. Itâs really hard âcause you donât know how to say...
You donât know that thereâs, there so much nuance in culture. Thereâs so much nuance in language. Thereâs so much nuance in the workforce- Yeah...
I would say, one country over another, that having the opportunity to start a business helps you actually show your worth out there and create something valuable, and provide for yourself and your family. So I think the safety net is that. Mm.
And by the way, whatâs the opposite of the safety net is when things get harder, if we as a society make it harder for small businesses to start, and to people to go Mm... On their own. And I think thatâs something that we should always be very mindful of.
The, how the rules and the regulations that we put down as a society, the culture that we do, that we have, how that enables... Does that enable entrepreneurship or not?
Turner Novak:
Are there any cases where weâre getting too close to that going away? Do you feel we, thereâs anything we need to be cognizant about of hey, we are maybe limiting entrepreneurship in some cases?
Tomer London:
I think there is a, gravity for just government democracy regulation, where thereâMm... Itâs very easy to add and itâs very hard to remove.? Itâs very easy...
Itâs, itâs very... So we call this the itâs a different type of inflation, right? Itâs a regulatory inflation.
Turner Novak:
Mm.
Tomer London:
Right? So thatâs again one of the things that, going back to Gustoâs mission governmentâs gonna keep regulating. Theyâre gonna keep adding rules.
Doesnât matter which party, it doesnât matter which side. Thatâs lawmakers make laws.
Turner Novak:
Yeah. - I think thereâs some chart that just shows a number of laws or the length of the tax code whatever. Right.
They always just go this. Of course. They just go straight up over time.
Tomer London:
Exactly. Itâs in software engineering the level one way of being proud of your work is to count how many lines of code you added to the code base. Oh, yeah.
But the level two, the true people who are deeper in understanding the architecture often actually Get much more excited about removing lines of code? If And it
Turner Novak:
Still works, or works better maybe.
Tomer London:
Works better and more easier to read, easier to Mm easier to reuse. So but we are in a place where thereâs gonna be, I believe regulation, inflation gonna continue. So then thatâs where technology companies can come in and help.
I think the nice thing again about technology is that we can take all these rules, all these regulations you throw at us, and we work really hard to codify it and build, robust systems around this, so you donât need to worry about this stuff.
Turner Novak:
Itâs almost your role the job youâre serving for your customers, is removing the complexity, removing the navigation of all the laws and the regulations. You donâthey still want to all comply. They want to do them Exactly...
But itâs really hard, so.
Tomer London:
Thereâs the... And also one more thing. There is the, all these regulations also come from a good place.
Turner Novak:
Mm.
Tomer London:
? No senator or government official comes in and say, âI wanna I wanna make it hard for you to start your bus-â No one... The, it always comes from a good place.
So there is the one part of it, which is, as I mentioned making it easier to navigate all these rules, and just, we just do it for you, so you donât need to worry about it. Mm-hmm. We just, it just done for you.
But thereâs the other part, which is actually, thereâs a bunch of these programs, government programs that are really helpful for you, but theyâre so complex that you may, it may be hard for you to actually take advantage of them, and as a result of that, only big companies end up, having access to it, because they have whole departments to read the tax law and the tax code and figure out how to get those. Mm. So again, the example I showed earlier is tax credits, right?
Mm. So thereâs these, all these different types of tax credits. Thereâs dozens of them.
Every state has their own flavor of it. And theyâre all coming from a good place. Hey did you hire a veteran?
Great. Well, thereâs, there is some incentives, tax incentives for that.
Turner Novak:
Mm.
Tomer London:
Hey, did you again invest in research and development? Great. Thereâs a tax incentive for that.
And so forth. Thereâs, thereâs a bunch of these. So we help you find those opportunities and then go and do the filings for you, so you can get the benefit of these programs and not just leave them for the big companies to enjoy.
Turner Novak:
Yeah, âcause in theory, thereâs a lot of, if Iâve just got a lawyers on staff. Right. They can just spend all their time where the tax professionals.
The same company I was mentioning earlier that I worked at, there was a tax department. We had, I donât know, there was eight or 10 people. It was an international company.
So again an SMB competing against selling international with someone who-
Tomer London:
Right...
Turner Novak:
Can maneuver around a lot of that stuff easier. Right... Just gets really tough.
I think one thing I thought was funny was the one piece of advice your dad gave you-
Tomer London:
Yeah
Turner Novak:
Was âNever start a company.â Just- âDonât turn a business.â Just
Tomer London:
Donât even
Turner Novak:
Try. But
Tomer London:
You did. Yeah.
Turner Novak:
Whatâs the story of actually starting ZenPayroll back when I think it was 2012?
Tomer London:
Yeah.
Turner Novak:
How did how did it all get started? It sounds Josh was in the coffee shop with the sales guy filling out the forms -
Tomer London:
What the hell going on?
Turner Novak:
Yeah. Yeah.
Tomer London:
Yeah, so yeah, my dad gave me that advice of âSon, whatever you do, donât start your own company. Just go work in a, somewhere that pays well and take care of your family.â And the reason is again, the where he came from is just incredible amount of stress of-
Turner Novak:
Mm
Tomer London:
Itâs just so many ups and downs in running the business and not knowing if you can make next payroll, not knowing if you can youâll, youâll survive.
Turner Novak:
- Is he able to use Gusto? Are you guys in Israel?
Tomer London:
No, weâre not in Israel- Oh, okay... Unfortunately. No.
So he canât use Gusto yet. But he So I think that mental thing is something that was very instructive for us as we started the company because we understood that weâre not just building a business tool, weâre trying to build a partner for the small business owner. And the different- Mm...
If you think about the place thatâs in your brain with a partner versus a tool, itâs a tool is something that youâre responsible to do it correctly. Hereâs a hammer make sure you donât, you donât hurt yourself with a hammer. Mm.
But a partner is someone whoâs helps you take stuff off your plate and gives you some reassurance. âHey I got this for you,â gives you that peace of mind. Thatâs what weâre trying to do.
We try to do it honestly since day one. If you go through our user experience in the early days, the way we wrote the copy, the way we built proactive moments in the application where we remind you of things or ask you of things just when you, just when we absolutely have to. Yep.
And then we speak to you as a human, not as a whatever data processor. -
Turner Novak:
Yeah...
Tomer London:
And itâs
Turner Novak:
Thereâs thereâs hearts and fun graphics in the UI and stuff. Makes it feel a little more youâre itâs human personable.
Tomer London:
Thatâs some of the visuals, involved, but I would say thereâs a bunch of just user experience components around how do we how do we only ask you the very few the fewest questions possible in order to get the job done? And then every time we introduce, if we ever introduce a new concept for you to know, we treat you respect- respectfully and talk to you a human being, explaining it Mm... Very well.
So we assume you donât, youâre not a tax expert, but youâre, again, youâre a small business owner. Youâre now walking from your desk to the bathroom, and during that youâre trying to, those one-minute walk, youâre trying to pay a contractor, right? Mm-hmm.
So, how do we do that for you so itâs really easy to use? So thereâs a bunch of these user experience. We can talk about user experience principles and all that stuff, if you want, but that was a huge innovation for us, and it did, this user experience innovation, and it did come from, thinking about our small businesses, how their lives are doing, how their day-to-day looks from an emotional standpoint.
Mm. And we wanted to be in a place in their lives that gives them relief, and even a smile to their to their face. Mm.
And not just hereâs another cold tool that is whatever powerful and efficient. - Yeah... So now, by the way, good news is that language about having a partner thatâs on your side and an assistant and all that stuff is oh, crap weâre now in the world of AI and agents.
This is exactly the time for it, so weâre Yeah... Super excited about this because this is technology that we were always waiting for. Yeah.
So weâre, weâre building a bunch of these experiences now that really do feel youâre talking with someone. Thatâs the agentic experience with Cofoundr and some other stuff. But, yeah, thatâs the story of some of my, the inspirations, just seeing the emotional ups and downs that my dad has.
And then, yeah, how we started the company the I came in from Israel, I Were you
Turner Novak:
In school at the time?
Tomer London:
I was,... Yeah, I came here for a PhD program at Stanford, in electrical engineering. I had a startup company back in Israel, and we talked about my dad already.
I was around small businesses. I started small businesses. That world was my world, and I was lucky to meet Josh and then Eddie, as a part of this Stanford community, wider community, and, we connected on that small business experiences connection.
And we looked at the software and the world of software in general. We all were entrepreneurs. We built companies in the past, so we wanted to build something together.
Turner Novak:
Mm.
Tomer London:
And itâs this obvious, there was this moment that was felt obvious to us, which is âHey, thereâs so many companies that are technology companies that are focused on consumers. So many technology companies are focused on enterprises, but in small business for some reason, itâs a huge market, but just, thereâs just not a lot of success stories there. Whatâs, whatâs going on?â
Turner Novak:
Do what the disconnect or the issue was? Why werenât there at the time?
Tomer London:
We, I did not know it at the time, but my explanation by seeing the past 15 years of this still being the case, I would say, although much better, but still being the case, is that, often companies start software companies or technology companies start focusing on small businesses because itâs easier, more available to them to reach as their first set of customers, but as soon as humanly possible, they go off-market.
Turner Novak:
Why do they do that?
Tomer London:
Because of ACV, because of the size of the deal. So imagine- Yeah, I made
Turner Novak:
More revenue from those customers.
Tomer London:
Exactly. Mm-hmm. So imagine you need to sell whatever.
You sell your CRM product for a small business with five employees. You can Yeah, it might be $1,000 a year.
Turner Novak:
Pretty
Tomer London:
Small. Or if you sell exactly the same CRM, but for a 5,000 employee companies- Yeah... That 1,000 now becomes 50,000 or $100,000 in there, and, that enables- So itâs,
Turner Novak:
Same amount of Exactly... But 100 times more revenue.
Tomer London:
Exactly. Same software, same product. Mm.
So, by the way, that means itâs not just more money coming in, it also means that itâs now, you thereâs just, there are just simple playbooks of if you have a product that can sell for $100,000, software product thatâs can sell for $100,000, thereâs a playbook thatâs very simple about, okay, what do you do now to get customers? Which is you hire salespeople, to go down and establish relationships. Thereâs enterprise sales and all that stuff.
Thereâs a, thereâs a whole playbook with how do you market to these people? Target list and all that good stuff. But itâs well done.
Itâs something thatâs been done many times before, and thereâs a playbook for that. Yeah. For small business, not as much.
By the way, consumers on the other hand, there is also a playbook. And thatâYeah... Obviously mass marketing and all the good stuff that we learned from just consumer products over the years.
- So how did you do it? Small business is weird. Itâs in the middle.
Yeah. You donât make as much money as enterprises, so you can put salespeople on the street-
Turner Novak:
Yeah...
Tomer London:
Right? But you also, thereâs not that many of them that a billboard is going to a, and a marketing company could get you a bunch of customers. ItâMm...
Just in the middle. So thatâs why I think, there hasnât been a lot of companies that stayed in small business.
Turner Novak:
How did you approach just getting people to start using it and scaling it up? Whatâs, whatâs whatâs the trick? âCause you cracked it seems.
Tomer London:
So we, the thing that we, I think we realized is that is to think about the small business owner as a single decision maker. So thatâs more feels consumer. Okay.
But on the other side, heâs professional, so that feels more enterprise. So you took an element from enterprise, which is a professionalism of decision making. This is not a emotional decision making of I prefer purple over green for my whatever, for my, iPad cover.
But itâs professional, itâs considered. But on the other side it is, also a single decision maker, so itâs not, doesnât have the complexity of an enterprise deal where you do have 10 different departments that all need to align on the strategy and getting the budget and all that stuff. Okay?
Turner Novak:
Itâs a consumer thatâs making decision that will improve their business or something. Thereâs an objective behind it.
Tomer London:
E- exactly. Itâs an objective decision thatâs done by someone who feels a more a consumer.
Turner Novak:
Okay.
Tomer London:
Okay, so what does that mean actually? So what itâs meant for us is that, is the whole name of the game is word of mouth. Mm.
And to make word of mouth successful you really need a product worth talking about and a product that people really love. So our thesis to start was hey, weâre not gonna be able to afford salespeople walking down the streets in order to go and sell our product. What the way that weâre going to be we were gonna grow is have incredible customer love.
I mentioned that NPS of over 80, over 70. Where small businesses, they do talk with one another, and they do recommend products to one another. Mm.
And then thatâs going to be the, really the engine for our growth, just referrals and word of mouth. And that end, ended up being, the right hypothesis, and thatâs been working, really well for us. Mm.
And itâs not that we havenât added, scalable marketing around it and scalable sales processes around it. Of course we did, âcause it works. If Yeah...
You take a product people love, you also go show up on Instagram or in social guess what? You just sell more of the same product people love.
Turner Novak:
Yeah.
Tomer London:
You add a salesperson who gives you a call to help you finish onboarding. That works. Itâs, itâs itâs, itâs positive for the business.
Great. But the core of it is customer love.
Turner Novak:
You have this concept of, minimum lovable product versus, I think the other oneâs minimum viable product is what most people think. Right. So is there a difference between those two of minimum to get it out there and then minimum of the customers actually love it and recommend it?
Tomer London:
The problem with minimal viable product is that often, they are... They... You get a product out there that works, but itâs...
When itâwhen the customer sees it solves their problem in a very called a local way and not thinking end to end across the whole user experience. So in other words, itâs a itâs often minimal viable product is focused on what is the smallest product we can ship in the shortest amount of time that checks the box of saying we did the thing that we said itâs going to do, okay?
Turner Novak:
Okay.
Tomer London:
The problem with that is that sometimes you launch a product this, youâre proud of that, you were able to ship it quickly, and then people donât use it, and youâre âOkay, I guess this was not a good product idea. Letâs, letâs throw it away.â Mm. It doesnât work for us because, So
Turner Novak:
Did you run into that issue at all? You tried something and it was minimum viable and it just didnât work, but the pushing it over the ad edge to minimum lovable, suddenly it was âOh, this is amazingâ?
Tomer London:
Honestly, we went with the minimal lovable product since the beginning.
Turner Novak:
Oh, really?
Tomer London:
Okay. And itâs because of, again, this point that I made earlier around for Gusto to grow, for Gusto to get new customers, we had to have people love the product. Mm.
So you canât launch anything thatâs not lovable. Itâs very important to do Mm... Lovable.
So, okay, so what does that actually mean, right, to be lovable? Yeah. Thereâs three parts to a great user experience in my opinion.
The first part is that the thing, it works. It solves the problem, right? Youâre trying to get your employees insured, letâs say health insurance.
Turner Novak:
Mm.
Tomer London:
You, the health insurance works when you go to the doctor, right?
Turner Novak:
Yep.
Tomer London:
And you can enroll quickly and all that stuff. Thatâs called the functional side of things, right? Okay.
The second side is, intuitive. So what does intuitive mean? Well, if youâre a small business owner, the bar for intuitive is very high because, again, small business owners and us normal people are not experts in, you Yeah, you might, you
Turner Novak:
Might be doing it in a minute. Just make sure this... I click a button and it Exactly and itâs I know where to go.
Tomer London:
You donât need to watch videos to understand how you work. You donât need to Mm... Manuals.
Itâs just very intuitive. You go and you say, âI want I want to get health insurance.â Great, hereâs the options for you. Hereâs what it means.
And then we go and you get the health insurance for, that you need for your, customers. And I think for that all these two things already clear the bar for a minimal viable product, for the MVP, right? But Okay...
Really get to the minimal lovable product, thatâs where you add the last piece, of the puzzle which I would call just delightful. So what makes a product delightful? What makes the user experience delightful?
Well, itâs something... Itâs a product that anticipates your needs, right? Mm.
Itâs a product that just looks at you and already knows, âHey what? I know this is the first time youâre getting health insurance, so-â Iâm gonna assume that youâre not sure which health insurance is right for you. So Iâm going to proactively tell you, âHey, companies you in your industry, in your, in this area usually offer this benefits package.â Right?
âHereâs how much it costs.â âCause they would be
Turner Novak:
Looking that up probably on the side while theyâre signing up.
Tomer London:
Thatâs exactly right. Yeah. It anticipates the problems and, that you have, the questions you have in your Mm-hmm and tries to answer it for you already, without you going and looking for the left nav, finding where is the tool for benefits comparison- Yeah...
Right? That would be the MVP approach. Mm-hmm.
The MVP approach is âOkay, great. Letâs build a benefits comparison tool a benefits benchmarking tool,â and thereâs a tab somewhere that you can go and find it, and you click on it, and you see graphs. Yeah.
Thatâs great MVP, but how does the customer know how to find Mm-hmm... In exactly the right time, right? So that should just be a part of that minimal lovable product- Mm...
Thatâs all about helping you. The headline of the product is not health insurance, but rather help you find and get health insurance for your for your employees. Mm.
And that includes that obviously important point, which is help you figure out what package to offer.
Turner Novak:
Sure. And then how has AI enabled you to incorporate more of that into the product? Because itâs probably you include more things or move faster or something.
How has that changed?
Tomer London:
Yeah. So thereâs a bunch of places, but Iâll say, okay, so a couple things come to mind. So first, just understanding the questions people have in their minds.
Mm. You can... Now every PM, at Gusto, every engineer, every designer can just go to Claude and ask our data questions about our customer behavior, customer questions.
Everything anonymized, of course, but you can ask-
Turner Novak:
Is this internal amplitude-type of dashboard data, or this is usage data inside Gusto?
Tomer London:
You, have access to all the comments from our NPS surveys, all the comments from our different customer feedback surveys, things that our salespeople, our customer care people write down, and the Okay transcripts of the conversations. Again, everything anonymized. Yeah.
And then you can go in and ask Claude, âHey when people ask, when people start the...â In this example, people try, are trying to get health insurance. What questions do they usually have in their minds? And- Mm-hmm...
Claude can go and help you find those things Yeah... Start this research for you. It used to be that this is a research question that you would need to come up with, and then either you do it as a designer, PM, engineer, or you get a user researcher to go and recruit customers and go through this process, that can take weeks or even months.
Now you can just ask the question, to Claude, and that really helps you accelerate it. Itâs not the end, obviously. The question is just the beginning of the work, but it can really help you accelerate.
Money. So thatâs, thatâs one example, and then the other example is execution, right? You can just build much more than you used to be able to.
Mm. So Gary Tan had this really great post I really loved around boil the ocean. The often advice you get is for product and design is donât spread yourself too thin, right?
Mm. Donât peanut butter your roadmap. It needs to be really focused, and I actually really agreed with it for a long, for the longest time.
But his argument, which I think is a really good one, which is if there was a time to boil the ocean, if there was a time to actually go and try to build multiple products at the same time and increase your ambition, this is the time to do Mm because AI does make it much easier to build new things. So, I do feel thatâs what weâre seeing at Gusto, too.
Turner Novak:
Yeah. Those- Well, actually, one philosophy of, Sam Blond at Monaco, prior guest of the show, heâs âWeâre building this all-in-one CRM. No point solutions here.â Right.
â we build every single feature.â
Tomer London:
Right.
Turner Novak:
Itâs because it just takes a day to make the feature. Just make everything. Yeah.
Itâs the compound startup philosophy of just build all these different things because it takes... Again, itâs just Claude will just do it in the background for a day, and then itâs done.
Tomer London:
Right.
Turner Novak:
Why would you not do that?
Tomer London:
Yeah. We used to launch, call it four to six, major feature announcements a year. Weâre now, we now easily do the same amount in, call it six months twice a year, and weâre well on our way to do it once a quarter and I think once a month.
I think this is happening. Itâs gonna happen.
Turner Novak:
So
Tomer London:
YouâThereâs no question about it.
Turner Novak:
You have already-
Tomer London:
Weâre already doubled the velocity of just the pair engineer ability to get features out there, out and running. Yeah.
Turner Novak:
You think youâll be able to 10 or 12x it-
Tomer London:
I think we roughly... Double again and probably double again.
Turner Novak:
Really?
Tomer London:
Yeah.
Turner Novak:
This is because using AI coding ships the code faster, and then thereâs a process of reviewing it and designing the features. It just happens quicker?
Tomer London:
I think itâs the, itâs the whole software development process. So it starts with, I said earlier about researching. Itâs much faster to understand what the customerâs issues are and the fine detail around it to then help you design a good product, right?
Mm. So thatâs the first thing. Same thing with now coming up with prototypes to make the fine product decisions.
Turner Novak:
Yeah.
Tomer London:
Then itâs actually shipping building the code for this and then shipping it and taking it outside to the world. Even just actually exposing the world to your new product and telling the world about it and doing the launch and doing the experimentation, all that stuff is... And the reason Iâm so confident is, not just because the models are getting better and better, but also just itâs, itâs just looking at Gusto.
Gusto has many teams at this point. Different teams are, have different I would say strength in how they use AI and, Mm different proficiency in AI, and thereâs just tons of opportunity, so.
Turner Novak:
Mm.
Tomer London:
And itâs very clear thatâs the direction where weâre going.
Turner Novak:
One thing I know you did recently, you made a big acquisition for the scale of Gusto. It sounds it was maybe a little under 10% of the size of the company, it was called Guideline.
Tomer London:
Mm-hmm.
Turner Novak:
The company you guys acquired.
Tomer London:
Mm-hmm.
Turner Novak:
How... What was that? How did you approach it?
Are you doing more acquisitions? How do you think about that as a company Gusto right now?
Tomer London:
Yeah. Okay, so we acquired Guideline. Guideline is, one of the leading 401, providers in the US, and they are very similar to Gusto, where they take you can say every, everything you said I just said about payroll in the past hour or Yeah now copy paste it, but change it to 401.
You will hear the same thing from, Kevin and their team over there. Mm-hmm. They really took this approach of building a delightful, easy-to-use product thatâs thatâs easy for the employee side, easy for the company side.
Mm. And they built it in a thatâs extremely robust and scalable to, again, tens and hundreds of thousands of companies. So weâve been partnering with them since they started.
Many of our customers already use guideline, so that match worked extremely well together. Now bringing the two companies together same code base, same database, same application, it just opens a bunch of doors to, Mm even better products, whether itâs payment speed stuff get your money faster, invest it faster. Whether itâs things the, just the integration you feel youâre all in the same, mobile app, for example, as an employee.
Take Mm... Take your 401with you where your Gusto wallet is, which is the mobile app, where you get paid in Gusto. So that is the, that acquisition that was, very significant.
But yeah, weâre, weâre excited to do this. And I think the M&A is a very thereâs, itâs a very interesting way of just adding fuel to the fire of what Gusto is already doing. Mm.
And I would say, I would just call it accelerating the roadmap that we already have. Mm. And thatâs the bar when we think about companies to acquire and products- Yeah...
Is we ask ourself, âWhat is the acceleration value of this company to Gusto?â So in other words looking at our roadmap, where does whatever that company, Mm... Where does that sit in our roadmap, and what would it mean for us if we make it bringing it now?
Turner Novak:
Mm.
Tomer London:
And thatâs how we figure out whether itâs a good idea or not.
Turner Novak:
So itâs could we build this ourselves, yes or no? How many customers do they have? Whatâs the value of bringing that all inside of Gusto?
Itâs an equation there where you decide if itâs worth pursuing versus not.
Tomer London:
Yeah. So everythingâs around acceleration, right? Acceleration, yeah.
So it could be acceleration of the product roadmap. So, hey, this is something that we thought weâre only gonna get to in two years. Weâre actually, weâll be able to get it quicker, right?
Mm. So whatâs the value of actually getting that quicker? By the way, with AI, now that equation changes- Mm...
Because, well, we can, we knew, we know we can build it, but maybe it wouldnât take us two years. Maybe now with AI it actually is gonna take us one year.
Turner Novak:
Mm.
Tomer London:
The bar is higher actually Really?... Acceleration for, on product development. Thereâs also, to your point, acceleration of customer base.
So perhaps weâre bringing in a customer base, Yeah... We can accelerating in the, that point. And then there is the acceleration of go to market motions or talent that we bring in-
Turner Novak:
Mm...
Tomer London:
And all of that stuff. So thatâs how we look at it. Itâs thereâs two different values.
Thereâs the value to acceleration to Gusto. Thatâs one number, right? You can put a dollar amount on that.
Mm. And then thereâs the other number, which is whatâs the valuation of this company if it goes out Mm... And tries to shop itself, right?
And those numbers have to align, obviously. You canâYeah. Yeah...
You canât... But they are two very different numbers. - Really?
Oh, yeah.
Turner Novak:
Whatâs been the biggest example of a contrast difference in perceived and implied and/or market value of some of these things?
Tomer London:
So again-
Turner Novak:
Whether Gusto or other
Tomer London:
Companies. So I wonât give the name of the company, but this, it honestly happened multiple times. So you, we go and we measure the acceleration.
We, and we look into this and weâre âOh, this is a really great product. They built it right. The code base is fantastic.
The team is great. This feels it could be a really great match to Gusto.â You measure the, you say, âOkay this is probably gonna accelerate us for 18 months,â letâs say, and then you come in with numbers. Thatâs worth for Gusto, letâs call it, whatever $50 million, letâs say.
Okay, cool. So it adds enterprise value for Gusto, letâs say $50 million. Okay, cool.
Well, the problem is that these companies right now letâs say theyâre, theyâre making $50 million as their revenue, right? So now all of a sudden when you put a multiple on that whatever the market is, but itâs not gonna be 1x, right? The companyâs growing and-
Turner Novak:
Yeah
Tomer London:
The profit
Turner Novak:
Growth
Tomer London:
Is-
Turner Novak:
Itâs an AI company, that might be worth a trillion dollars.
Tomer London:
Exactly. Exactly. So itâs interesting, âcause if youâre that founder of the acquired company, thereâs a very interesting dilemma.
Yeah. âCause here, listen to what I said. What I said is hey, itâs, the value of the company, right, and the code base, for us is $50 million.
The problem is that they make so much money. Thatâs a problem, actually, right? Mm-hmm.
It wouldâve been so much better for us if as a, as Gusto to acquire them if they only made $10- $5 million, letâs say.
Turner Novak:
Yeah. â
Tomer London:
Cause then it would be a 10x multiple to get to the 50, and everyoneâs really Yeah from that. So, thatâs just an example of an interesting dynamic that weâve seen multiple times, where itâs the... Call it the business value itself the, it the revenue, the value of the revenue to the acquired exceeds the value of the acceleration by-
Turner Novak:
Hmm
Tomer London:
By us, which is the acquirer.
Turner Novak:
Yeah, âcause then youâd have to be justifying whatâs the valuation of the cash flows and -
Tomer London:
Exactly...
Turner Novak:
Modeling all that into Gusto and making sure itâs all
Tomer London:
Vetted from that perspective. Well, and often we donât want those, that revenue either. Oh, you donât?
Oh. We are excited about the product they build and the code base and the team, and we want to bring that into Gusto, and weâre quickly using AI, make it available to all of our customers. Actually, I donât care at all about their $50 million of revenue, because Iâm not buying them for revenue.
Iâm buying them for the team and the product. Hmm. So thatâs something thatâs quite interesting, and I think the lesson...
Th- thereâs no lesson learned. If Iâm a, if I, the, if Iâm a founder, right, and Iâm listening to this and Iâm in this Series A, Series B stage, the lesson learned is still go as fast as humanly possible, build a great business. You donât want to slow down in order to get acquired.
Turner Novak:
Yeah.
Tomer London:
It is just true that if you do wanna get acquired before your next round, you should actually start these conversations quite Hmm... So the acquirer has a chance to look at you before your revenue increases to a place where youâre, youâre no longer a potential target.
Turner Novak:
Itâs almost the opposite, where VCs want you to grow as fast as possible, and youâre just âDonât, donât actually get that big yet,â âcause then itâs just not as interesting to you. âCause the value to us is the technology, again. Yeah.
Tomer London:
Weâre not here to buy, the business and the customers.
Turner Novak:
Interesting. Do you, one last final question, do you have a favorite founder or historical person from history that you just get a lot of inspiration from or have learned a lot from?
Tomer London:
Shimon Peres is one of the founding fathers of Israel, and he has this book called, No Room for Small Dreams.
Turner Novak:
Hmm.
Tomer London:
Whatâs interesting about that person, is that if you if you just understand his history, his biography, he went through lots of ups and downs, so changes in his politics, but the thing thatâs inspiring the most to me is I think that in every single chapter, he always just was a symbol and was a leader who promoted thinking bigger.
Turner Novak:
Hmm.
Tomer London:
Think bigger. Think more ambitious. Again, no room for small dreams.
His point is a lot of itâs as hard to make your small dream come true as it is to make a large dream come true. So you might as well just shoot, try to go bigger. And I think that is such a simple idea but is very powerful actually.
Yeah. Very powerful.
Turner Novak:
I feel itâs one of those things anyone can incorporate that in whatever theyâre doing, whether theyâre running a business, theyâre an athlete theyâre a, theyâre a parent.
Tomer London:
Yeah.
Turner Novak:
Really anything.
Tomer London:
Exactly. Yeah.
Turner Novak:
This has been a lot of fun. I feel I probably learned way more about small businesses than I- Actually, I would say more than I would want to, but I actually learning about small businesses. Itâs, itâs an interesting part of the economy that not enough people talk about, so.
Tomer London:
Theyâre the best.
Turner Novak:
Yeah. This has been a lot of fun. Thanks for doing it.
Tomer London:
Absolutely. Thank you.
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