Gusto acquires Guideline to unify payroll and 401k for 400,000 small businesses

You'd have to try it out. Now, it's free so you can make your own decision. Anyway, we have our first guest of the stream in the TV coming in. Welcome to the stream. Announcement, Josh, good to meet you. How you doing? What's happening? Hello. Good to see you both. Hi, John. Hi, Jordy. Jay joining the group.

You sound fantastic today. Whatever microphone you have hooked up is working flawlessly, similar to what we have here. Uh, congrats on the news. Break break break it down for us. Yeah, so I'm Josh, head of Gusto. Uh, we love serving small business.

Uh we've worked with a company called Guideline for a number of years, close to 10 years at this point. And the news is that we are joining forces. Guideline's going to be joining Gusto. Amazing. Amazing. I think I've I've actually used Gusto and Guideline together for my entire career.

I've used Gusto at four different companies. Company I started in college and we have an employee sitting over there that wants a 401k. So this is You have no excuses anymore. Time to set up. Yeah. Um talk about the the the prehistory here. Uh the company's been uh what was it YC 2013 2012 or something?

I remember 2012 2012. Yeah. Uh I remember implementing it at my YC company in 2012 uh back when it had a different name. Um and uh and I remember that that for a number of different uh HR functionalities uh I would have to kind of go to a different platform and then the data would be uh would be fed back.

What informed the strategy back then and then why are you shifting it? It like it seemed like it was working for a long time. So why why kind of what is it horizontally integrate I suppose is the term. I don't know what all the business is. We just we just try to make the life of a small business owner easier.

But yeah, first off, I mean, thrilled to serve you and your companies and and we're always trying to get better. So, send me feedback on how we can get better, by the way. Um, but yeah, no, I'd say we go way back. We launched Gusto back in 2012 and our first product was payroll. Um, if you don't pay someone, they quit.

So, it's the least optional part of the stack. And so, we've made progress there. You know, we serve over 400,000 businesses. Um, we love helping tech companies, but I love a lot of businesses, too. That's a lot of business. But I also love reminding folks there's more dentist offices in the US than tech startups.

So, like very focused on that mainstream small business owner. And uh, yeah, to your point, you know, we we listen to customers more than anything and and they guide us. And so, they told us, hey, there's all these other pain points we want your help with.

Our second product was health benefits, but you know, we're not going to build everything ourselves. And so when retirement came up and like generally speaking, what we like to do is take stuff big companies have and bring it to small companies, right?

So from almost a fairness lens, it's like we need to bring great retirement benefits to these small businesses. They deserve it. And that was basically KB the one of the co-founders of Guideline. It's kind of a funny story. He was previously the co-founder of Task Rabbit.

Um and so back in like 2015, we were in the same building. Uh they were on the second floor, we were on the sixth floor and we there's a slow slow elevator, like the slowest elevator you've ever seen. And so we would sometimes just be on these long elevator rides and that's how we got to know each other. Yeah.

I was going to I was going to ask when did the conversation first. People say you meet your you meet your acquirer like years before, but what they don't say is in a very slow elevator. You're going to hang out for for minutes at a time. Yeah.

But yeah, to answer the heart of your question, um we started partnering with them right when they launched in 2016. And yeah, there's an integration. You can kind of connect the two systems. Like we have tens of thousands of shared customers. Um, you know, KB I can say this stat very proudly on his behalf.

Like over 10 around 10 billion dollars of retirement savings in the accounts of our shared customers. Let's hit the side for that. I mean, yeah, Jordy, you you hit the gong. We we like to hit the gong around here for Congratulations. I like it. I like hitting the I like hitting the gong for retirement funds. Yeah. Yeah.

I mean, that's that's that's again that's their people's money. That's their retirement peace of mind. But uh but yeah, what we what we realized is there's a couple things happening. One, we can do even more together.

So, we're going to continue to partner with third parties on other products, but especially with 401k and retirement, like we're going to really go deep and and that's what guideline has done. Um they're a broker dealer, so there's all these different parts of the stack where if you cut out better cost savings.

I'm sure you had investors along the way that said, "You're sending so many customers to Guideline. Why don't why don't you just build this? You know, if you need if you need more capital, we'll provide it. " What why why did that not make sense? And and why why why uh why buy verse build in this situation?

So, I think all options are always on the table when you're building a company. Buy, partner, build. Uh and like for what we're doing, it's going to be a lot of connected problems. So, you know, how do we bring it together as one simple, easy to use product is the key.

Um, but I'd say, yeah, the catalyst for shifting from partner to being one company is like there's just product stuff we can do that we can't do unless we're combined. I can give you a couple examples if that's helpful. Yeah, please. Yeah. Yeah. So, like the journey of of building a company or the employee journey.

We think a lot about kind of the person by person, what happens in their life, but let's say someone gets uh promoted, right? And they get a pay increase. Um, so that's obviously coming through our system because it's going to affect their salary.

And in that moment, right, whether it's in the app or in an email, uh, the, hey, like you now have more money coming into your pocket, you know, your choice, but do you want to set aside a bit more in your 401k or someone has a kid, you know, in our system that's a dependent, but that's a human being.

Someone just had a kid, right? Like maybe you want to go do something there in the context of retirement planning or something related to health benefits.

So, kind of thinking through the person by person journey piece of it, um there's just things we can do that we think will drive more folks offering retirement benefits. There's also a compliance reason too which I can get into if let's get into it. We love this stuff. So, so like government, right?

We're here to like abstract government and sometimes there's carrot stick that government does. So, 41k is a good example of of a carrot like it's pre-tax dollars.

So literally the government is making it hopefully a no-brainer to like put aside money for retirement with meaningful amplification of of that money than just you know putting it uh post tax. But they also have compliance requirements.

I think over now 20 close to 25 states have rolled out what's basically a mandate that businesses have to provide some type of retirement benefit for their teams. And so that's good intent, but it's still stressful because there can be penalties or fines.

And so we're also excited that basically we can give peace of mind to more small businesses so they're not stressed out, definitely not getting fined or penalized. Um, and if they want to or need to set up a retirement benefit, we can make it brand simple through gusto plus guideline.

What's the anatomy of a partnership look like in this category pre-acquisition merger?

Um, we were talking a few days ago about the relationship between Apple and Open AI and we were kind of like wait like should Apple be paying for the right to have good AI on their phones or should chatt be paying because they did all these extra queries and we were kind of and I think like the rumor is they net it out to be like there's no money transferred and I could imagine that sometimes that comes up sometimes it's like hey I'm getting you customers you got to give me a fee like what what are the structures?

Do you have companies that are in one camp and the other or do you can you share anything about the relationship beforehand? I'd be interested to know just like channel sales is something I'm like learning about now. So the first thing to start with is Gusto's entire engine of of growth. You know, here's another metric.

We can tee it up. Uh but we're going to we're on track to add about 150,000 customers this year. That's a lot. So is that businesses? That's small business. Wow. That's a lot of businesses. Yeah. Yeah. Okay. And so you're talking some guys that absolutely love business. So this is fantastic.

The best news I've heard all day. We can get into our whole like what is AI gonna do in the world tangent if you want too. Interesting. Um but yeah, we'll come back to that. Yeah. So basically like we are an engine to go bring in more and more small businesses, especially new employers, folks starting out, right?

If you don't pay someone, they quit. So, it's right off the bat like an important key thing for you to do if you're building a team or adding even your first employee. Y and so, um, there's a lot of folks as you can imagine that would love to, uh, distribute through Gusto because of the the scale that we're at.

And so, what that looks like first is not us starting with the partner, but starting with the the small businesses and finding out like what are their pain points, who are the products, what are the products they like or want to use already. They're voting with their actions that come in through our integrations.

And then we do a lot of vetting. So I think more Apple approach than the Android. We want to make sure quality experience, accuracy, reliability, and then like just this obsession with user experience uh comes through of whoever we're working with. And then yeah, we'll do partnership deals across multiple product areas.

Time tracking is another example. Sometimes we'll have first party like we'll do our own product and still have best of breed third party. Sure. And then that's a negotiation. There's usually if we're going to drive a lot of customers to someone, there's some type of rev split. Yep.

Um because we're creating value for them, there should obviously be value for us. Yeah, that makes sense. What is your what is your guidance for a ton of startups sign up for Gusto today when they're one or two people.

It's just the founders and and um what is uh what is your kind of framework for you know the right companies to use Gusto and and um because you know again companies today they might start with a couple founders today and be 30 30 people in six months, right?

these things happen like we got to vibe code our own but how do how do you got to rip this out and vibe code our own are you counting the are you counting the AI agents as people are not is my question yeah yeah that's a good question um but yeah how are you how are you thinking of serving startups as of today it's obviously from my understanding a lot of where you guys started but it's uh it's always evolving yeah I mean as a quick backdrop you're alluding to it three founders we all started here in Silicon Valley we went through YC you know I was born and raised here my my parents aren't from tech though they came from like uh my dad was a teacher, my mom was a teacher.

Um and so same here was a teacher. Oh yeah. Where did you teach? Uh in high school that I went to high school. My my dad's high school. Very cool. But yeah, it was funny. I think uh I don't know if I asked my dad this. I don't think he would have had a great answer, but I do remember asking somebody back in the day.

How do I pay? I was had a company was starting to make money. I was like, how do I pay myself? And they're like, "Oh, you just set up like gusto and you just onboard yourself. " And I was like, "Oh, that's cool. " Well, we love serving small business. Obviously, tech startups are a part of what we do.

We love serving them, too. I guess from a like target customer lens, you know, broadly speaking, like one to 100 person companies is our sweet spot. That's 98% of the employers in America. But I always love like also it kind of blows people mind usually there there's six million employers in America, give or take.

Twothirds are less than five employees. Wow. Right. Twothirds are less than five employees. So, whenever I meet a small business owner and there are three people and they say, "I'm small. " I'm like, "No, no, you're not small. You're like the common business owner in America. You are the average. " Yeah.

Well, uh, quick thoughts on, uh, AI because you alluded to it earlier. Yeah. I'm interested I'm interested specifically in how you think about surfacing AI.

like do you want to put a chat box in some of in front of someone and then that's an interface to all the the the deterministic workflows you've built or do you want to just turn AI loose within your you know behind the scenes development team and have flows that are working just to improve things reality check things like you're probably using machine learning for fraud detection for years is it an evolution of that there's a product manager inside of you um I would say yes to both and more Yeah.

Um, so like we do a lot of complex kind of backend processing of either money movement, filings, documents. There's a lot of ways to use AI tooling for productivity there. Um, so that's great and we've always used technology for how we scale, right? Like we serve over 400,000 customers today.

That's only possible through through using a lot of software.

Uh but from a customer experience lens um actually again both I really think there's this massive I mean understatement here but paradigm shift around how we use software and how software helps us you know when I got into software in high school like what I loved about it is it felt like it gave you superpowers and then every time I saw like books on how to use a tool or I learned like someone would brag on LinkedIn I can use this tool it like really really annoyed me because software is not something you should have to learn how to use.

It should just work. It should just make sense. It should be intuitive. It should give you superpowers.

So conversational interface I think is going to be a pretty I mean again understatement but like much more accessible way for a lot of folks to use software and it'll work in combination with web workflows and stuff like that. And so we have a conversational interface for Gusto called Gus. Sure.

And to your point like it can take actions, right? You get it. You get it. Um but like you can like set up a sift shift schedule. You can go run payroll. like you can leverage all of our APIs that we spent 14 years building and Gus can do stuff for you, not just give you information.

Funny story, my dog's name is Gus Gustavo and I have a friend who could never, he was so into uh B2B software. He works in the B2B software industry that he didn't understand that my dog's name was Gustavo and for a long time he would call him Gusto. I was like, I didn't name my dog after the software platform.

Well, I have one. Speaking of dogs, Bill Bishop is in the is in the uh Substack stream from Cynicism Cinism, and he says he's a happy gusto client. So, you have another fan listening right now. Thrilled to serve you. I have one I have one question. Uh and I'm curious. When when I got onto Gusto, Yes.

back in the day, was it was close to a decade ago at this point, I was I was confused that I had to hit the button to run payroll. I was like, "Is this not a payroll platform? Why why do I have to?

" And I remember there was a couple times that I would get an email and it' be like I'd be like, you're like, "You need to run payroll now. " And I was like, "Why? " I I think you do you can automate it now. But is there Yeah.

Is there is there kind of a generational divide there in some ways where there's like a generation that understands like payroll is something that you hit a button and you run it versus payroll is just something that is just humming.

At the first startup I ever interned at, uh, the CFO hated me because I would always turn in my time sheets late and he's like, I need to run payroll. And I'm like, just pay me the same every month. I'm fine. Like, you can just put it on autopilot. And they're like, autopilot doesn't exist.

This is 2006 or something like that. So, we we rolled out autopilot for payroll back in like 2013. I remember using it. It was fantastic. But it was Yeah. So, the key the difference here between both of your use cases was if you have nothing to input.

So if it's like let's say all salary versus some hourly um andor like no one took PTO. But again there's there's inputs that go into payroll. Now assuming that's all there like it should just work and that's the way it does work.

We way back when this is now 2013ish like we have uh Penny the Pig is kind of our like kind of a part of our company kind of brand culture mascot. I can see Penny and Gus potentially beefing over who's the most important. I mean they're they're mascots. They're friendly with each other.

There's there's a friendly competition, but but we had to have the the gift. It was a gift for like running payroll when you clicked run and it went too fast and we had customers back then go like it can't be that fast. Something is broken.

So we had the gift just run longer for the sake of it just to make people be like, hey, there's actually hard processing happening behind the scenes here. And and the world's come a long way since then. So people expect stuff to be fast, simple. Um we want to automate. I mean a good example is 41k.

So if you want to go change the contribution that's being made like that can now be done easier by us being one company. But yeah I we think eventually payroll becomes something like flowing water. It just works and and you don't have to do much um direct action yourself. Fantastic.

Well thank you so much for hopping on chatting. Uh acquisition makes a ton of sense and congrats to both teams. We'll talk to you soon. Yeah. And make sure you give that teammate a 41k. We will set it up. It's happening. Have a good one. Talk to you soon.

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