WhoBuilt

From A Pivot To Building A $9.6 Billion Payroll Company

Mar 18, 2025· 26 min· 29K views·Watch on YouTube

Speakers

Josh Reeves, co-founder and CEO of Gusto, talks with Y Combinator partner Harjeet Taggar about Gusto’s pivot to payroll, company building, and its plans to help small businesses.

From expert advice to payroll

Gusto’s founders first explored a service connecting callers with experts, but early calls focused on topics they did not want to work on. They traced the idea through marketplace payouts to payroll, then spoke with small business owners and found a problem that resonated more. Reeves says the founders were drawn to payroll’s broad impact and the chance to simplify a painful task many businesses still handled on paper.

Start with a working payroll system

The founders narrowed their first product to the basics: tax calculations, filings and payments, plus moving money from employers to employees. They limited the initial scope to California and decided not to pay themselves until their system could pay them. After onboarding a few YC companies manually, they could point to payroll processing in the thousands and tens of thousands of dollars.

Finding customers and investors

Early customers included new YC companies in California that had not paid themselves before. Gusto did not open public self-service signup after Demo Day; it launched publicly in December 2012. Reeves says the company attracted investors with a clear SaaS model and a fragmented market: ADP and Paychex together had less than 20 or 30 percent of customers, while cloud, mobile, search and social created openings for a new entrant. More than 11 VC firms offered to invest, but the seed round came from over 20 angel investors.

Build with warmth and focused teams

Reeves describes Gusto’s product design as a way to bring warmth to business-critical tasks such as paying employees, while keeping reliability and accuracy central. When Gusto added benefits, it formed a separate team of five and gathered feedback from existing customers. He says distinct teams, or swim lanes, help each product group stay close to its customer problem as the company grows.

Competition, co-founders and the next decade

Reeves sees competition in fragmented markets as evidence of opportunity and advises founders to build a distinct strategy and execute well. He credits the three co-founders’ shared commitment to meaningful products, communication and feedback for their long partnership. Looking ahead, he says AI could help Gusto act as a proactive back-office partner, and that the company wants to increase the share of U.S. employers that survive beyond five years. He points to Compliance Hub as an early step toward handling more business compliance tasks.

Takeaways

  • Move on from an idea when early evidence and the founders’ own interests do not support it.
  • Prove the smallest working version of a complex product before expanding its scope.
  • Use early customers to validate the core system, even if onboarding is manual.
  • In a fragmented market, define a strategy competitors cannot easily copy and focus on execution.
  • Give new product teams autonomy and direct access to customer feedback.

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What was claimed 16

  • role at
    “I'm Harjeet Taggar, one of the partners here at Y Combinator”
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    Unverified1 source· Talk
  • role at
    Josh Reeves is CEO at Gusto
    “co-founder and CEO of Gusto”
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    Unverified1 source· Talk
  • feature
    Gusto: Support for hiring across multiple states and internationally
    “hire in different locations, whether across multiple states or internationally”
    YouTube
    Unverified1 source· Talk
  • feature
    Gusto: Time tracking and shift scheduling for the hourly workforce
    “products for the hourly workforce, such as time tracking and shift scheduling”
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    Unverified1 source· Talk
  • feature
    “setting up health benefits”
    YouTube
    Unverified1 source· Talk
  • feature
    “our products include payroll”
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    Unverified1 source· Talk
  • founded
    co-founder
    “Gusto was started by three co-founders”
    YouTube
    Unverified1 source· Talk
  • metric
    Gusto: More than 11 VC firms offered to invest
    “We had over 11 VC firms offer to invest”
    YouTube
    Unverified1 source· Talk
  • metric
    Gusto: Raised a seed round from 20-plus CEOs and founders, all angels and no VC firms
    “it was all angels. We raised from 20-plus CEOs and founders”
    YouTube
    Unverified1 source· Talk
  • invested in
    Max Levchin invested in Gusto
    angel investor
    “Max Levchin from PayPal”
    YouTube
    Unverified1 source· Talk
  • invested in
    Dharmesh Shah invested in Gusto
    angel investor
    “Dharmesh Shah from HubSpot ... was also one of our angel investors”
    YouTube
    Unverified1 source· Talk
  • invested in
    angel investor
    “Jeremy Stoppelman from Yelp is one of our angel investors”
    YouTube
    Unverified1 source· Talk
  • feature
    Gusto: envisioned as a personalized and proactive back-office agent for business owners
    envisioned as a personalized and proactive back-office agent for business owners
    “AI enables us to turn that vision into reality even faster”
    YouTube
    Unverified1 source· Talk
  • metric
    Gusto: About 52% of new employers make it to year five
    “about 52% make it to year five”
    YouTube
    Unverified1 source· Talk
  • metric
    Gusto: About 550,000 new employers each year in the U.S.
    “There are about 550,000 new employers each year in the U.S.”
    YouTube
    Unverified1 source· Talk
  • launched
    “Something we announced recently, though, is a Compliance Hub”
    YouTube
    Unverified1 source· Talk

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