Gusto: Driving alignment

The key to alignment at scale is good planning and consistent communication.

As your startup grows, driving alignment becomes a coordination and planning problem. Good planning enables teams to spend more time building and driving progress. Bad planning leads to slow execution and lack of business progress. Josh Reeves, CEO at Gusto, felt the pain of this shift at about 70-100 people. To help address this, he invested in better planning and consistent communication via all hands and other mediums. His goal was to create systems that drove alignment so people can spend most of their building (e.g., actually doing stuff). He describes the shift below and also highlights some rituals of communication he used.

"Why do we need to spend time on this topic that many people call a planning? Why is this useful? And is this just a bunch of BS and things that distract us from building? Because building is writing code. Building is writing marketing copy. Building is answering a customer email. Building is calling a customer for a sales call. What's this whole like planning strategy thing? And the metaphor I used was [following]. Maybe some of you can imagine a similar place near where you live, but like Lake Tahoe is a place that's about four hours away [from San Francisco]. And many folks like to go there in the winter for a ski trip. And I was like, imagine it's a Friday and you and one really good friend are like let's go to Tahoe. Let's just do it. No planning. Spur of the moment. Probably can just do it right? Like two people is talking to each other. Are you driving? Am I driving? Did you bring your wallet? I brought my wallet...You just kind of started driving, right? And it actually works. Now imagine that [same trip] with five people, and you're like, I probably can still fit in car. That's not a big deal. Maybe we need to get two hotel rooms now. Now imagine doing it with 100 people. It will definitely not work. It would just be chaos, right? Like you might all ended up at different resorts. You'll end up in different lodging. You might forget someone. And so that's what planning is trying to solve...coordination and alignment."

"We also did all hands every week where it ultimately ended up being a lot of those common topics. It was like who's joined. It was like open roles, because we want everyone to help with recruiting. It was like, here's how much money we have in the bank. Here was our revenue. Here was our expenses. That was kind of a very basic financial breakdown. It was here's what we've made different and improved in the product. And it was here's feedback from customers, whether it was like the numbers in terms of number of tickets, categorization, and some qualitative quotes. But that was kind of our early I'd say template to all hands and I, you know, I didn't have anyone to help me with it. I just did it all myself because it's not that hard. Right? Just looking at a couple of dashboards, copy pasting a couple of screenshots. I remember putting it together like half hour before each all hands. And we also did a selfie at every all hands that was fun."

"Comms is not just all hands right? Like it's anything you send. It could be a video message that you post in Slack. It could be a memo or that sounds like too fancy just thing you write down half pager of whatever to share some thoughts."

Successful planning atomizes your mission and strategy into something near-term, tangible, and executable (e.g., metrics)

Good planning drives parallel execution so teams can operate simultaneously on multiple products. It also helps connect your "big" vision with the actual execution by making it more tangible and near-term focused. Gusto's Mission was (and is):

1. Be the easiest way to pay employees = [Payroll]
2. Strengthen the employee-employer relationship = [Health insurance and Benefits]
3. Empower employees to better allocate their pay = [Gusto Wallet (consumer fintech)]

Planning broke these big statements down into 3 year, 12 month, and quarterly increments. Gusto first scaled payroll, then launched benefits, and in the last couple of years launched its consumer fintech offering. Good planning helped connect the Mission and Strategy to the actual execution and helped drive alignment. The ideal planning process, per Josh, is one that maximizes time spent building by the team while limiting the time spent planning.

"You end up having artifacts -- that's kind of the term we use...We always had a vision artifact with what's our vision? Where are we going? What do we stand for? What do we hope to go change in the world? And it was very big and ambitious. And we needed to start creating something that was more tangible and near term focus. And it also was a way to think about just going from sequential execution to parallel execution. Again, you know, early on, we just all did one project at a time. We all worked on it, and then you went to the next project. [At around 100 people] We started having what we would call a three year plan, which was a very strong stake in the ground for what we will do in the next three years. And we had our fiscal year plan, which is the next 12 months, which is more of a budgeting exercise. And then we started having, you know, pretty regular check-ins on a quarterly, monthly, and weekly basis that builds up into those goals. So that's something I put in the planning bucket. But a lot of it also is organizational design and it will change and be in flux, but how do you decentralize into different swim lanes so that smaller teams can have autonomy to go execute, and not be waiting for approval or permission to do which can also become a big bottleneck."

All metrics are not created equal. Defining activity metrics that drive the outputs drives planning and execution

A common mistake we see founders make is using output metrics to drive alignment. The reality is output metrics are both disconnected from the actual work and the inputs that drive change in your business. All north star metrics can be broken down into an equation and great CEOs constantly evaluate this equation to understand the drivers of their growth. These drivers are then used to drive alignment and purpose as well as plan your hiring and investments more effectively. Josh, Gusto's CEO, advocates for investing in this process as soon as you have sufficient scale whereby ratios start to show consistent patterns. In the case of Gusto, he hired Andy Toung at 25 people at ~$1M ARR to lead finance. Andy helped Josh (CEO) define the activity metrics of the business and to up-level the planning process.

"I'm just thinking back to early on, it was like we grew 10x last year, we'll grow 10x this year. That's the very simplistic form of FP&A when you're super, super small. But it just becomes a lot more science than art. Frankly, there's a lot more data, there's a lot more cohorts to leverage. And then the numbers just get bigger and so it's just a muscle. It's worth building. I would argue earlier than later and the pitfall there is to think you can actually predict the future. A forecast is a forecast. It's not reality, you know, it's never going to be on target. But it's just again, a muscle you want to own and you only build it if you start the process....Gusto is a high volume, lower touch, inbound, organic fueled, GTM motion is our main direct motion. And then we have a channel relationship with a bunch of accountants. But what that means is, you know, there's still some touch with a salesperson, it's just more reactive."

"You need sufficient numbers to start having ratios, right. So like, how many customers can a salesperson close per week? per month? And what kind of dollar ARR comes per salesperson? In the most basic form, you just take your revenue from that month, and you divide by the number of salespeople to get a number. We all know that if the number is too small, that denominator is too small, then it's just going to be wildly volatile. So think of that [sufficient scale] as like one metric that will be helpful [to indicate when it makes sense to plan with metrics]."

Sales & Marketing Metrics

Output: New ARR

• Number of AEs
• Ramp times
• ARR quota for AEs
• Average deal size
• Number of organic leads
• Number of AE sourced leads
• Number of paid leads
• Close rate

"The problem to solve is how many people should you hire in sales right? And if leads goes up by 5x, you have to also have some type of historical on lead volume, your lead sources, what's organic, make some assumptions on how that persists....So these are all just systems it's all math right? The outcome is budgeting like you have finite dollars where do you allocate towards. Is it content programs to drive more top of funnel? Do you allocate towards a salesperson to help with conversion and closing? Do you allocate towards paid acquisition to drive more MQLs or leads into the funnel?"

Customer Support Metrics

Output: Customer Support Reps

• Calls received per person
• Calls handled per rep (time per ticket, tickets closed, etc)
• Rep ramp time
• Rep specialization (e.g., a benefits question might take longer per ticket vs. a general question)

"How many calls are we getting? how many calls per person are viable to be handled by a human? and you have to make a bunch of assumptions. If you're launching two new products this year, probably it's not going to stay the same. Are you going to have a generalized support team? Are they going to be specialized? And then the action that comes from this is like I said, it's just who should you hire, how many should you hire. If you have a ramp time and it takes you know, 90 days for someone to be effective on the phones, or it used to take you know, 60 days now it's becoming 90 days cool, but now you're going to be offset by 30 days. They're also tracking onboarding, time route tracking, close rate, and all these different things that drive a model [to ensure you can] still deliver the experiences needed, right?"

Engineering Headcount

Output: # of Engineers

Input: No ratio. Driven by 1) how much do you need to accomplish to achieve your goals and 2) target burn profile.

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"You have leverage headcount in the company too, which is things like engineering where there is no ratio, but it's like cool, so how much is left to hire? Based on your roadmap? [Do you need] two engineers or five engineers?"

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Planning clarifies tradeoffs and forces prioritization. As you get bigger, with focus, you can do more in parallel

Building a company is a constant question of resource prioritization. In Gusto's case, they squarely focused on scaling with customers with 1 to 100 employees in the first few years of the company. In service of serving their core customer more deeply, Gusto deliberately shied away from serving middle market customers. This let the team build health benefits and financial services products for employees. More recently, they've began to serve companies with up to 500 employees. This focus helped Josh and the team make difficult tradeoff decisions because they had a clear understanding of the customer and business model required to serve them well.

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"[Our] opportunity is to serve every business everywhere in the world. So there'll be a future moment when Gusto serves 100,000 person businesses and has you know, customers in Poland and Brazil. We're excited to go serve folks, wherever there's an opportunity. But to the theme of this discussion, the question is not if, but when. When is a very important topic, right? And there's ultimately a lot of trade offs in that process. So I mean, it might be more unique to our business, but I think some of the principles might be generalizable. You know, again, we think of these kind of like his act one, act two, act three. You don't move off of Act One, but it gives you the chance to write the opportunity to go do more than just your act one. And so, maybe the difference for us is, you know, we have hundreds of thousands of SMBs where we have really, really great NDR, we have great cohort performance, we have strong unit economics, we have cost effective CAC payback and gross margin. That's very, very healthy. And so it's kind of like just a way of saying if you can build a business in a large market that's doing well and growing quickly, why wouldn't you want to keep doing it? Now? The reality is for most SaaS companies, SMB becomes not a great market because they can't and it's not usually their fault. It's just depending on the product, depending on the product mix. It becomes a segment that can be hard to scale. And so more of the playbook I would say is to move upmarket and do larger deals. But fortunately, there are examples like Shopify, Square, and Intuit that demonstrate if you are focused on SMB and have the right product mix, it becomes all numbers right? As bigger bigger numbers come in, can you maintain those unit economics? can you maintain that type of funnel? Does your net dollar retention stay healthy? And if so, it's not that controversial of a decision. I would say it's a hey, you have a business that's working. Why would you not want to keep doing it? And then it becomes a choice of when do you layer more on top? And so that's been more of the discussion at Gusto. Today, we talk about one to 500 employee businesses being our sweet spot but there are product differences for some of these different segments. Much like for many of you, I imagine if someone came in from a totally different customer profile, they might have different needs. And then you have a choice, you know, who do you build for? And again, hopefully the question is not if, but when. But you can't build for too many people all at once with finite resource. That's been more of our journey when it comes to company size. When we had 100 to 150 people, we were more [focused on] one to 100 employees and we had a customer that had 850 employees. It was just wildly out of our sweet spot at the time. And they wanted to stay on Gusto. But the reality was the work to serve them would indirectly come away from us doling out health insurance at that point for small businesses. And it's never really a zero sum. But it is all trade offs and prioritization. So I would say, hopefully, that gives folks some context at times you have to just choose one of two things. But as you gain scale, you can start using two or four things or three of six things. That's been more our journey today."