Everybody, welcome to your episode of Newcomer.
Tom Doton here, joined by Madeline Renbarger and Eric
Newcomer of Newcomer. We're all in San Francisco right
now, but we are not all in the same place, actually.
Madeline and I are holed up at our friend Volley's offices,
which is as close to newcomer HQ in San Francisco as you can get.
I would say this is the Newcomer Satellite office.
Absolutely. You gotta come in.
We can't all be in the same place for security reasons.
We don't want all newcomer employees together.
It was dangerous enough this week.
Yeah, well, right. Good transition to the reason
we're here, which is that we are fresh off the Breaking the Bank
Summit, the Fintech Summit annual thing.
Although what is it the second year you've done it?
Well, the first year we called it the Newcomer Banking Summit,
and we realized fintech was much more exciting than banking.
So in some ways this was the first year and in some ways it
was the second. You know, that was a little
awkward on stage. It's like people are coming
back, but this is the first time.
But yeah, this was, yeah, our first pure Fintech summit with
some returning faces. Right, there were some returning
returning faces, like Jackie Reesus.
Yeah, Matt Harris from Bain Capital Ventures came back for
presentation round two. Big hit of both events I would
say. All in all, it was a lot of
people across the fintech world. It was fun kind of getting to
talk to them in between sessions at the after party as well,
which was exclusive. We try not to talk about the
after party, but. Don't tell them I.
You know I ran into like. The guy who'd gotten viral
because he was trying to have people take out debt to make
investment accounts, I don't know if you saw that the other
day. I think it was like Basic
Capital, who I had no idea was even going to be there there.
So that's what I love about these events.
You know, we try to get great founders there.
And then I'm like, Oh yeah, I've I've heard of your company.
So, yeah, it was a good crowd. And then excited about what we
have to share about what happened on stage.
Conversations ranged from a ton of different topics around
fintech. I mean, the premise was, you
know, fintech is back, baby. And then, you know, we had to go
on stage and really ask, is it back?
But stable coins certainly are back.
The big resonating theme of the day was everyone is super pumped
about stable coins. Probably.
Talking about stable coins is back.
Tripe a done, you know a billion dollar acquisition, billion plus
dollar acquisition of Bridge. We had the Bridge CEO as the
second person on stage. Jackie Reesus at Lead Bank is a
bank that's really backed stable coin fintech companies.
So we definitely open the day strong with people who are
excited about. It, I mean, later in the day,
too, we had, you know, Eric Gleiman from Ramp who has
launched with Stripe and Bridge for a staple coin card.
Yeah. Yeah.
I mean, in the background of all this, you know, Tether is making
more money than per employee that almost like any company in
history off of stable coins. So everybody sees that there's
like a ton of money to be made. And of course, Congress was
passing legislation right as we were holding the event to make
stable coins much more legal to do or clearly legal.
So yeah, that I think that was theme A.
We've decided the selects for this episode will be from Theme
B, which I thought was equally interesting.
Yeah, theme BI mean there was a big debate that I feel like is
still kind of unsettled, which I find interesting.
So we'll hear different perspectives on it later.
But around, you know, the idea of AI enabling startup founders
to go after service businesses, you know, like accounting, legal
tech services, but you know, accounting, especially since
this was a fintech summit and where the merits are around, you
know, fully pitching your startup as a service business
that can be fully enabled with AI, or rather, you know,
sticking to software and you know, being the software
provider for these businesses. Matt Harris at Bain Capital
Ventures gave a presentation which I think captured some of
the venture capitalists sentiment well, which is
financial services businesses are enormous.
You know, you think about accounting or broader services
businesses like law. There are many, many, many
billions of dollars of money to be made there.
But of course, they're human intensive businesses, the kind
that tech companies traditionally shy away from.
But the argument is that now, thanks to large language models,
start up founders should go after those categories.
And Harris was arguing basically, definitely good for
start up founders, maybe not as good for venture capitalists
because they're still gonna be, you know, you might out operate
a law firm, but you're not necessarily going to build, you
know, a Facebook. So that was Harris's argument.
And then as you're going to listen in these conversations, I
put that question to Digit CEO Jeff Siebert and Rogo CEO
Gabriel Stengel in our first conversation.
And then I talked with Josh Reeves, the CEO of Gusso,
probably one of the most experienced founders we had on
stage and asked them, you know, do you really want to run a
services business? Jeff at Digits had really stood
up an accounting practice to build their QuickBooks
competitor. And then Josh Augusto certainly
has built some of these services businesses.
But again, I think to sort of see if they can build software.
So where did you guys net out in terms of the argument?
Matt Harris, back to his presentation.
He ended very strong in an interesting way by basically
saying I'm tired of nibbling around the edges of fintech.
You know, this is a $33 trillion opportunity, which I guess means
all banking around the world. Well, it's also including
accounting, it's including accounts receivable, it's
including, you know, health insurance brokerages, as much
money as possible that you know, any money industry I.
Don't know if you guys heard this, but it elicited a woo.
Yeah, from Jackie Reese's. I at least heard it.
She was right in front of me while he was she also.
Sent me an e-mail saying she loved that quote too.
So yeah, she clearly agreed with that idea.
Well, who wouldn't want to be part of a $33 trillion
opportunity? But but I think that kind of
speaks to the challenge that fintech has had, which is like,
is this just some sort of, you know, skimming of, of businesses
that the big banks and other financial institutions aren't
already taking? Or is it like truly disruptive,
right? Is fintech, Venmo transfers,
weird loans, helping people, you know, finance their burritos?
Or is it, you know, the core of the American economy that big
services companies have been able to deliver?
Or a bunch of small ones, Honestly, a lot of small
businesses doing accounting and law and all these things that
they want to tackle. Right.
And like bringing it back to like large language models, like
is this the entry point to this larger business, to this larger
opportunity or you know, are we still going to be about these
kind of marginal disruptive plays that can build real
businesses like Klarna or a firm, but aren't, you know, I
don't think are really necessarily taking 33 trillion
as the opportunity there. I will say, I mean the success
of Rogo so far, you know, they're basically building an AI
agent that can automate the work of an investment making analyst,
which is very specific, but has taken off, especially in an
industry where, you know, unlike accounting, you can get most of
the way there and the people will say, you know, this is good
enough, we got this done. And so that is one place where I
can see the service automation be very promising.
But that being said, it is a pretty specific service that
they're automating there. So we'll see how that expands
accounting. Of course you know it's tricky
'cause you don't want to mess that up.
I, I think that's a key point, right, Gabe with Rogo is, you
know, they're trying to replace like the Goldman Sachs analyst
or even just, you know, give you a sort of cheap analyst that
that has a rundown on companies you care about.
You know, you imagine the bankers already like going on
ChatGPT and be like quick before this client meeting.
Tell me the download on this random like oil and gas company
I've never heard of. And so there, it's like Rogo.
Doesn't need to be 100% crack. They just need to be better than
sort of the lazy version of this.
And obviously they have, you know, aspirations to be much
higher quality than that, but they don't need to be 100%
correct. They need to help you get pretty
broad coverage and be able to move quicker than you can right
now. Whereas accounting, as Jeff was
saying, you know, you need to get it right and you know, a lot
of what they would need language models for is sort of the boring
business of tagging all your expenses, which is somehow is
still a task that's like cannot be fully solved by technology
right now. And so he talks about how they
use machine learning for a lot of the tagging because he finds
it much more accurate. And then when they really can't
figure it out, they sort of see if a language model can sort of
crack it, but they're not really relying on it.
So Madeline, I think exactly like you're saying, it really
depends what business you're in, how much you trust language
models that aren't totally consistent.
You know, Jeff made the point like, well, ultimately you can't
sue the AI. So if you mess up my accounting
books, like, you'll sue the CPA. So there's a different stakes.
You know, the last thing I'll point to before we throw it to
you can listen to them. I did all that reporting on
bench, the accounting firm in Canada that blew up where the
founder basically said, oh, if you hadn't pushed me out, this
would might have turned out differently.
And you know, you can read those stories and it had a lot to do
with the particular investors and executives.
There was this real lesson that building a startup that hires a
bunch of accountants is is a big headache.
And so building a tech company where you're going to try and
hire all the people and then slowly figure out how to do it
better with software, it's hard to guarantee that you can bridge
that gap. And then one day you may find
yourself just operating a regular accounting firm and your
investors want you to have, you know, the margin profile of a
hot start up. And then you're in big trouble.
Good recap of the event, guys, and I think now we should just
kick it on over to two of the highlights of the event.
Very excited about this panel. We're going to have a great
discussion about what is possible with artificial
intelligence in fintech. We have two of the very well
financed cutting edge startups here.
Both of you can certainly claim that.
Gabe, you want to start with Rogo and just give the quick
like what you guys are doing? Happy to.
Thanks for having me. I'm Gabe.
I'm the CEO and founder of Rogo. We're training an AI analyst for
investment banks, private equity firms, and hedge funds.
We're a Series B company backed by Khosla, Thrive, Eric Schmidt.
A number of other folks deployed a, you know, a number of public
investment banks, large alternative asset managers,
large public equity investors. And you're, you're replacing the
banking analyst, right? Not yet, not yet.
Banking analyst right now, I mean, everything can be broken
up into augmentation and automation and we're much more
on the augmentation side still, even though, you know, I think
we and a lot of folks see that changing quickly.
And Jeff, the Digit story. Yeah.
So two months ago, we launched the first feature complete
replacement to QuickBooks in 20 years since 0 came out.
It was a long build. We started the company in 2018
and we're basically in R&D stealth mode ever since.
And so our goal has been to basically automate and make
small business finance real time intuitive, actually helpful to
the business owner, not put them in a position where they're
waiting two to three weeks to get a black and white PNL, which
is sort of. You're coming for a QuickBooks.
Space 100%, yeah. And there there are lots of
problems with QuickBooks. Some of them have nothing to do
with what a foundation model could produce, and some.
So dude, how do you break down Yeah, how much of what's making
digits different has to do with things foundation models can
produce? So.
It is pretty fundamental. I would broaden it to machine
learning. So when I started the company in
2018, our premise was can we build the first GLA general
Ledger for accounting that's ML native.
We honestly got very lucky with this whole AI wave.
Now it's AI native. Great.
OK. But we primarily do traditional
machine learning. If you look at accounting as a
field, it is predictive, It is not generative.
You do not want an LLM hallucinating your books.
And so we custom train and run our own models in production.
We do fall back to LLM Foundation models as sort of a
worst case scenario. But our story to the industry is
we are automating the bookkeeping.
We automate 93% of it today. And what's unique about the
accounting industry is they want that they are as a profession
trying to up level the profession away from bookkeeping
and into advisory and sort of client communication work.
And so that's what they're going for, I mean.
Basically, you use machine learning tag expenses, get it
100% right, and then if you're tagging system doesn't work,
you're like, all right, we'll try an LLM and see if it's sort
of more free thinking style can tag it itself.
That's the right way to think about it.
So if a business has seen the transaction before, our
predictive models are effectively 100% perfect.
If the transaction is novel to the business, we then fall back
to different tiers of models that ultimately result in an
agent. Like what does your bookkeeper
do? If you have something totally
new? They Google it.
What does the agent do? It Googles it.
Gabe, that I don't know. I don't take that as the most
optimistic view of what LLMS can do.
It's sort of like, oh, we have our accurate ones and then we
have our like guy who Googles things and like sometimes he's
helpful. Like you're much more leaned
into, like LLMS can deliver real value to bankers.
What's possible right now? How accurate is your software?
It's. Funny, Jeff and I were were just
discussing it backstage because we have two very different
products and very different users.
If you get financials that are not 100% accurate and you are a
small business and you don't know how to go in and audit
those books yourself, that's a pain.
If I give something that's, you know, good enough for an
associate to check, you know, maybe as accurate as their first
year analyst who's not perfectly, perfectly accurate,
that's actually very value additive.
Part of the, the benefit we had is that when we went in, folks
were used to using products like Chacha, BT and a lot of our
early users realized these tools can be very valuable without
being 100% accurate. And so I mean, the last thing I
would ever say when selling is that we are in 100% accurate
tool. What I would say is you can get
a lot more value than you think before they're 100% accurate.
You need to be better than someone who's right out of
college, and you need to be better than a lazy banker using
chachi. Exactly.
And as we learn, right, the way your intern learns to be an
analyst, learns to be an associate, VP, director, when
we're at director level, we're not going to get wooed by a
better paycheck somewhere else and all the enterprise value
isn't going to walk out the door and go to a competitive bank.
And what I mean, what's the coolest thing you can do today?
Like where do you think Rogo is really excelling?
Like what is the sort of query I?
Mean it does things why you should use.
I was an investment banking analyst at at Lazard.
I did buy Side M and A coverage for healthcare companies and I
didn't know anything about healthcare companies and we
would help large biopharma companies spend $5 billion to
buy biotechs and it can do almost all the work I did in the
analysis of those companies, right?
Like looking at their R&D pipeline, thinking about the
different you sort of oncology areas that might be additive for
Johnson and Johnson or or someone similar and then
preparing a presentation on why it would be additive to J and JS
overall M and a strategy. I mean we can put together the
materials diligence, the company, look through their
financials, do a do a lot of what these folks are doing.
Jeff, I mean, we saw sort of the presentation from Matt Harris
earlier, which is like get into the services business.
And I, I wrote last year a fair bit about like bench accounting,
which tried to sort of do accounting plus the actual
accountants. I mean, you're going after
QuickBooks, right? You are not building an
accountant team. You've, I think you've used some
accounting firms to sort of understand your product, but why
not go I guess whole hog and say we will be your accountant.
We know how to use our software better than anybody.
We'll take advantage of it and do the whole thing.
This is such a good question. So and just to clarify, we
actually do have an accounting team.
We do have an accounting firm. Some of you may have seen our
billboards. We do full service accounting
for hundreds of top startups now, OK.
That is not the business that we are not scaling that OK.
Yeah, because. We are.
I didn't think I was that wrong. Yeah, yeah, yeah, we do it, but
we're not going to do it at scale.
So we have. Capped the client, got it, got
it. The reason we did that is we
need to present a model firm to the industry, right?
And so if you look at the accounting industry, they're of
course traditionally relatively risk averse, relatively slow to
adopt new tools. The cloud transition took them
15 years. I'm not joking.
And so we want to accelerate that a bit.
And so we did build out a model firm to show you how you can run
digits as a practice that is not the core business.
And so I do think there's been a trap in the space.
If you look at some of the well known sort of previous offerings
that have tried to build a services business with some
internal tech. And I mean you even see Atrium
that failed at that in the legal space.
I think it's incredibly hard to bring together a software
business and a services business and actually scale it to high
margin. And so we've been really
disciplined on, we hire software engineers.
It is a software product like there is no slippery slope of
humans doing any of the work. Why?
Why has QuickBooks been able to hold on so well?
Yes, it's a marketplace product, believe it or not.
And when QuickBooks came onto the scene in the early 90s, it
also had taken them five years to build.
They were sort of building on the backs of the personal
computer revolution. For the first time, you could
really do accounting for your own business, like in your own
office. And the problem is you need both
the business owner and the accountant to really buy in on.
I'm going to use this software. And now 30 years later,
accountants view it as a career choice.
It's a religious preference. Like I'm a QuickBooks
accountant, I'm a zero accountant, I'm a NetSuite
accountant. And so that's the barrier to
break down. Fortunately, there is a macro
trend in our favour. So 33% of fewer people are
pursuing Cpas. Gen.
Z does not want to be an accountant, which you may or may
not blame them. And 75% of Cpas are at
retirement age. And so they're seeing this
talent crisis as the sort of final motivation of, OK, we need
to actually change software, We need to automate our role, We
need to up level the profession. So I think that trend is very
favorable. Gabe, you know, want to sort of
give a guide book for other companies, you know, you're,
you're, you're sort of at the cutting edge of using language
models in your business. I'm curious how much you think
what we've seen with ChatGPT is an endorsement of text based
exchange interfaces. Like do you think the regular
person or your banker customer wants to type inquiries and get
great responses or do you think that's sort of an entry point
over time? It's more and more like
software. Look, I think we're lucky in
that we, we have a lot of users who use the product we have
today. I don't know if that means we
have, you know, any predictive abilities about what that UX
should be 5 years from now. For me, the abstraction is what
is the easiest way for me to communicate with someone on my
team. It's probably Slack, e-mail,
text message, phone call. You know, if I ask for a
deliverable, I get sent to PDFI review it.
Occasionally I'll jump into the PowerPoint, the Excel backup
myself. I think that's a very human way
to work and there's a lot of throughput in that, you know,
you can communicate, indicate a ton.
I think at the limit, that's what you want these interfaces
to look like. If you're building an assistant,
if you're building, you know, an analyst replacement, if you're
building Jeff's business, you know, I, I'd rather just have my
books integrate directly into, you know, whatever systems those
need to go into. I don't know anything about.
No, this is actually, this is great because this is such a a
product specific difference, right?
Like as a startup founder, business owner, I don't want
another person to manage. I don't want another thing to
talk to, I just want the accounting done right and so we
very explicitly have no chat UI in the product the data comes
in. It is booked where?
The output of Rogue, oh, I mean analysts would produce a report,
so it's not that. Yeah, I got you, but.
The way you would iterate might be, Hey, why'd you do this?
Hey, add a page on this. Hey, Are you sure?
You know, that was the post money valuation for the company
and in the comp set. But I mean, it's, it's, you
know, for, for Jeff, it's like, I don't want to hire an FPNA
person, right? We're getting to the scale where
it's like, you know, we need someone and I really don't want
to do it. I'd rather just have those
systems work and I don't want to talked about it with someone
either. Right.
Are you an evangelist when you talk to other fintech founders
of like they should be applying foundation models to their
business? Or are you more on the side of
like, we picked the right area, it makes sense where we're doing
it. And like, I don't know if it
makes sense for your business. Yeah.
I was I yesterday at Khosla Ventures is one of our big
backers and, and they had a big summit yesterday and, and
something that one of the speakers kept hammering was it's
very hard for incumbents in a space to innovate, to brainstorm
the sort of, you know, not just the incremental way to apply
LLMS to your business, but the whole new business model that
emerges. And part partly why digits is so
fascinating is because it's innovating on the business model
in addition to, you know, the actual technology.
But I mean, I was, I was pushing Jeff in our we had lunch
together to catch up before this.
And I'm saying it sounds like you're not using.
LLMS enough and he had a great retort and he obviously knows
his business better than I do. But I mean, I think anyone who's
not trying to use these tools in in kind of a step change way as
opposed to an incrementalist way is is waiting for someone else
to Jeff. You're an incrementalist.
This is great. No, I mean to be clear, we do
use LLMS, we do use agents. We've been running in in
production for 18 months now. I'd say we are extremely
disciplined on making sure we can guarantee the accuracy of
the output. And so for an example like where
we do use LLMS, we actively prevent them from doing math
because yes, they've gotten better at math, but they can
still slip up. Our team literally wrote an RPN
calculator tool that we give to the LLMS and we tell them if you
need to do math, do not try use this tool.
And so there are a bunch of things you can do to put
safeguards around it. What?
Do you think about that? Well, you know, I, I think it's
kind of the analogy I would use and it's going to be a really
strained analogy, so bear with me.
But the sort of Jeff Bezos thing of, you know, your margin is my
opportunity, your accuracy threshold is someone else's
opportunity because they're going to build something that's
not going to work today or tomorrow.
But all of a sudden the base models will be good enough where
you could skip all these layers of complexity and structure to,
you know, make up for that accuracy.
And suddenly, you know, they will have some of that more
human reasoning and be capable of so much more.
I don't know if that's right in. Jeff on like the continued
improvement of the models and if you spend too much time fixing
the models today, you're missing out on the, I mean saving the
problem is. How do you thread the needle?
How do you get enough adoption and traction today to, you know,
validate putting more in R&D for the future?
And like, depending on how accurate you need to be, yeah,
you might need to do some anachronistic things or like,
you know, not use it, just throw LLMS at every problem, right?
It's not, you know, you don't just want to use LLMS for
everything. But I do think that like, you
know, if if you aren't, if you aren't willing to, to accept
some faultiness, some bugginess, some hallucination in parts of a
product like someone else will. And then someone else will
potentially figure out the new product paradigm or UX that's
going to work when the models just get, you know, 10% more
reliable. Jeff, we're in this moment
where, you know, people are like, oh, we don't need software
anymore. You're going to use like a
coding agent to build it. Like I'm going to build my own
custom model. Like why isn't the next digits
just like a home brewed version of 0 instead of like your your
company? Right now this, this is a really
good question. And Can you imagine the models
get so good that you don't need the accounting software at all,
right? And like, could the model just
you, you give it your data and it does your books?
I, I don't think that is the future you want because
ultimately this is still a workflow.
It's a real business process that you need everyone involved
with. You need user accounts,
permissioning, notification sharing, like you need an actual
experience. And so even to the extent we
invest in the AII, do think it comes down to you also need to
build better accounting software, right?
And it's the same thing I would say with Figma, it's like, OK, I
don't think Figma is disappearing.
It can help you. It can automate a lot of the
stuff, but you still ultimately want to canvas your team can
collaborate around. And that's how we you finance.
Like if you could picture a Figma for finance, what would it
be? So we try to look at it as a
broader product perspective where the AI is a core tool, but
it's one piece of the entire vision.
Just like if you were to build like, oh, Redis came out now, do
you not need a whole other like class of products?
You sort of still do like Redis is great technology, but you
still need the actual experience around it.
Do. You think we're close to you
having the problem of someone gets an accountant who that
accountant is using language models that are trying to
interact with your software and then you're trying to figure out
how much to serve them or have you started to see that or are
we too early? We're we're a little too early.
The accountants aren't that quite They're not only.
Adopters. But we we think deeply about the
collaborative flows like the accountant is in the picture.
And this is actually an interesting point for folks as
we talk with business owners. They do not want AI accounting,
IE the the AI does 100%. They actually want the AI to do
most of it. And they want their books
blessed by a real CPA. Because you can't sue the AI,
right? You need someone to I.
Need a human I can blame? And so that is actually really,
really important and that's why the industry is not going
anywhere, right? They will up level and be able
to serve more clients. But you still need that human to
have blessed the books. Gabe, the rapper question, I
mean, we sort of in the presentation earlier today, sort
of, you know, we've, we've moved to a point where it's like, OK
to be a rapper. We don't use that term because
it's pejorative. Like where are I, I, you know, I
love to use pejorative words positively.
Like I've been on the case that it's like, no, you differentiate
on the product and software, not necessarily like on the model.
How would you calibrate that in terms of how much you need to
have at some point, your own models, your own thinking, or
we're going to be the best at directing chachi tea and
anthropic and everybody towards our use case.
Look, it kind of goes back to how Jeff answered the question,
which is even if you have a profoundly intelligent model,
you still need the tools to, you know, do the accounting workflow
right. It's like even if you have a
robot that can move the way human hand, they still need a
drill to go, you know, install whatever they're installing for
us. We're building the tools that
some eventual agent intelligence either owned by us or someone
else might use, Whether that's an Excel interface for an agent,
whether that's a PowerPoint interface, whether that's
structured financial data querying or unstructured
financial data querying or integrations into the internal
data systems of the banks and private equity firms we work
with. That said, I think it's very
clear that reinforcement learning is working and POST
training is working on top of these Frontier models.
And with very great specific evals you can actually
outperform the Frontier. You with post training alone,
you can find a lot of technological differentiation
that that makes it more valuable.
Yeah, I I mean, I think. I think that's what early
results are showing. I don't know if there's, I mean,
actually cognition had a great paper that they, I mean, not
paper. It was a Twitter thread, but it
but it was a great Twitter thread that.
Sums up something in the current it was a.
Great Twitter thread. Like maybe a week ago on they
had, they had post trained a model with RFT for, you know,
writing like CUDA kernels or something that that's quite
difficult for O3. And they got a lot of
outperformance with the types of technologies and and
reinforcement techniques that are now diffusing through
industry. And so I think we'll start to
see a lot more of that. It reminds me of when folks used
to overclock their CPUs and now CPUs are fast enough where no
one really bothers as much. Yeah, No, no, that's, I mean,
it's totally possible. I mean, I think the way the way
that I think about RFT and post training is not necessarily that
it's going to make the model smarter, but it's going to sort
of prune the decision tree and make it better at using your
tools, right. So like opening eyes never going
to have your tool structure and it's training data unless you
collaborate with that. And so the same way if you get a
super smart human starting at your firm on Monday, they're
going to need to learn how to use QuickBooks and zero and I
hope digits, you know the model you want to teach it how to use
those tools to Yep. Jeff, last question, last word.
Would you tell a founder today to build a services business
powered by you've done the sort of flirtation with having the
accounting firm? Do you buy that investor
narrative or do you think it's oversold?
I think it's oversold and it's so tough because it is such a
tempting narrative. It's build your services
business, look at what's slow, automate that, move on, right?
You can drive a high margin business.
The change management, the actual people management is so
challenging because it depends on which profession you're
trying to automate. But there's so much built in
just like native practices in that profession that in order to
really automate everything and build the trust, it's a long
journey to get to that margin versus.
Just turns out people outside Silicon Valley, they know their
businesses too. They're hard businesses.
Exactly right. And again with accounting,
accounting is complicated like. There is no way to simplify
that. Great.
Thank you very much. Thank you, Schuber say, about
this conversation, two things. One, Gusto's the rare startup
where I sort of have a rooting interest in that we are a small
business, and every time Gusto solves a problem, I am relieved
that you get to take it off my plate.
The second thing is it's funny to be hanging out with you with
shoes on, you know, do you guys still have you, have you gotten
rid of your no shoes policy or are you still I?
Feel like I have to give context to people here.
So excited to be here. This is a fun space for me
because we had a Gusto holiday party here in 2015, but our
three first offices were only a block away and we were raised by
our parents to take our shoes off at home.
So for many years our offices were shoes off, walking around
in slippers, socks. We passed them out to folks and
then when the pandemic started, obviously people can do whatever
they want at their home. Today, it's more of an optional
policy. But I do describe it as a
tradition that that felt right for gusto at the time.
You know, yeah, in some ways it's like you've become this
grown up company. Can you give, you know,
obviously payroll is at the heart of it, but talk through
just briefly what the pieces of Gusto's businesses are today in
terms of the focus and where you're really strong?
So something really important to know about Gusto is we obsess
over a small business. So if we have any customers
here, we're honored to serve you.
And just know that there are more dentist offices in the US
than tech startups. And so we really focus on
mainstream small business of the six million ish employers in
America, 2/3 or less than 5 employees.
And so with that customer focus, payroll is our first product.
I always like to say if you don't pay someone, they quit.
So it's a pretty non optional product.
So we're really happy we started there, but kind of broadening
through the back office would be the way to describe it.
We really obsess over customer pull versus company push, but
benefits is a big investment area for us.
There's many, many types of benefits, something I know we're
excited to get into more. We have a pretty broad product
group inside Gusto called Gusto Money that's focused on things
related to cash flow management. For a lot of our customers,
their biggest expense is payroll, paying their team.
And one of the biggest points of stress is when APAR don't line
up and they don't have the money in their bank account at the
right moment to fund payroll. So we launched a bill payment
not too long ago. Actually next Wednesday, we're
going live with invoicing. So you'll see us do a lot more
product investments, more in that B2B fintech part, but
again, really, really focused on small business.
And overall business sort of somewhere between 500 million
and a billion in revenue. Can you?
Describe it that way. We serve over 400,000 companies.
I mean, one fun way we always grounded in customer we're you
know, in the range of, you know, 8-9 percent now of all employers
in America. And with the business model that
leads to, you know, good revenue, we've been free cash
flow positive for many years. We reinvest that money back into
building new product to solve more pain for our customer.
And I mean, you're an important sort of partner to other fintech
companies. I know.
I think the guidelines CEO was here at one point.
What what do you see in terms of like the partnership strategy
for Gusso? Yeah.
So a big part of our approach to we're here to build a multi
decade company, we're still early in the journey even though
it's, you know, over 10 years. And that to me is a factual
statement, right? We're only at about 89% of
employers. You still have 30% of companies
in the US doing even things like payroll by hand on pen and
paper. So with the obsession on small
business, a lot of what we're doing is replacing manual
process, but there's just a lot of other pain points we want to
help with. And if we're going to get there,
it's not going to be entirely through first party products.
So we've had a playbook, which we will continue to use of
choosing product by product. Are we going to build?
Are we going to partner? 4O1K is a good example of where
we've partnered historically. And then there's also obviously
acquisition. We've done that a few times.
We'll do that more going forward for where we deem something that
was third party becoming first party.
But you know, we're not going to build it all ourselves, and
we're excited to partner where it makes sense.
Has artificial intelligence changed the pace of product
development? I mean, you're, you're an
interesting case in that on the one end, it's sort of the, you
know, I don't know, Klarna's the world where they're like, well,
we'll build everything internally.
Like, you know, payroll could be imagined that way.
On the other hand, it can accelerate your growth.
Like how do you, how are you seeing sort of artificial
intelligence, the ability to build faster impacting gusto
today, I mean? I'm surprised it took this long
to get to AI as a topic. I mean there's so many threads.
I think a lot of folks here are technologists.
I'll have to just choose like on productivity and how we build.
We have 1000 person plus R&D team.
I don't think we're that different than most software
companies in that it's obviously driving pretty meaningful shift
in how we build. You know, the iteration speed.
I think we're going to talk later about, you know, there's
the service as a software, software as a service, everyone
gets SAS. A lot of what we do is taking
stuff that involves compliance, involves manual filings and
digitizing it into software. In the past I said we use
paperless cloud mobile. Now obviously AI is a key
ingredient to that, but that's on the more internal how we
build side on the. Doesn't mean fewer engineers
just to put a fine line on it. Yeah, doesn't mean fewer
engineers. Given the scope of our ambition.
It means like the amount of work we can do per gusty grows
dramatically. But probably in the grand scheme
of things, it means less hiring than if AI didn't exist.
But we're also pretty ambitious, so we're doing a lot of hiring
anyways. But it's because we want to go
solve more pain point for our customers.
And then on this sort of, do you feel the threat of customers
building in house versions of Gus?
Honestly, as a small business that's sort of incoherent,
right? Because it's like I'm, I'm not
going to build an AI team as a five person startup.
It would matter more to your enterprise level competitors or
how do you think about that challenge I.
Mean, I don't think too many dentists want to go, right,
build software. That said, the reality is most
of what we're doing for a dentist office or other small
businesses they haven't had access to in the past.
They've been on their own. They've kind of had to do it
manually or just not do it. And so for us, AI is enabling
products to exist in a small business category that never
existed. I think in mid market
enterprise, you're navigating more of this complexity of
displacing jobs. But our due N is to like grow
the small business economy, right?
And so we want to bring all of the things big companies have
had historically to a small company.
The only way we're going to do that right with a ratio that
makes sense and with a scalability that makes sense is
through leveraging technology. I.
Mean, if I had to distill the angst of a small business, it's
like I want to know that I'm in good standing and I don't know
everything I'm supposed to do. And you guys are, but in the
products, sometimes we like, you know, in New York, you're
supposed to have sexual harassment training.
OK, I'll pay you some money for that.
Like, do you think AI is going to move us further along of just
being able to give me an assessment?
Like, have you done everything you're supposed to do?
My combat fee, am I Good question.
And like our customers, including you, do not want to be
stressed or worrying about that. And it's our job to make sure
you know fully if you're good or if there's something you need to
do what that exact thing is. And if we can do it for you,
even better. But yeah, compliance maps to
most of our products, right? Payroll involves a lot of
compliance time tracking, PTO involves a lot of compliance,
local, state, federal rules. And so AI fits in there in terms
of like ingesting. But at the end of the day, it's
a compliance engine where accuracy needs to be to the
like, you know, 6 Sigma. And that's always been true pre
AI, post AI, that's been true since we started the company.
How much do you think your customers want to talk to the
product? Like, do you see a move to text
interfaces now that they're more capable or you're like, we
really need to flow whatever advances we have into actually
the layout and design of the product?
So we always start with like small businesses are busy and
it's way too hard to run and build a small business.
Still, you can attest to that. And so how can we help them?
We can help them by saving time. We can help them by taking 5 or
20 or 30 of the hats on their head off their head and doing it
for them. Pre AI, I would say we did that
through really clean, elegant, easy to use work flows primarily
in a web app or a mobile app. That's gone us pretty far,
right? Like that's what we're known
for. Anyone can use Gusto with no
training, no background in running a business.
We have high NPS, high customer satisfaction.
Our primary way of growing is word of mouth with AI.
It's not about the technology, the interface.
That's what we get excited about.
A conversational interface for a lot of use cases that Gusto does
is a more intuitive, more accessible way to use Gusto.
You like it? You think it's?
Promising. We think it's very promising.
Our interface for that is called Gus, which people should
hopefully get. I think it's somewhat like this.
And then, yeah, well, Penny the pig is.
Oh, that's a. Different logo OK, but.
Then like you're like cracking Penny in half, but like Penny's
being sacrificed for the sake of your conference.
But yeah, conversational interface we don't think
replaces web app, replaces mobile app.
It's just a different surface area.
But like we are taking 14 years of functionality and giving Gus
those superpowers. So we have customers today,
thousands of customers using Gus to go create shift schedules,
right? You want to go change who's
working with today? You know, take Sally off Friday,
add 20 hours to gym. We go do that all for you.
You can just tell us that in a conversational interface, or you
can go through and navigate, but that saves time for a small
business, which they really appreciate.
I wanted to put one of the big themes of today to you.
I mean, we saw Matt Harris give a presentation where he's making
sort of a case that other investors have also made that
it's like there's now, thanks to language models, this
opportunity to go after services businesses and sort of be the
services business while being a tech company.
Then later I had Jeff, the CEO of Digits, who's building
accounting software. He's, you know, hired
accountants to figure it out and then software.
And I think he was much more skeptical of that sort of, you
can be a services tech business. Where where do you land?
You've built a big business and you touch a lot of services.
Like are you bullish on that argument?
So I think we've had a kind of unique perspective to this
because the first product we launched payroll mostly if you
put aside like ADP paychecks, which are a minority of the
market, the majority of companies in America did payroll
by hand or with a local payroll service Bureau, which was
basically a service manual localized business solution.
So a lot of our journey has been taking and did it with health
benefits, right? We are a broker.
There are thousands of brokerage firms across the country that
mostly do things by hand. So we take these complex
compliance centric spaces and we do what we do best, which is we
digitize the heck out of it because if we're going to go do
it for 400,500 thousand, a million businesses, we cannot do
it ourselves manually. So I don't think it's a zero a
hundred, a hundred zero. Like we have operations teams at
Gusto, but we have over 400,000 companies today.
Our Gusty to employee or ratio is over 1 to 1000.
That's only possible with the technology.
Right. So you only want to do it if you
can get to the point where it's fairly automated, not sort of
for a long time, keep the humans sort of trying to figure it out
or yeah, how long do you spend sort of like we'll do the human
business to try and get to the point where we can automate it
before saying, oh, I guess this is sort of, at least with the
technology today, a perpetually human.
Business, well, we were joking before, right?
Like if a company is scaling a service offering to large, large
volumes and it's staying service based, that's to me not a tech
company, that's just a service business.
Different multiple profile, different overhead costs,
different operational complexity.
We work backwards from what's best for the customer.
For us to solve these pain points, it has to be technology,
it has to be digital. It's just more accurate, right?
We process several $100 billion a year of payroll taxes.
If we were doing that manually, it would create human error
potential. It would be too time consuming.
So we digitize because it's a better experience.
But when we're sub scale and trying out new products early,
early on, I think it's totally fine to start more manual.
It's about getting that feedback loop going, getting that
learning going. But that's typically with less
than 100 customers, right? If we're going to scale
something, it better have good unit economics, good CAC, good
gross margin and we should have confidence that it can scale in
a, you know, technology enabled way.
Otherwise, we're just going to build a huge operations team.
Somehow in payroll, you're in like 1 of the wildest categories
in Silicon Valley. You have, you know, like
Rippling and Deal, you know, making huge accusations,
obviously Ripley accusing Deal of spying on it.
Have you done an internal check to see whether anyone's spying
on you? And what do you make of sort of
your high profile, sort of same, same category businesses having
so much drama? We we just focus on the
customer. Have you have you checked?
Have you checked? We have a very, very like
intense, like super, super expensive and worth IT security
team. Yeah, but that's because we have
like hundreds of billions of dollars of our customer money
sitting in our accounts. And we, you know, do tax filings
and tax payments and we hold Social Security numbers and a
whole bunch of very sensitive data that we take that job very
seriously. So I can tell you with
confidence, we do not believe anyone is spying on Gusto, but
that's because that's what our customers should demand of us,
that we're obsessed with protecting them in every
possible way. Do you see much competition or I
mean, you're very focused on small businesses and I like that
focus and it gives you a great mandate and sort of a mission to
motivate the company. On the other hand, most
businesses want to keep their customers.
It's like it's much easier to keep the customer you have and
grow with them than to find new ones.
How do you think about sizing up with your customers?
So we're both in a like very crowded space and a very
fragmented space. And then yes, I think it's even
very simplistic to say small business, medium sized business,
large business, these are huge cuts.
And even within small business, you have different industry
types, different geographies. So, you know, hopefully everyone
gets by now. We are obsessed with small
business. We tend to see they're less of
the kind of frothy Silicon Valley tech kind of drama,
frankly. But there's still legitimate
companies that have lots of good product in market.
Intuit is a company we highly respect and we compete with
multiple fronts. And you know, there's a bunch of
other companies I used to say was only into IT folks that have
built really incredible franchises and small business.
You know, Shopify has a huge part of their company that's
focused there, Square, Toast, HubSpot.
So we feel like we're in good company and I always encourage
more entrepreneurs to tackle the small business category.
The playbook still is generally for SAS just to move up market
and move to bigger enterprise. And in the past, I just meant
small business was left. Do you?
Want 100% business on Gusto? We have a lot of 100% business
on Gusto. Most of them started on Gusto
when they were one employee. So our focus is on small
business. The vast majority will stay
small if some grow bigger. We're honored and happy to serve
them. There's probably a point at some
point where they graduate. But I like to remind folks, you
know, that's very rare, right? Like the number of companies
that start at one or two and grow to 100 and our entire
history is less than .1%. Is a, you know, we all at the
end of the day, live or die by the economy in some ways, and
you have a great sort of vantage into a part of it.
Is small business in America strong right now?
What's your read of the mood among your customers?
Yeah. So we have economists on team.
We publish a lot of content under Gustanomics and a lot of
folks are interested in the data.
I'd say high level two things we track a lot new employer starts
and then net hiring across our customer base.
I'd say on the second that is quite depressed.
New hiring new. Hiring, net hiring.
So just the propensity of our customers to add more to their
team that's been depressed for a few years now on the new
employer starts that really with the pandemic got dramatically
elevated and it stayed fairly high.
But yeah, it's more interesting to track given our size and
scale. We feel like we're pretty
diversified. It's more just net, net a bet on
small business broadly and it tends to be pretty durable
segment. Can you talk about the embedded
payroll part of your business? And sort of, I mean there is
this other trend of, you know, API based businesses right now
where it's like, OK, you're helping other people interact
with your service, but not necessarily building out the
product yourself. How do you think about that as a
piece of Gusto's business? Yes, we're always going to be
driven by customer pull. So I'm very excited our direct
business will keep growing past, you know half a million, a
million businesses in the coming years.
But a couple years ago we noticed and maybe some of you
are part of this trend, but vertical SaaS in particular we
got really excited about where you have companies tackling a
very specific industry could be very esoteric, but if you obsess
over that one category kind of build business in a box, you can
actually create a viable tech company there.
And every one of these folks kept coming to us and saying,
you know, we don't want to build payroll.
No one really wants to build payroll cuz it tends to be quite
difficult. But we really want to provide
payroll to our customer. And we don't want to just keep
routing customers to you. We want to have it be native, a
native product experience. And so we have some great
reference points in embedded in Fintech, especially like Stripe
as a good example. And so that was where the
genesis of embedded payroll came about.
That's what we call Gusto embedded payroll.
And we're really excited there. We have a number of partners on
the banking side. Chase payroll is powered by
Gusto. We recently announced U.S. bank,
we'll be rolling out payroll powered by Gusto.
You know, 0 is another good example on the contact side.
And so anyone that does want to launch or offer a payroll
natively within your product but doesn't want to build in from
scratch, please let us know. We're eager and excited to
partner with you. That whole business is more of
an infrastructure. Business, my last question, you
know, we have a lot of founders here.
You've been at this a while. Like what what?
What's your main piece of advice to somebody starting a company
today? Or what would you do differently
if you were starting Gusto right now?
So I'll answer both. My main advice I'm pretty
consistent with, but I really believe it.
It's imagine the 10 thousandth time you're describing what
you're doing. Will you be as excited as the
first time? Because at that point you can't
fake it, It will show. And you have to have a deeper
interest, passion, borderline obsession with the thing you're
trying to fix, the problem you're trying to make better
because that's what gets you through all the ups and downs of
company building. And in our case, you know, I was
with a team earlier today that's an incubation team launching a
new product. And, you know, we went around
the room and it was an easy first question.
I didn't even have to ask it. Everyone just shared their
favorite small business. And so in our case, you know,
that obsession with small business comes through hopefully
very clearly. It's a big part of our hiring
filter. And as long as they're in pain,
we feel like we have purpose and we have so much to do that we
feel like we're really still early.
There's a lot, lot more ahead. And if I reflect on learnings
from prior chapters, I had a prior start up where that wasn't
the case. And that's where, you know, you
can, you can start a company or if you join a company, you feel
like there's a miss there and wonder what's off right.
And, and I would argue, you know, go back to like, what is
the purpose? What is the reason why you
exist? And it should not be about you.
It should be about your customer.
Great. Well, thank you very much.
Thank you.