In the race to automate the HR, payroll and benefits systems of the nation’s small businesses, Gusto CEO Josh Reeves is charging full steam ahead with a barrage of new offerings.
The software now supports a bunch of new HR functions like employee personnel files, 401K plans and savings plans. This is in addition to the stuff the software already did, like payroll and onboarding.
The move raises the stakes in the battle between Gusto and rival Zenefits, the two fast-growing HR software startups. And with each startup helmed by Silicon Valley royalty CEOs, it’s set to become one of the tech industry’s most closely-watched competitions.
Gusto has spent much of 2016 capitalizing on the major missteps by its arch competitor, Zenefits.
“Gusto now serves over 40,000+ businesses nationwide. We have two times the customers, and one-third the team size of Zenefits, (Gusto has 314 people today). We are able to serve our 40,000-plus customers because technology is our foundation, not just hiring people,” Reeves told Business Insider.
Pulling out of a tailspin
To recap: Zenefits, under CEO David Sacks, is pulling itself out of a tailspin that occurred earlier this year when the company was forced to admit that its salespeople were not properly licensed in all the states where it did business. Under the weight of hypergrowth hiring, the company spun out of control in every way imaginable.
Zenefits founding CEO Parker Conrad was forced to resign (taking a hefty payout and $10 million in cashed-out stock options with him). Conrad is now working on a new HR software startup, reportedly one that combines HR tasks with pre-packaged other employee software (think Slack, Box, Concur, etc.).
As CEO of Zenefits, Sacks fixed the compliance issues, did some layoffs, reorganized the company, negotiated new agreements with investors and is negotiating settlements with state regulators now.
Sacks is a highly respected figure in the Valley, a member of the PayPal mafia, a hugely successful angel investor and the founder of several successful startups of his own, all of which have sold for big bucks.
Meanwhile, Reeves was born in Silicon Valley, graduated from startup-factory-university Stanford, and collected a jaw-dropping 75 angel investors from the Valley’s “in” crowd. They include Ashton Kutcher, Max Levchin, (CEO of Affirm and co-founder of PayPal), Aaron Levie (founder CEO of Box, who also invested in Zenefits), Drew Houston (cofounder and CEO of Dropbox), Elad Gil (another major angel, a former Twitter exec who also invested in Zenefits), Tien Tzuo CEO and cofounder of Zuora.
Reeves knows these angels personally, he says, hanging on with them on walks or hikes, sometimes for years before they became investors.
So he was ready to pounce when his chief competitor faltered.
“Zenefits took shortcuts, especially regarding compliance,” Reeves tells us. “We’ve talked about how there are no shortcuts. Our leadership position is a result of us not taking any shortcuts. Businesses are flocking to Gusto from Zenefits, ADP and Paychex.”
Still, Gusto may have its work cut out for it. With Zenefits problems nearly cleaned up, Sacks is ready to start competing in this market again in earnest. He’s about to launch a major software update of his own, known as Z2.