Gusto rushes to release new features ahead of rival Zenefits

In the world of HR and payment software, things are heating up this fall.

In the one corner: Zenefits, the high-flying software company that admitted to having an array of compliance issues and that asked its cofounder to resign as CEO earlier this year. The company has been heavily promoting an all-new, fully complaint, next-generation version of its offerings that it plans to unveil on October 18. These offerings come complete with superstar operator David Sacks, who’d joined the company as COO in late 2014 and took over as CEO of the company back in February. (We sat down with Sacks to talk about that transition earlier this month.)

Meanwhile, Gusto, formerly known as ZenPayroll, is taking the wraps off some new, human resources features of its own, including paperless employee records that are centralized online so HR admins can navigate that information all in one place; a 401(k) solution that allows employees to more easily enroll in retirement plans and update their contributions; and a new “welcome wall,” where teammates can leave greetings for a new hire before their first day.

Gusto is also touting its nearly 40,000 customers – which is twice the number of customers that Zenefits has said it has — and noting that it has amassed them with 314 employees to Zenefits’s 900-person staff. Gusto CEO Josh Reeves, who isn’t shy about throwing his elbows, further notes that Gusto has raised $150 million from investors to date and was last valued at $1 billion, compared with Zenefits, which has raised roughly $580 million from investors and halved its valuation to $2 billion in June.

Last week, to learn more, we caught up briefly with Reeves (some of whose team is pictured below). Our chat has been edited for length.


TC: What would you say is the biggest differentiator between Gusto and Zenefits?

JR: I was born and raised in Silicon Valley and my parents were teachers. And I grew up believing that there’s one way to build a company, which it to build something you’re proud of, serve your customers, and stay compliant from day one. So we never had a beta or a pilot. Our offering had to work from day one.

TC: Of course, David Sacks says Zenefits is now fully compliant, and as you know, it’s taking the wraps off its newest offerings in a few weeks.

JR: Z2 is exciting. It sounds like a sequel, though, and usually, the first movie has to be very good.

TC: What’s your business model?

JR: We have two revenue streams. Everyone pays a subscription, which is $39 per company per month, plus another $6 per employee per month; this is for taxes, filings, insurance . . . and our rates are far lower than what [the decades-old payroll and HR companies] ADP or Paychex charge.

TC: How do your rates compare with Zenefits?

JR: [They’re comparable.]

The second revenue stream is: when we set up health insurance, workers comp, life and disability insurance, we earn a commission on that, which is the same commission that every broker gets. We don’t set it; it’s regulated.

Zenefits started with insurance, and that made them reliant on other payroll providers, and that’s not an accurate way to move information. [Zenefits] had to log into ADP or Paychex or Gusto, then go in and scrape data off the page and input it into their systems. We found a lot of errors in that process. We started with payroll, then moved into insurance, because payroll is the core. If you don’t pay someone, they will quit.

In terms of the ecosystem and Zenefits, I think there are companies that get caught up in the hype cycle, and it’s not one individual. Compliance has to be in your core. It’s not something that can change overnight.

TC: You closed your most recent round last December. Are you talking with investors again right now?

JR: We’re not raising right now, we have plenty of capital in the bank. The only reason to raise money is to collapse time and build toward the future faster. We can always go in that direction if we like.