SaaS Interviews with CEOs, Startups, Founders
Gusto Killed Their $3m Business, Pivoted to $7.8m ATS Business in HR Tech Space
22 Aug 2021
Chapter 1: What is the main topic discussed in this episode?
So the low end of the spectrum is $8 per employee per month. The high end is $40. Average is $13. You are listening to Conversations with Nathan Latka. Now, if you're hearing this, it means you're not currently on our subscriber feed. To subscribe, go to getlatka.com. When you subscribe, you won't hear ads like this one. You'll get the full interviews.
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Now look, I never want money to be the reason you can't listen to episodes. On the checkout page, you'll see an option to request free access. I grant 100% of those requests no questions asked. Hey folks, my guest today is Jason Maxwell. He's founded a company called MP, which is formerly called MassPay, wired for HR in 2004. The company's been recognized on the Inc. 5000 list eight times.
Apart from MP, Jason founded FedUp with Cancer, a nonprofit focused on cancer research and prevention. He lives outside of Boston with his wife and his four daughters. Jason, you ready to take us to the top? Thanks for having me, Nathan. You bet. Thanks for being here. You're in a very, very hot space, HR tech. You've got big folks like Vista buying up ISIMs and Bullhorn.
You've got others rolling up Jazz HR and these sorts of firms. Where do you fit in the whole ecosystem? So we fit in really the human capital management space along the lines of Paycom, Paycor, Paylocity, ADP, Paychex, Zenefits. Those are our primary competitors. We approach the space a little bit differently in that our technology is non-proprietary.
We support a platform called ISOL, which is a human capital management suite that encompasses onboarding. Can you spell that? Sorry. I-S-O-L-V-E-D. I soft got it. So you're paying basically to white label their tech. So we're your distribution company. Yes. We sell, implement, and support that platform and we provide services around it. I see.
Sort of like how someone would be like a Salesforce service provider to help you install Salesforce. Yes. Do you have engineers on the team? We don't. Okay, got it. So there is no tech. Yeah, I mentioned that in my email. I wasn't sure if I fit into the prototype. No, it's still interesting.
It's not usually what we have on, but look, part of building a company is distribution and services, right? A lot of stats go into scale, they build services in. So no, no, that's not a bad thing. I'm just trying to get your full story here. So So when did you, I guess, when did you first start selling or using iSolved and selling services around it? What year?
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Chapter 2: What challenges did Gusto create for traditional payroll services?
Wow. Okay. And what do they pay you? What's the model? So the model is based on a per employee per month fee. It scales up anywhere from $8 per employee per month up to about $40 per employee per month, depending on the level of services and functionality of the software platform that companies subscribe to. 1,300 bucks times eight. Is that eight employees or 1,300 logos?
So we have 1,300, just over 1,300 logos. Our average client has 29 employees. Our largest client has 3,200 employees. Um, Got it. So at eight on average, eight employees, sorry, 29 employees at eight bucks a seat, the average customer is paying like 250 bucks a month, something like that. In SMB, yes. Yeah. Okay. What's your highest customer paying you?
Don't name them, but what's the most expensive? So our largest client pays us about $400,000 annually. They subscribe to a basically all of our services. Oh, they get everything right for that price. They get you, they get a personal handwritten gift card on Valentine's day from you directly. Right. Okay. So 1300 logos. And then you said on average 29 seats, right?
So you've got almost 40,000 seats you're supporting on the platform multiplied by eight bucks a seat. What's that 320 grand in MRR, something like that. So we're over that. So the low end of the spectrum is $8 per employee per month. The high end is 40. Average is 13. Okay, got it. So you're getting closer to like half a million a month. Yes.
Our average deal value is 6,500 and we'll do 10 million in revenue this year. So we'll cross the 10 million in recurring revenue mark in 2021. And where are you like right now? What'd you do last month? In terms of the revenue run rate, we're 650,000. Oh, wow. Okay. Got it.
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Chapter 3: What is the significance of the iSolved platform in their business model?
So $650,000 per month right now, you'll pass 10 million by December. Where were you a year ago in terms of MRR? Do you remember? MRR, 2020 was an interesting year, really, because a lot of our clients downsized. So we only realized 4% growth last year, which was our lowest growth year in terms of year-over-year numbers. So we were, I would say, 500,000. 500,000 a year ago. Yeah.
So a bit of a surprise for you today, and many of you know this, but some of you don't. There is a cheat code as a software startup to getting your finances right. And that cheat code is called Pilot. They do bookkeeping, tax, and give you financial expertise perfectly customized for every single founder. And it's not just automated. This is critical with accounting because
Sometimes we need custom stuff done, whether it's a round or an exit or a sale or just something else. So they put actual experts on your account. And I said, pilot team, please give us a great deal. They have, you can check it out at NathanMaka.com forward slash pilot. They've got expertise in startups. You'll get your own personal expert.
And specifically, they're giving a great discount to all of you guys that start working with them today. They integrate with the best financial tools in the business like Stripe, Square, Brex, Gusto, Bill.com, Shopify, you name it, they're there. And they give world-class support and advice.
This is the kind of stuff that I use to get my monthly P&L balance sheet and cashflow statements done without hiring a full-time CFO on my team. I can get all this done for a fraction of the cost. Do it yourself at nathanlatka.com forward slash pilot. Start today. So why, I mean, this is pretty meaningful. Why hasn't iSolve just acquired you to bring you in-house full-time?
So I saw Altaid's approach, you know, a lot of companies like us in their ecosystem. So they are growing through M&A. You know, we're... pursuing a path of $25 million of recurring revenue in the next five years.
So we think there's opportunity to differentiate in our space really with our business model, providing wraparound services focused on HR compliance, HR training, HR infrastructure, and talent acquisition. Okay, but have you bootstrapped the business? I did. I bootstrapped the business. So you still own 100%? I do. Okay, Jason owns 100%. Got it.
So if iSolve came to you and offered you, what's an agency multiple on EBITDA? Something probably like three would be high, 1.5 would be average, I imagine. Are you super profitable? We are profitable. We bring about 8% to the bottom line. Monthly? Yeah. Um, annually, you know, we go through cycles of, of hiring. So on an annual basis, you know, we're driving about eight, 8% of net income.
Um, Yeah, it's 500, 600 grand to the bottom line this year or something like that. Yeah. Yeah. I mean, how would you value the company today? So the companies are valued really as a multiple of revenue. Um, and, uh,
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Chapter 4: How did Jason pivot his business from payroll to HR tech?
Sales rep, we have an account executive team of 12. We have an SDR team of five. And we have a customer success team of two. Okay, fair. The folks that carry a quota, the AEs, how big is the quota usually? Typically, it averages around $400,000. For newer AEs, they scale up to that level. For more experienced account executives, it could be as high as $650,000 of annual recurring revenue.
Interesting. That's what you want them to close per year? Yes. A lot of services can be tricky, right? If people pay you to get them set up on iSoft, what makes them keep paying for the seats every month? How sticky is this? What's the churn? Churn is very low. And it's really hard for companies to transition from one HCM platform to another.
And really the reason for that is companies hire us for our applicant tracking system, payroll, employee benefits administration, onboarding, offboarding. So to transition from one platform to another is a significant amount of work. So typically, we measure... controllable churn and non-controllable churn. So controllable churn for us is clients we lose to rivals.
So in a given year, that average is about 4%. And then we typically experience 6% to 8% of non-controllable churn, which is our clients get acquired or they go out of business. What does net dollar retention look like? How much do you expand historical accounts to make up for the 10% churn gap? So we are doing a much better job in 2021 than we have in recent years.
So we will be positive net revenue retention this year by a modest amount. So 105% net revenue. That's great. That's great. So if you turn 10% controlled plus uncontrolled and you expand 15%, your net is 105. Yes. Yeah, that's great. Net dollar retention. That's good stuff. Very cool. How are you getting new customers? What's your CAC?
So our client acquisition cost, our average deal value is $6,500 and it costs us about $11,000 to bring on $6,500 of revenue. So typically we break even at like the 20 month mark. How do you make up that cash gap? I mean, is that hard? Does that put stress on the business? It does. It puts stress on the business. As we've grown, we've been able to absorb that cash flow impact more easily.
So, you know, we've really got a model where we're investing about 26% of revenues back into sales and marketing, and we're bringing 8% to the bottom line. So it's pretty predictable from that standpoint. And we keep our average client for more than six years. That's great. Very cool. So the lifetime is strong. Through the roof. Yeah. Jason, good stuff here, man.
Let's wrap up with the famous five. Number one, favorite business book. Favorite business book. I'm going old school. How to Win Friends and Influence People by Dale Carnegie. Number two, is there a CEO you're following or studying? CEO I follow or study. I'm a big fan of Angela Duckworth, who's not a CEO.
She's more of a behavioral psychologist, but I think she's got a lot of great material on leadership. Yeah, she's a good one. A good book too. Number three, what's your favorite online tool for building a business? Favorite online tool for building a business. We love Zoom info. Huge Zoom info. Henry's been on the show many times. Hell of a story there. Good stuff.
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