Hate doing taxes? If so, you're not alone.
Americans spend an average of 15 hours preparing their taxes, which collectively adds up to around six billion hours every year. To put that number into perspective, it took 22 million man-hours to build Dubai's Burj-Khalifa, the largest building in the entire world. Number-crunching our taxes takes us 272 times longer each year than the construction of one of the greatest feats of modern history.
Image source: Getty Images.
Several businesses have attempted to address this huge pain point of time inefficiency. Intuit (INTU +1.54%) built a $52 billion empire by automating tax-preparation accounting, offering TurboTax for consumers and Quickbooks for small businesses. The company has been firing on all cylinders, recently reporting a 45% increase in online Quickbooks subscribers. ADP (ADP +0.26%) has focused on larger enterprises, handling the payroll and HR bookkeeping needs of 700,000 global customers in 113 countries. ADP's strong results led it to recently boost its full-year guidance and quarterly dividend.
The magnitude of those numbers is nothing to sneeze at, but they're still just a drop in the bucket of the larger opportunity. The U.S. alone has 30 million small businesses, and software assistants can only help so much.
We're already living in a world of cloud computing and artificial intelligence. What we really need is a fully-automated solution, which would allow us to be completely hands-off but also comfortable knowing that we're fully compliant and accurate.
I recently spoke with Gusto CEO and co-founder Josh Reeves about a potential next-generation solution. Gusto's cloud-based, fully-automated platform is helping 60,000 small businesses tame the chaos of payroll, benefits, and HR. And because the platform is cloud-based, it's able to be both fully integrated and affordable.
In the following video, Reeves describes the impact that automation will have on the workforce, how vendors are differentiating from one another, and several of the new initiatives Gusto has recently launched.
You may never think of payroll processing in the same way. A full transcript is provided below.
Simon Erickson: Hi everyone. Motley Fool Explorer lead advisor Simon Erickson. I'm here at the CB Insights Future of Fintech event in New York City. I'm joined today by Josh Reeves. Josh is the co-founder and CEO of Gusto. Josh, thanks so much for joining me this afternoon.
Josh Reeves: Great to be here!
Erickson: Now, you're an electrical engineer by training. What brought you into Gusto and tell me what this company does?
Reeves: So all three founders of Gusto were actually electrical engineering way back when. That was a long time ago. I would not hire myself as an engineer today.
Erickson: Fair enough.
Reeves: You know, we got into this space. What Gusto does, we serve over 60,000 businesses today with payroll, HR, and benefits, so an all-in-one solution to help these small businesses, many of which have been doing it manually for a long time. The way we got into the space was, we had all run our own prior small businesses. So that was one catalyst, we had all run our own small companies, had a lot of frustration with the existing tools out there, and then we also have family that run small businesses, so we had grown up with exposure to some of those same frustrations. As we did some research, we realized it wasn't just ourselves and our families. A ton of companies out there are actually doing things like payroll by hand, doing insurance in a very manual way, and there's a lot of pain that comes from that.
Every year in the States, 40% of companies get fined for incorrectly doing their payroll taxes. That was a call to action for us: Let's go try to fix that.
Erickson: So that's the frustration a lot of these SMBs are feeling -- a lot of inefficiencies. It takes a lot of time, and you guys are automating a lot of these processes.
Reeves: Yeah, so we have, I'd say, three kind of big pillars to what we're trying to do. One is definitely what we call "peace of mind". So take all these manual processes, tax filings, tax payments, tax calculations, local/state/federal; we process tens of millions of dollars now through Gusto and do it in a way that's accurate, efficient, and scalable. A business owner does not need to do those things themselves by hand. We like to think that we are taking five of those 20 hats that business owner's been wearing off their head and saying, "We'll work with you and do that for you." That's a really positive impact. It saves you time, it saves you money, it gives you that peace of mind.
Erickson: So this is a hot topic right now. Automation has come up quite a bit at the conference that we're here at today. There's competitors who are also trying to do the same thing. How do you differentiate yourselves from others? Or maybe if I ask this a different way, what are the hardest things in your world to do?
Reeves: Yeah, Government hasn't made it easy. You know, like I said, we work with every tax agency, process every document, and so it took us time. We got to nationwide coverage three years ago, and that was three years into our company's history. We started six years ago. Then, the reality is it's a very fragmented market so you have companies out there like ADP and Paychex (PAYX 0.76%), very large businesses. They each serve about 10% of the companies in America.
We now serve 1%, so we've made some good progress, but it really wasn't possible until recently to build a product like Gusto.
It's a cloud-based product; it's fully integrated. What customers love about it is it's really, really easy to use. It doesn't require any training whatsoever. It's a more affordable price point. And then if you have any questions, you can call us, reach out to us, and we have an amazing service team that is super excited to help you. Now, as soon as those calls or chats end, we try to figure out how to prevent them from happening. But customers really love that simplicity, that ease of use, that affordability. That's been a big part of our breadth to-date.
Erickson: Is that what brought you to the SMB segment? Because I know the enterprise is also very interested in something like this, but why is it small business instead of the larger ones?
Reeves: Every part of the market has its own set of pain points, I would say. We're super excited and very focused on small business, because it's a massive segment. A third of the workforce is in companies with 1 to 100 employees -- 98% of the companies in America, the employers are in that segment, too. We saw a huge segment, but more importantly, we saw that's the segment with the most pain. That's the segment that hasn't had access to technology, has been doing it mostly by hand. So even with companies like ADP and Paychex, over half of these companies are still doing it by hand. Manual, paper rich, and getting fined and making mistakes. So we had some ideas of how to build a much better product, how to reach this segment in a much more efficient way. We wanted to start with the folks that were most in pain, because we wanted to help them.
Erickson: Josh, last question for you. You got a big announcement here at Future of Fintech. What's the news that you want to talk about?
Reeves: I alluded earlier to these pillars. Peace of mind is about the automation. We actually have a big phase we went through in the last couple years launching health insurance, and now we can help you set up health insurance, HSA/FSA if you're a small business owner.
But the thing we are announcing today is really a big part of our third phase. That's something we call personal prosperity. The feature we're launching for the first time is what we call "flexible pay". It's something that we believe is the future of payroll. It's the ability for you to get paid when you want, for the work you've done. So this idea of a two-week pay schedule really should go away. It's created a lot of pain in the work. If someone has rent due two days before a payday, it leads them to have to take out credit card debt or a payday loan with a high interest rate. All of that would go away if you could get paid for the work you've done as you do it.
With flexible pay from Gusto, literally you work three days, and if you want to pull out your earnings and get your pay tomorrow in your bank account? You can do that. Or if you want to change your pay schedule and get paid weekly, every Wednesday, you can do that. And there's no impact on the employer, so the employer's debit cycle does not change. Their cashflow stays the same. Gusto is actually making this all possible by advancing that capital to you. But the outcome is again, employees now get access to their money when they should have access to their money. Someone yesterday put it: This person's kids have a better payroll experience than he does, because when they go mow the lawn, they get paid.
Erickson: Right.
Reeves: But he has to wait 13 days to get paid.
Erickson: You're changing that.
Reeves: We're trying to change that, fix it, make it the standard. People should get paid for the work they've done when they do it. You shouldn't have to wait.
Erickson: Sounds like a good next wave. Josh, thanks very much for your time.
Reeves: My pleasure.
Erickson: And check out Gusto. Again, Josh Reeves, CEO and co-founder of Gusto. Thank you for your time and for tuning in. Fool on.
