If You Don’t Have Distribution, You Don’t Have Product-Market Fit, and Other Advice from Justworks’ Isaac Oates
His business handles day-to-day headaches like payroll, access to benefits, HR, and compliance for small teams, but it was no overnight success. Here’s how he grew Justworks to over $100 million in annual revenue.
I can’t say I’ve met many founders who are revved up about the important administrative functions of payroll, benefits, HR, and compliance. Isaac Oates, however, saw that as an opening to build a business now doing over $100 million in annual revenue.
Justworks makes it easy for small businesses and startups to cover all those functions. It’s set up as a Professional Employer Organization (PEO), a legal entity that technically co-employs everyone on the platform. It’s a structure that creates a centralized, Fortune 500-sized entity that gets the scale benefit of group purchasing of benefits while streamlining and scaling the handling of payroll, taxes, and access to healthcare.
Isaac took on this vision because a) as an entrepreneur, he realized how cumbersome this paperwork is and b) his Army background established a “lead from the front” mentality. “You don’t ask your soldiers to do something that you wouldn't do,” he says. So now, rather than sending anyone to the front lines of faxing paperwork, he’s assembled a special forces team of over 700 employees to help other entrepreneurs do more for theirs.
I sat down with him to hear more about how he did it, advice he has for other founders disrupting dusty industries, and cultural decisions that keep his team strong. Plus, readers who make it to the end will be treated to fast, fun “speed round” answers on everything from the ideal founder background to favorite restaurants in the city. (His devotion to The Hog Pit was a head scratcher for me too.)
So let's go back to the genesis moment. Why in the world was payroll and benefits your obsession? You're an engineer, you've been at Amazon, you've been at Etsy, and then you had to start an HR company. What happened?
Yeah, so my first job out of school was in payments processing at Amazon as an engineer. I left at the end of 2008 to cofound a company called Adtuitive. We were very small; we raised $1.3 million in 2009, and we were very proud of it. And then immediately I wanted to figure out how to hire people and pay them. So I called the provider we had used at Amazon and I found out the hard way just how cumbersome and difficult payroll could be to set up. I was on a fax machine a lot. It was just this super manual process.
Our company actually was acquired about a year after that, at the end of 2009, and I worked at Etsy for three years. And I kind of went back to my payment-processing roots at Etsy and I built out their platform, which was called Direct Checkout.
When I was there, I had this really great experience starting a team, the payments team, that was sort of a startup within the bigger company. I loved running this team. I was like, "How amazing would it be if the team could just exist out there? Or even better, if I had a company like this?" In thinking about what that business would actually do, I kept coming back to payroll. I definitely would have wanted it, and every single person I talked to also would've wanted it. So even though it's kind of a boring and intimidating space, I thought it played to my strengths and I thought it was worth doing.
I tell a lot of people we could have been anything for a long time. Our first...I'd say 100 employees...almost nobody had any direct experience from the industry whatsoever. We just kind of figured it out. And obviously we've grown and we've hired all kinds of people with tons of expertise, but I think the company, in a way, is less about being a PEO or an HR tech and more about just doing something that really matters. And also I think very much about the way that we work, the kind of culture we are.
So given that, at 100 employees, if I had looked at LinkedIn profiles, I wouldn't have found anybody with "relevant experience," was that an asset? How much of an asset? How much of a liability? And if you could redo the process, would you bring more expertise in earlier?
We had sales people with sales experience, just not this kind of sales experience. So there's a lot of things you relearn from scratch, but I think that in this industry in particular, there were so many assumptions about how it had to be. For example, I didn't want to have a field sales force, because the companies we were selling to are mainly going to be run by younger people who didn't want a sales person knocking on their door. I was like, "Well, we'll call, or email." And so I would talk with people who'd worked at the incumbents in the space, and they all would say, "Alright, hire me and we'll show you how it's done." I was just like, "I don't think we want that."
By the time we got to 100 employees and our competitors were starting to lose business to us, they're like, "Okay, I want to come and learn about what you have going, maybe I can help." And so at that point somebody wasn't going to come in and just put us back to what everybody else was doing.
Founders from outside the industry—or young renegades within it—get this pressure to hire the experienced salespeople. And sometimes you really do need the person with those relationships, but sometimes, to your point, that's exactly the person who will drag you backwards. For founders who are wrestling with that, any thoughts or advice?
You have something to learn from everybody. You just have to figure out where you're going to reinvent and where you want to imitate the best. I think it's unlikely that it's all or nothing for either way.
In terms of culture, you spent time at a couple of places that are sort of known as elite trainers of managers and leaders: the U.S. Army and Amazon. So can you talk about each of those and what specific things you bring to your job leading Justworks from those places?
In terms of the Army, I do think they have phenomenal leadership development programs, and I also really appreciated that they would put you in a job that you probably weren't ready for exactly, but there were enough support systems to make it work. They're very deliberate about the systems. But I think the biggest thing I learned was leading by example. You don’t ask your soldiers to do something that you wouldn't do. If you're eating lunch, you wait for them to get their food first. When a soldier has a problem, you show up at their house or in the hospital. I have tried to bring that personal leadership style with me.
At Amazon, I had a really good experience. People there are incredibly bright. The culture can be a little ruthless sometimes, and that's something I haven’t brought here. But I think the way they make decisions is really what makes their organization what it is. So, you go in a room with Jeff, or with your SVP, or whoever, and you have this memo that you've written, and you read the memo together, and then you talk about it. The quality of discussion after that process versus someone rolling in with a PowerPoint or just talking off an agenda is an order of magnitude better. And so you have this organization where all the time people are talking about the very most substantive things. And then the quality of decisions are better. And it’s not slower.
Is that because the person initiating is better prepared and structured to begin with? Or is it because the participants are better educated?
All of that. When you're writing, you don't get to make logic gaps or skip slides. With bullet points, you can kind of write whatever and it sort of seems to make sense. You don’t want to show up at this meeting until the writing hangs together, and there are norms about that. So the work is way more thorough and then the quality of the discussion is also much stronger.
So does Justworks operate that way?
We do; we use a lot of written memos. When we have big decisions, we write them and bring them to a meeting called the washing machine, where basically everybody reads it, and then we'll go around the room asking clarifying questions, then everyone presents their reactions and feedback. The presenter writes it all down. Then after everyone has a turn, the presenter can respond and we can go around again.
Eventually, everybody has said everything that they have to say. Maybe the idea has changed, maybe it hasn't. But, you can't go through a process like that and be like, "Well, I didn't have a chance to voice my opinion," I'm like, "You definitely had a chance." It’s worked well for us, and the quality of the prep is much better.
Some founders like you are super intentional about work culture from day zero. Some don't care—to their detriment—and then there are a bunch in the middle who care a lot but don't actually know how to make culture happen. What would you say to somebody who's struggling with that?
I think of culture as behavioral norms. First, it's your own actions that set the culture the most. So if someone is struggling with culture at their company, they need to spend some time reflecting on their own actions. People are probably responding to that, even if they can't see it.
The other thing that has been helpful for us was writing down this leadership document called “I Am A Justworks Leader” that covers how we behave. Starting to write it down and then looking at it with the people you work with, you understand where it really resonates, where it is a little hollow, where you wish it was stronger. For us it was things like "I am vulnerable," "I share my humanity," all the way to, "I meet my commitments,” “I raise the bar," those kinds of things.
So another thing that I find SaaS companies, really any B2B-focused sales company, frequently struggling with is committing to an ideal customer profile, a real target segment. How would you grade Justworks' performance on that in the early days?
So it was in the summer of 2015 when we had a board meeting with this slide that mapped out who our customer was. That's two and a half years after we started, but we weren’t selling for the first year. Our salespeople were good at figuring out the Ideal Customer Profile and we had a good feedback loop and a commission plan rewarding it. And that slide is equally relevant today as it was then. So I think we got it right.
I think there's a rampant epidemic of exaggerated product-market fit in startups. A company gets its seventh customer and is like, "Okay, we found seven people who like this, therefore that's product-market fit." What was your experience of getting to the point where you could see it, get comfortable you had it, and start scaling off of that?
Two years in, the speed of the business changed. It’s like when you've been biking really hard, and you're still biking hard, but you start to feel the wind a little more. We got our sales and distribution model right, we had enough in the product to match. But it was more like the businesses told us when we had it. We didn’t really talk about it with our investors. But yeah, all of a sudden the velocity was there.
And you think that was more about sales and distribution strategy and capabilities, rather than dropping that last piece into the product?
I think it was both, but I think it's a mistake to disconnect those things too much. In the end, how you distribute your product is effectively part of the product. If people love working with your product, but you don't have an economically viable way to get it in their hands, you don't really have a product yet.
I want us to spend a couple of minutes on New York. You've made this really interesting decision to take a business that has both a big inside sales team and customer support organization, things a lot of companies want to get out of high-cost places ASAP, and you’ve built the whole damn thing here on the West Side of Manhattan. Why is that and is it sustainable?
New York is a really special place. There are two things that I think make it such a phenomenal place to build a company.
The first is diversity here and the culture of diversity that is hundreds of years old. We can draw from that and build a more diverse workforce.
The other thing is that I think a lot of people move to New York to prove that they can. You graduate from college in Iowa or whatever and there are a few people who graduate and say, "You know what? I'm going to move to New York and see what I can do." We happen to be the beneficiary of all those people who come here to prove it. Basically the value prop for a person starting their career here is that they're going to work really hard, but they're going to work with people they really like. They're going to learn a huge amount in a short amount of time and they get equity in a company doing work that really matters
People talk about higher operating costs here. I mean sure, rent is higher and salaries are somewhat higher. It seems like San Francisco is even more expensive. I think that we just benefit tremendously and the additional costs are totally worth it, more than worth it.
So you've made it through COVID... What were your unique secrets or tactics that helped your team perform so well during this crazy experience?
On the surface, I think we did a lot of the same things that other businesses did. Shifting to remote to protect our people, temporarily pausing hiring, and taking a more conservative stance in a year where goals had to be rethought.
On a deeper level, what helped us to adapt was that we’ve always had a disciplined operating approach. We’ve always known that our business would have to be able to thrive through economic cycles.
I wrote about this to our Board right after the pandemic took hold, and posted the memo on LinkedIn. Justworks has grown quickly, but we’ve also been careful not to get “over our skis” or let our spending outpace our revenues by too much. Sooner or later we knew we would face a crisis and that we’d want to be in a strong position when it came.
When it came last year, “survive and thrive” was the name of the game. That’s how we thought about navigating the pandemic from the outset. Looking back, we thrived because our team believes in our mission. They knew instinctively that this was a time when small businesses needed us the most and a once-in-a-lifetime opportunity to “be there” for our customers.
Now for a speed round: Product. Who does it report to—CEO or CTO?
Here, it's COO, that’s equivalent to a CEO.
Hiring for experience or intrinsics?
If you had to choose one: sales-driven or marketing guru?
Ideal background for a founder: engineering, product, sales, other?
Favorite New York City spot for a breakfast or lunch meeting?
Probably The Hog Pit.
Fine. You're eating your last meal on Earth somewhere in New York?
Currently it's going to be Raoul's, steak frites at Raoul's.
Blog or podcast you learned the most from?
Planet Money. I've been really enjoying that.
Favorite book you've read in the past year, business or pleasure?
I reread a book called Peopleware. It's about leading software teams; it’s a business book.
Your go-to stress release activity?
Working out, biking, swimming. I took up triathlon last year.
Favorite way to spend a weekend?
With my seven-year-old.