Dear Gusto, Mission is More Than Marketing
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Dear Gusto,
This is the letter I never wanted to write. It’s not what you want to hear, but you should take a moment to listen.
When I flew out to meet with Josh in early 2013, interviewing in the MOMA and the roofs of SOMA, I fell in love with your mission. Payroll was never sexy, which is precisely what I found so attractive. Here was a company with values, who spoke about thinking for the long-term, and who solved core problems for people (small business owners) about whom few in the Valley thought much.
We took a chance on each other and built a tremendous culture in those early ZenPayroll days. I’m proud of what we built together, of the team that went from nine of us in a one bedroom apartment to the 60+ when I left.
We never talked much about my leaving, but it was one of the hardest decisions of my life. I’ve had a good life, I’m the first to admit it, but that decision tore at me. I remember the moment, sitting on a friend’s bed, when I realized that ZenPayroll was no longer for me. The best way to describe how I felt at that moment is heartbreak. A close friend at the company cried hearing I would go, and honestly I felt the same.
I never stopped believing in the company, though, or of the importance of your mission. I still answer questions from candidates and refer promising people your way. I even carry a ZenPayroll business card in my wallet.
Chris Maddox
philosopher, typist
We’ve grown our separate ways, with Nick and I starting Seneca Systems and you rebranding to Gusto, but our cores have never really changed. Seneca Systems’ values are a reflection and evolution over our work together; to this day, the description of your values are largely unchanged from the ones I wrote.
As we both mature, though, things have changed. Many of us who contributed to your nascent success have evolving priorities: paying down student loans, buying homes, or starting families or companies of our own. To do that, we would like to sell some stock.
And that’s where things took a turn for the strange.
When an ex-employee received a letter of intent, you chose to block the transfer. That surprised them, as no such right was detailed in the stock purchase agreement signed by both parties. It turns out, you have a clause in your company bylaws which no employees were made aware of when you made their offers. Essentially, unless and until a Gusto IPO, you have chosen to veto life decisions for current and ex-employees.
Let’s not mince words: that is fucked up.
It may not have been your intention, but it is the effect of your actions.
For the people who worked their asses off for you, to surprise them with an atypical, anti-employee clause which you chose to keep secret (or at least not actively inform them of) is unfortunate. Especially to those of us who, as early employees, bought into the values (including “transparency” and “do the right thing”, which are so utterly lacking here.) Especially, and particularly ironically, since the mission of Gusto focuses on the relationship between employees and employers; to transition to a world where humans are not resources.
If any company should err on the side of being pro-employee, it should be you.
A few weeks ago, I attended a Gusto founder’s housewarming in a multi-million dollar penthouse condo. He had, as you know, been allowed to sell stock. I’ve been told this house isn’t the result of taking money off the table from Gusto, but the effect is one and the same: if what founders say and what founders do are different, employees are left holding the bag.
And don’t take this as an attack on him. As a company founder myself, I unequivocally support founders taking money off the table after years of blood, sweat, and tears.
But I also support the same right for employees.
The response from both Gusto’s legal team and leadership has been rife with paternalism. You cannot manage the stock employees earned better than they can. That you can, in effect, determine when employees start a family or buy a house is not “do[ing] the right thing.”
So why are you doing this?
Since Facebook’s IPO, some companies have chosen to add such clauses to keep their cap table small. Basically the SEC limits how many stockholders you can have before being treated like a public(ish) company, with the pursuant reporting requirements. You’d like to avoid that.
To be fair, I think you were trying to protect the business.
But in doing so, you lost track of the entire purpose of Gusto: injecting humanity back into work. Prioritizing cap table management over the actual people who shaped the early company is precisely the attitude we were trying to change.
This is not about ownership of the company.
Ex-employees own less than 1% of Gusto stock, all of it in common shares. Furthermore, the standard Right of First Refusal in the documents we were provided with allows you to purchase the stock if you don’t like who we are selling it to.
Right of first refusal empowers you to manage your cap table, while allowing employees to seek liquidity if they see it in their best interest. It’s a compromise between complete control and complete freedom. If you are worried about your cap table growing too large, purchasing back stock actually decreases the number of shareholders. And, whether funded through your own profits or investor money, you choose the investors. It’s a win-win-win.
You should not have veto power over employees’ life decisions.
Saying you will allow select employees to sell a capped percentage of the stock they earned as part of fundraising events—that may or may not happen with no time horizon—is not acceptable.
We earned our stock by contributing to the company’s success. Gusto may not be publicly traded, but talking up “ownership mentality” as a value while secretly rendering employees’ ownership worthless asserts undue control over employees’ lives.
Personal finance decisions simply should not be up to you, both because it is wrong and because you made no indication that this was the case when we joined.
These are people who want to start families and pay down debt. Listening to the Gusto CEO tell ex-employees what is in the best interest of their families (after himself purchasing a home in San Francisco) is insulting.
Hiding this clause was flat-out wrong.
This is not about a standard agreement; not a single employee or ex-employee I’ve spoken to was aware of this provision nor presented with the bylaws when signing their offer letter, stock purchase agreement, or at any time afterwards.
And while it is legally dubious to have employees sign documents without being made aware of this non-standard provision, it is also directly in conflict with your public mission. Multiple times you have held up Uber as an example of a company with a similar clause, which was revealed as I wrote this letter, but let’s not use them as the paragon of startup-corporate ethics. The top rated Hacker News comment questions whether such a clause violates Y Combinator’s ethics policy.
Maybe you were not intentionally hiding it, but it was certainly not transparent and weeks of conversations give a strong indication you’re not willing to do the right thing.
Let’s Move On
Now that we are all on the same page, it is time to get back to work; time to live up to your mission and your values; time to do the right thing.
Your bylaws should be revised to remove your right to arbitrarily block employees from selling vested stock. Given that it makes our “ownership” essentially worthless unless or until you IPO, it is not a stretch to think there would have been pushback if this clause had been made known.
We all took a risk joining a small startup and building it to what it is today. Respect the personal decisions of your employees, current and past.
Going forward, please be upfront about the entire process. It’s more difficult, maybe, but worth it in the end. Even as a “unicorn”, you have a long way to go and will need the wonderful people around you more than ever.
They should be able to trust you. Because in the end, mission is defined by more than just marketing; actions are the ultimate judge of values; culture is more than taking your shoes off in the office.
I know this letter will not sit well with you. As a CEO and fallible human, believe me when I say I understand that public scrutiny of failures is not fun.
But that is how we grow.
That is what distinguishes values from valuation as a measure of worth.
That is what it takes to build for the long term and what it means to be transparent.
May we never stop growing, the right way.
Sincerely,
Chris Maddox
