By Susan Adams of Forbes.com
One spring day in 2015, Julia Lee, a top performer on the engineering team at the payroll-software startup Gusto, asked Edward Kim, the company’s cofounder and chief technology officer, for a one-on-one meeting. Sitting together on a gray couch in the middle of their open-plan office in San Francisco’s SoMa neighborhood, Lee, a Stanford grad who had interned at Google and Palantir, told Kim that she loved her work but was struggling with one issue. Of the 18 people on Gusto’s engineering team, Lee, then 26, was the only woman. Before she got to Gusto, she told Kim, “people often assumed I didn’t know the answer to a problem because I was a female engineer.” Even at Gusto, she was reluctant to share her feelings of self-doubt. Kim, Lee says, was extraordinarily receptive. In fact, he made it a personal project to study the gender breakdown on the engineering teams at other tech firms. The numbers he found were dismal.
Only 12% of the engineering staffers at 84 tech firms were female, according to statistics gathered in a public Google Doc posted in 2013 by Tracy Chou, then an engineer at Pinterest. Kim read a U.S. census report on racial and gender disparity in STEM employment and was troubled by a National Public Radio report that showed an increase in women graduating with computer science degrees through the early 1980s and then a steep decline from 1984 on.
He also read a 2015 McKinsey study showing that companies with diverse workforces outperform financially. “The fact that no one else in tech was able to really crack the gender diversity nut and solve it represented an opportunity for us,” Kim says. “If we want to reimagine what HR is like for the very diverse workforces of our small-business customers, we ourselves have to build a diverse workforce.”
After a series of meetings with Kim and Lee, Gusto’s human resources team launched a plan to attract women engineers. Initial steps included writing job descriptions that avoided masculine phrases like “Ninja rock star coder.” Gusto’s most important step: For a six-month period starting in September 2015, the company devoted 100% of its engineering recruitment efforts to women. While it solicited only women, it considered male applicants who approached the firm and treated all candidates equally, which kept Gusto from running afoul of antidiscrimination laws, according to Gusto lawyer Liza Kostinskaya. The pitch to women included emails signed by Lee inviting female candidates to have an initial talk with her and was backed by $60,000 the company spent to be a sponsor for two years at the biggest annual women’s tech conclave, the Grace Hopper conference.
Kim also published a blog post that made Gusto’s diversity numbers public and broadcast its goal of hiring more women engineers. “We believe that diversity is in itself a core strength that will enable us to write better software and build better products,” he wrote.
In line with more than 80% of startups, according to a 2017 Crunchbase study, Gusto’s three founders are men. Kim and Gusto’s CEO, Joshua Reeves, both 34, met as undergrads in Stanford’s electrical engineering department. They launched Gusto in 2012 along with Tomer London, 33, an Israeli immigrant who got to know Reeves while a Ph.D. student at Stanford. Like its boom-and-bust competitor, Zenefits, which launched the following year, Gusto sells cloud-based comprehensive subscription software to small businesses to help them manage employee records like payroll and health benefits. At the outset Gusto even had a similar name, ZenPayroll, which it changed in 2015 when it started offering a more complete selection of employee-tracking software.
Zenefits attracted $584 million in venture capital and hit a valuation of $4.5 billion in 2015 before running into regulatory problems related to the way it sold health insurance. It sacked its CEO, reworked its business model and saw its valuation slashed to $2 billion. Gusto, meanwhile, grew less feverishly. By late 2015 it had raised $176 million from firms like CapitalG (formerly Google Capital) and General Catalyst, and 75 individual investors handpicked by Reeves, including Ashton Kutcher and PayPal cofounder Max Levchin. That year it broke through to a $1.1 billion valuation. Forbes estimates Gusto’s annual revenue at nearly $100 million.
At the start, Gusto’s founders acknowledge, diversity was on the back burner, and as it grew, they found that it didn’t happen organically. When it came time to hire a chief operating officer in 2015, they made it a priority to find a woman. Lexi Reese, a veteran of Google and American Express, is one of two women on the six-person executive team, and firmwide, women account for 51% of Gusto’s 525 employees. Even after Gusto began its diversity initiative, applications from women didn’t flood in. Gusto assigned two in-house recruiters to the job, and it hired TalentDash, a Singapore-based firm that sources talent, to look exclusively for women.
Though hiring women engineers took more time, Kim says, Gusto never dropped its standards. “It bothers me when people say that prioritizing diversity lowers the bar in terms of the caliber of talent you’re able to hire,” he says. “That is simply not true.” Nor, he says, was there any pushback from inside Gusto.
Gusto also addressed its compensation policy. Since 2016 its salaries have been audited by Mercer, a human resources consulting firm, which has found no gender pay disparity. Benefits include 16 weeks of paid leave for a primary parent, plus an additional $100 a week for groceries and food deliveries, $100 a month for six months of housecleaning and up to $500 for a baby-sleep coach.
Gusto’s women-only recruiting effort lasted six months. It stopped, Kim says, because “we exceeded our goals.” In 2015 Gusto was trying to hit 18% women engineers, the proportion majoring in computer science as undergraduates, according to the National Center for Education Statistics, and it reached 21%. Since then it has started staffing a Denver office, where it aims to increase the engineer head count by at least 25 this year and where the company is reprising its women-only recruiting strategy. Now that 17 of Gusto’s 70 engineers are female, it’s getting a little easier, says Gusto’s HR head, Maryanne Brown Caughey. “It’s kind of a domino effect,” she says. “Women know they’re joining a welcoming community.”
While Gusto has made progress, its engineering team has no Latinos and no African-Americans. Kim says Gusto has two hiring goals in 2018: senior women and racial diversity in engineering. “The way we make progress is by focusing on one problem,” Kim says, “and then we move on to the next.”
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