PayCycle: From Zero to Fifty-Thousand Small Business Payroll Customers

As those of you who have been reading VentureBlog for some time now know, I try not to spend too much time on VentureBlog talking about the companies in which I've invested. I tend to write about broader themes in technology and in the venture business. That doesn't mean that I never talk about the companies in which I've invested (I'm certainly more prone to chat about my portfolio companies on VentureCast than here on VentureBlog). But as a general matter, I think I keep the discussion on VentureBlog at a high level.

That said, at a recent board meeting for one of my portfolio companies called PayCycle, we celebrated the fact that PayCycle had just exceeded 50,000 customers. Hitting 50,000 customers for a small business ASP is an exciting milestone. I suspect they will have a pretty big celebration over at SalesForce when they sign up their fifty-thousandth customer (they had 29,800 as of January 31st of this year). And hitting that milestone got me thinking about all of the exciting stuff that has been going on within my portfolio of late. So I have decided to declare this week (and probably next as well) Shameless Self-Promotion Week on VentureBlog. While I'll try to hit on larger technology and business themes, I will also be singing the praises of the hard working folks in August Capital's portfolio who deserve credit for the amazing progress they continue to make day in and day out.

When I first met with the founders of PayCycle, they had a great idea, a demo and impeccable credentials. But they did not have a single customer. In fact, they did not have a functioning service yet. Their idea was to build a self-serve payroll solution for small businesses that would give their customers not only the cheapest payroll solution but also the best payroll solution. With the click of a button, Small Business owners could pay their employees, pay their federal taxes, pay their state taxes, get reports, export data to QuickBooks, everything. Their vision was a compelling one, but I invested because of the amazing team, not the compelling idea.

I recently had a conversation with a later stage investor about another one of my portfolio companies that I had funded before they even had a product. He told me that I was nuts to invest so early. But I wouldn't have it any other way. One of the greatest things about Venture Capital is that you get to help in the development of really interesting technologies. And the earlier you get in, the more fun you get to have. I don't harbor any illusions that I'm the one building the technology. Nonetheless, there is something really satisfying about being involved in the evolution of a great technology from its earliest stages. And that is precisely when I got involved with PayCycle.

Watching PayCycle go from zero customers to fifty thousand customers has been really exciting -- it is now the fastest growing payroll solution in the country. But what has been even more exciting is to watch PayCycle go from supporting zero customers to supporting fifty thousand customers. No matter how leveraged your support structure is (and PayCycle's is unbelievably leveraged), it takes a lot of well-trained folks to support 50,000 customers, particularly when those customers are using your service for a mission critical task. As a result, PayCycle has had to build an expert support team that now lives in locations across the country. And those support agents have consistently exceeded 9 on a 10 point customer satisfaction scale, even while growing to support tens of thousands of customers. That is an impressive accomplishment.

So for day one of Shameless Self-Promotion Week, my hat is off to PayCycle. For any of you looking for the best possible small business payroll solution, you need look no further. As 50,000 small businesses before you have discovered, PayCycle is the hands down best solution on the market. And it could only have been built by the most knowledgable and entrepreneurial team in the payroll business. Congratulations to the entire PayCycle team.

Comments

[Peter J. Cranstone]

David,

Congratulations on hitting the 50,000 customers. It's a huge milestone. However I think in the interests of transparency it would also be fair to your readers to add a little more context to this post. Like, what did it cost to acquire 50,000 users and how long has it taken. A quick check on their web sites indicates that it's taken 7 years and over $29 million dollars to achieve this milestone, which equates to close to $600 per customer.

$29 million dollars is a very large sum of money and depending upon the exit strategy (and number of shares currently outstanding) will require a buyer to purchase the company for over $300 million which is outside the current sweet spot range (50m - 150m) for M&A.

All that being said, we may well be signing up for this service soon. It's an excellent idea, one that is sustainable as long as costs stay low and you (PayCycle) continue to extend the brand.

What's interesting from the Entrepreneurs standpoint is that it's taken 7 years and there's still no exit. This is more like reality for Web 2.0 facing businesses. Something which most of the community miss. It's still hard work, nights and weekends.

Cheers,

Peter

[Chris (Amateur Traveler podcast)]

I am always glad to see good news for PayCycle since I was one of the friends and family round of angle investors.

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Hopefully I was an acute "angle" investor. Make that an "angel" investor. FIrst day with the new fingers, can't do a thing with them :-)

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