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.