Cracking the Very Small Business Market: PayCycle CEO Jim Heeger (Part 6)

SM: Let’s start talking about PayCycle which is where you are now. This is your old team from Intuit, right?

JH: The team I came to work with at PayCycle are all people I have worked with before except one person. I feel really lucky to be able to work with people I know. They knew what they were getting. Most of them were here when I got here, so I inherited them. The two founders of PayCycle are two guys who worked in my group at Intuit; they were one level removed from me. One was the technical guy who wrote all of Intuit’s original software for payroll, and the other was the business guy who worked the payroll business.

They left in 1999 to start PayCycle, and we were not too happy with them. They were going to be doing nanny payroll back then. That was the days of Zoë Baird, who was a candidate for Attorney General of the United States and she got up in front of Congress and somebody had decided she had not paid taxes on her childcare person and that became a big scandal and she did not become Attorney General. PayCycle was going to be in the Zoë Baird business and keep people out of trouble in case they wanted to become Attorney Generals in the future.

SM: How did PayCycle position itself around Intuit?

JH: I don’t think they had to position themselves around Intuit in the early days because it was about household payroll, and that was not a market Intuit was going after.

SM: Does PayCycle still have the household payroll business?

JH: Yes, as a matter of fact we still have it and I am a user. I pay our housekeeper with it.

SM: How many customers do you have using it?

JH: About 2,000. It is not the majority of the business. Most of our business is small business.

SM: Somebody actually funded this Nanny Payroll idea?

JH: August Capital.

SM: Are you serious?

JH: I think the Nanny Payroll idea was funded by some Angels, and it was refunded after the model was polished. The first around of institutional funding was in late 2000 by August Capital. One of the things that was pretty impressive about this was that Rene is a pretty compelling guy, and he did a good job raising money at a very difficult time. He raised his first round in December 2000 and the second round was October 2002. He was on either side of the nuclear winter, and to fund anything that looked like this was very tough. It is impressive that he was able to pull off a deal like this because it was definitely not in vogue.

SM: Do you remember Bizfinity at NEA? Mark (Perry) had sent me to look at Bizfinity, and looking back at this I remember thinking “what am I going to do with this?” Bizfinity was supposed to sell accounting software to small businesses.

JH: I knew these PayCycle guys were out there, I watched them for a long time, partly because they worked for me and partly because it was impressive that they were able to get that type of funding in the environment they were in. In the end the thing that attracted the guys who funded this early on, was not so much the buzz around SaaS as much as it was the recurring revenue model.

SM: Exactly, because SaaS was not a popular model back then.

JH: Right. What attracted them was definitely the recurring revenue business model. They realized the size of the market, and the revenue stream, if Rene and his team were able to execute.

This segment is part 6 in the series : Cracking the Very Small Business Market: PayCycle CEO Jim Heeger
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