Business Services,

Interview with Shrad Rao from Wagepoint

August 8, 2016

by Sean Huang

Business Analyst at Clutch

shrad-raoClutch spoke with Shrad Rao, CEO of Wagepoint, about Clutch’s 2016 Payroll Solutions Survey results.

Learn more about Wagepoint on their homepage. Also, read more from Rao in his article about outsourcing payroll.

 

Background

Please describe your organization and position there.

Wagepoint offers simple, fast, and friendly payroll for small businesses. We usually say that our product is backed by the world's friendliest team. Our staff tries to make companies feel that they are speaking to a friend when they call us to solve a payroll problem.

In this area, small mistakes can have big consequences, so we try to remain approachable and accessible. It's better for a customer to contact us upfront, instead of allowing the problem to become much bigger later. Our ethos and approach to the business involves thinking of customers as friends we wouldn't want to disappoint.

I am the CEO of the company.

Most Popular Payroll Solutions Used

QuickBooks is dominant, but Paychex and ADP are also quite large, as well as SurePayroll to a lesser extent. Do you have any comments on the market dominance achieved by these companies?

These companies have been around for a long time. The dominance of QuickBooks was a bit surprising because we hadn't known what their full numbers were. Overall, from a market standpoint, there are many regional players. Paycor tends to do better in some geographical areas than other competitors, for example. The results are influenced by the number of employees also. A company with 500 employees will be unlikely to use something like QuickBooks. Their best fit is something like ADP.

It is very difficult to enter the payroll market at this point, but the small business segment is the right place to be for a newcomer. There are a lot of millennials starting new businesses, and they are looking to do business in a different format than what the traditional payroll companies offer. So, there is absolutely an opportunity to differentiate from incumbents. The field is very crowded from some perspectives, but I think that it is still the right place to enter for any new solutions.

How can newer companies such as yours compete with the bigger, legacy ones?

This is a very big question. Small businesses are a difficult market for large companies as well. Having a lot of money helps, and it can bring a company to dominate a region. Payroll happens to be more competitive than average because it has been around for a long time. The legacy providers have had a massive head start in creating their brand equity. Aside from regional dominance, creating new combinations of products and services to be offered with payroll is the direction which most companies are going to take. They will come up with unique ways of solving problems by involving the customer in the discussion.

As a next generation company, everyone in our staff is talking to customers, including our finance person. This has been hugely helpful in identifying needs and specific issues to solve. As an example, one of the people that we've met told us about Washington state's L&I reporting that no one else offered. We were able to create that report within a few hours and sent it to the Washington State labor board. That small feature has gotten us a ton of customers in the state of Washington.

Paying attention is important when competing in the market. There is no way for the large players to see all opportunities. They can only look in certain places, at certain times. Our job is to look everywhere else. A useful analogy is to think of the large legacy systems as old cities with roads that were built for horses, and us newer systems as cities that were built using modern urban planning. The legacy systems mainly have to stick to their existing states and grow where possible, whereas new ones like us can plan everything out at the very beginning, based on market information and observations we’ve gathered.

Doing research in the space will reveal that human resources technology, especially payroll, generally has an overall negative net promoter score. However, we have a 70+ net promoter score, which is almost totally attributable to the simplicity of our product and, more importantly, our customer support ethos.

First Encounter with Payroll

Almost 30% of respondents were using a legacy system that was already in place, while others were using it as an add-on to another solution. Some respondents were referred by someone else. What are your thoughts on this?

Payroll has existed as an outsourced product for some time. It's one of the first outsourced HR products for businesses. It's very logical because, before worrying about engagement and performance from an HR standpoint, businesses are always concerned about how people are paid. That is the bigger and more urgent worry, especially when a business is starting out. On top of this, it involves math, which nobody likes. Especially when there is a possibility of getting into trouble with the government over getting the 'math' wrong, the incentives to outsource become more numerous. As such, I don't find it surprising that there are people using legacy products.

The other reality is that this service is pretty commoditized. If you take into consideration the amount of work that we do as a payroll company, as well as the cost associated with doing that work for a customer, the value is extremely high. We are not some newfangled marketing company, charging $2,500 per month and only getting 7 or so support tickets. We are in constant touch with customers and do a lot of work for them without charging a lot. Our service is fairly commoditized and comes with a good understanding of what the market prices are. This creates a certain amount of efficiency from a customer acquisition standpoint.

50 years ago, when ADP was still a young company, payroll outsourcing was not accessible to small businesses, so they had implementation teams. Now, with cloud-based systems like Wagepoint, we can onboard a customer in minutes instead of weeks. This is the biggest reason for being able to sell our product without a salesforce. We use only inbound marketing and have a 30-40% conversion rate, which is amazing for a software-as-a-service company. Payroll outsourcing has become commoditized enough for people to understand what they're buying and the value that they're getting. Technology has caught up in terms of simplifying the onboarding process.

Huge companies like ADP have big sales forces as well, but they don't seem to be as effective in selling payrolls to clients. Why do you think that sales pitches aren't as effective as the size of these companies would suggest?

Some of these legacy payroll companies have a reputation problem. Although, Intuit/QuickBooks has done an excellent job in keeping up with the times but also maintaining customer service. Even though they have a massive base of users, they're still able to understand how to speak to a small business owner, which is very impressive. Some of the legacy payroll companies are too transactional: they close and move on, forgetting about the everyday maintenance needs of the customer. This has hurt them in the long-term, from a reputation standpoint. I also think that not many of them invested in upgrading technology. It's moving so fast that every 3-4 years, there will be something new and better that bears consideration.

For large companies, it does make sense to use legacy products because of the difficulty of switching. Legacy providers have done a lot to service that type of customer, but the same approach doesn't always make sense for a small business. This fact comes out in the sales pitch.

Use of and Satisfaction with Payroll Features

Most of our respondents selected generating payroll reports, W-2s, and doing direct deposits. Things like benefits management and PTO accrual were relatively less used. What are your reactions to this?

When looking at the majority of legacy solutions, you will often find them with "feature-bloat." Since respondents of your survey were generally small businesses with 2-50 employees, we've found that a small company will generally not use all the features that legacy products provide. Those clients need a very fast and efficient solution for one specific problem, not multiple ones. Many legacy products actually do too much, compared to small business needs.

Another issue is the paradigm shift in HR in general. There has been a mashing up of different types of products, which never happened before. Payroll and timekeeping seem like a good combination, because one flows into the other. Companies like Kronos have offered workflow management, which is where those different products have come together. There are also HR functionalities like onboarding an employee, enrolling them into benefits, making sure they're performing well, and so on. Other items that may not be completely administrative also have their own mashup. The new paradigm is to bring them all together. Legacy companies have already created systems that function as one big product, but it can be too big, messy, and bloated for a small business.

85% of respondents are at least somewhat satisfied with their payroll solution’s features. Do you think that this is a surprising number?

Many people who are dissatisfied with their existing payroll solution come to us, so we may be a bit biased in our thoughts. The same kind of offering has existed for a long time. Whether we're talking about ADP or Paychex, they've always been similar to each other in terms of products, processes, and approach to customers. People have grown to accept that this is how payroll companies are. It doesn't matter what they choose if the solution will be the same. Clients aren't passionate about their payroll company, and they have no reason to be. At the end of the day, it's only a transaction for the customer. The company doesn't do anything significant for them. There is a level of fatigue and a feeling of neutrality in the process, which may be what the results represent.

Most studies that we've read have shown that there are a fair number of people who want to switch when they learn about another available option. Until that time, they see their existing one as par for the course.

Do you think that payroll solutions are becoming technologically better and more user-friendly, or that they offer better support?

I can guess that most respondents are using QuickBooks or another legacy product like ADP, who has been in the market for 70 years. These companies are becoming more product-focused. Many of them used to think of themselves as a service, which is changing. User-friendliness is likely a reason for the high level of satisfaction. I don't think that any of the legacy companies are moving fast enough to keep up with the trends. At the same time, they are so well-entrenched in the market that they can get away with many misses, until someone becomes frustrated enough to leave them.

The millennial-run new businesses that we've worked with are usually less concerned about how long their payroll company has operated. However, people who have been in business for a long time usually feel more comfortable with and are more trusting of legacy companies, regardless of how many mistakes those companies make. This is a reality for our business: the longer a company has existed, the more business it will get.

The most popularly desired feature was a mobile app or mobile-friendly version of the software, followed by customization abilities and employee access. Fewer people cared about multi-country compatibility. Why is this?

The main feature that we've been asked for is more and better reporting. People can't get enough reports. People are also more connected, so they want mobile solutions. The request for customization is interesting. I often say that payroll is a business of exceptions, not rules. Building a solution for all the use cases that exist for compensating employees in such a multitude of ways, and looking at all of these variables, will create a storm of permutations that have to be accounted for. To build for 80% of use cases in a payroll software is very time-consuming. We have to consider situations we haven't seen before, which happens quite often. Most of our software is built to be as generic as it can be, since it is meant to scale to as many users as possible. In our space, people often have varied needs, which drives the desire for customization.

Employee access and self-reporting make complete sense. People in general are more savvy at using products and technology. Giving reports to the employee used to be a huge burden for the employer. It makes sense that owners would want employees to access these features themselves.

Multi-country functionalities only make sense for people who have employees in different countries, which only accounts for a small percentage of companies. Wagepoint is one of the only true multi-country payroll software companies in the world. We know of one or two others, but those operate on a limited scale. We cover all US states and Canadian provinces. ADP has the same coverage, but operates as two separate solutions. Paychex only works in the US, while Intuit also offers separate platforms. We are in a unique position to answer the problem of multi-country operation. We know how many of our customers operate in both US and Canada, and I can say that it's not many.

Use of and Satisfaction with Customer Support Features

The top response was calling the provider by phone, but email and chat were popular as well. Why do you think that the phone is still the most commonly used channel?

It's the most interactive and instantaneous out of all support features. Payroll tends to come with an urgency of getting the job done. Also, it's not easy to describe a problem sometimes. The client often has to paint a picture and hope that the person at the other end will understand it, which is hard to do by email or chat. The main reason for this is a lack of knowledge about the space, which is normal. Our clients are not familiar with payroll, and they shouldn't be.

Lack of knowledge, immediacy of response, and urgency combine to explain the survey responses. If a website is down, the customer can usually wait for an answer from their provider. In the case of payroll, there's usually a deadline to meet in order to pay employees, which leads to urgency and panic.

Do you think that any of these support features are underutilized?

Not really; we've seen the same kind of breakdown. We handle a lot of support ticketing, so I'm not surprised that the passive support we offer is underutilized. Clients don't understand what they're reading half of the time. Even if we try to make the material funny and simple, it will still be dry. All that matters to us is to be able to provide the best support in our space.

How do you think that payroll solutions can improve customer support and stand out?

There are two things that make for an awesome payroll company: the product has to be easy enough to use by someone unfamiliar with payroll; and more importantly, there has to be good customer support. We have basically built Wagepoint starting with customer support and working from that. Everything in our business is in service to the customer. One simple thing that a payroll provider can do is not have call-center-type environments, allowing people to get to know the customer service rep instead. I can call in and tell the same thing to 2 people, but I may forget a detail on my second conversation, which causes a problem. This situation can be avoided. It is more expensive to deliver support in this way, but it has saved us trouble in the long-term.

Many customers have told us that we've offered the best support they've encountered. This is because we've literally built our operations for this. I sometimes envy companies that only get 10 support tickets per year, but that's not the reality of our business. Pushing towards a pure software-as-a-service direction is usually a mistake.

71% of respondents said that they were at least somewhat satisfied with their payroll’s customer support. Are you surprised by this number?

The number is way higher than I would've thought for general customers. But given that many of your respondents are using QuickBooks or other Intuit products, I'm not very surprised. I think that they've done an excellent job of maintaining the support side.

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