SM: Okay, so August Capital funded Series B and you came in after Series C?
JH: No, actually I came in 2005, after Doll Capital had done a series D, and put in another $9M.
SM: How far along was the company when you arrived?
JH: We had 60-70 people, and about 13,000 customers.
SM: That is pretty good.
JH: It had revenue of $3.5M the first year I was here.
SM: How does PayCycle sell?
JH: Direct marketing.
SM: There is no retail play this time?
JH: We have a small partner that does some retail work, but it is a relatively small part of our business. There is an outfit called VersaCheck, which does check printing. We have integrated with their solution, but that is a very small part of our business. We want to be where people want to buy it. There is some portion of people who will go explore retail, so you want to be there.
SM: Can you talk more about direct marketing? What is the flavor which works for this type of business?
JH: It is all a web based, on demand business. We get customers three ways. We get them from e-marketing first; paid and organic search. That accounts for about 33% of our customers. We spend a lot of time focused on being on the search engines.
Second, small businesses will go to a trusted advisor to get advice on payroll because it is not an impulse purchase. They will go to their accountant, so we have focused a lot on CPAs, bookkeepers, accountants of various types. You get to them by blanketing a half dozen trade magazines with articles and advertising, and you go to a bunch of trade shows. The IRS has some shows for accountants. We have done a good job getting the word out to the accountant community. We have a version of the product which works with accountants. We have a high profile in that space, and that accounts for about another 33% of our customer base.
The final way we find customers is through partners. We started historically with software partners. We cooperate and compete with Intuit in many ways. We originally did their online payroll for QuickBooks online, and they have since come out with their own version. We still do QuickBooks for Mac. We do Microsoft Money, their small business edition; we do payroll for their product. We do payroll for a number of the accountant software packages. Increasingly our attention is turning to financial institutions. We were pretty excited 18 months ago when we landed Bank of America. We are the payroll solution for their small business offering. We have several other financial institutions in the works as well.