Kevin Busque and Steven Wu, CEO and CFO of Guideline, on hitting $120M ARR

Steven Wu: The product opens up opportunities for people who weren't considering retirement plans before. Now, due to the Secure 2.0 and state mandates, businesses of all sizes have access to a modern, compliant and seamless retirement-out-of-the-box offering that's beneficial for everyone. 

Kevin Busque: State mandates are driving change at a local level. For example, California is requiring all businesses with an employee to have a retirement program by December 31st 2025, either through a private sector program or the state's public program run by CalSavers. While these are separate initiatives, SECURE Act 2.0 has allowed us to compete with state programs in the blue-collar sector, where there are many hourly or part-time workers. These workers are typically difficult to administer with a full-blown 401(k) program. SECURE Act 2.0 enabled us to introduce our StarterK product to efficiently serve this market segment. So, we're seeing two different factors contributing to one larger trend.

Do the economics differ on the starter plan for Guideline?

Kevin Busque: We've made this extremely affordable. There's a lower monthly base fee of $39, plus $4 per user per month. For example, if you have 30 people working in your fast food franchise and only 10 participate, you're only paying for those 10, while still meeting the state mandate. With our integrations with the payroll partners, it's not an administrative burden at all. We can offer it at this level largely because of the compliance derisking for small businesses. We don't have to perform all the compliance tests, which significantly reduces our workload. 

Steven Wu: It's definitely a lightweight product. It's $39 plus $4 per active participant per month, compared to our core offering which is $89 plus $8 per month or our enterprise product at $129 plus $8 per month. The gross margins on this are similar to the core product due to the reduced administrative burden.

How do you ensure that Guideline stands out as the best option in integration marketplaces like Gusto, especially when competing with other digital 401(k) providers?

Kevin Busque: We're by far the largest modern tech-forward provider, with 52,000 small businesses on our platform. When compared to others, we're the tried and true option. Our product is offered in-product or prominently in the marketplace with our payroll partners. We have great relationships with our partners and we work closely with them on our integrations and the overall end-customer experience. A major differentiator for Guideline is that we own all of our integrations entirely. We don't outsource any part of it, which is different from other 401(k) companies. They often use a third party integration, which means small business owners' payroll data goes through this intermediary before reaching the 401(k) provider. This can lead to security and privacy concerns. We have direct relationships with all our payroll providers, and we developed our API in conjunction with them, making it far more advanced and robust than the middleware used by others.

Steven Wu: I'd add that integration, our technology stack and our superior product and user experience are the top three differentiators. We have a user-friendly mobile app that allows savers to easily understand their contributions, withdrawals, and portfolio construction. Lastly, we're likely the most affordable option, with transparent and flexible pricing. We can work with plan sponsors, especially our upmarket clients on different flexible pricing options, and when compared to our competitors and legacy providers, we're still a much more cost-effective option.

In our last interview, you mentioned health savings accounts as an interesting adjacent market opportunity. Can you share more about Guideline's strategy and progress in expanding into HSAs?

Kevin Busque: We'll have some announcements about HSAs soon.

HSAs allow you and your employer to contribute to a health savings account. This can be used tax-free for any health-related expense, but you can also invest it. Our core business is investing tax-advantaged dollars, which is what we do as a platform for 401(k)s, so you can see the adjacency there. One of the larger benefits is that you can transfer from a 401(k) to an IRA to an HSA and get triple tax savings for any health event, if you have all the necessary paperwork done correctly.

We know from our data on hardship withdrawals and loans that healthcare is the second biggest reason people take money out of a retirement account. This is a risk factor for long-term retirement success. We want to enable you to have a single pane of glass where you can see all the dollars you have available for certain life events, whether it's an emergency, a healthcare event, or buying a house. We want you to have that single view and insight into your overall retirement success, which is why it's really important to bring HSAs into the mix.

You can then have one investment philosophy. We use Modern Portfolio Theory, which we find to be the tried and true method over the last few decades. For retirement savings, we believe this is the best way to mitigate retirement risk.

Consideration has moved up since I started this company, mainly because of the hiring ecosystem, employment rates, and trying to get good staff. You have to have good benefits, and that's great for us. For a company like ours and being our own record keeper, there's no feature we can't have. We have them all, and we can control the financial reporting and all of that stuff. We have companies that are one person and companies that are 2,000 people.

We're never going to compete for Google's or IBM's 401(k), so for us, it's really about focusing on the small business, which is honestly one to 2,000.

The most common reason companies leave Guideline is that they're being acquired or going out of business. That's the majority of the reason somebody would leave.

You mentioned developing products to mitigate factors that lead to early 401(k) withdrawals. Can you elaborate on these products and how they work to address these issues?

Kevin Busque: The biggest issue for us is the short-term need for cash. One of the main reasons people don't invest in their 401(k)s is that they think their cash is locked up until retirement. We see this as the number one reason people don't contribute or don't fully contribute to their 401(k), instead splitting their cash between savings, checking, and 401(k) accounts.

We want to make that decision easier for you. You can simply say, "I want 7% of my paycheck to go towards retirement," and we'll do all the calculations for you. Some may go to your 401(k), but when you go through our suitability algorithm, we're going to ask you about your savings and short-term savings: "Do you have 3 to 6 months of short-term cash available? What does that look like for you? Is it in a high-yield savings account?"

We're building a product that's connected to your long-term retirement savings. This is meant for those hardships that come up, where you need $600 for a blown tire or broken transmission, especially for blue-collar workers. We want to ensure you have that cash available, so you know you're saving for long-term retirement success while also having short-term needs covered. We'll handle all the backend operations, including employer contributions or personal contributions from your bank account.

This suite of products, including your HSA, will lead to retirement success while mitigating various financial challenges – healthcare events, emergencies, dental work, or other unexpected expenses. We see all of this in our data from over one million people on the platform who have hardship withdrawals and loan needs. We're going to use this data to mitigate these issues.

It sounds like you're focusing on pre-tax income flows to help improve personal finances, rather than post-tax approaches like traditional personal finance apps. Is that correct?

Kevin Busque: Yes, exactly. It's not just about pre-tax versus post-tax; it's about tax-advantaged strategies. Post-tax contributions can also be tax-advantaged, and we consider that as part of a strategy for long-term success.

We're focused on providing meaningful financial benefits, rather than just financial education or learning guidelines. Our goal is to get you on the right path towards a successful retirement. That's been our vision since day one – to ensure you can't make a bad decision on your way to saving for retirement. That's why I created the company.

Guideline Pro seems to mark an expansion of your partner-driven distribution strategy. How did you make the decision to support accountants, financial advisors, benefits professionals, and consultants? Can you walk us through the business rationale and financial model behind offering Guideline Pro as a free platform?

Kevin Busque: We've always had Guideline Pro, though it used to be called Guideline for Accountants or Guideline for Advisors. We've had financial advisors, accountants, bookkeepers, broker-dealers, and brokers for a while now. We're now expanding those offerings. In conjunction with restructuring our entity structure, we'll be decoupling our offering and essentially unbundling our 401(k) solution to incorporate more ad hoc advisors who may manage a small business owner's capital or wealth.

We're starting to unbundle not just to service other advisors, financial advisors, broker-dealers, or accountants, but also because we have products within our bundle that many people don't realize we offer. For example, we have a compliance engine that can take your payroll data and compare it against all ERISA regulations to predict if your plan will be compliant. We could offer that separately. We're also one of only a few companies that handle all IRS e-filing for 5500 long and short forms, which we could uncouple as well.

There are many opportunities to decouple the largely bundled product that Guideline has had for so long in this new entity structure. We're excited about that for 2025 and beyond. Right now, we're doing a lot of work on integrations for financial advisors with companies like RPAG (Retirement Plan advisory Group), so they can aggregate their customers' data and see Guideline assets. This will be a larger part of what we do as 401(k)s and companies grow more complicated and tend to attach advisors. We already allow this in our product; if you want to bring an advisor, you can do so on our platform. We're trying to figure out where we fit in and how we can achieve the best outcome for these participants. If a small business wants an advisor for a 401(k), that's up to them, and we'll support that.

Steven Wu: The accountant is very important in the SMB space and has a lot of influence. As we go upmarket, a lot of our partners get a lot of their leads from local brokers and benefit brokers. So having that piece and the unbundling is important because it allows us to help them get leads.

Guideline's pricing has changed since we last talked. Can you discuss the changes and how you're continuing to think about and refine your monetization strategy? How do you approach optimizing the balance and growth of your two main revenue streams—subscription fees for employers and AUM fees for employees—over time?

Kevin Busque: There's beauty in having transparent, simple pricing, and we do that largely for all of our businesses with 50 people and under. They just take the pricing that's on our website, which is still industry-leading. We really focus on participant outcomes and success in retirement. If you look at our asset-based fee compared to everybody else, it's significantly less than many of our competitors at 15 basis points. 

You have to strike a balance because at 1,000 people at $8 a month, that's a huge cost to any business. So you have to enable what they're used to, which is largely free. If you look at a Fidelity plan or something similar, they pass all of the costs of a 401(k) to the employee, whether it's in mutual fund expenses, record-keeping per-seat expenses, or some other additive expense on top of it, probably investment management expenses. That's how they do it, and they shift all of that to the employee in an extremely opaque manner.

We don't like opacity at all in our pricing. We're always super transparent about who's paying what, but we do have this new addition called Flex Pricing. For businesses with 50 plus employees, they can choose who's paying what so that it works for their business. In the end, even if they fully load it onto the participant, we're still roughly half the cost of the traditional legacy provider to the participants, so we can feel really good about that.

That's been a bit of a mentality shift for us. We find it's still better for small businesses to offer these 401(k)s, even if it's slightly higher to the participant when you compare what that participant would be paying with a legacy provider. It's still much better for them, and we get to enable a better product experience and all the other benefits that Guideline brings to the table. So we now allow Flex Pricing with complete flexibility on who pays what and how much on our platform.

Steven Wu: Overall, we feel really good about our lifetime value with our customers. We have very strong gross renewal rates and software-like gross margins, which allows us to be more aggressive with promotions. Being cash-flow break-even and having $100M+ of cash on the balance sheet doesn’t hurt either. We feel like this is a huge differentiator for us compared to some of our competitors in the market.  Even though we have increased pricing over the last year, we are now offering many of our new customers a great deal with $0 employer fees for many months to help them get up and running on our platform, which is very attractive for both new and conversion plans.

Customer success seems to be a significant component of your business. How are you approaching the challenge of building an efficient back office and making human operations more cost-effective at Guideline? To what extent can you achieve that through software and automation?

Kevin Busque: We're exploring various options, including AI and automated agents like many others in the industry. However, once you move beyond basic tier 1 or lower tier 2 support, issues with money movement become more complex.

For example, rollovers often end up as lost checks, which is largely out of our control. Soon, we won't have to rely on a third-party custodian, and we'll be able to control that experience directly. This has been a crucial goal for us.

Regarding our customer service for complex problems, it's all in-house and throughout the US. We generally follow market hours, so if the market is open, Guideline's customer success team is available. We do have some outsourced first-level support for simple issues like password resets, but these aren't typically the main concerns. 

Our focus has been on maintaining high-quality, in-house support. We don't believe AI will completely take over in the heavily regulated 401(k) industry.

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