Isaac Oates On Selling His First Company To Etsy And Now Raising $143 Million To Make Running A Business Easy

Isaac Oates helped take one startup through to an acquisition by Etsy. Now his current company, Justworks, has already raised $143M across seven rounds of funding to help the thousands of small and medium-sized businesses on its platform grow with confidence. He has raised funding from top-tier investors like Union Square Ventures, Redpoint, Spark Capital, and Latitude.

In this episode, you will learn:

• Isaac Oates top advice before launching a company
• COVID vaccines in the workplace
• How Justworks is helping SMBs
• The book you need to read before selling your own company

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About Isaac Oates:

Isaac is the Founder & CEO of Justworks. Prior to founding Justworks, Isaac worked at Etsy where he designed, built, and launched the company’s payment processing platform. Isaac came to Etsy through the acquisition of Adtuitive, a contextual advertising startup that he co-founded. He has held product management and software development positions at Amazon.com, Yahoo!, NCSA, and Lucent Technologies.

In addition, he served as an intelligence officer in the National Guard and Army Reserve. Isaac holds an MBA from Cornell University and a BS in Computer Science from the University of Illinois at Urbana-Champaign.

Connect with Isaac Oates:

• Crunchbase
• LinkedIn
• Twitter

Read the Full Transcription of the Interview:

Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. I’m very, very excited about the guest that we have today. Also, for those of you that haven’t seen it or that haven’t heard about it, my latest book came out, Selling Your Startup. Basically, the reason for this book was that I got tired of just not seeing anything out there to guide founders, and I experienced this myself going through the acquisition on my last company. There was not a lot of information around how do you really package this thing, or what the exit is going to look like, and how you reverse engineer the process to where you are today so that you can take immediate steps to get there. I think that this book is not just for the people that are thinking about going through an M&A process, but for anyone that is in the journey of building and scaling their company. So Selling Your Startup is available at Amazon, Barnes & Noble, and everywhere else that you want.

I want today to tell you all that I’m very excited about this guest that we have because he’s been at it for quite a while with this company that he’s been pushing, which is definitely a rocket ship. It’s going to be very interesting how we’re going to be discussing here the different financing cycles that he has done and how things have changed over time because, especially at a Series B, he really got a good grasp as to how you raise money and how you get it done. So, without further ado, let’s welcome our guest today. Isaac Oates, welcome to the show.

Isaac Oates: Thanks, Alejandro. I’m really excited to be here.

Alejandro: Originally, you were born in Monterey, California, and you moved a little bit from Monterey to Cincinnati, from Cincinnati to New Jersey, and also you grew up with your mom. So tell us about how the upbringing was for you and how switching so much, and new friends, and new places, and how that shaped who you are today.

Isaac Oates: It definitely shaped a lot about who I am. My mom and I were a team of two. When I was four, we moved to Cincinnati and lived with my grandparents for a while and then later to New Jersey. I think the biggest thing—there are probably two. One is that my mom worked full-time, so it meant that, as a kid, I spent a lot of time on my own after school. I think that gave me a lot of independence. It also allowed me to explore things I was entrusted with. I loved picking up stuff like old gadgets and appliances that people were throwing away. I’d take them home and take them apart, and that was all stuff I would do in the afternoons after school. Also, my mom worked at a public library in the town where we lived. She’d take me there to hang out while she was working. They had an Apple II, and it had a program that would teach you how to program in Basic. When I was ten, I started programming computers, and it became something that totally defined my career. I think those are two things that came out with growing up just with my mom.

Alejandro: And being an entrepreneur is all about dealing with uncertainty. I’m sure that growing up with just your mom and not having your father in the picture, I’m sure that perhaps has helped you to really deal, as well, with uncertainty and unforeseen situations, which is what you’re doing today with building and scaling a company from the ground up.

Isaac Oates: Yeah, for sure. It’s certainly the case that uncertainty can be really debilitating. It can actually be much harder than having bad news, and I think maybe we’ve all seen that a little bit over the past year or so. I really learned how to count on myself just having more space to be on my own, and I think that also made me a lot more confident in starting different projects over the years, and ultimately, my company.

Alejandro: Let’s talk about the programming. You got started there at ten. You were also doing some jobs here and there for places that would become Bell Labs. I’m sure that gave you that work ethic that you would definitely put into work later on. This perhaps gave you more validation of what you wanted to do, and that was the computer science and engineering, I would say, path. For you, I guess it was a very easy decision to say, “Okay. I’m just going to go at it and get my computer science degree.” Is that right?

Isaac Oates: Yeah. It’s funny; when I went into tenth grade, I think I was just turning 16, a friend of mine whose dad worked at Bell Labs, which was close to where we lived. He knew I liked to program, and he asked if I wanted to work there for the summer. It was really cool working in this huge office building and getting to work on these computers that were like SunSpark and HP computers that you would never get to work with normally. I really loved working there. The other thing that was so interesting is that there was a guy who became my manager, and he would pick me up from school until I got a car. Every day after school, he would pick me up to work there. It’s so funny because, at the time, I thought that maybe I was doing him the favor by being such a great programmer, and then I thought about it later and realized he was the one doing me a favor. Maybe he saw something in me. It’s something I think about all of the time, even in creating Justworks, like how to create opportunities for people. But it was an amazing opportunity to get to work in a big company as a teenager.

Alejandro: You also got into the National Guard pretty early on. You were there for about 12 years having that type of involvement, so what did you learn about discipline?

Isaac Oates: Certainly, when we think about the military, I think structure and discipline are the words that often come to mind. I enlisted in the Guard right after I graduated from high school, and I think at some level, I thought that being in the military would push me and help me grow up a little bit. It was a tremendous experience. I went through officer training and became a Military Intelligence Officer when I was 22. The military puts you in these leadership roles that I think are pretty infrequent in the private sector. At 22, I was in these platoon leader jobs where I was responsible for maybe 30 soldiers. Of course, they all knew that I didn’t know what I was doing, and I also knew that I didn’t know what I was doing. But starting to grow into those leadership roles was really cool, and I learned a lot of things about how you treat people, how you depend on the people you work with in order to accomplish anything. There’s this expression, “Mission first; people always.” That always resonated with me. In all of the jobs that I’ve had, realizing that if the people aren’t good to go, you’re not going to get anything done has been a huge lesson. I felt really lucky to get to serve, but I also learned a lot about leadership and people.

Alejandro: In your case, Amazon played a very important role in your career because you went to Amazon right after college, and then also right after business school, you also went to Amazon. That led you very nicely into joining your friends that were up to building something, and that perhaps was your initiation into the venture world. What was that like?

Isaac Oates: Yeah. I started at Amazon in 2002. I would say the company was unrecognizable from what it is now. I think at the time there were about 1,500 employees in corporate and 300 engineers in the company. I was an engineer there. I had an incredible manager who gave me space. His name was Phil, and he gave me space to learn about programming and programming at scale and working on these systems that were at scale. I worked there for about three years, all on these back-end transaction processing systems, which I loved. Like, I was in heaven working on these systems. You’d make one little tweak, and you’d see how big the impact could be. Then, about three years in, I decided I wanted to be a product manager. At the time, at Amazon, in order to be a product manager, you had to have gone to business school. I applied to business school and got in, and left Amazon. I was there, and in my last semester, I was starting to look for a job after business school. I was sitting at Starbucks with a friend of mine who used to work at Amazon, and this VP walked in. He said, “Hey, I remember you. You’re the one that brought the site down.” I brought Amazon down, by the way, when I started for about ten minutes.

Alejandro: [Laughter] That’s amazing.

Isaac Oates: It’s like a way to make an impression. So I ended up going back there and working as a product manager. I got to spend a lot of time with senior leaders there. I think it’s safe to say that leaders at Amazon think at least as critically as anyone else out there, and I think they make really thoughtful and high-quality decisions. The process of being there and writing these six-pagers that people talk about and then editing the thing for two months until it was perfectly clear before bringing it into Jeff or for SVP, Andy. It looked incredible. Obviously, Amazon has gone on to be this tremendous company. They force you to think very clearly, and it was such a valuable skill set that I developed working there.

Alejandro: Tell us about leaving Amazon and entering the startup world.

Isaac Oates: Yeah, it was pretty scary. I remember talking to some folks and my family. They were like, “Are you sure you want to do that?” I had to talk with basically everyone at the management chain at Amazon, and they were like, “Are you sure you want to do that?” I don’t know. I just wanted to bet on myself, I guess. It was really scary to have a last day and then realize that my paycheck was over, and I was just out there off the career treadmill. But it was pretty cool. I’d thought about leaving for a little while, and I talked with two of my friends, Jason and Greg. I had actually had an idea for a startup that I was going to convince my friend, Greg, to do, and Greg was like, “No, no. You should come work with us on the startup Adtuitive that we’re building. I came and worked with them. In particular, my friend Jason who is the CEO, was good at fundraising. I thought, “I can probably learn a lot from Jason because I don’t know the first thing about fundraising, and it seems incredibly intimidating at the time. We raised 1.3 million dollars. We ran our company for about a year, and then at the end of 2009, we were acquired by Etsy. But in the meantime, I was the “business guy” because all three of us were technical, but I also had this MBA. This is actually where I got the idea for Justworks was that I was the one that set up payroll with a big payroll company, and it was incredibly cumbersome. I was using a fax machine all the time, and Jason and Greg gave me a hard time about that. They were like, “Why are you on a fax machine? You know it’s 2008? Right?” I ended up thinking, “If you can make it easier for people to hire and pay people, I think people would probably go for it. I definitely would have gone for it. But it was also really cool working at a startup for the first time and being a co-founder and learning about how an entire business worked because before that, at Amazon, which is this incredible experience, I was just like in the machine. I was the software developer, but I didn’t understand how the whole thing, finance, and marketing, and engineering, and product management, and every function you can imagine plugged into one whole business. Even the seven of us, which is what we ultimately became, I just got to see how one whole business comes together, which was pretty cool.

Alejandro: Definitely, building the pipes is different from learning how you get the water to go faster. That’s for sure.

Isaac Oates: Yeah.

Alejandro: In this case, you were able to explore how everything came together, how the rounds of financing were really done, and then also how an acquisition was done. Perhaps having that visibility into the full-cycle gave you the opportunity to think, “Now I know how this works. Now I know how it’s done.” Do you think that maybe brought a little bit more, I would say, peace of mind to a certain degree or more confidence because, in Etsy, once the acquisition happened, you were with them for about three years, but essentially after that, and you were alluding to it, you got the idea for Justworks when you were working at Adtuitive. Do you think that full visibility into that full cycle gave you that confidence to do it again?

Isaac Oates: Yeah. I think that was a really big part of it. Having seen Adtuitive more or less from incorporation to sale, I, obviously, hadn’t seen everything—far from it. I think seeing the whole cycle made me feel a lot more confident that I kind of knew what I was in for. I feel like when I was starting Justworks—when you’re starting something, you’re making hundreds of decisions a day that you don’t even realize they are decisions. You just choose to do something. You may not even think that there are a bunch of different ways I could do it, but what are you going to do? You’re going to follow the things that you saw before. For me, it was like having sat inside of Amazon and then having gone through the cycle of Adtuitive, and then sat inside of Etsy when they were actually growing quite quickly. These are all examples of how things could be done. I felt like it was easier to build the company with a bunch of examples in my back pocket. I think a lot of it is subconscious. You’re just like, “We’ll do it this way.” You end up being able to go faster and things like that.

Alejandro: What was that day when you realized, “I have this idea in the back of my mind. I can’t forget about it. I have to do this thing.” What was that day like?

Isaac Oates: I don’t know if it was a day. There were a couple of things happening. One is, when Adtuitive was acquired by Etsy, we had a career contract. I was committed to fulfilling the contract, but I didn’t think I would stay past the end of the contract. It’s kind of a weird thing to take a job and know that you have an end date on your first day. It really changed my mentality. I think I was willing to take a lot more risks at work because I knew that at some point, I was leaving anyway, so it was like, “Let me do the most I can while I’m here.” Adtuitive, at its peak, was six full-time employees and an intern. I wanted to build something bigger and more impactful. I thought I had learned a lot from Adtuitive, but I wanted a shot at that. Then, the other thing is that I had this profound experience at Etsy where the CEO asked me to build a payments product there. At the time, 96% of their payments went through PayPal, and 4% went through paper check. We thought we needed to be able to accept credit cards and send the payments out to our sellers, which sounds really obvious, but it was pretty complex to build. It was very complex at the time. This was before Stripe and things like that. I ended up building this team very creatively called The Payments Team. We were about ten people, super-tight knit, and really effective. We would set out our goals and be like, “This is what we’re going to do.” Then we would go do them. It was an awesome experience. I thought, “You know what?” If I could build a company that had a bunch of teams like that, I think the company could go on to do anything. But then the question was: what should it do? I kept coming back to, “I know about payments, and I know that there was this super laborious process at my last startup, and I think there’s a product opportunity.” So it came together over a period of time. I do remember thinking very vividly, “I’m about to get into something that I don’t understand that well, but I’m going to give it a shot anyway.” That’s how we started.

Alejandro: So for the people that are listening to get it, what ended up being the business model that we know of today of Justworks?

Isaac Oates: To explain what Justworks is, it is a payroll benefits and HR platform for small businesses. Basically, the way that it works is that when a company works with us—let’s say a company has 15 employees. Their employees basically join the pool of all of the employees that work with Justwork. Today we have about 120,000 employees on our platform and about 8,000 companies. A company joins, and they become part of this pool. We can do a few incredible things by bringing everybody together. One is that we can centralize their tax processing, so we can file these very large returns rather than many, many small returns. In addition, we can get them access to benefits that they typically wouldn’t have access to if they were small. Even if they could sign up for them, the cost and time involved are prohibited for a small business. In addition, we help them with HR, and we help them with compliance, so it’s a really powerful tool for startups and small but growing businesses to hire and pay people. Effectively, they can get an economy of scale that they just wouldn’t have if they were doing this stuff on their own. It’s related to payment processing where I had seen that same aggregation model that is used by PayPal and Stripe, Square, Airbnb, Etsy, and all these companies on the merchant side. But there’s a lot of power in bringing a lot of smaller customers together and then giving them access to an economy of scale. That’s what we do.

Alejandro: Nice. How much capital have you guys raised to date?

Isaac Oates: We’ve raised $143 million in seven total rounds.

Alejandro: Let’s talk about the early rounds because the company almost went under. So what happened there?

Isaac Oates: Like I mentioned before, fundraising had always been intimidating, but I felt confident enough to get things going. The first round that I raised, which was a million bucks, was actually relatively straightforward. I had met a lot of VCs working at Etsy, and I met people who could be angel investors, and they believed in me and were willing to fund the company even though we had a very basic product and weren’t explaining—the business model hadn’t emerged yet. So that was great. Then about ten months later, we thought, “We’re going to go raise a Series A. Unbeknownst to me, what investors really wanted to see out of Series A were the signs of an emerging business model. It’s so obvious to say it now, but I had focused on building a great product and having customers who loved it. That was all I cared about. We did that. I think our customers were really happy and the product, even in its early days, was cool. But I didn’t think about the business model. I didn’t think about things like customer acquisition and go to market. So when we raised the Series A or attempted to raise it, it was a huge flop. These investors basically said, “Get out of here. You don’t even know what you’re talking about.” That was tough, as you can imagine. We started paying back and regrouped and ultimately raised a much smaller round, which I euphemistically call seed-extension round, but it was really a bridge. We raise another million and a half dollars. At that point, I guess I had become crystal clear that understanding the business model and distribution was just as important as having a great product. I really focused on hiring a sales leader and building a sales team, and getting out there. By the time we raised our Series A, which probably was six months after that, we could talk about all of those things. That was tough. I definitely thought we were probably going to go out of business before we managed to pull this second round together. But I think, among other things, it reinforced for better or for worse the sheer will to survive. It was very much this: live to fight another day kind of time the company and for me. I think ever since then I have been relentlessly focused on making sure that we are always in a strong position, that we don’t depend on outside capital any more than we have to in order to survive, which is important both for us, but it’s also important for our customers who totally rely on us to do some of the most important things for the business.

Alejandro: It seems that for you, it was all the way until the Series B to really understand how to make it happen when it comes to fundraising. What was your big takeaway there that you were like, “Now I get it.”?

Isaac Oates: The big thing is when you go out, and you raise venture capital—this is probably applicable for all kinds of fundraising. More or less, one of the questions you’re going to get from investors is, how much are you raising, and/or what do you think your valuation is? I had, on a naïve basis, let’s say, gone out with the Series A and B and said, “Oh, yeah. We can raise a bunch of money.” I went out there with amounts that were too much. A lot of investors said, “No way.” So there was nothing past the first conversation. Then even when those rounds ultimately closed, it was like a little bit bedraggled because it’s like you start with—I think our Series B, maybe we thought we could raise $20 million, and we ended up raising $13 million. That’s not the way you want to go. I figured this out and also concluded that in the end that there’s an equilibrium-kind of amount that you’re going to raise regardless of what you say you’re going to raise. So you might as well go the other way. With our Series C, I remember making the slide where we said that we would raise $20 to $25 million, which seems probably less than we could. I didn’t talk about valuation, and whenever people asked about valuation, I would say, “Let it work itself out.” Then there was a huge amount of interest in the round because all these different investors did the back of the envelope math, and they’re like, “It’s probably a reasonable valuation. This is a good investment opportunity.” So you get all of this deal key that comes around, and ultimately, we had an investor come in and invest $33 million. One way or the other, we were probably going to end up at that range, $30-$35 million. But it’s a lot better to get there from $20-$25 million than it is from $40-$50 million. Ever since then, I’ve believed that you probably want to start on the modest ends of things, generate a lot of demand and interest so that people can take the time to get to know you. Then, in the end, you’re going to end up with a market price one way or the other.

Alejandro: Yeah.

Isaac Oates: That was a huge takeaway. The other thing I think that is important, but I don’t think it could have happened sooner, is every entrepreneur has a different style. For me, I would rather talk about what we’ve done and what we’re good at and stick more to the facts. By the time we got to the Series C, we had a business that was a really great business. It meant that I could pitch in the way that was natural to me, which was to say, “This is what we do, and we’ll talk about the future, but not that much.” Whereas I think in the earlier rounds, we didn’t have that much of a business, so it had to be about what the future was. I think, for me, that just feels less of a strength, and it’s probably still true.

Alejandro: Nice. In terms of the size today so that people listening get a good idea, how big is Justworks? Is there anything that you can share in terms of the number of employees or anything else?

Isaac Oates: We have about 750 employees in the company right now. We more or less break even with the size of our workforce, which is fantastic.

Alejandro: You were alluding to it before on talking about the future, so let’s talk about the future. Let’s say that you go to sleep tonight, and you wake up five years later. You’ve never slept like this in your life. You wake up in a world where the vision of Justworks is fully realized. What does that world look like?

Isaac Oates: I think that there are a few sides of that. First, there’s why we exist, to begin with, like our purpose, which I think of as helping people to realize their potential. I got to bet a little bit with the story from Lucent, but part of what we help people realize their potential is through running our business, helping entrepreneurs hire and pay people, and build their teams, and create, and develop that way. Then the other way that we help people realize their potential here at Justworks, those 750 people, ideally, we’re giving them opportunities to learn, grow, and develop. Those are things that they’ll take with them for the rest of their career. I think that certainly continuing to do that is part of what I would want to see in five years. Then I think the other thing that I’m very excited about is going from being a single product company, which is where we are right now, to a company with a bunch of different businesses that help entrepreneurs in different ways and help the people with those companies in different ways while staying true to our mission, which is to help entrepreneurs and their teams grow with confidence. But I think companies that endure are companies that have lots of different growth marks. I think a big challenge right now for the team and me and one that we spend a lot of time focusing on is like, how do we create more growth marks that goes into the future? It’s really hard to say exactly what those are going to be. I just know that we have to have them if we want to be an enduring business. I’m pretty excited about that.

Alejandro: Imagine I put you into a time machine, Isaac, and I bring you back in time to that point where you were still at Amazon bringing the site down for ten minutes. [Laughter] Perhaps you were thinking about what you could do or what you could build or an entrepreneurial world where you would bring something to market. Imagine you had the opportunity of having a sit-down with that younger self, and you’re able to tell that younger Isaac one piece of business advice before launching a company. What would that be, and why knowing what you know now?

Isaac Oates: In terms of the one thing that I wish I had done more of—I still have to remind myself sometimes. It’s about listening to your gut. I think people—I would certainly put myself in this bucket. You underestimate the importance of your instincts, especially if it’s hard to explain to someone what your instincts are. Every time that I haven’t followed my instincts like I’ve either ignored it or it’s been argued away, I pretty much always regret it. Whether it’s about hiring somebody or working with someone, or making a certain decision, I think you have this really special thing, your intuition, and it’s formed by everything that you’ve seen and done in your life. I would remind myself to make sure that I’m following it.

Alejandro: Can you think about a time where you actually followed your instincts, and it makes a tremendous difference?

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Isaac Oates: We had something recently come up where we issued the vaccine mandate for our company. We issued the vaccine mandate before most companies were doing that by a couple of days. I had been thinking about it, and it’s like a moment where you’re talking to everybody, and it’s obviously the safe thing to do to wait and see what everybody else does. I thought about it, and I couldn’t let it go. I was like, “I think this has to be the thing that we do, and we have to lead in this way. We have to lead on behalf of those 8,000 companies I was talking about that work with us. We went ahead in a very short order. We put out a statement with the vaccine policy for our employees and how we were going to deal with it at Justworks. I think all the arguments would be to the contrary—all the arguments would be to hang on, wait, and see what happens. I am so glad that we put out the statement when we did, and I think our employees appreciated seeing us lead, and I think some other big tech companies came out a day or two later with more or less the same policy, and I think our employees were really proud that we were ahead of it. That was one of those things where that is a true gut decision. It happens all the time, for sure.

Alejandro: I love it. Isaac, for the people that are listening, what is the best way for them to reach out and say hi?

Isaac Oates: You can probably email me: io****@ju*******.com. And you can always check on our website, justworks.com.

Alejandro: Amazing. Isaac, thank you so much for being on the DealMakers show today.

Isaac Oates: Awesome. Alejandro, thanks for having me.

* * *
If you like the show, make sure that you hit that subscribe button. If you can leave a review as well, that would be fantastic. And if you got any value either from this episode or from the show itself, share it with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help, whether it is with your fundraising efforts or with selling your business, you can reach me at al*******@pa**************.com.

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