Check: Solving the $150B payroll problem

Hey friends,

I'm back with a midweek briefing. As you might imagine given the timing, it's an unusual one.

In our 1 year update, I talked about the desire to experiment with new revenue models for The Generalist. One idea — inspired by Packy at Not Boring — was to test out sponsored deep-dives.

In the months since that recap, I've started to feel particularly excited about this approach, for a few different reasons:

1. We'll go behind-the-scenes. As part of this process, companies agree to open up internal documentation, and help me set up interviews with leadership and investors. That gives me a level of access and depth that is unusual. We'll get to look behind the curtain of an interesting business.
2. We'll unpack the next wave of breakout businesses, early. Sunday briefings tend to focus on dominant businesses, important markets, or emerging trends. That often means I don't get to spend as much time digging deep into pre-eminent companies — the startups that may go on to become the next Stripe, Snowflake, Uber, or Square. I think there's value in understanding them early.
3. We'll learn more, together. These briefings are designed to be additive to the thinking we do together on Sundays. We'll have a chance to analyze new companies, sectors, and business models, exploring different elements of familiar themes.
4. The Generalist is put on better financial footing. I'm extremely grateful and excited about how the first year of The Generalist has gone from a financial perspective — but we are still a small company. I want to continually make our work better, and bring to life many new ideas. This gives me the ability to start paying myself regularly, and someday, grow a team.

I've set myself a firm set of boundaries that I share with companies before we agree to collaborate. You can read my list of rules, here. I will, unswervingly, let you know when a piece is sponsored. The Generalist's most important asset is your trust, and I will always prioritize that above all else.

Now, onwards.

I'm extremely excited to share the first-ever partner post on Check. I've been secretly obsessed with Check since the company first launched, and have become more so over time. That's in large part thanks to my conversations with Andrew Brown, who was one of the first people to sign up for The Generalist's membership at the beginning of the year. We didn't know each other then, but he's since become an awesome member of our curated community.

All to say, I think Check is a genuinely fascinating business, with one of the biggest opportunities in fintech. I suspect we will all be hearing much more from them in the years to come.

(Or, keep reading below.)

Actionable insights

If you only have a couple of minutes to spare, here’s what investors, operators, and founders can learn about Check.

• Payroll is massive. It’s easy to forget just how gargantuan the space is. In 2020, nearly $9 trillion in wages were paid out in the US. Payroll providers occupy a position of extraordinary influence thanks to their control over this volume.
• Payroll has been largely forgotten by startups. The industry’s largest players have been around for half a century. While a handful of modern players have emerged, the market remains mostly unchanged. That’s because building a payroll product is a test of technical skill, regulatory nous, and extreme patience.
• Stripe is not the only “platform of platforms.” Ben Thompson called the payments business a “platform of platforms” because it provided infrastructure to large players like Shopify. Check is doing something similar in the payroll space, giving decacorns like ServiceTitan the ability to offer payroll to their SMB clientele.
• Check is also a call option on worker reclassification. Though a business like Check can thrive without massive shifts in employee status, it would be a serious beneficiary of any such movements. With continued pressure on gig economy platforms like Uber, Lyft, and DoorDash to make contractors W-2s, Check’s upside may be even larger than imagined at present.

***

Money is often best visualized as water.

When we have it, we are “liquid” or “flush.” When we lose it, we are “washed out.” Money “flows” and sometimes “ebbs.” It moves through banks and platforms like water through pipes, and when we talk about companies like Stripe and Plaid we use the language of plumbing. It is a metaphor that works so well, has fit so cleanly that when someone speaks of “cash flows” it no longer registers as figurative.

In this world of liquid motion, Check is America’s boldest plumber and most ambitious urban planner. Founded in 2019, the company is taking on one of the great modern financial challenges: trying to fix the broken, byzantine piping of payroll.

In 2020, $8.9 trillion was paid in US wages. That’s an almost impossible sum to understand, though that makes it no less real.

It is about twice the GDP of Japan, more than four multiples of Brazil’s, and north of 22x that of prosperous Norway.

It is three and a half Apple market caps, four and a half Alphabets, and just shy of 10 of the entity formerly known as Facebook.

It is a figure so absurdly large that only contortion and comparison can help us make sense of it.
And all of it passed through a decrepit architecture — a leaking, crumbling aqueduct.

Does anyone like their payroll provider? It is for most, a place of dull pain, an inconvenience that must be endured because it manages something so essential: our money. No sane mind enjoys logging on to a legacy platform heaving under the burden of sixty-year old coding language, riddled with complexities.

A small but significant mental and emotional tax is levied when we use such systems, and it is repeated across the working population, month by month, as regular as, well...a paycheck.

Why have such inadequate solutions stood for so long? Why hasn’t the free market and the tech revolution not disrupted the old guard?

Payroll is extremely hard.

Any entrepreneur crazy enough to take up the challenge needs to assemble a team with both extreme technical skill and regulatory knowhow. Laws differ state by state, and change with political winds. Even these qualities would not be sufficient. Payroll is so deeply idiosyncratic that to get a handle on its intricacies, you need true experts onboard, people that have been in the industry long enough to understand how it works, and how it can be innovated upon.

You need all of this, and more.

You need patience and endurance. These are problems that don’t move easily.

You need intelligence and curiosity. You cannot mend a watch if you are quietly not mesmerized by its gears.

You need a sense of mission and a respect for payroll’s importance. The smallest error can ripple to the wallets of millions

And you need a sense of humor. The only healthy response to problems that are, persistently, three times harder than you’d expected is laughter.

Anyone crazy enough to pull such a team together and attempt a solution has a shot at one of the great remaining prizes in the financial system. To be the infrastructure, the aqueduct for a flow of funds that dwarfs nations and corporate giants. To free the time of businesses, and open up opportunities for new entrepreneurs. To change lives in small ways that with time and scale become big ones.

Check is crazy enough.

Founded in 2019, the payroll API business has raised $44 million to flip the industry on its head and usher in an age where receiving one’s wages is more than a necessary low-grade headache. Serial entrepreneurs Andrew Brown, Vivek Patel, and Eric Stromberg have already succeeded in building a truly remarkable team equipped with the unusual constellation of talents and characteristics required.

And already, they are making a difference.

Large platforms like Homebase and ServiceTitan rely on Check to provide payroll to their small business owner customers, and those under their employ. In the future, we may see it become one of fintech’s largest “platform of platforms,” allowing giants like Shopify, Mindbody, Brex, Ramp and even JP Morgan to offer their own payroll product.

In short, Check has the chance to be one of the most consequential companies of the next decade. It is worth studying closely. ​
​

Hoping everyone's week is going well. I'll be back with a briefing in a few days! As a note, the weekly piece will arrive on Monday rather than Sunday. You'll see why soon 😉.

Until then,

Mario