Posted on Friday, Oct 12th 2018
According to an Allied Market Research report, the global cloud-based payroll software market is estimated to grow 7% annually to $10.3 billion by 2023. San Francisco-based Gusto is a Billion Dollar Unicorn in the industry.
Gusto, formerly known as ZenPayroll, was founded in 2011 by Stanford alumni Joshua Reeves, Edward Kim and Tomer London. Gusto was founded when its founders realized the glaring gaps within the payroll processing solutions available for small businesses. Not only were the products inefficient, but also expensive.
To address the demands of the small businesses, Gusto set up a payroll tool that was aimed at simplifying the process for small organizations. Its services allowed organizations to process payroll, file taxes, integrate with financial software, and provide some employee self-help assistance. Inspired by the success of the product, Gusto expanded services and began selling other related services such as employee benefits, 401(k) retirement plans, 529 College Savings plans, and workers’ comp insurance for small organizations.
Today, it remains focused on businesses with less than 200 employees, and offers them payroll services with additional features including health insurance and 401(k) retirement plans. It boasts of a customer base of more than 60,000 companies, and believes that it can address a market of over 30 million small businesses in the country that employ nearly 48% of the American workforce.
Gusto operates on a subscription-based model. Subscriptions start from $6 per month per person plus $39 per month to a monthly fee of $12 per person plus a base of $149. Premium tier service comes with additional features such as employee offers and onboarding, managing paid-time-off requests, employee directory and surveys, access to certified HR professional, and access to an HR resource center. Gusto is privately held and does not divulge its financials. Its revenues and profitability figures are largely unknown.
It is venture funded so far with $316 million raised from investors including Kleiner Perkins, Dragoneer Investment Group, T. Rowe Price, Capital G, Rose Park Advisors, MSD Capital, Emergence, Aaron Levie, AFSquare, Altimeter Capital, Benjamin Ling, Bobby Yazdani, Dan Rose, Data Collective, David Sacks, Designer Fund, Drew Houston, Elad Gil, Emergence Capital Partners, General Catalyst Partners, Glynn Capital Management and Google Capital. Its last round of funding was held in July this year when it raised $140 million at a valuation of $2 billion. An earlier round held in June 2016 had valued the company at $1 billion.
Gusto is not the only player in the market. The payroll market is currently dominated by ADP and Paychex. But analysts believe that the payroll market is highly fragmented. The two leading vendors account for a rather modest 10% market share each. Gusto is currently serving nearly 1% of the US payroll market. Other vendors in the market include Intuit, which got into the segment in 2009 through its acquisition of Paycycle, and the start-up Zenefits. Zenefits though was rocked by scandal last year for selling insurance without required regulatory licenses.
Gusto plans to use the recently acquired funds for product and international market expansion. It is currently testing a feature called FlexPay that allows employees to take cash out before payday. The service is currently being tested as a pilot amongst its Texas customer base. If the service is launched, it will significantly benefit the employees by providing them the ability to cash in when needed based on the number of hours they have worked.
This is quite a helpful service that Gusto is working on for employees. I would like to know what other employee and employer services do small businesses look for from their payroll vendors?
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.
This segment is a part in the series : Billion Dollar Unicorns
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