‘We are going to take everything that Gusto built and make it available as a platform’: Gusto’s Tomer London

2021 was a year for payroll data. Payroll data continues to open up new possibilities and use cases, tapping into sources of income. While data matters, we’re also seeing payroll providers themselves move into fintech. Gusto services 200,000 businesses and teams with modern payroll, benefits, and HR.

Gusto has also moved decidedly into fintech, launching Gusto Wallet. Employees on the Gusto platform get early access to their paychecks, banking, savings, and emergency funds through their payroll provider. Co-founder and Chief Product Officer Tomer London is responsible for the development and execution of the product vision, reimagining how modern payroll, benefits, and compliance should operate. He joins us on the podcast to discuss the increasing importance of modern payroll and the opportunities it opens up for fintech services and products. 

Gusto’s Tomer London is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

Intro

Hi, I'm Tomer, one of the founders of Gusto. Gusto today is the people platform. It enables over 200,000 small and medium sized businesses in the US to run their teams, to pay them, to insure them, to hold them on board to help them succeed in their business. Gusto today has over 2000 Gustees based in San Francisco, New York, Denver, and remote nationwide.

Personal founding story

The company started 10 years ago by Josh, Eddie, and myself. We actually have a similar background from a family standpoint, although from different places in the world. But all of our families have small businesses or are part of operating small businesses. For me, my parents have had a small business for over 35 years now. It's a small clothing store in Haifa, Israel. I remember going there every day after school, trying to help sell, clean, organize and really do whatever I could to help the business. Like every small business family, a business is a huge part of that. 

Our founding story is really about that. It's about this idea of how can we help small business owners who wear so many different hats. In the beginning of the day, you're the cleaner, then you're the seller, then you're the content and marketer – they have so much on their plate are are so underserved. How can we help those small businesses, their owners, entrepreneurs, and the people in those businesses be successful? That's really the focus of where the company started. 

Josh, Edie and I came together. We believe that the thing that really makes all the difference in the success of businesses is people. And if you help small and medium businesses, growing businesses, startups – if you help them build a great place to work, where people can do their best work – that's also when the business is successful. 

Starting with payroll

We specifically started with a payroll product, which could sound like a non intuitive thing, because it’s just one part of the entire ecosystem of what it means to run a people operation. But payroll has been really, really important because of two reasons. One, payroll is a really big pain point. A third of small businesses get fined every year for not doing payroll correctly. So we can go and fix that with automation with compliance. It's a deep, deep expertise that's given to small businesses with a click of a button, it can make a real difference on their cash flow and ability to thrive. 

The second reason we started with payroll is that it’s the connection with the employee. Payroll is really about this moment where an employer gives the employee money and appreciation for the work being done, to take home their pay to their family and provide for them. So it's a really magical moment that we get to be a part of in the beginning. And once we were able to build a really successful payroll product in the US, we very quickly started expanding into additional services based on the data and these experience moments, whether it's onboarding, time tracking, benefits, insurance, and now Gusto Wallet – to get paid and improve that paid experience for employees and for their financial prosperity. 

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Moving into platform

We also recently expanded to serve developers. Developers are a really interesting and important part for us because we believe that some very meaningful verticals in this small business space are going to be run by business in a box software. And that could be like a POS, for example, or that could be a sort of a new bank or another type of vertical focused software. And we would like to help those companies bring in the smarts and the expertise that we've built over the past 10 years with payroll benefits and HR.

The evolution of products

In the early days, we were super focused on how we can help our customers build their companies and be successful. It was very clear to customers, when we talked with them about payroll, how huge a pain point it was for them. Our thinking behind the scenes was that we looked at the data, this moment of employee onboarding where the employee enters her bank information and this moment of getting paid. When an employee has a baby and now like you need to figure out how to make that an empowering and wonderful moment for the company and for the employee. 

So we looked at all these moments and we knew there was potential there. We started chipping at them and expanding – every single one of these moments would make them better for the customer. Our pitch was quite simple: we know payroll was really hard and complicated. Let us do that for you. We'll make it easy. We'll make it delightful and make it automated. Once you're on Gusto, you learn about additional experiences and additional things we can do for you. That's the journey.

Gusto Wallet

The idea with Gusto Wallet is us noticing that there is this really special moment where we're facilitating the major source of income for most employees. For most people, the major source of income is their salary. And we facilitate that transaction. We know a lot about it. We know about the company and we know about the employee. We saw that as an opportunity to solve a really big problem that most Americans have, which is financial resilience. We know that around half of Americans live paycheck to paycheck. We know that it's extremely hard for folks when financial difficulties and emergencies happen. 

So we asked ourselves, how might we help individuals who get paid through Gusto build financial resilience, so when the next crisis comes, they are okay? It's a softer landing and the inability to do well. We started launching products. As an employee, when you onboard to your company, you download a mobile app called Gusto Wallet. With it, you have the ability to automatically put money aside every time you get paid towards savings, a kind of high yield savings account, and slowly build up your savings. We help people through goals and even learning why it's important in that moment to go and put money aside. 

The second thing that we do is Cash Out. So enabling, which is a way for individuals to get access to future funds that they would have gotten later on in their payroll. We have a very popular free version of that. The idea that we're giving it for free is to enable folks to have an alternative, to not need to go and max out their credit cards, not need to embarrassingly ask for funds from family members, or go to payday loans. Rather, they can click a button to have those dollars in the account during that moment of emergency. And then they can start automatically with the next payroll.

Customization

Employees really love Gusto Wallet, because it's basically a free financial benefit they give to their employees through Gusto. Because then nothing. When new employees come on board, or perhaps when they're hiring a new employee, businesses let them know, hey, in this company, you get health insurance, this amount of vacation days, and also you have access to Gusto and to cash out. And here's how it works. Obviously, employers may choose if for some one reason or another – you don't want to offer this benefit, they can go and do that. There's no data flowing to the employer. It is very personal. And it's really employee first.

Fintech roadmap

We're gonna be spending more and more time thinking about how might we leverage what we are really, really great at, which is this connection to the payroll side, which connects us to the payment side, this source of income info, into better functionality to help people build resilience, build savings, and make better financial decisions, perhaps even better tax decisions. So we'll do that as opposed to going and just copying you know, what the 55 other digital banks do. 

One other aspect we saw that makes a big difference and it's very useful with Cash Out is we see small businesses use Cash Out as a benefit when they're hiring. There's a really big talent shortage right now – I'm sure you've heard of the Great Resignation – the war for talent is as strong as it's ever been. And that's across many, many industries. Enabling people to build up the financial resilience to improve their well being is really a big deal. So it makes a big difference on our customers.

Embedded finance

Over the past 10 years, we've developed and perfected and kept iterating on what it means to do payroll. And payroll is a quite complicated piece of technology. And in that process, it's not a pure kind of software thing, like sending an SMS or something like that. There are components around credit underwriting as you need to underwrite payroll payments, for example. And there's components around compliance that are really actually quite difficult. There's tens of thousands of tax agencies in the US, some of them are really, really small, like a little school district that you need to know who to call in the school district to ask them what's the latest on their tax rates and the tax calculations, and all of those relationships as well as the process behind it. It's something we have been working a lot for the past 10 years. 

We knew that it would be just a matter of time until we take that infrastructure and we build and develop to make that available to developers to go and build their own product on top of that. One of the kind of the obvious inspirations for this is Amazon and AWS. There are many other companies who've taken parts of their infrastructures, and gray label/white label that to enable other folks to meet the customers where they're at. That's the real focus for us. 

And it’s the reason why we're investing really significantly and decisively into this embedded services platform, idea, and this product – the most important thing is what's best for the customer. No company can stop the movement towards what's best for the customer. So for us at Gusto, we know that there's going to be some verticals, whether it's barber shops, restaurants, retail, spas and salons, where the best way for these businesses to run is with a single software that's a business in a box, and that should include everything in it. It should have CRM. It should have payment processing. You'd have your payroll, your marketing, everything needs to be in one place. And we want Gusto to be the payroll partner for these companies who are developing those vertical SaaS companies. So that's what we're doing:, we're taking our 10 years of experience and providing that to partners.

The challenges of moving to a platform

We actually run them as separate businesses. So the folks who are running the embedded services are running it as a different business within Gusto. They have the full power of the Gusto infrastructure, but on the other side, they're completely independent and are running as fast as they can and to go in and win this space. It's something we're very excited about. It's a natural expansion of what we do already. 

So we leverage the stuff that we've already built and the knowledge that we have around not just software, but also services, and bring it to partners. We see those two businesses running side by side for a long time. I also think that in terms of size, they are going to be comparable. Vertical SaaS makes a lot of sense for customers. That's the biggest focus.

Gusto in 2022

I've been doing this now for 10 years. And the thing that makes me feel really excited to wake up every day and get to work is that if I zoom out, there's just this really huge opportunity for us. We're in that connection point between employees and their personal lives – their financials on one side and on the other side, we have businesses and entrepreneurs and people who are trying to build something really unique and special, and build great places to work. 

I didn't even mention accountants today, which is a part of that, instead of a vertical. We're very passionate about the belief that the entire profession is changing. And Gusto is going to be a big part of enabling that change. There's a lot of potential: there's 6 million employers in the US today and every single one needs payroll. Gusto has 200,000 of them, but we still have a way to go. So there's a lot for us to do.

Embedded payroll is just the beginning. Payroll is just one part of this entire people platform. That includes things such as health insurance, 401k, and other types of benefits like wallet, time tracking and scheduling, and the ability to run your new people operations and HR. We are going to take everything that Gusto has built and make it available for others as a platform. I have a very strong belief that this space is going to be a very fast growing one and one that's going to serve customers well. So we're leaning into that.