For sometime now I have been pointing to Gusto as the poster child for disruption in the SMB cloud space. Many of you have heard me talk about how Gusto has been squarely focused on taking market share from the two largest SMB payroll providers – ADP and Paychex.
In a recent interview in Pymnts.com – Gusto CEO and Co-founder Josh Reeves talked about how taken together ADP and Paychex have perhaps 20 percent of the SMB market for payroll and have a combined market valuation of about $85 billion. So for Gusto to be very successful they don’t even need to take share from the big two in the space. They can simply convert those millions of SMBs using paper and pencil to their cloud-based platform.
Gusto made big news last week when it closed a $140 million Series C round, bringing its fundraising total to $316 million since it was founded in 2012.
In the Pymnts.com interview, Reeves talks about the challenges they face in selling to the SMB market. Like many SMB SaaS players, Gusto struggles with the daunting challenges of acquiring customers at a reasonable cost. Gusto relies heavily on word of mouth and platforms such as Captera, where Gusto is among a number of SaaS payroll companies for SMBs with 5 star reviews. They also use paid advertising to drive warm leads to their inbound channel.
One of Gusto’s newest initiatives FlexPay – essentially a cash management opportunity for employees of Gusto customers. As Reeves describes it, the kid who cuts the grass on a hot summer day for Dad doesn’t have to wait for two weeks to be paid. Applying the same logic to payroll, Gusto will enable an employer to pay an employee when they need the cash which isn’t often in sync with when the bi-weekly check is cut.
In the longer term, Gusto is positioned to go up market, to larger companies and enterprises where the sales cycles will be months and years instead of days and weeks. But, like companies such as DocuSign, those deals can solidify a company’s position in marketplace that is worth billions of dollars.
When we last wrote about Gusto in March, the company had topped 60,000 customers and had added a free service called HR Basics that handled simple HR functions for SMBs. The idea behind basics was to use the free service as a leads channel to upsell SMBs to a paid service.
Gusto’s Marketing Director Tolithia Kornweibel will give a headline talk at the LSA’s upcoming Tech Adoption Summit, November 7 in San Francisco. She will also be featured in an upcoming Above the Cloud podcast. We encourage you to register soon for this event. Space will be limited at The Laundry San Francisco, so the event is expected to sell out. Early bird rates expire on August 31.