Growth Story: How Gusto Has Scaled Into a Unicorn-Sized HR Platform
Any way you look at it, Gusto, the maker of a popular platform for managing HR, payroll, and benefits, has all the markings of a successful long-term business.
First, there is a founding team that cares deeply about a real problem and is obsessed with fixing it. Then, there is a large addressable market that had been neglected for a long time. Throw on top of that a great product, unwavering customer focus, and ingenious marketing strategy, and you have a recipe for an exciting growth story.
It is no wonder that the company has attracted interest from who’s who in the tech investment community at $1B+ dollar valuation.
How did Gusto gain early traction and how has it scaled to over 40,000 paying customers? We’ll take an in-depth look at the strategies behind the company’s journey to a unicorn status.
Solving a fundamental problem
Gusto was founded in 2011 as ZenPayroll with a mission of making it easier for small and mid-sized businesses to manage their payroll. For businesses mired in a manual process or using outdated systems, the company offered simple, cloud-based software to streamline all payroll-related calculations, payments, and filings.
For a small business owner, the value proposition is simple: Gusto gives you a peace of mind on the back end, freeing you to do what you love most and serve your customers.
The three co-founders — Joshua Reeves, Tomer London, and Edward Kim — each had prior businesses and experienced firsthand the pain of using other payroll systems or doing it manually.
With an estimated half of six million businesses in the US still managing payroll on paper and with spreadsheets, they saw a huge opportunity in an underserved market that historically did not have access to high-quality software.
The company’s timing with launching the platform was just right. The widespread acceptance of new digital realities — paperless transaction processing (e-payment, e-file, e-signature), cloud-based software solutions, and secure online information transfer — enabled success of a product that some 10 years ago would have been a hard sell.
Business strategy: taking a long-term view
Gusto’s business strategy is a reflection of how the company’s founders view their startup journey: it’s a marathon, not a sprint. They are not taking any shortcuts or hacks to achieve short-lived hyper growth, instead mastering the basics of what it takes to succeed in the long-run.
Building a great product that customers love
Having a great product is the best way to drive long-term customer retention. With 98% of trial users converting to a paid plan and an NPS score close to 80, it’s safe to say Gusto is doing the right things on the product side.
How is it different from other solutions? Gusto’s product is designed with a people-first mentality to deliver great user experience for both the employer and the employee.
It helps employers run payroll quickly and accurately from a laptop, tablet or a smartphone. And it makes a routine workplace process more human with features like writing personalized notes with the weekly paycheck.
For employees, who were never really considered a stakeholder in traditional payroll processing systems, Gusto provides an easy self-onboarding, a personal dashboard, and a lifetime access to pay history and W-2s.
Transforming into a People Platform
When it was still known as ZenPayroll, the company partnered with Zenefits to offer a full suite of payroll and benefits solutions to small businesses.
Both companies later decided to pursue their own full-service strategies and in September 2015, ZenPayroll rebranded to Gusto, defining itself as a People Platform, a service that businesses can rely on for anything relating to their employees — HR, payroll, and benefits.
With the payroll and benefits features firmly in place, Gusto is working on expanding the HR functionality of its platform with tools like employee surveys which help employers better manage their teams.
Focusing on the right success metrics
Despite having raised over $175 million in capital, Gusto has taken a disciplined approach to growth. By keeping customer acquisition costs in check and maintaining healthy gross margins, the company has been able to avoid the trap of “growth at any cost”.
Gusto also pays close attention to the levels of customer satisfaction and employee morale. By conducting regular surveys, the company is able to garner these leading indicators and spot an early sign of a problem that needs to be addressed before it impacts growth, retention or customer service.
Marketing strategy: focusing on organic growth and partnerships
Setting up a high-touch outbound effort wasn’t an option for Gusto given its current customer base (businesses with up to 100 employees) and price point. It needed to come up with cost-effective ways to reach that audience and make a marketing effort viable.
Getting early traction
Gusto got early traction through incubators. Says Jaleh Rezaei, Head of Marketing at Gusto:
We were a Y Combinator company ourselves [Winter 2012 batch] and we would ask to be included in their events… Every incubator has community managers. If they believe that you have a product or service that‘s valuable for their users, they’ll often just let you get in front of their users at no additional cost. That was our primary go-to-market channel in the very, very early days.
From there, the company built momentum on the back of word of mouth by existing customers and with the help of an all-star lineup of investors, who participated in the company’s seed round.
Partnering with accountants
Having gained initial traction, Gusto faced the challenge of marketing at scale to the fragmented small business market and educating owners about the new payroll solution. What did it do?
It made a great move by focusing on accountants to fuel its next phase of growth. Gusto identified accountants as the key influencers when it comes to recommending financial products to small business owners and built a scalable partnership program in that channel.
Once an accountant, serving a small business owner, is introduced to Gusto and sees the value in the product, they can introduce the product to other customers they are working with. Gusto actively nurtures these accountant relationships and invites them into their partner program.
Building a growth loop through customer referrals
With the accountant partnership strategy, the company leverages acquisition of a business customer to tap into a much wider network. In the same vein, Gusto implemented a referral program for employers and employees, and it has been an important contributor to the company’s growth. In the words of Joshua Reeves, the CEO of Gusto:
The thing that we tap into the most is customer love.
To get clients to evangelize the product for you, you have to provide them a great experience. That is why Gusto is religious about measuring NPS in every customer segment to gauge sustainability of its organic growth.
The employee side in particular represents a huge growth channel for Gusto. Employees could recommend Gusto to their friends at other companies or when they themselves go to their next job. In fact, many current customers discovered Gusto bottoms-up through their own employees.
To make it easy to refer Gusto to someone else, the platform provides user with the ability to pull in their contacts and embeds referral flow into several different interaction points within the product.
Growing a content library
Content marketing is another important pillar of the company’s organic growth strategy. It’s creating a lot of short-form content (blog posts) aimed at educating small business owners not only on the financial and legal aspects of payroll and benefits, but also on the practical matters related to HR and culture building.
Gusto also does long-form content. It has put out several in-depth guides on topics, such as creating an employee handbook, offering equity, and designing a benefits package, and for marketing purposes it has made some of them available in a printed format.
Paid advertising
Paid acquisition currently comprises a small portion of Gusto’s customer acquisition mix. Why? With the business economics in the SMB segment targeted by the company and a relatively low level of brand awareness, it’s hard to scale this channel cost-effectively.
As the company moves up the funnel with paid advertising to target lower intent users, the cost of acquiring them becomes too high relative to LTV.
The marketing team at Gusto is looking for creative ways to optimize its paid advertising strategy and reach the right audience at the right time. Tolithia Kornweibel, Director of Marketing at Gusto provides the following example:
We wanted an in-market target that exists on GDN (Google Display Network) to be available on YouTube, and Google hadn’t built that out. So my scrappy team just went and figured out all of the triggers they would want it to be on, which videos and other indicators, and then worked with Google to convert that into an in-market trigger after the fact.
Increasing brand awareness
To make its organic and paid marketing efforts more effective, the company is working to increase brand awareness among potential customers.
In the fall of 2016, it launched an ad campaign that included a series of spots starring comedic actress Kristen Schaal as an HR administrator, with the narrative being informed by the insights from HR focus groups.
The company complemented video ads with traditional tactics, such as billboards and street furniture.
As part of the campaign, Gusto also ran Facebook ads offering a fun quiz to attract a lower intent audience to engage with the brand. The landing page with a gated quiz had a high initial bounce rate, but by optimizing the quiz for mobile traffic, asking for lead capture up front, and placing video on the page instead of imagery, the company raised its opt-in rate by 81%.
Experimenting with unconventional PR
Another brand awareness tactic deployed by Gusto is unconventional PR. With so much noise in digital growth channels, doing something unconventional often has a better chance of capturing a potential customer’s attention.
This past spring the company CEO Joshua Reeves and a few members of the Gusto team rented an RV and drove across the US visiting customers in 10 states. Besides connecting with the business owners, Gusto also distributed checks for $1,500 to the companies it visited to donate to a charity of their choice.
Gusto was able to generate a lot of publicity from this trip with many business owners inviting local TV crews to the event.
Key takeaways from Gusto’s growth journey
- Small user economics dictated Gusto’s choice of pursuing organic growth through referrals and affiliates.
- Gusto has used NPS from the very early days to evaluate the quality of experience it provides to various categories of users and enable the success of its referral channel.
- Lifting brand awareness helps more effectively scale paid acquisition effort for customers with low LTV.
What’s next for Gusto?
Gusto has reimagined payroll, benefits, and HR by bringing human touch and ease to what were previously transactional and tedious business tasks. With over 40,000 customers, the company is serving less than 1% of businesses in the US and is just getting started.
Gusto has been building scale bottoms up, focusing on smaller companies, yet it’s clear that there is an opportunity for Gusto even beyond the small business market. Gusto has a potential to capture the enterprise market the way Salesforce did with CRM and Zendesk with customer service.
And with every single business in the world being a potential customer, we’ll also likely see the company adding geographies over the coming years.
Building things that make an impact on the world take time, so Gusto will be well served to stay the course with a disciplined approach to growth that has enabled its success so far.
Originally published at growthengineers.com.
