Episode 4 ­– Co-Founder and Chief Product Officer at Gusto

In this episode, Ron and Tomer discuss Gusto’s recent foray into providing financial products and what the company has learned from their experience.

Watch episode 4 here.

Ron Shevlin: 
Hi and welcome to Tapping into the Potential of Embedded Finance sponsored by Q2. I'm your host, Ron Shevlin, Director of Research at Cornerstone Advisors and senior contributor at Forbes, where I write the Fintech Snark Tank blog. My guest today is Tomer London, co-founder and Chief Product Officer at Gusto. Prior to founding Gusto Tomer was a PhD candidate at Stanford University, where he earned a master's degree in engineering. He was a researcher at Intel, and before that a commander in the Israeli Air Force. Thanks for joining me, Tomer.

Tomer London:
Thank you. Great to be here.

Ron Shevlin:
Tomer, I would imagine there are a few people listening in here who are not very familiar with Gusto. Would you mind giving us the 30-second elevator pitch on what Gusto does?

Tomer London:
Yeah, yeah, absolutely. My pleasure. So, yeah, so at Gusto, what we're trying to do is we want to help small businesses, medium-size businesses, and growing businesses start, build, and grow their teams. We're very, very passionate of helping these type of companies build great places to work where people can do the best work of their lives.

And what we do is we help these businesses with every single step of the employment process. So whether you're starting to hire, onboard, pay people benefits and throughout the entire journey. Another thing that we do is we actually for folks who get paid through Gusto. They have access to Gusto Wallet, which is a way for folks to put money aside automatically to a high-yield savings account, as well as get access to their pay earlier.

So it's, again, connected to our larger mission to help build great places to work so folks can do the best work of their lives and support their families. Oh, yeah. Just kind of sharing a little bit in terms of the scale. So Gusto today supports over 200,000 businesses across the US, across 50 states. The company started around nine years ago. I'm one of the three co-founders, as you mentioned. And yeah, we're about at 1500 Gustees today across the US.

Ron Shevlin:
And you mentioned Gusto Wallet. I know you've also introduced a service called Cash Out over the past year or so. What I'd like to ask you to get into Tomer is what is Gusto trying to achieve by providing financial products and services to its small business customers?

Tomer London:
Yeah, absolutely. So I'd say that if you think about small businesses specifically, they've been underserved for many, many, many years, really across any part of their business. My dad, for example, I grew up in a small-business home. My dad has a small clothing store and I remember him one starting his day being the seller, then the cleaner, then the marketer, then the accountant then he does needed to do everything on his own. And I think that that market specifically, we think about these small, medium-size businesses have been underserved for many years across really like across the entire spectrum.

And what Gusto is trying to do is we want to help those folks succeed. And we believe that people are the most important part of any business. So by helping them start, build, grow their teams and build great places to work, we can really help those folks succeed.

Specifically when you think about financial services, cash is the lifeblood of any business and we can really, really help folks bring together products across all different places of around their business, whether it's around people, whether it's around financing their business, whether it's around helping their employees through Cash Out access to their pay earlier, bring it all to a single platform.

So again, the small business owner who's wearing all those different hats can just find all the solutions they need in one single platform without needing to kind of cobble together a bunch of tools. And that's what Gusto is. Gusto is really trying to be the one stop shot that's very opinionated and brings it together a lot of what you need to run your team.

Ron Shevlin:
What I hear there Tomer is a couple of things. Number one you're serving your customer's employees who really aren't necessarily customers themselves of Gusto itself. And also here that you're kind of looking at your client, the small business sort of from a value chain perspective. Looking at from not just a payroll perspective, but they have marketing issues, they have financing issues, banking issues, so it sounds to me like you're looking at financial products and services as a way of expanding beyond the core service that you provide, which would be the payroll. Is that a correct analysis?

Tomer London:
Yeah, I think that's a good way of looking at it when you think kind of industry first like kind of market first. But what we are really trying to do is just think about the customer first and how they see the world and for them the lines are not as clear. I'll give you an example. If you look at the pandemic last year. Again, we are in this world, as you said, we help companies with payroll, with their benefits, with their people side of things.

But all of a sudden cash flow can be really big issue obvious because everyone's closed down or many, many businesses closed down across the US. And those new PPP loans came in and try to give a temporary solution for cashflow. Those PPP loans are directly connected to having the ability to pay your employees and survive as a business.

So what we did as a company is we jumped on it last year and really kind of moved aside most of our priorities and everything that we had planned and focused entirely on bringing that to market. And we brought in... Again, you can look at it as a financial service. But we were able to provide over $4.4 billion of PPP loans to our customers and create a really, really, really simple interface that they could do it on their phone while they're... One example from a customer who was doing it while she was giving her kids a bath. And it was a really stressful time if you remember back then. No one knew what's going on, no one knew the PPP reports what's exactly needed.

So for us, if you think about as a company we were there for the customers in a financial need, like in a way that definitely helping create the cash flow and provide a financial need, but it's directly connected to the health of that business and their ability to pay their employees. So it's very tightly connected to our business.

I'll tell you specifically about Gusto Wallet because you asked about Gusto Wallet and Cash Out earlier. So with Cash Out, the idea is to provide a... It's basically a benefit that these businesses are offering to their employees. It's a free benefit and it's a financial benefit. It means that if you work for my company, you have access to Cash Out. Which means that when you are in this time of need, where an emergency expense happen you look at your bank account, you don't have enough money. You can click a button and have access to your future funds from there immediately on the spot.

And again, that is a benefit we see small businesses use across the board to attract employees and to retain employees. And retention is really, really, really important because we know how hard it is to onboard new employees and how expensive that is.

Ron Shevlin:
Is providing financial services a profit generator for you, or is it more of a flywheel that helps you engender more loyalty in business among your existing customers?

Tomer London:
Yeah, that's a great question. I think that it depends. I think it depends on the situation. Right now when I look at both of these examples, both for the PPP loans, as well as for Cash Out, our focus really is to build a better service and better products for our customers and not a way of making more money on a unit economics basis. Our goal again is to increase the overall success of our product and desirability for our customers.

Ron Shevlin:
So what would you say Tomer has Gusto learned about the offering of financial services that other brands getting into embedded finance should know?

Tomer London:
Yeah, that's a great question. I'd say this. I think the first thing that comes to mind is that it's deep. Financial services obviously it's not as simple probably as as a developer where you bring in an API provider like Twilio to send a few SMSs or do kind of few things. An API call when you work with financial services have a lot of depth behind it.

And so I think that when you going into this, it's something that you really need to know and you really need to consider and put a team that's able to go and learn and go deep there.

Again, luckily in our... If you look at us as a company doing payroll we're already moving many billions of dollars every month, just part of our payroll service. So we know quite a bit about the financial system. But I feel like that is definitely a part that you have considered when you go into this. Sorry, you were saying?

Ron Shevlin:
No, I was going to let you finish. I didn't want to interrupt you a second time. That would be pretty bad of me. But let me ask you to kind of look behind the scenes a little bit. How did Gusto decide which banking as a service provider to work with? This is a space that a lot of providers are getting into. I think it's getting very crowded and I think it's kind of hard for a lot of brands and fintechs to really distinguish between a lot of the providers in this space. So how did you decide or Gusto decide which banking is a service provider to work with and what should other brands getting into this look for?

Tomer London:
Yeah, I think this is an excellent, excellent situation to be a customer of embedded finance services. It's an excellent moment, because exactly, as you said, there's a lot of options out there and they all want to win and many of them are venture-backed. So they're able be flexible for you. And so I think it's a really good moment in time.

The thing obviously to worry about is when you bring in, and I think that the high... I guess the two things that were most important for us when we chose a partner are two things. One is this someone that will enable us to build a fantastic user experience for our customers, the most important thing. And that obviously there's a lot in there. It's functionality, technology functionality it's also service functionality, so it's all that together. But in the end of the day, it's about creating great customer experience.

The second thing is, is this a company that we want to partner with for the long term? Do we see ourselves doing business with them and proudly present their name externally and having them proudly use our name externally for the next 10 years? And I think that's really important because when you do these integrations, when you bring on the systems into your product, it takes a lot of work and you would not want to take in to kind of switch them around every few months or every few years. So it's a really long term decision.

What we've done there is we spend a lot of time with the people. We spend a lot of time with the management teams, the leadership teams of the folks that we are working with and made sure that we are aligned with them, the type of impact we want to create in the world. Specifically, again, the Cash Out is really about enabling people in need in these moments, people who live paycheck to paycheck when they have these emergency expenses to have access to these funds and to prevent them to go into farther into a... I don't know, some sort of a debt cycle, a negative debt cycle. So we really were looking for folks who are aligned with our social mission as a company.

Ron Shevlin:
Yeah. I would imagine this is a pretty tough decision, because I would guess that for a lot of brands looking to offer financial products, they haven't exactly fully baked their strategies. And I don't think they've got a roadmap for products. Maybe they've got an idea for one or two products that they want to offer. But my guess is they're not going into this with a 5- to 10-year roadmap for which financial products to get into. And therefore don't know what they don't know about getting into this. What are the types of question? What did you ask when you were evaluating providers, what should other brands ask in these meetings?

Tomer London:
Yeah. Yeah. I think if you were to build a software product, you have to think 5, 10 years to the future. I just don't know any other way of building software because software is like I guess like a building you need to build a foundation and make sure that you build towards the right way. So I would say anyone who...

But the second, and this is a good example. Why? Because if you choose the wrong partner that can really harm you later on. But yeah, going back to your question, what questions did we ask? So I would say again, if there's kind these two big pieces for the first piece around can we build a great product experience? It's really going deep looking at the API documentations, looking at their current customers, what experiences did these customers build with those APIs, with those services to make sure it's really possible? And then really like walking those customers... Sorry, walking the partners through what exactly we want to do and make sure that we're looking at them in the eyes, "Hey, this is possible. Here's how you would do it. Can we trust that it's possible to do?"

So that's the first thing, because you don't want to completely just pick stuff off the shelf and launch it. That's just not going to be a good fit for your specific customer base. So it's really all about fitting the customer first, what is the need and make sure you have the right technology for your customer.

The second thing is really about the connection and the trust that you can build that you need to build to have those 5, 10 years relationships. And for that, what I want to know is I really want to understand them as people. Why are they in this business? What do they want to achieve? What do they consider success? Who are their competitors? How do they see this space evolved over the next 5, 10 years? Who are the type of customers that they love working with and who are the type of customers they don't?

So I really want to understand their motivation so I can imagine myself being a part of that team and then asking myself, is this the right team I want to be a part of or not? Because we are in a way working together from now on as part of the same team.

Ron Shevlin:
Yeah. Well, speaking of roadmap and looking ahead, what's next for Gusto? You mentioned the Gusto Wallet and the Cash Out. What products and services do you plan or envision offering from a embedded finance perspective over the next few years?

Tomer London:
Yeah. So interestingly, we are now offering our own product that could be in this space and that's called Gusto Embedded Payroll. Gusto Embedded Payroll, what it enables you to do if you have a small business focused, vertical SaaS, or if you have a small business focused platform, you can now embed payroll into that platform to offer payroll for your customers. So quite similar to some of the other examples of embedding lending or credit, or any other type of finance and functionality to your platform. We're now offering this to other platforms.

Ron Shevlin:
So it sounds like [inaudible] not just in finance, but with a lot of different software tools may be big trend for the next couple of years, true?

Tomer London:
Sorry. Can you ask that again? I missed that.

Ron Shevlin:
Oh, yeah. Well, you were mentioning embedded payroll and it seems like with embedded finance, embedded pa roll, that the embedded movement is a lot bigger than just finance in a much bigger strategy or trend than just the finance world. And I just wanted to get your reaction on that.

Tomer London:
Yeah. I think that's a hundred percent true. I think there's a couple things happened here. First, the first thing I'm thinking about is again, what's best for the customer. And I think there's many situations where again, bringing together multiple solutions to a wide scope of problems for the same customer into a single roof, is just really great for the customer. Because you can move data around easily. You can get onboard to just one place and make sure that always the data is in sync, and you can have someone who's really the focus. You are their focus [inaudible] customer build a solution just for you. And I think that all these types of embedded services enable building these type of software companies. So I think it's not going away. And I think there's going to be many, many other type of solutions there.

I think the second thing that I want to say is that it's still very, very early. And we've seen in the world of technology this decade and decades ago, a lot of time you have trends that coming in has a lot of promise. And there's some for one reason or another things don't pick up to be the same, to be what the potential was believed to be. And I think this is still the case here too. I would also be cautious of what can happen here and what can't.

And there's some big questions about business models, for example. If you think about, again, I mentioned earlier when you go into embedded finance it's not just technology. There's also the risk side of things. There's also the service side of things. All of that together creates the business model. You want to make sure if you're offering the services that these are good businesses.

So I think it's really exciting space to be in right now because there's a lot of innovation. We work with customers across the board here with Gusto Embedded Payroll to give you example, we work with Squire who is a vertical SaaS software focused entirely on how hairdressers and they have a place for folks to if you're a hairdresser and you have your hair dressing business, you can go in book appointments, have your customers go and book appointments through there. You can go and do scheduling. You can charge people through that platform. There's a bunch of things that you can do that's really, truly end to end. And now they're going to add payroll as well.

So it kind of makes sense. We work with customers like Novo, who is a business banking platform and again [inaudible] their business customers are going to offer payroll as well within their platform. And other folks like Zendu and [inaudible] and a bunch of really interesting companies. And I think it's just really interesting. When I go on the phone with these folks and kind of see their visions and what they're trying to bring to market. I'm really excited for their customers.

Ron Shevlin:
Tomer in the banking space, know your customer is a regulatory requirement. But what I hear you saying is that in your space, know your customer is really the way to competitive advantage of the more detailed you understand your unique customer's unique needs is really the key to success. That's what I'm picking up from your latest comments.

Tomer, we are just about out of time. And I want to thank you, Tomer London, Chief Product Officer and co-founder at Gusto for spending some time with us today at Tapping into the Potential of Embedded Finance and for every you listening in, I hope you'll join us on the next episode. Thanks a lot.