HR technology startup Gusto grew over more than a decade into a business now valued near $10 billion. It began as payroll management for small and medium-sized businesses and has since expanded into including employee onboarding and insurance among its offerings for about 200,000 customers. Gusto built and grew those offerings internally, avoiding acquisitions until last year, when it started making deals quickly.
The company struck a deal in June 2021 for Ardius, which helps SMBs manage research and development tax credits. A month later, Gusto bought tax software company Symmetry and then, in October, acquired Remote Team, which allows businesses to hire and pay workers globally. Co-founder Edward Kim explained the company's decision to start making deals.
Kim’s story, as told to Protocol, has been edited for clarity and brevity.
What got me excited about what we started building nearly 11 years ago — myself, Josh [Reeves] and Tomer [London] — was the chance to solve a real problem SMBs were facing. My parents owned a medical practice in Southern California. Every day after school, I did homework alongside my mom in the office as she calculated payroll by pen and paper.
I knew that my mom was not the only one: that there were millions of business owners just like her.
I was a technical founder, the CTO. The first year or two was me just learning how payments work, how money moves around the banking system in the U.S. and then also how payroll works. Essentially just building out the prototype. We said that we wouldn't pay ourselves until we could do so using our own payroll system. It was a good motivating factor for us.
That's been the DNA of the company: starting from the initial payroll system and building a great engineering, product management, design and data team to help us build all the things that came after that. Over the past year or two, that philosophy hasn't necessarily changed, but opportunities presented themselves that gave us some buy opportunities.
What changed everything was COVID-19. Things have always been difficult for small businesses, but COVID-19 just made things a lot more difficult.
How do we get better cash flow into the hands of small businesses? That was one of the things we were thinking about a lot. That led us to look at Ardius. Many small businesses are not aware of it, but are eligible for R&D tax credits. Ardius figured out a way to get this tax credit into the hands of small businesses without having to hire super expensive accountants. We saw a huge benefit to joining forces.
We didn’t have the luxury of time. We couldn't wait two years to build what Ardius had built and get it in the hands of small businesses.
Also with COVID-19, businesses needed to hire remotely — now. There wasn’t the luxury of time to wait. That was the thinking behind the acquisition of Remote Team. It was like a time machine: let’s go to the future and get this capability and give it to our customers today.
Acquisitions are definitely a team effort. Sometimes it is like hiring, you get referrals. Sometimes, like with Symmetry, you have a long-standing relationship. Six months into starting our company, we started using Symmetry. Our engineering teams have collaborated a lot with their engineering teams just because they're such a core part of our payroll engine.
There are a lot of ways that acquisitions go wrong. You can be excited about the potential, but you need to think about: What are the risks? One of the biggest is integrating: How can you take an outside company with its own culture, people and infrastructure and integrate that with the acquiring company?
One quirk of Gusto culture: For every person, once we decide to make an offer, we get everyone who talked to that person during the interview loop on a call, secretly invite them and everyone gives a big celebration. With the acquisitions, we did exactly the same thing. We treated it like we're inviting someone to join Gusto as an employee and inviting each individual into Gusto.
COVID-19 was an example of how difficult times surface new ways that we can help customers. I wonder if we will see similar sorts of things for however long this kind of economic uncertainty lasts. We just have to keep listening to our customers and see ways that we can help, and then also see if there are other companies that can help us compress the time to get there.