This morning Gusto, a unicorn that sells payroll and benefits management software, announced that it will now offer part of its service via an API to external platforms. The new product, dubbed Gusto Embedded Payroll, will allow vertical SaaS companies to provide payroll support to their own customers.
The move to provide elements of its service through other firms’ offerings could bolster Gusto’s growth rate; for partner platforms the ability to provide payroll services may make their overall offering more attractive to small businesses.
According to Gusto co-founder and chief product officer Tomer London, vertical SaaS companies are offering effectively a “business in a box” service today, making the addition of payroll to their own services a somewhat obvious move, as paying workers is a key element of running a company. Indeed, for many companies payroll is their largest expense.
In the same interview, Gusto co-founder and CEO Josh Reeves indicated that more of Gusto’s services could become accessible via externally facing APIs over time. Gusto was built using internal APIs to connect abstracted front and backends, London told TC, so much of Gusto could eventually become accessible by third-party developers without infinite lift by the company.
That Gusto, formerly ZenPayroll, is starting with payroll services is not a huge surprise given its history. What it adds next is a more interesting question. The company has raised hundreds of millions of dollars while private, including $200 million in 2019. Gusto was last valued at $3.8 billion in 2019, according to PitchBook data.
The move to offer elements of the unicorn’s core service package to other companies via a programming hook was not a snap decision, the co-founders told TC. Instead, it was something that was discussed over a multi-year period while Gusto waited for the right market timing. The rise of vertical SaaS provided the correct moment in the company’s view. Which seems reasonable, frankly. An example will help explain why.
One early Gusto partner for its embedded payroll offering is Squire, a startup that TC has covered extensively. Squire is a vertical SaaS shop that makes software for barber shops. It raised $8 million in 2019, $27 million in early 2020 and another $45 million later in the year.
The company is a good example of the build targeted software for a particular industry model (here’s a recent startup example, and another). By implementing Gusto’s new embedded payroll service, Squire can offer its current and future customers a more complete digital application to help them run their IRL businesses. And Gusto will be able to drive more revenue from the same code it already uses to power its original offering.
The move by Gusto to open more of its service to other companies while also offering its traditional product fits neatly into a rising trend that TC has observed regarding more and more startups offering their service not via a managed service, but instead through an API. Gusto is not a young company in startup terms, but the adaptation of its service tracks with what we’re seeing from other technology upstarts.
According to the co-founders, its embedded payroll service will sport similar economics to its main offering. Gusto proper, Reeves told TC, grew 50% last year.
