Gusto’s path to $1 billion in revenue, milestone-by-milestone

After closing, a San Francisco flower market isn’t exactly idyllic. 

But in 2012, Eddie Kim and Tomer London, cofounders of HR software startup Gusto, were there to see Christina Stembel. The owner of Farmgirl Flowers, Stembel needed to hire her first employee and, accordingly, had to set up payroll for the first time. She’d been working since 3 AM, but knew payroll was something she simply couldn’t bungle.  

“The flower market closes at noon or 1 PM, so I was the only person still there,” Stembel laughs. “It was me and the rats, and the rats were as big as cats. It smells like the subways of New York, with chain-link fences between stalls and single-light bulbs hanging from the ceiling. It literally looks like a murder den.”

She was, to say the least, surprised London and Kim showed. At the time, Gusto was an eight-person company. Stembel has now been a customer for more than 13 years and, even so, she’s still surprised. 

“I don’t know anybody else who would come to a flower mart and set up payroll for a small business like mine with one employee,” said Stembel. 

Much has changed: Today, Gusto is a $9.3 billion company that recently reached more than 500,000 customers. The company’s investors over the years have included Ontario Teachers’ Pension Plan, T. Rowe Price, General Catalyst, Fidelity Investments, and CapitalG. Now, Gusto has confirmed to Fortune that it in February surpassed $1 billion in revenue. That’s cash in hand, taken in over the preceding 12 months, and that’s an intentional framing, said Gusto CEO and cofounder Josh Reeves. 

“Clarity is kindness,” said Reeves. “The clearer, the better. We’re much higher on ARR now, we’re accelerating growth, and we’re happy with that trajectory.” Reeves had read the story I did last year on the ARR “creativity” hitting an AI boom fever pitch, and he wanted to remove any ambiguity.

This opened the door to an entirely new conversation: It’s an enterprise software company that serves small businesses—a vital but somewhat contrarian market. The enterprise software half-myth is that a couple big contracts makes your entire business, but serving small businesses demands a company closer to consumer scale. So, for Gusto, more revenue did mean more headcount, more customers—and a business that had to evolve at the intersection of consumer and enterprise pressures. So, how did Gusto get to $1 billion, and what milestones along the way mattered?

Growin’ up

At the start, way back in 2011, Gusto wasn’t Gusto at all, it was ZenPayroll. Reeves, Kim, and London—all from immigrant families and personally drawn to small business—began building the company from a Palo Alto house. London and Reeves were roommates, and Kim even moved into a closet for a while. They didn’t pay themselves until they could use their own product to do so, and Stembel of Farmgirl Flowers was among their very first customers. You could argue that the first milestone was the first dollar of revenue, but $1 million is where you start to enter truly unfamiliar territory. At the $1 million revenue milestone—which Gusto reached in 2014 at about 5,000 customers—it isn’t about the money so much as proving the business is real.

“Early on, around $1 million, it’s all about: Have we proven the biggest risks to our business?” said Reeves. “Can we build a product that’s useful, that actually stands out in the market? And can we then go acquire customers in a cost-effective and scalable way?”

It also coincided with a high-growth moment. Reeves recalls one January where the company had 1,000 customers, and then added 500 that month, and the next year hitting 6,000 customers—then adding another 3,000. Yes, January’s big in payroll, but it also signaled something was working. It was also an emotional inflection point. 

“When you get to one million in ARR, you don’t know every customer anymore,” said London. “A new customer signs up and I don’t even know how they heard of us. It’s an interesting psychological shift.”

It was, then, $1 million to $100 million that marked a real coming-of-age—you start navigating what it means to be running a much bigger machine that’s more than “something people like and pay for,” said Reeves. 

“I remember when we got to $100 million in ARR, people would talk about (and this is very simplistic) are you at ‘unkillable scale’?” said Reeves. “Nothing is a foregone conclusion, and you always have risks in a business. But getting to 100 million did feel like a big deal… The difference between one and 100 is that you now don’t just have an engine, you have a factory. How are you running it? How do you fine-tune it? How do you expand it?”

Gusto hit $100 million in 2019, and at the time had about 95,000 customers. How he was thinking about forecasting, planning, communication, and operations had to evolve, all these “adolescent growing-up-things for us to navigate around that milestone, and that’s why it comes to mind,” Reeves said.  

And though $500 million, which Gusto hit in 2023 at roughly 300,000 customers, is a far bigger number, it wasn’t an internal turning point in the same way as $100 million. 

“Off the cuff, the amount of change, and what we had to prove to get to 100 million dwarfed going from 100 to 500, or 500 to a billion,” said Reeves. 

Now, at $1 billion, London, Reeves, and Kim feel the numbers bear out the company’s original thesis. It proves, Kim told Fortune, that “moving up‑market isn’t the end goal for Gusto.”

The future, in part, relies on where small business is headed. Reeves doesn’t expect to be “hiring very much in the coming several years” and anticipates that the company (currently with 3,000 employees “could serve one million customers at a similar headcount.”

But at a time when there’s much public concern at how AI will affect jobs in the immediate future, the Gusto cofounders believe small business will thrive. For one, as Kim suggests, “in the last 15 years, the barriers to starting a small business have been getting smaller and smaller, and AI is going to be yet another inflection point.” Reeves points out there are already some signals of this: a recent LinkedIn analysis showed that people with founder titles on the social media platform increased 60% year-over-year. 

Reeves’s take: If the Industrial Revolution pushed the workforce towards larger companies, AI could very well reverse that.

“If you go back to the 1850s, 90% of the workforce was in small business,” he said. “And in the last 150 years, we’ve had this shift where, before AI, half the workforce was in companies with over 500 employees. Now, here’s a spicy take: We’re going to revert back to 80%, 90% of the workforce being in small business.”

This story was originally featured on Fortune.com