This Serial Entrepreneur Raised $700 Million To Build A Payroll and HR Software Platform Enabling SMEs To Manage And Grow Their Workforce

Tomer London, co-founder of Gusto, a company with over 2,500 employees, relates what it means to go from humble beginnings to building a hypergrowth business. His journey is an exciting blend of personal history, entrepreneurial lessons, and hard-earned wisdom.

In this conversation, Tomer dives deep into how his upbringing shaped his perspective on opportunity, customers, product development, going through an accelerator program, fundraising, and what it takes to succeed in the highly competitive startup world.

Listen to the full podcast episode and review the transcript here.

The Roots of Resilience: Growing Up in a Small Business Family

Born and raised in Haifa, Israel, Tomer grew up surrounded by the day-to-day operations of small businesses. His father ran a clothing store for over 35 years, and his childhood was filled with experiences that many entrepreneurial kids might find familiar.

Tomer helped out at the store, interacted with customers, and even learned to sell at a young age. “It wasn’t just about answering the phone or cleaning the store,” Tomer recalls, “it was about being immersed in the ups and downs of running a small business.”

Family dinners were filled with discussions about customers, vendors, cash flows, and the challenges of keeping the business afloat. His father’s ability to juggle the complex emotional highs and lows of entrepreneurship made a lasting impact on Tomer.

One moment, his father would be elated over a major win, like securing a favorable rent deal; the next, he’d be stressed about repaying loans or facing the inevitable lulls in customer flow during holidays. He would often skip family events to take care of the business.

These experiences instilled in Tomer an appreciation for the emotional rollercoaster that comes with running a business. “I saw my dad work through all the stress and challenges, but also saw the joy of building something of his own,” he says.

This environment sparked Tomer’s first foray into problem-solving with technology. At just 11 or 12 years old, he built a simple inventory management system for his dad’s store using Visual Basic, showing early signs of his knack for entrepreneurship and software.

Tomer recalls being frustrated by keeping track of his inventory list and remembering that computers were really good at these things. So he went into the bookstore next door, got this thick book in Hebrew, and taught himself how to build a simple program.

This success blew Tomer’s mind, and he was fascinated by how a PC and software could make an impact. Fast forward to the present day, he and his co-founders still love and maintain direct connections with startups and small businesses.

Early Setbacks and Lessons in Humility: The Military Years

After discovering his love for software development as a child, Tomer’s life took a detour when he joined the Israeli military for three years of mandatory service.

Unlike many tech entrepreneurs who hone their skills in military intelligence units, Tomer was assigned to a combat unit—far from his initial preference. This experience, which was far removed from computer engineering and software, proved to be a turning point.

“It was the first time in my life that I wasn’t in control,” Tomer says. “I had to learn humility and deal with things completely out of my hands.” Until then, he was a good student in school, doing homework and working on different projects. He was always two steps ahead.

These lessons served him well in the unpredictable world of startups, where failure and rejection are part of the journey. Despite the challenges, Tomer emerged from his military service with a newfound appreciation for discipline, teamwork, and camaraderie.

He compares the bonds formed in the military to those formed in startups, where founders and teams share the highs and lows of building something from scratch. “In the military, you either succeed together or fail together. That sense of shared destiny is something I’ve carried with me.”

From Failed Startup to Stanford: A Pivotal Moment

After the military, Tomer pursued electrical engineering and recalls his keen interest in calculus and physics. He also developed an appreciation for being able to study for an undergrad degree and pave his own path. He also did a bunch of internships before founding his first startup.

The idea was simple but innovative: a system that allowed users to bypass long wait times on customer service calls. Dealing with calls to service centers was part of his adult life, and Tomer quickly realized that millions of people out there were looking for more efficient alternatives.

In 2007-2008, everyone had a feature phone like a Nokia, Samsung, or Blueberry with a simple WAP internet connection. Tomer came up with the idea for customers to self-serve by navigating through a visual menu on their phone screens and avoiding having to talk to somebody.

Tomer quit his part-time job at Intel to dive into his idea full-time. “The technology was there. The product was solid and could be used without needing to download an app,” Tomer says. “But we couldn’t crack the go-to-market strategy.”

Despite early promise and raising small amounts of funding, the startup struggled to find paying customers. Reflecting on that failure, Tomer emphasizes one critical lesson: “You can have the best product in the world, but if you don’t know how to sell it, you’re dead.”

Tomer didn’t know how to approach huge enterprises with millions of dollars in budgets. This painful realization was a humbling experience but also a critical turning point in his journey.

Undeterred, Tomer decided to pursue a PhD at Stanford University. “Funny story,” he laughs, “I actually thought Stanford was in England when I first heard of it.”

Inspired by Steve Jobs’ iconic 2005 commencement speech at Stanford, Tomer leaped to Silicon Valley. His decision to join Stanford not only exposed him to a world of opportunity but also led to a serendipitous meeting with his future co-founders.

Tomer recalls meeting Josh Reeves and Eddie Kim through Stanford’s alumni mentorship program, which connects current students with peers and prior students. Chatting up with Josh, Tomer learned that both had startup experiences and were electrical engineering graduates.

The duo started spending time every week brainstorming ideas and discussing the problems in the world that technology can help. At one point, they also brought in Eddie and continued exploring different areas.

The Birth of Gusto: Small Businesses at the Core

Gusto, originally called ZenPayroll, was born out of a shared passion for helping small businesses. Tomer, Josh, and Eddie had all been exposed to the challenges faced by small businesses, and they saw a massive opportunity to build software that could alleviate some of these pain points.

“There’s tons of software for consumers and tons of software for enterprises,” Tomer explains, “but small businesses were often left behind.” The trio identified six million employers in the US with problems that needed to be addressed.

They spent countless hours brainstorming and talking to small business owners before they even touched a line of code. “One of the biggest mistakes founders make is building a product based on assumptions,” Tomer says. “We knew we had to talk to customers first.”

Tomer and his co-founders talked to hundreds of potential customers, gathering data points and information. Their conversations helped build intuition and an in-depth understanding of what the product should be about. They carried this strategy through the later stages of building Gusto.

As Tomer reveals, they ensure that everyone who builds the product, including the product management team, the design team, and marketers, spends time with customers and builds that intuition. They also ensure they don’t overly rely on data points without getting the qualitative side.

Gusto’s Core Mission, Business Model, and Revenue Streams

Through these conversations, payroll emerged as a universal pain point, and Gusto’s core mission became clear: to make payroll, benefits, and HR easy for small businesses. Tomer and his co-founders also had to ensure their product was cost-effective, user-friendly, and customizable.

As the trio continued with their conversations with potential customers, they also realized that aside from managing payroll, they needed to resolve problems around taxes and compliance. As a result, Gusto became a very broad prompt platform.

Gusto started helping companies with time tracking, benefits and compliance, tax credits, international payment contracts, and so much more. Its business model is simple and has two revenue streams.

The first one is subscription revenue, where customers pay monthly per employee. The subscription can have multiple pricing points depending on the products the customer uses. The second comes from commissions for Gusto’s benefits business.

In the US, small businesses typically use a small group of health insurance providers. Gusto acts as the broker on the health insurance product and charges a commission to the provider instead of the customer.

The Power of Listening to Customers

Tomer attributes much of Gusto’s success to their relentless focus on the customer. Instead of building based on assumptions, the team gathered as much data as possible directly from the businesses they aimed to serve.

“We realized that if we got the product right for our customers, the rest would follow,” Tomer reflects. This customer-centric approach has been vital to Gusto’s hypergrowth. Today, the company serves over 300,000 businesses and employs more than 2,500 people.

The Role of Y Combinator: A Crucial Turning Point

Gusto’s journey was significantly shaped by their participation in Y Combinator (YC), which helped kickstart their financing efforts and provided essential guidance during the early days.

Tomer describes YC as a community that helps founders reconnect and leverage opportunities to help them improve their companies. He remembers looking around and being impressed by the immense talent demonstrated by really smart entrepreneurs, builders, and engineers.

YC’s three-month program, culminating in Demo Day, was a high-pressure environment where 50 to 55 companies had to show investors the progress they’d made in just a short time. Contestants would be vying against their friends to be one of the two to three companies that got investment.

For Gusto, the experience was transformative. During YC, they went from having almost no code to building a prototype used by 30 customers by the end of the program.

Those two and a half months of intense focus collapsed what might have otherwise taken a year, allowing them to build momentum, refine their vision, and raise a successful seed round. Tomer and his co-founders also learned the art of making quick decisions.

Fundraising: A $700 Million Success Story

Over the past close to 13 years, Gusto has raised over $700M, proving its steady growth and increasing profitability. In the early rounds—seed, Series A, and Series B—funding was about building the product and achieving product-market fit. Tomer points out that they already had customers.

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By the time they reached Series C and beyond, it became more about the business’s economics, profitability, and scalability. The later stages were driven by rational metrics, focusing on profitability and long-term viability, with investors like T. Rowe Price and Fidelity coming on board.

Today, Gusto is a profitable company with over 2,500 employees. That milestone of profitability marks a shift from relying on outside capital to being able to sustain their growth organically.

The Vision of Gusto: A Future Where Businesses and Employees Thrive

If you imagine a world where Gusto’s mission is fully realized, it starts with peace of mind for small businesses. The vision is to empower entrepreneurs to start and grow their businesses without being bogged down by back-office complexities and mechanics like compliance and taxes.

This enables them to focus on what really matters—their product or service. In addition, Gusto aims to help small and medium-sized businesses create great workplaces.

That means places where employees feel valued, get accurate performance evaluations, are compensated fairly, have opportunities for growth, and can build meaningful relationships with colleagues.

Whether offering enterprise-level benefits or simplifying performance reviews and training, Gusto is working to bring professional insights to small businesses to help them succeed. It aims to make it easy and consumable for small businesses so they can also be successful.

Finally, Gusto’s vision extends to personal prosperity for employees. This includes ensuring that when employees get paid, their paycheck works harder for them, including offering early access to funds during emergencies or simplifying savings.

Lessons Learned: The Importance of People in Every Stage of Growth

Reflecting on their nearly 13-year journey, the Gusto team recognizes that the most critical and challenging aspects of building a business often come down to people. Finding the right talent, especially in the early stages, can make or break a company.

Sometimes, hiring experienced candidates who have scaled larger companies doesn’t work in the startup environment because what drives success from zero to one differs from what’s needed to scale from one to infinity.

One key lesson learned is that even though experience is important, hiring people open to doing things differently, even if they come with an impressive resume, is essential. Startup success requires flexibility, innovation, and a willingness to challenge conventional thinking.

Conclusion: Gusto’s Journey to Realizing Their Vision

As Gusto continues to grow, they remain committed to their mission of making life easier for small businesses and their employees.

With a business model that has proven both scalable and profitable with a clear vision for the future, Gusto is poised to help more businesses succeed by taking the pain out of payroll and providing the tools to build great workplaces.

Tomer’s journey from a small business family in Israel to co-founding a global company reflects resilience, curiosity, and the power of learning from failure. His experiences have all contributed to his success at Gusto.

Listen to the full podcast episode to know more, including:

• Tomer London’s upbringing in a small business family instilled a deep understanding of entrepreneurship’s emotional rollercoaster.
• His military service taught him invaluable lessons in humility, discipline, and teamwork, shaping his approach to startup challenges.
• A failed early startup experience highlighted the importance of effective go-to-market strategies alongside solid product development.
• Gusto, initially ZenPayroll, was born from extensive conversations with small business owners to address their unique challenges.
• The company’s success is attributed to its customer-centric approach, ensuring product development is driven by direct feedback.
• Participating in Y Combinator gave Gusto critical support and momentum, leading to rapid product development and funding.
• Gusto’s vision focuses on empowering small businesses and their employees, simplifying back-office complexities to foster growth and success.

 

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