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Gusto’s New Target: Health Insurance

We’ve been watching with interest SMB SaaS player Gusto‘s march toward offering small businesses a comprehensive human resources solution. This march has gained pace with Gusto’s recent rollout of health insurance in South Carolina, Indiana, and Wisconsin. 

We’ve been following Gusto closely for some time now. Gusto’s marketing leader Tolithia Kornweibel has been a speaker at our events and a guest on our podcast. We’ve been intrigued by the company’s fast rise, customer-experience focus, marketing savvy, and its knack for raising money. 

Gusto’s move into health insurance represents a very big strategic bet. It means that Gusto is now competing on multiple fronts – on the payroll front from its two largest competitors (ADP and Paychex) and dozens of smaller competitors – and on the healthcare front with large established players who have been navigating the perils and complexities of the health insurance market for years. 

We think it’s a great bet to make. Imagine a human capital solution in 50 states that offers small businesses the same enterprise-grade offerings that large corporations have traditionally offered their employees.

We’ve frequently noted the combined $80 billion to $90 billion market capitalization of ADP and Paychex to illustrate the size of Gusto opportunity. These numbers are dwarfed by the health insurance industry. To illustrate, the industry wrote premiums totaling nearly $900 billion in 2017.

That this rollout is limited to three states speaks to the complexity of health insurance in the U.S. Offering health insurance is any individual state requires jumping through many regulatory and bureaucratic hoops. It will be a slow roll to get to 50, even for a fast mover like Gusto. The company also faces a marketing challenge in communicating its solution in those three states differently than in the other 47 states. 

Having now raised $521 million with a post-money valuation of $3.8 billion, Gusto is among a small set of SaaS for SMB players that are positioned to be hugely disruptive in two extremely large categories that have incredibly well-established players. What will be most interesting to witness is how the established players respond to Gusto and its impressive maneuvering.

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