Zenefits – 5 Things We Learned in their Fall from Grace

It has been about a month since the Zenefits shakedown occurred (CEO fired, major compliance issues identified, growth throttled back), and we thought it would beneficial to step back and take stock of what we have learned by watching this flashy meteor streak across the sky. As we’ve said from the beginning, Zenefits served a great purpose in our industry. They caused us all to evaluate how we were approaching the industry, the value we were delivering to clients, what focus we were placing on technology, etc. At MillsonJames, we, too, have learned a great deal throughout this process and in this month’s blog, provide our perspective on 5 things we’ve learned and how we approach the market, in light of these learnings.

  1. Hyper Growth Has Its Drawbacks – While Zenefits is the most recent and prominent hyper-growth company, they are not alone in their quest to grow at astronomical rates. Don’t get me wrong, growth is the lifeblood of any organization and if a business is not growing, it can be said it is dying. However, hyper growth companies — absent a solid foundation — are likely to end up in the similar grave. When we are consulting with clients, we are often looking at the historical growth rates of a potential provider. We have always been skeptical of the companies that tout their hyper growth, particularly if those companies didn’t first lay a foundation upon which they could build a high growth company. We will always look first at how the company was founded, how many years they took to build a strong foundation, and then evaluate whether their growth is sustainable today as well as into the future.
  2. The Value of Well Designed Technology & Solid Technology Processes Are Worth Their Weight In Gold – Zenefits touted itself as being a Technology company. They were based in Silicon Valley and the CEO was receiving astronomical valuations as a technology start-up. However, when the core technology that is the basis of the aforementioned valuations is not living up to its expectations, leaders need to slow growth and fix the technology. However, with investors expecting those seemingly unattainable growth rates, you cannot slow the train down to make those adjustments – you simply throw more people at the problem to address technical shortcomings. As noted in a NY Times article, “To increase revenue, the company moved beyond small businesses to customers with hundreds of employees — and the software struggled to keep up. Instead of pausing to fix bugs, Zenefits simply hired more employees to fill in where the software failed, including repurposing product managers for manual data entry.” Well-designed technology and strong technical processes that are aligned with and supported by growth are the critical components that we look for when we evaluate a potential provider.
  3. You Cannot Sidestep Compliance – While there may be days when we bemoan the strict regulations that govern our industry, they do serve a distinct and appropriate purpose. Most everyone reading this article has taken countless hours of insurance classes, taken several insurance exams, and ensured various state laws and licenses were both adhered to and in-force for your agency. It is the price we pay to participate in this industry and our clients expect us to be operating from a place of knowledge and integrity. Therefore, when someone comes along that sidesteps these rules and turns a blind-eye towards compliance, we grow concerned — not just because of an unlevel playing field, but because a non-compliant product being offered in our industry casts a dark shadow across all of us. Here at MillsonJames, we are continually evaluating our partners to ensure that they are compliant and have received objective seals of approval for their technology and processes.
  4. Culture Is Established at the Top – From Day 1, Parker Conrad (former CEO of Zenefits) was seen as a brash, anti-establishment kind of guy. He set out to turn the industry on its head and was constantly talking about how he was going to “drink the broker’s milkshake”. He was edgy, brash, and would not think twice about dropping an f-bomb in conversation. His approach set the tone for the culture, which is now being re-established by the new CEO. It had been noted that “there was a laxity about rules and decorum. Zenefits offered beer kegs in its offices, and in the Scottsdale, Ariz., office, people freely imbibed during the workday.” Culture is a key component to any organization. It serves as a guidepost for current employees and a magnet for prospective ones. While it cannot be measured or held, it sets the tone for how customers will be treated and how situations will be handled. In Zenefits’ case, the culture established by Parker Conrad was one of cutting corners for growth’s sake, where volume was valued over quality, and speed valued over accuracy. Through our consulting with clients, we are constantly evaluating our partners to ensure that the culture and our perceptions of the culture align with our client’s (and our own) objectives.
  5. Integrity is Everything – CS Lewis once wrote, “Integrity is doing the right thing, even when no one is watching.” What should have been alarming to all of us over the last 3 years is that everyone WAS watching Zenefits (intensely watching) and yet they still managed to snub their nose at the industry at pretty much every turn. So, with everyone watching their every move, they still cut corners and seemingly thought they were above the rules. In an article earlier this year, BuzzFeed reported, “While Zenefits sales reps were told that they needed licenses to do their job, managers in many cases showed a blasé attitude toward the requirement, pushing the unlicensed reps to meet sales quotas, the former employees said. In several cases, sales reps who had failed a broker license exam once or more were allowed to continue working the phones. At least one person who lacked any license in any state but hit his sales quotas last fall was promoted, according to state records and former employees.” In a recent statement, the new CEO highlighted that, “Zenefits now is focused on developing business practices that will ensure compliance with all regulatory requirements, and making certain that Zenefits operates with integrity as its No. 1 value.” Better late than never, I guess. As it relates to our consulting, while Integrity and Culture are among the most difficult quality to measure, we get the best sense of this by meeting with and speaking to the team members responsible for delivering on a vendor’s everyday promise. We take this step on behalf of our clients so that we can ensure a recommended provider’s integrity is intact.

My mother taught me that we learn from our own mistakes as well as the mistakes of others. To a degree, I’m thankful for the last 24-36 months as Zenefits taught us a great deal about how hyper-growth companies with spotty technology, fuzzy focus on compliance, and a loose culture with limited integrity can fall from grace as quickly as they seemingly achieved it.

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