Zenefits: Lies, Booze, and Billions

[scagnt83]

The inside story of Zenefits - Business Insider

LIES, BOOZE, AND BILLIONS: How one of the fastest-growing startups in Silicon Valley history raised $580 million then spiraled out of control

Everyone stopped working. Office cabinets were opened, and giant bottles of Fireball whisky, tequila, and scotch appeared.

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The cause for celebration on this day was the close of a "700-life deal," which was 300 "lives" over the previous record, according to a former employee who was there.

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Cofounder and then-CEO Parker Conrad and his right-hand man, vice president of sales Sam Blond, tossed back shots with the team.

A big land mine for Zenefits had to do with employees who allegedly weren't properly licensed to sell insurance. And the licensing issue was something "everyone knew about," one former salesperson said.


"Most of us had never been in the insurance industry," this former salesperson said. "We were all software salespeople in the San Francisco Bay Area. I got the job and didn't even find out I had to get a license until they told me in an email later."
The company told some new, unlicensed hires that, because Conrad was licensed in all 50 states, "we didn't have to be licensed — we were acting under his umbrella license," this person said.

Or, if a manager with a license was sitting in on calls, "that was good enough."

Zenefits liked to promote from within, but many of its workers were very young and had no experience managing, selling enterprise software, or selling insurance.

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Worse, the Zenefits software "wasn't enterprise-ready" with the kind of security and features that more expensive enterprise HR software offers.

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Salespeople at Zenefits were taught to tell prospective customers that the company's product was an automated system, former employees said.

But the former salespeople say they later learned that wasn't 100% true.

"It doesn't do what we sold it to do," a former salesperson said.

At one point, a public fight broke out between Zenefits and the payroll giant ADP in which ADP balked at the methods Zenefits was using to access payroll information for the companies' joint customers. Zenefits countered by saying it was behaving just as bookkeepers have behaved forever.

On top of that, salespeople were told to urge their clients to sign contracts quickly to avoid a $10,000 broker implementation fee that would go into effect at the end of the month.

"We never ever charged anyone the fee— all this was a lie we told to everyone," the former salesperson says.

 

[dberger702]

Sad to say, but in startup culture this behavior is rampant. Regulations take a back seat to growth EVERY TIME. What's even sadder is that when they are caught, they are politely told to stop doing it and further punishment is rare. The risk and magnitude of the repercussion is always minute compared to the potential growth opportunity.

Until regulators step up and enforce the laws - nothing will ever change.

Zenefits sets an example of everything that is wrong within this industry. Money talks, and when you become a billion dollar company overnight - regulators see you more as a future employer or campaign sponsor than an actual entity to be held accountable.

 

[InsCommentary]

I agree. Too many regulators are shirking their duty and not protecting consumers. Another area is the failure to properly vet policy forms. The marketplace is rife with auto insurance policies with more exclusionary holes in them than Larry the Cable Guy's underwear. Likewise for CGL policies in the construction industry. Some of these policies are illusory.

 

[Brian Anderson]

Another new in-depth article on "self-disrupting" Zenefits from BloombergBusinessweek.

A couple of excerpts:

In California, they found, some of the sales team used Conrad’s macro to systematically cheat on the state’s training course, which included a section on ethics. “As far as a company doing what Zenefits has done, I don’t know that we have seen this before,” says Nancy Kincaid, press secretary for the California Department of Insurance, which has also opened an investigation. In March, Massachusetts’ division of insurance opened a third. Zenefits confirms that other states have since followed but won’t say which ones or even how many.

Sacks became CEO and is guiding Zenefits through its crisis cleanup. He has banned alcohol at the office and changed the company motto from “Ready. Fire. Aim.” to “Operate With Integrity.” In February the company laid off 250 employees, including the enterprise team. Sales Vice President Blond, Semaan’s boss, and any executive or manager known to have helped disseminate the macro are also gone. Zenefits says it has self-reported the findings of its internal investigation to all 50 states and is working with those that have opened formal inquiries. Fidelity Investments, which owns a stake, has slashed its valuation of Zenefits from $4.5 billion to less than $2 billion. There are rows of empty desks at the San Francisco office; the company plans to downsize from four floors to three. The Star Wars-themed conference rooms will soon be renamed after inspirational entrepreneurs. Kegs have been replaced with cold-brew coffee. The stairwells are condom-free.

Zenefits Was the Perfect Startup. Then It Self-Disrupted