The Alan Katz Blog

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Zenefits Adds Domain Expertise to Leadership Team

David Sacks, the new CEO of Zenefits, just announced extensive changes to the company’s leadership team, an important step in his efforts to reshape the company. By adding individuals with backgrounds in the services the company delivers to consumers, this looks to be a move in the right direction.

Previously I’ve criticized Zenefits for a lack of expertise concerning benefits, payroll, or human resources among board members or top executives. While Zenefits is primarily a technology company, the services they deliver–what their customers pay for–are tools to help companies manage these important business operations. That no one among Zenefits most senior leaders had experience in these areas is one reason, I believe, Zenefits faces the problems they do today.

The Zenefits board is still composed only of men with backgrounds in finance and technology. The former executive team, at least those deemed worthy of being listed on their website, shared this narrow expertise, broadened only by the time some of them spent as business consultants. In a post on the company’s blog today, Mr. Sacks announced 14 members of the “new executive team,” three of whom had experience in benefits, payroll or human resources before joining Zenefits:

  • Jeff Hazard, VP of Sales and Agency Principal Agent is in charge of all the company’s sellers. Previously Mr. Hazard was a divisional vice president of sales at ADP.
  • Colin Rogers, VP of Carrier Relations worked at Accenture Consulting helping develop their Consumer Driven Healthcare practice. He was also at Extend Health (now part of Towers Watson).
  • Josh Stein, Chief Compliance Officer served as senior vice president and general counsel at OptumRx, a part of UnitedHealth Group.

It will not be easy for Mr. Sacks to achieve his goal of changing the culture at Zenefits. Expanding his leadership team and include individuals who understand the services the company delivers to customers, however, shows he is serious and off to a promising start.

Zenefits’ Troubles Don’t Let Brokers Off the Hook

Zenefits is in trouble. Serious, existential trouble. Some community-based benefit brokers are watching the calamity at Zenefits unfold with a mixture of Schadenfreude and relief. Given the scorn and ridicule Zenefits heaped on these brokers, taking pleasure from its misfortune is hard to resist. Feeling relief, however, misreads the situation and is dangerous to one’s career.

Zenefits’ Troubles

Zenefits could go out of business and several of its employees could be jailed as a result of the business practices reported by William Alden of BuzzFeed News and other journalists. While unlikely, this is a possibility because:

  • Zenefits created software enabling some California employees to lie to regulators concerning the time they spent on pre-licensing training. California law requires those applying for an insurance license to devote 52 hours to this curriculum. Zenefits employees signed a form, under penalty of perjury, that they had done so. Some may not have. Perjury is a felony in California and conviction can result in up to four years imprisonment. If Zenefits cheated in qualifying agents to sell in California, other regulators are no doubt looking into whether the company did this in their states, too.
  • If found guilty of violating consumer protection laws, state regulators could revoke Zenefits’ insurance licenses. Without the license Zenefits could no longer sell new policies and insurance companies would likely terminate, for cause, their Zenefits contracts. The insurers would then stop paying commissions to Zenefits even on previously sold policies. License revocation in one state could result in losing their licenses elsewhere. A cascade across the country of revoked licenses and terminated contracts could cost Zenefits tens of millions of dollars.
  • If Zenefits loses its licenses, commissions on current policies and ability to sell new ones, then some of its more recent investors may demand their money back. (Let me be clear: I am not accusing anyone at Zenefits of committing fraud or any other crimes. What follows is totally and only hypothetical and speculative.) In May 2015, Zenefits raised $500 million in a capital round led by Fidelity Investments and private equity firm TPG. If Zenefits management knowingly hid legal problems from them (and I’m not accusing anyone of doing so) then Fidelity and TPG could claim inducement by fraud, seek to rescind their contract, and demand Zenefits return their investment. I’m not saying this happened or that investors were misled in any way. Nonetheless, I’d be surprised if Fidelity and TPG lawyers are not also speculating about this.

Zenefits worst case scenario, then, is that the company pays millions of dollars in fines, loses many millions more in revenue, sees employees jailed, can no longer sell insurance, irreparably damages its brand, and must repay some investors.

Maintain Perspective

That’s a pretty scary worst case scenario. Based on we know today, it is also highly unlikely to happen. No regulator has found Zenefits in violation of anything. Regulators are unlikely to impose the most severe penalties available to them if their investigations do not reveal consumer harm. The steps David Sacks, Zenefits’ new CEO, is taking will likely mitigate any penalties imposed on the company. Several employees, including former CEO, Parker Conrad and sales VP Sam Blond have already left the company and more may follow. Zenefits now has its first compliance officer. Mr. Sacks also seeks to change Zenefits values.

I’m skeptical, however, that Zenefits can or will quickly change its culture and core values. I respect Mr. Sacks’ intentions, experience and abilities. He deserves a chance to make his turnaround work. Yet changing a company’s culture usually takes considerable time and Zenefits’ culture is deeply infused with the Silicon Valley ethos of speed, innovation, disruption and risk taking. To transform Zenefits requires a different world view. Yet in announcing Mr. Parker’s resignation, the company added three new board members—all current investors with no domain expertise.

In fact, no current Zenefits board members or executives listed on their site appear to have any experience in running a human resources firm, payroll company, or insurance agency—the services Zenefits delivers. What they share is deep experience in well-known tech companies. Zenefits may be a technology company, but that tech is supposed to accomplish something. Only in places like Silicon Valley would lack at the top of the company of this domain expertise be celebrated. Zenefits seems to exist in a Valley-sized bubble and it’s tough to change what’s in a bubble from the inside.

The Real Lesson of Zenefits

Yet, in spite of these problems and hurdles, Zenefits is likely to survive. They reportedly have enough cash on hand and no need to seek more. The most probable outcome from the various investigations is that, absent findings of intentional and substantial criminal malfeasance, Zenefits will keep their licenses, carriers will continue paying commissions, and investors will keep their money in the company.

We don’t yet know how Zenefits ongoing saga plays out. What we do know are some lessons this scandal teaches, especially to brokers.

Lesson one: consumer protection laws matter. Violate them and there’s a huge price to pay; as there should be.

Lesson two: arrogance is unbecoming and unhealthy. Zenefits is a company whose leaders proclaimed that community-based brokers were fucked, promised to drink brokers’ milkshakes, claimed brokers barely knew how to use email, described their profession as a dead beast lying in the desert and, well, you get the idea. The danger is that arrogance of this magnitude easily morphs into hubris. Zenefits’ hubris was the apparent belief that it could ignore rules if they get in the way of achieving the growth promised investors.

Lesson three: even broken companies get some things right. Zenefits identified a latent customer demand. Clients want more from brokers than help with benefit plans. They want to focus on their businesses and not be distracted by HR and benefit administration. Zenefits success makes clear there’s a disadvantage to only selling and servicing insurance plans. Clients want more from their brokers. Even in the unlikely event Zenefits goes away, this client need will not.

Lesson four: there’s more where they came from. Zenefits’ demise would not mean the end of well-funded tech companies challenging community-based benefit brokers. If Zenefits falls to the way side, others are ready to take their place using the same tactic of giving away software to employers in exchange for being named the employers’ broker of record on benefit policies.

Seeing a bully humbled is always fun and there’s no harm in brokers enjoying the sight of Zenefits in disarray. Those brokers who believe Zenefits predicament means they no longer need to step up the services and value they deliver their clients, however, are making a costly mistake.

Full disclosure: I’m co-founder of a company soon launching NextAgency, a platform enabling benefit brokers to level the playing field against hi-tech competitors and step up the services and value they deliver their clients.

A version of this post is scheduled to appear in the March issue of California Broker magazine.

 

How Likely is Zenefits to Change?

Zenefits changed CEOs the other day and its new leader declared the company’s old culture inappropriate. He promised to instill new values in the company. All well and good. But is meaningful change really likely at Zenefits?

Founder Parker Conrad is out as Zenefits CEO and David Sacks, until yesterday its chief operating officer, is now in charge. The reason: lax compliance procedures leading to investigations by Washington state and others concerning Zenefits allegedly selling insurance policies through unlicensed agents. If found guilty by Washington regulators, Zenefits could face a criminal fine of as much as $2.75 million, see some employees go to jail and potentially lose millions in commission dollars. While unlikely, that is what’s at stake.

Perhaps this situation is a result of incompetence and naiveté by the company’s management. Maybe. Then again, it could be the result of a culture that puts growth above adherence to the rules–an “act now and ask for forgiveness later” attitude–an approach sometimes applauded and rarely condemned in Silicon Valley and similar locales; unless, that is, it hurts the bottom line.

Not surprisingly then, Mr. Sacks informed employees on taking over as CEO that “a new set of values are necessary” for the company to continue considerable growth. He ended his letter proclaiming “This is Day 1.”

I don’t doubt Mr. Sacks’ commitment or intentions. But is Zenefits really likely to change its core values? Can it transform its culture? The problem, as I see it, is that the company, its values and culture reflects those of Silicon Valley. That is both a blessings and a curse.

They dream big in the Silicon Valley and Zenefits became big–one of the fastest growing enterprises in American business history. The company is funded by an A-List of Silicon Valley heavyweights. As of May 2015 Zenefits became the single largest investment of Andreeson Horowitz, one of the Valley’s most august venture capital firms. Several of its board members are Silicon Valley royalty.

The Valley values speed, innovation and disruption (“worship” might be a better word). While I’ve questioned whether Zenefits’ business model is innovative, the fact remains, the company has quickly shaken up more than one established industry.

However, being of the Silicon Valley also means Zenefits exists in a bubble (not the stock market crashing kind, but the island of unreality variety). For example, none of the executives listed on Zenefits’ site has any background in human resources, payroll or insurance sales. Yet those are what the company does. Outside the Silicon Valley this would raise eyebrows, maybe even create concern. Not there. Of course, they have direct reports with subject matter expertise, but none of the company’s top eight leaders (nine before Mr. Conrad’s departure) does? Looks like a bubble to me.

Mr. Sacks is a Silicon Valley rock star. In a December 2014 Pando’s article reporting Mr. Sacks joining Zenefits as chief operating officer Mr. Conrad was quoted as saying “When you have an opportunity to hire LeBron, you hire LeBron.” And it was an apt analogy. Mr. Sacks is good. Extremely good. He was the first COO of PayPal and founding CEO of Yammer (purchased by Microsoft for $1.2 billion). He knows how to run a company–a Silicon Valley company.

It’s also true that Mr. Sacks has been COO and a board member of Zenefits for a year now. Doesn’t that make him part of the company’s “old” culture? As chief operating officer, did he have at least some responsibility for knowing of Zenefits’ compliance problems? Maybe he did and he raised the alarm internally months ago. Maybe.

And that’s where Zenefits is at the moment, stuck in a vortex of maybes. Maybe it takes an insider to lead the company outside the Silicon Valley bubble. Maybe it takes someone who has seen the company’s failure to understand what can no longer be overlooked or ignored. Maybe Zenefits can both grow and follow rules. Maybe the company can swagger less and execute better.

Maybe. Who knows? Until we it’s clear Zenefits has the willingness and ability and to change, perhaps a bit of skepticism is in order. Maybe.

Zenefits Compliance Problems Cost Them a CEO — and Perhaps Millions

Things happen fast in the start-up world. Earlier today I wrote a LinkedIn post on how Zenefits’ compliance challenges in Washington state could cost the company millions of dollars in lost commissions. While noting that it was only a matter of time before someone at Zenefits lost their job over the situation, I had no idea at the time that Zenefits CEO Parker Conrad would resign today citing the compliance problems.

In a press release cited by VentureBeat.com announcing Mr. Conrad’s departure, Zenefits new CEO (and until now, its COO) David Sacks, declared” I believe that Zenefits has a great future ahead, but only if we do the right things. We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die. The fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.” (The entire press release is worth reading).

The loss of a founder and CEO is another cost Zenefits will pay for their alleged failure to comply with states’ insurance laws. I don’t believe they’re done paying for their mistake, however.

What follows is a slightly edited version of my my earlier LinkedIn article I had prepared for posting on this blog tomorrow morning under the title:

A Zenefits Felony Conviction Could Cost Company Millions in Commissions

Washington regulators are investigating Zenefits’ alleged use of unlicensed agents selling insurance policies in the state. This is not only embarrassing for a company as brash and boastful as Zenefits, but the company’s finances could be substantially impacted, too. Not just because, if found guilty of this felony, Zenefits could face a multi-million dollar fine. The far greater risk to Zenefits is the prospect of losing commission income — a lot of it.

William Alden at BuzzFeed News has done a great job pursuing the story of Zenefits’ unlicensed sales. Now Mr. Alden is reporting that, based on public records it seems “83% of the insurance policies sold or serviced by the company through August 2015 were peddled by employees without necessary state licenses ….”

The potential fallout is quite substantial even though only a small number of sales are involved–just 110 policies out of 132 sold or serviced by Zenefits in Washington between November 2013 through August 2015. “Soft dollar” costs include a damaged brand due to the bad press, distractions at all levels of the company, and needing to address whether the company is ignoring other consumer protections.

Then there are the hard costs. 110 policies times the maximum $25,000 per violation Washington can impose means fines of up to $2.75 million. Financial penalties imposed by other states could add to this figure. While paying a $2.75 million fine is no laughing matter for a company losing money every month, this represents less than 0.5% Zenefits has raised from investors. However, the legal fines are, potentially, just the tip of the proverbial iceberg. As Mr. Alden points out, the fallout from this investigation could result in carriers dumping Zenefits and that could cost the company far more than any criminal fines.

Carriers require agents to meet several requirements before contracting with them and agents must continue to meet these requirements to keep the agreement in-force. Common provisions include being appropriately licensed, maintaining adequate errors and omissions coverage, and not committing felonies or breaching fiduciary responsibilities. Fail to meet any of these requirements and agents can find their contract terminated for cause.

Terminations for cause usually allow insurance companies to withhold future commissions from the agent and, depending on the specific terms of the contract, from the agent’s agency as well. If an agency or agent knows or should have known they were in violation of contract terms when executing the agreement, carriers may be able to rescind the contract and demand repayment of commissions already paid out.

Being found guilty of a felony in Washington state could allow a carrier–any carrier, anywhere in the country–to terminate Zenefits’ agent contract for cause. Rumor has it that only about half of Zenefits’ revenues now come from insurance commissions. Late last year Zenefits CEO Parker Conrad claimed the company was on track to earn $80 million in 2015. So, let’s see, millions times 50% … carry the one … yeah, this hurts. A lot.

A nuclear outcome is highly unlikely. The Washington state investigation into Zenefits is ongoing and Zenefits, to date, has been found guilty of nothing.

Even if Washington regulators find Zenefits committed a felony, for reasons described in a previous post, the outcome is highly unlikely to be a fatal blow to the company. Insurance regulators have considerable leeway in determining fines and penalties. Absent proof that Zenefits knowingly and intentionally violated state law or that consumers experienced actual harm, the Washington State Department of Insurance is likely to conclude this situation resulted from incompetence. They might then impose a modest fine on Zenefits and subjected the company to enhanced review of their licensing practices for a few years.

Let’s put this in perspective. Richard Nixon resigned the presidency as the result of what started off as a two-bit break-in. That kind of cascading escalation is extremely rare. What we’re seeing unfold in Washington state is probably not Zenefits’ Watergate moment.

Zenefits has already paid a small price for what they’ve allegedly done. I’m guess the whole mess has been a bit distracting to management. And the fact remains: mishandling more than 80% of their sales in a state is a sign of immense ineptitude, arrogance, or both. Having this reality aired publicly is not good for Zenefits’ brand and resources will need to be expended to make sure it doesn’t happen again. I’m not aware the company has fired anyone as a direct result of their lax licensing controls, but that could happen.

As a result of this fiasco, Zenefits has already taken down their controversial broker comparison pages in which the company used carefully selected criteria to compare themselves to community-based agents. (I guess they were reluctant to add “being investigated for multiple felonies” as one of the comparison points). This is a small sacrifice as the comparison page was likely an attempt to enhance their search engine optimization rather than an effort to take business from their competition.

Zenefits has paid a small price. The open question is, how large a price will the company ultimately pay? For that, it will be well worth following Mr. Alden’s future stories.

 

Zenefits’ Problems Real, Not Fatal

Zenefits has hit a rough patch. Given the insults the company’s CEO, Parker Conrad, has heaped upon brokers, the Schadenfreude percolating through the broker community is understandable. Yet declarations of Zenefits’ demise are premature.

Zenefits raised $500 million in May of this year at a valuation of $4.5 billion. At the time, Parker Conrad, Zenefits’ founder and CEO claimed the company was “on track to hit annual recurring revenue of $100 million by January 2016….” That was then.

Now the Wall Street Journal is reporting that Zenefits is falling short of its earlier revenue projection. According to the Journal and Business Insider, through August Zenefits’ revenues came in at closer to $45 million and the $100 million annual revenue figure is likely out-of-reach. In response, Zenefits is reportedly instituting a hiring freeze and imposing pay cuts. The latter step is cited as a reason at least eight executives left Zenefits.

In light of this news, in August or September Fidelity Investments reduced the value of its Zenefits investment by 48% estimating the company was now worth about $2.34 billion. That’s a seismic event: in May Fidelity thought Zenefits was worth $4.5 million. Just five months later Fidelity thinks this was being a tad optimistic … if by “a tad” we mean “$2.16 billion.”

In an interview with Business Insider, Mr. Conrad admits Zenefits is unlikely to keep his promise of earning $100 million this year. However, he claims Zenefits continues to hire (although not as fast as in the past) and is happy with its revenue growth–“more than $80 million of revenue under contract” (which, it should be noted, is not the same as saying “we’ve taken in $80 million so far this year,” but maybe that’s what he meant). Mr. Conrad also asserts Zenefits is getting “closer and closer” to being cash flow-positive, although he doesn’t expect them to get there until 2017 at the earliest.

Missing his $100 million commitment and having to address the subsequent fallout is no doubt adding to Mr. Conrad’s stress levels. Since Mr. Conrad went out of his way to insult community-based benefit brokers on Zenefits way up, the joy brokers are taking in his discomfort now is to be expected—and is arguably earned.

Should brokers assume Zenefits is no longer a threat, however? No. They are still bringing in tens of millions of dollars in revenue. According to what I’ve heard, only about 60% of this revenue comes from commissions. An ever-increasing portion of their revenue flows from fees earned by selling third-party services or their own non-commissioned services. Zenefits launched their own payroll service today so their non-commission revenue will continue to climb. Zenefits may not be worth $4.5 billion any more, but it is still valued at over $2 billion. And while no CEO is happy when a serious investor marks down his company by nearly 50%, Mr. Conrad says Zenefits won’t be out raising money anytime soon. As a practical matter, the impact of the devaluation on Zenefits is minimal.

In short, Zenefits is sticking around.

But I predict Zenefits is in for a rough time. Direct competitors like Namely and Gusto are raising money and stepping up. Community-based brokers are increasingly leveraging technology. Full disclosure: I’m co-founder of the company launching NextAgency, software that will help brokers level the playing field against Zenefits, so I’m delighted to point out this trend.

While new initiatives like their payroll offering will create new revenue streams, they also carry significant risk. Current partners will view Zenefits as a potential competitor. Management will be distracted from the company’s core business. New skills and expertise need to be acquired. There’s something to be said for focus and Zenefits may be losing theirs.

Schadenfreude is German for deriving pleasure from the misfortunes of others. That Zenefits’ current problems generates this impulse in the brokers they’ve insulted should surprise no one. That Zenefits will face challenges, problems and set-backs moving forward is inevitable. That community-based brokers should continue to take the threat Zenefits represents is seriously is wise.

A Technology Checklist for Benefit Brokers

The need for benefit brokers to leverage their high-touch value with technology has never been more important. Customers are pulling and competitors like Zenefits are pushing brokers in this direction. Resistance is futile.

This was the message of yesterday’s post, which, like this one, is based on my talk at the California Association of Health Underwriters’ TechSummit in late-September. This second post describes why choosing the right technology is critical and offers a checklist to help benefit brokers find that right technology.

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Shopping for technology can be confusing and frustrating. Having a plan to help you assess your options, however, can minimize the pain.The first step to stress-free (or at least stress-reduced) tech shopping is to know what you’re looking at: a mere device or a whole product? When buying the technology upon which you’ll build and maintain your business, you want a product, not just a device.

Devices versus Whole Products

The problem is it’s sometimes hard to tell one from the other unless you know what to look for.

Geoffrey A. Moore discusses the difference between devices and products in his book Crossing the Chasm (although what I call devices he labels “generic products”). A device is the core hardware or software being sold—and only that core. A product is that device and, in Mr. Moore’s words, “whatever else the customers need in order to achieve their compelling reason to buy.” (Here’s a graphic from my CAHU talk on the difference between devices and products).

Looking at a smartphone? What you hold in your hand is the device. The product is that equipment plus the data plan plus the warranty plus the operating system (e.g., Apple, Android or Windows) plus the apps available plus the cool-looking case and so on. The phone itself is a device; the other elements make it a product.

Most of us lack the expertise to make devices productive. We need products. To make sure the technology you’re contemplating is the complete package ask the vendor questions about their training, service, peripherals, compatibility and so on. And keep asking until you’re satisfied you know what you’re getting.

The Checklist

Once you’ve established you’re buying a product, a checklist can help you sort through important issues. The checklist that follows concentrates on four considerations: choice; cost; confidence; and comfort. With some issues, the “wrong” answer is a deal-breaker. Others simply raise factors you should consider. If, for example, the technology vendor is liable to use your data to steal your clients, I’m thinking “deal-breaker.” Whether it’s critical that the software makes it easy to port your data over to an alternative depends on how difficult and important it is to recreate your database.

Also, remember: no technology is perfect. That’s why manufacturers are constantly issuing updates and new versions. The key is to look for a solid solution, not an unattainable ideal. Remember, the worst technology is the one you need, but don’t use.

Choice:

Technology is just a tool, a means to an end. And it may not always be the means you need. When evaluating tech, ask “Do I need this technology to achieve my goals?” or “Do I need this technology to achieve my goals more quickly and efficiently?” (This assumes you know your goals and what it takes to achieve them. The importance of having a business plan is something I address in detail in Trailblazed: Proven Paths to Sales Success).”  If you can’t articulate how the technology is going to help you take your business where you want to go, then you can probably pass on it.

Probably, but not until you ask “Do my clients need this technology to achieve their goals or to achieve them more quickly and efficiently?” If the product benefits your clients, then it’s invariably worth considering.

Cost:

Technology can be expensive and it always costs much more than the sticker price. There’s also the time it takes to learn to use the product or to teach your clients to use it. Resources may be required to set up and maintain the tools. New hires need to learn how it works. Then there’s the lost productivity as everyone adapts to upgraded versions (just ask anyone transitioning to Windows 10). All of this time, energy and resources add to the true price of the product.

So ask, “Can my clients and I afford the technology?” and “Can we afford to use it?” For example, when buying a printer you need to know how much the machine costs. However, you’ll also want to know the cost of replacement ink. A cheap printer needing costly ink may be a worse deal than a more costly printer using less expensive ink.

Confidence:

More than cash is on the line when adopting technology. You’re also risking your business and reputation. (Of course, not adopting technology poses a risk as well). If that great new software doesn’t perform as promised it’s you and your team who will be distracted, inefficient and, to use the technical term, pissed—none of which will grow your business.

Then there’s security. Your client will blame you if the technology you brought to them releases their personal and financial data into the wild. Any technology you buy must be HIPAA compliant. More, the product needs to keep your and your clients’ data encrypted, safe and secure.

When teaming up with a vendor you need to be confident they won’t use the data you provide them against you. Some HR admin companies started out competing with benefit brokers before deciding to work with them. What’s to stop these companies from reversing course again, but this time armed with your client data? Still other companies offer their products to brokers and compete with them for clients. Really? Is that where you want to entrust your data?

Which means you should ask: “Will the technology perform as promised?” “Will my and my clients’ data be protected?” and “Will they compete with me?”

Comfort

Technology should fit your business, not require you to change what you do in order to use the product. Too many vendors, especially those whose leadership have only technology or investing backgrounds, don’t get this concept.They believe they know what’s best for their customers. They design their product to dominant (they’d say “instruct”), not serve, their customers. Avoid this hubris. It rarely turns out well.

There are risks involved with any technology. No product works perfectly all the time; some just work perfectly more often than others. You need to assess where you are on the adoption curve, which graphs how much risk a user is willing to accept in order to get access to a product. Geoffrey Moore’s book, Crossing the Chasm, explores in detail who is ready to adopt technology and when. (As summarized in this slide describing his adoption curve from my CAHU TechSummit presentation).

For example, Early Adopters embrace the promise of technology and accept the risk inherent in something new. What Mr. Moore labels the “Late Majority” are reluctant to embrace technology until it’s established and proven. Neither position is “right.” And you may be on a different part of the adoption curve for different technologies. What matters is knowing where you are on the curve for the technology you’re looking at. Asking others already using the product about its dependability and usefulness is a good way to assess if you’re ready to embrace it.

Sometimes you don’t realize a product is a bad fit until you’ve used it for a while. Some vendors purposefully make it hard to leave them. This is being “sticky” and Silicon Valley loves sticky. Unless you’re an investor, however, remember that it’s your content, not theirs. If you can’t fire the vendor, be careful about hiring them.

So ask: “Where am I on the adoption curve for this technology?” “What have others experienced?” and “What’s my escape plan?”

A little credit for selflessness here: As disclosed, below, I’m helping bring NextAgency to market. As a new technology we lack a track record. If that’s too risky for you, well, that’s my loss. But I still encourage you to ask these comfort questions.

Checklist:

As noted earlier, not every question is do-or-die nor will any single vendor have perfect answers to each question. However, this checklist will help you narrow the field so you can zero in on the best technology for your business.

Here’s a downloadable version of the Technology Checklist.for Benefit Brokers. I hope you find it useful. And please, leave a comment with any questions you think should be added to the list.

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Full Disclosure: I’m a co-founder of Take 44, Inc. In early 2016 we plan to launch NextAgency, a platform helping benefit brokers leverage technology to deliver their high-touch value. NextAgency also helps brokers level the playing field in competition with Zenefits, Namely and other high-tech disruptors because we believe, on a level field, community-based brokers will win

Clients Pull, Zenefits Pushes Benefit Brokers to Adopt Tech

“The question is not if benefit agencies will go digital. The question is when. The answer … 2016.”

That’s how I began my technology talk at the California Association of Health Underwriters’ TechSummit on September 29th in Universal City. Several in attendance  asked for the presentation. Since the slides are mostly key words and graphs, I thought sharing the content here over a couple of posts would be more helpful.

I’ve been engaged in sales technology since the 1980’s (yes, Millennials, we had technology back then). However, the need for successful producers to embrace technology has never been greater. This first post explains why. Tomorrow I’ll offer a checklist brokers can use when selecting technology.

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Consumers Pull, Competitors Push

Going digital is inevitable. Customers want it. Competitors make it necessary.

Customers are increasingly running their businesses with technology. They use digital tools to keep their teams informed and aligned, preserve and transfer documents, reach customers and track sales. Even traditionally low-tech companies—plumbers, barbers, dry cleaners—use technology to schedule appointments, process payments, track invoices and speed work flows.

Or consider this: in 2013, nearly half of Staples sales were over the Internet. This makes Staples the nation’s third largest online retailer behind Amazon and Apple and ahead of Walmart. The same survey found Office Depot was the ninth largest online retailer. That’s a lot of businesses, both large and small, using technology to buy something as prosaic as office supplies.

Digital activity by clients is creating a gravitational force pulling more-and-more benefit brokers into the tech orbit. After all, if your clients are using technology and conducting business online, shouldn’t you?

If customers are pulling brokers to go digital, competitors are pushing them in the same direction. In poker, if you look around the table and don’t see the sucker, you’re the sucker. Similarly, if you’re not using technology to grow your business, someone else is using technology to take your business.

Zenefits and Others Push Brokers Toward Tech

Exhibit A: Zenefits—the Donald Trump of benefit brokers. Like Mr. Trump, Zenefits can behave like a rich, arrogant bully. Yet, either because of or in spite of this character flaw, Mr. Trump and Zenefits have shaken up their worlds and highlighted weaknesses in established players.

Like Mr. Trump, Zenefits’ strategy seems to embrace trash talking competitors. Zenefits CEO Parker Conrad has promised that “If you’re an insurance broker, we’re going to drink your milkshake.” (At minute 1:30 of the linked-to video). He claims competing brokers “barely know how to use email.” (At minute 38 of the video). Mr. Conrad’s prognostication concerning today’s professional benefit brokers? “All of the existing brokers today are all f**ked.”  OK, even Mr. Trump doesn’t drop the f-bomb on his opponents in public, but that’s most likely just a generational difference in styles.

Some brokers complain that Zenefits is using its riches (the company has raised over $500 million dollars in capital) to post arguably misleading comparisons between itself and specific independent brokers—a tactic Mr. Trump might applaud. As I’ve written before, even though I find the comparisons unfair, this isn’t a new marketing tactic nor outside the norm in America.

Yet, for all his bombast and bullying, Mr. Trump has forced other Republican presidential candidates to step up their game (a task at which many are failing). They may not like him, but his opponents need to adapt to his presence. Zenefits and similar companies like Namely and Gusto are forcing brokers to adapt to new realities. In this new world, simply delivering value is no longer enough. Clients now need to perceive that value.

It’s Perceived Value that Matters

Benefit brokers have long provided considerable value to their clients. They shop the market and find the right solution for clients’ unique needs. They answer questions and resolve problems. They provide informed, personalized, professional counseling and advocacy on behalf of their clients before and after the sale. Simply put: they earn their commissions.

Yet, for too long, too many brokers have been hesitant to highlight their value. In fact, they often undermine how clients perceive their worth by claiming their services are free. This is both inaccurate (health insurance premiums include brokers’ commissions) and diminishing (consumers tend to undervalue what they don’t pay for).

Zenefits takes advantage of brokers’ modesty. They offer businesses free HR and benefit administration software in exchange for being named the employers’ broker-of-record. That’s an attractive deal when the software has perceived value and the services of the incumbent broker is hidden.

Technology can help put brokers’ value on display by providing greater insight into what brokers deliver. Increased transparency can lead to greater perceived value.

Significantly, Zenefits’ leadership knows this. When asked about the company’s competitors, Sam Blond, head of sales at Zenefits, claimed they had none. He grudgingly acknowledged that professional brokers could fill that role, but “what you get with a traditional health insurance broker is no technology.(At about 28:30 in the video).

Zenefits and new firms like them have seized on this digital gap to tilt the playing field in their favor. When your competitor points a neon arrow at your problem, it’s smart to pay attention. Many brokers are and that’s what’s pushing them toward increased use of technology.

Successful Brokers Leverage Tech

Competition from well-funded technology firms has never been greater, but there’s nothing new about the role technology plays in helping brokers get ahead. My book, Trailblazed: Proven Paths to Sales Success, grew out of a study of 200 health insurance brokers in six states. The study sought to identify what practices, processes and perspectives fast-growing sales professionals shared that their less successful colleagues did not.

Among our findings was that high-growth producers were significantly more likely to incorporate technology into their business than the others. They were more likely to use technology across a broader range of functions, too. Brokers whose business was declining were the least likely to have incorporated technology into their practice.

When I led individual and small group sales at WellPoint (now Anthem) I championed the 1999 launch of AgentConnect, which enabled our agents to sell individual coverage online through their own websites. While competitors (think PacifiCare) were trying to displace brokers using the Internet, we used it to empower brokers. The result: WellPoint increased our market share while hundreds (and eventually thousands) of independent agents launched online sales initiatives. Many of them ranked among WellPoint’s top producers.

WellPoint’s AgentConnect launched 16 years ago, but was not the first sales technology adopted by successful benefit brokers. I was helping program the quoting system for Multiple Services (the small group general agency my father, Sam Katz, founded in Los Angeles) in 1983. And there were digital sales tools available before then.

Not If, When

Technology has been a part of the employee benefit world for a very long time. The increased pull of clients and push of competitors just makes the need to leverage tech tools more pressing ever before. As noted at the start of this post, the question is when will brokers will go digital. I believe the answer is early next year.

Many brokers have already adopted innovative technologies. The majority, however, have not and now face a dilemma. Do they deploy new digital tools—or ask their clients to deploy new technology—in the middle of open enrollments, ACA calculations and the host of other time-consuming, business-threatening challenges all happening between now and the end of the year? Or, do they wait until 2016 to leverage the tools available to them?

I have a stake in the answer (as disclosed, below), but even if I didn’t, I’d bet most brokers will fight their way through the rest of 2015 with the tools they have before transforming their agencies with new technologies.

Being thoughtful about the technology you embrace is important, because the decision is critical. Not only are you entrusting your livelihood to the technology, you’re entrusting your reputation and your clients’ well-being to the platform you choose. Adopting technology costs more than money, there’s a host of hidden expenses as well. I’ll discuss these and other factors, as well as offer a checklist to help you evaluate your technology options, in tomorrow’s post.

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Full Disclosure: I’m a co-founder and CEO of Take 44, Inc., a technology company which, in early 2016, will launch NextAgency. The NextAgency platform will integrate quoting, CRM and enrollment tools to help brokers sell more with powerful HR and benefit administration tools they can give to clients for free. This is in pursuit of our mission: to help benefit brokers level the playing field against high-tech disruptors like Zenefits while spotlighting their high-touch value.

 

Zenefits’ Agents Should Be in NAHU

Zenefits is enrolling hundreds of their in-house agents with the National Association of Health Underwriters and some NAHU members are freaking out. They shouldn’t.

At the end of the day, Zenefits engagement with the association will benefit both the company and NAHU’s membership. After all, the purpose of any professional organization is not to become best buds with your competitors (although that often happens in NAHU). The purpose is to work together on common issues toward shared goals in an ethical manner. So long as Zenefits and their employee-agents share the goals of NAHU and act with integrity they should be members.

A Fan of NAHU, Not Zenefits

I’ve been active in NAHU for over 25 years. I’ve served as president of my state chapter and the National organization. Currently I’m president of my local chapter. I’ve testified on NAHU’s behalf before Congress and helped lead the association’s legislative efforts nationally and in California. I’ve even helped rewrite the national and state associations’ by-laws. (Now that’s commitment … and boring as hell).

I say this not to brag (or complain), but to demonstrate that I care deeply about NAHU, its mission, purpose and, above all, its members. I’m a fan of NAHU. If I thought the association was in danger, I’d be among the first at the barricades. However, having Zenefits’ in-house agents in NAHU is no danger.

To be clear, I am not a Zenefits fan. I’ve made this clear repeatedly and will continue to do so. I consider the way Zenefits’ leadership talks about what they call “traditional agents” as arrogant and wrong. I don’t like their business model or some of their practices. And I do more than criticize Zenefits. I’m co-founder of Take 44, a start-up bringing NextAgency to brokers. NextAgency does many things, but for purposes of this post it’s most salient feature is helping community-based agents beat Zenefits and its ilk in the marketplace.

Even though I don’t like Zenefits, I’m pleased Zenefits’ in-house agents are joining NAHU. I believe the result will be positive for Zenefits and, more importantly, for NAHU members.

Wins All Around

Zenefits will gain credibility when they publicize that their in-house agents are members of the nation’s preeminent organization for benefit professionals. However, that means Zenefits will be widely promoting the reality that working with NAHU members is good for consumers—a message benefiting all NAHU members.

Some of Zenefits’ agents will attend NAHU meetings and participate in the association’s outstanding educational programs. There they’ll meet hundreds of professional, experienced brokers providing real and substantial value to their clients. They’ll understand that there’s more to being a worthy health insurance agent than simply delivering HR and benefits software. (Although there’s nothing wrong with delivering HR and benefits software, he wrote while wearing his NextAgency hat). What they learn may make them better agents and that’s good for their clients and for the profession. Bad agents hurt everyone, including good ones.

The dues from Zenefits is the least important benefit to NAHU, but still meaningful. These dollars will help NAHU and its local and state chapters positively influence legislation, expand educational programs, better assist consumers, support more community organizations and more powerfully deliver our message to the public. Again, something that benefits all members.

We Don’t Have to Like One Another to Share a Goal

NAHU membership is open to all health professionals who abide by the association’s code of ethics. In a big-tent association like NAHU we’re not all going to like every fellow member. I’ve met thousands of wonderful people during my time in Health Underwriters. They’re individuals of tremendous professionalism and integrity. I’ve also come across a few folks I don’t particularly like or respect and not every fellow member likes me. That doesn’t matter. We’re a professional association, not a college fraternity.

What matters is our commonality of purpose. NAHU members are benefit specialists adhering to a high ethical standard while seeking to do what’s best for our profession, our industry and, especially, for our clients. Any benefits specialist who shares this commitment and acts with integrity is welcome in NAHU. This is what makes the association strong: acceptance without regard to personal feelings, but in the pursuit of common interest.

I don’t like Zenefits. If the company and its agents seek to do what’s best for their clients, our industry, and our profession and acts ethically, however, then I accept them. Indeed, I welcome them to Health Underwriters.

Outside the association, I look forward to helping community-based benefit brokers like those in NAHU drink Zenefits’ milkshake. That, however, is a topic for another post.

Brokers Object to Zenefits’ Comparison for Wrong Reason

Zenefits recently launched a new marketing campaign and some brokers are going ballistic. What’s interesting is that brokers are angry for the wrong reason.

Zenefits is not an innovative company. Take its sales proposition: make us your employee benefits broker of record and we’ll give you free HR software. Clearly the folks behind Zenefits eat a lot of Cracker Jack—a company that has been offering a prize in every box since 1912. Or maybe one of their parent’s got a free toaster for opening a checking account. Free toasters for consumers opening a checking account was considered cutting-edge marketing back in the day–the day being some time in the 1960s. That Zenefits has applied this technique to employee benefits is hardly the innovation their cheerleading investors claim.

No surprise then to see Zenefits reach back into the dusty advertising time capsule for another “new” idea. This time they emerged with the ageless and oft-seen “direct competitor comparison” technique. This is where one company compares their services against those of a particular rival. Car companies, satellite TV providers, car insurers, aspirin manufacturers and dozens of others have been doing this for years. Now Zenefits has jumped on board this ageless bandwagon. Again, not what I would call innovative. And in this case, not very effective, but, as we’ll see, clever.

Successful competitor comparisons depend on carefully selecting the comparison criteria. For example, Zenefits doesn’t compare themselves to community-based brokers based on knowledge of the local market or availability for face-to-face meetings (because Zenefits would look bad). Nor does Zenefits address obtaining an employer’s payroll company log-in information providing access to what your typical identity thief would sell a parental unit to see (hint: that would be Zenefits being creepy).

No, Zenefits stacked the comparison in their favor and some of those being compared are claiming foul. Yet, I believe they’re missing the point of what Zenefits is doing. In reality, I don’t think brokers have much to fear by Zenefits’ latest marketing scheme.

First, most consumers know these kinds of comparisons tilt in favor of the one doing the comparison. Shoppers will likely discount the credibility of what they see. Second, clients are not going to leave a particular broker because of a comparison buried deep inside Zenefits’ web site. If a broker loses a client because the employer miraculously stumbles across this comparison, that client was heading for the door anyway.

Zenefits knows this … and they don’t care. I don’t believe they created these hundreds of comparison pages (maybe thousands, I got tired of counting) to steal business away from these agencies. They created the comparison pages to improve their search results (known as search engine optimization or SEO).

The exact algorithms used by Google, Bing, Yahoo, DuckDuckGo and other search engines to determine the order in which sites appear on their results pages are secret, but the general ideas are well understood. One popular technique is to provide legitimate links to multiple sites all focusing on a relevant subject matter. When shoppers use key words associated with that subject matter the search engines associate the linking site and move them up the results page.

That’s why each Zenefits comparison page includes the web address of each compared agency. That’s hundreds (or thousands) of legitimate links to sites that address health insurance and other employee benefits. From an SEO-perspective, this a tsunami of positive associations.

An added benefit for Zenefits, although not nearly as significant, is that eventually they may appear on the first result page when shoppers search these agencies by name. Will shoppers see this link and choose Zenefits over the broker they were searching for? Not often, if ever, but it can’t hurt. And that this will royally piss-off (to use the technical marketing term) those brokers may warm the cockles of Zenefits’ management’s heart – a group who has demonstrated little respect for traditional brokers.

Some of the brokers on the Zenefits web site complain that the comparison is unfair and violates some code of ethics.True, the comparisons are blatantly unfair and cheesy, but seem within the bounds of generally accepted advertising techniques (or tricks, if you prefer).

Many of these complaining brokers are strong advocates for a free market. Zenefits’ management are capitalists taking advantage of that free market. Big deal. Even Zenefits probably doesn’t think this latest marketing ploy will take much business away from the agencies they’ve picked on. I believe its the improvement to their search results that made the effort involved worthwhile to them.

So what should independent brokers do? Offer your clients the kind of HR software Zenefits offers. (Full disclosure, my company, Take44, will be launching NextAgency soon – a platform that allows brokers to provide clients with free HR administration similar to what Zenefits does).

While waiting for NextAgency, fight fire with fire (or, in this case, unfair comparisons with unfair comparisons). Do your own competitive comparison and post it on your web site. This comparison should focus on your strengths and Zenefits’ many weaknesses. Remember, as Zenefits has demonstrated, a neutral comparison is optional. Posting this comparison will not only make you feel better, it will help your own search engine optimization.

You can help your SEO even more by publishing articles online that link back to your web sites. Or by creating an agency site on LinkedIn or the like. The more sites that link to your site, the less likely Zenefits will make an appearance on your results page.

In short, don’t get upset with Zenefits for playing an old-fashioned advertising card. Trump them with your own marketing. That, after all, is how free markets work.