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Zenefits’ Problems Keep Growing. So What? essay on if i were a coin go resume writing services tallahassee fl cialis purchase paypal graduation day essay get link do i need a script for buspar in australia cialis e prostatite cura how to write a thesis statement for julius caesar ceux qui sauront critique essay enter sildenafil pfizer 100mg 24 an essay on healthy eating habits apa style first page essay essay on favourite book holy quran enter site glipizide controindicazioni viagra change yourself to change the world essay source site bristol city vs qpr analysis essay source link thesis religion see go essay part time job for student airway mastectomy prosthesis Zenefits, the Cloud HR company that seeks to disrupt the world of community-based benefit brokers, has sailed into a sea of troubles of late. (And I think the previous sentence just violated some metaphor/single sentence law, my apologies). These problems are of their own making, which brings an element of justice to the situation. But it’s important to keep their current situation in perspective when considering their long-term prospects.

I offered some thoughts on this over at LinkedIn under the title “Zenefits’ Felony Investigation: Will It Matter?” back on November 30th. The response was quite …. strong. So I thought I’d share the post here for those of you who don’t hang out over there.


A quick update on my post “Zenefits Problems Real, But Not Fatal.” Someone called that my “Schadenfreude article”as it laid out why many benefits brokers took pleasure in the problems raining down on Zenefits at the time: missing the revenue projections their CEO, Parker Conrad, made earlier in 2015; and Fidelity Investment’s resulting devaluation of the company’s worth by 48% among others. The post also explained why Zenefits would survive those woes.

Now comes news that Zenefits is under investigation for using unlicensed agents in Washington State and other states, giving brokers even more fuel for enjoying Zenefits’ distress. And the distress is serious: knowingly selling insurance without a license is a felony in Washington, punishable by a fine of up to $25,000 per incident or 10 years in jail. Mr. Conrad famously told Fortune that “All of the existing brokers today are all fucked.” So, as with the financial miss and marked down valuation, it’s not surprising to hear brokers rhetorically asking, “Who’s screwed now, Mr. Conrad?”

If Zenefits is guilty of knowingly using unlicensed agents to sell insurance policies, they will be, and should be, punished. Most likely that means a fine–a Zenefits manager would need to be in blatant and gross violation of the law to justify jail time, especially if no consumers harm arose from the violation.

Time will reveal how this situation came about and what it means for Zenefits. As of today, the company is innocent and remains so unless and until regulators prove their case. Zenefits isn’t outright denying the charge. In a statement to BuzzFeed, Zenefits seems to claim any problem is more a matter of timing. “When we started Zenefits, we followed a practice common to many small independent brokers of having each broker licensed in their home state and having the agency itself also registered in all 50 states so as to allow out-of-state sales. As we grew and heard from regulators that they wanted each licensed broker individually to acquire a non-resident license, we set out to do just that.” Note the “set out to do just that.” Maybe they were going through the states alphabetically and simply hadn’t gotten to “W” yet?

(Interesting how when they launched, Zenefits’ leadership colorfully differentiated themselves from “traditional” brokers, but now are claiming to be just part of the crowd. The spin required to impress venture capitalists apparently differs from that aimed at appeasing state regulators. But I digress.)

Zenefits’ regulatory problems arise alongside anecdotal claims of a persistency challenge. These are brokers describing how they lost a client to Zenefits only to regain the case a short time later. This fits the narrative many brokers have (and which I share) that most employers need and want the services of a community-based broker, something Zenefits can’t and doesn’t deliver.

Zenefits doesn’t publish their lapse data and has no need to. So it may be the company has no retention problem. Still, Zenefits executives are keeping busy (some might say distracted).

  • They’ve launched a new payroll service, which creates a whole new set of business and regulatory issues to deal with.
  • The regulatory investigation in Washington state may soon expand to other states.
  • Their growth failed to fulfill Mr. Conrad’s projection, but still creates growing pains.
  • A significant and reputable investor lowered their estimation of the company’s worth–just a few months after making an investment.
  • Direct competitors are raising capital and aggressively marketing direct-to-consumer services comparable to Zenefits.
  • Independent brokers are increasingly turning to tools that help them compete more effectively against the company. (Full disclosure, I’ve co-founded a company bringing such a platform to market, NextAgency, early next year).

All of which adds up to tough times in Zenefits World.

So what? Executives at Zenefits aim to build a huge company. They raised over $580 million to do just that. While they’ve spent a significant amount, they claim to still have a large cash cushion, probably enough to survive these challenges as well as some yet unknown. Right now they’re on the receiving end of bad press. If there are fines to pay for using unlicensed agents, Zenefits will pay it and get more bad press. Then they’ll move on.

Even if their peak valuation of $4.5 billion is marked down again, it’s not a big deal unless they need to raise more capital and, according to Mr. Conrad, that’s not in their plans. Even a $1 billion valuation makes them a Silicon Valley unicorn. True, their current investors and employees would be unhappy (extremely unhappy), but the company would survive and remain a market presence. (Personally, I think even a $1 billion valuation is overly optimistic, but time will tell).

And maybe there’s a silver lining. Perhaps all of the bad press Zenefits has earned over the past few weeks will teach their executives humility.

I doubt it, but that would be nice.

In the meantime, brokers should not make the erroneous assumption that a major competitor is imploding. First, because Zenefits isn’t imploding. Second, because even if they did, there’s plenty of others striving to take their place. Have you met Namely and Gusto?