I hear the term “value added service” used in the benefits world all the time. Brokers always tell me about their value added services. What does value added service mean anyway? For most it implies “free”. We all know that nothing is free. I think it is time to bury this term. In fact I think it actually has negative implications in many ways so let me tell you why.
I googled the term “value- added service” to see how firms would define it. One definition I found came from a website www.wisegeek.com. They defined the term as “options that complement a core service offering from a company but are not as vital, necessary or important.” I guess that sounds right. For most benefits firms “value-added service” means, “I am going to give you something for free that I generally don’t do.” And I agree with the above definition that says it is not as necessary or important. The problem with what I see many benefits brokers doing is putting this label on things employers feel are important. If I am an employer and have something important to me who would I get it from, a vendor that makes it a core service or one that labels it a “value-added service”? If it is important then I would hope whoever I buy such a product or service from is good at it.
Value-added services for most brokers are listed on the last pages of their proposals. It is the fifth tab from the left on their website. It is the final 5 minutes of a sales presentation. It is presented with a level of importance that is, well, not important. To me value added service is like buying a hamburger at a Chinese restaurant. They don’t really want to sell hamburgers but for those adults with kids that don’t like Chinese food they do have something for them. If I wanted a hamburger I would go to Five Guys and not a Chinese restaurant.
In the benefits world some things that many brokers have labeled as value-added services are really becoming core to what a benefits broker should be doing. I won’t get into what I think all these services are but if the employer feels the services are vital then they will dismiss the firm that labels the service as “value added”. It will appear as unimportant. If a broker can’t make it a core service then maybe they shouldn’t be providing such a service at all. And if another broker is offering such a service as a core service then your labeling it as “value-added” may be detrimental to making a sale.
So there you go. The term “value-added service” shall be forever banned in the benefits world. And I will add that as a consultant to brokers this advice is not a value added service. It is what I do all day.
Some of you have heard about this new company from California that is disrupting the benefits brokerage market not just in California but across the U.S. I have heard from brokers in many states that lost business to this company named Zenefits. These brokers claim to have had good relationships with their clients yet those clients left them to move their business to Zenefits, who in many cases the employer most likely never met. According to some accounts Zenefits has added around 2000 employer clients with close to 50,000 employees in 2 years. Now these numbers may be exaggerated, I don’t know, but imagine if they were just half that. What broker in America has added 1000 new clients in 2 years?
So what is it that Zenefits is doing that would motivate an employer to fire their current broker and hire Zenefits? Many benefits brokers conclude by looking at their website that it is because they are giving away free Payroll with some HR and Benefits technology. While this may sound plausible I don’t think that is the case. One does not get 2000 new clients in two years because they give something away for free that could cost $5-$10 per employee per month. If “free” is the reason then that says even more about what these employers think about the value of a broker as a benefits advisor. I would contend that the reason that Zenefits is getting so many new clients is because they are delivering a value proposition that solves a big problem for employers that few other brokers are delivering.
This is where I get to the “mowing the lawn” stuff I referenced in the title. The Zenefits value proposition is clearly stated in an interview that the president conducted on Bloomberg News. In response to a question where the interviewer asked how his technology was different he answered as follows” “We handle everything else – employment agreements, compliance, getting them on payroll, getting them on benefits, all that stuff from soup to nuts. That’s the way I would have wanted it to work so that’s the way we built it.” Most of the brokers I speak to believe Zenefits are getting business because they give away some free technology. As you hear in the presidents response he is clearly stating that they provide services. Brokers think they are giving away lawn tractors when what they are really doing is mowing the lawn. I have had many brokers ask me if there is technology to compete with Zenefits. If you were to hire someone to mow your lawn do you ask to see their lawn tractor? Most brokers are missing the point.
As a business owner myself with 20 employees I can relate to the value proposition that Zenefits provides. I don’t have a HR person on staff and I wish someone would come in and offer to take care of all my HR, Benefits, and Payroll issues. I have a job to do; I don’t want to worry about these things. The other day an employee came into my office and asked about our 401k. My answer was “I don’t know.” As a small business owner I want someone else to worry about answering employee questions. I know what I want. I want “worry free”. If a company like Zenefits called me and said they would take care of all HR, Benefits, and Payroll and make me worry free I would say sign me up. I did have a company call me one day that did offer all this. That company was Paychex, not a traditional benefits broker.
So if you are a broker and want to generate new business like Zenefits you need to change your business and offer similar services. And remember, the employers attracted to their value propositions aren’t looking for lawn tractors. They are looking for someone to mow their lawn.