Zenefits CEO Resigns – In Comes the A Team

If you haven’t heard the news yet Parker Conrad, Founder of Zenefits, has resigned as their CEO. He has been replaced by David Sacks, the Zenefits COO and a Zenefits investor, who was a past executive at PayPal. You can see the announcement here along with a letter from the new CEO to the Zenefits employees here. http://www.buzzfeed.com/williamalden/zenefits-ceo-parker-conrad-steps-down-after-compliance-failu#.ragvaZeXZ

While the resignation of Parker Conrad may be a surprise to some this doesn’t surprise me at all. It is not uncommon for investors that pour $500 million into a company to eventually put in their own management team who may have more experience in running larger organizations. In this case you have a rapidly growing company in a very regulated environment whose CEO was not afraid to openly challenge regulators, call out his competitors on his website (unusual behavior in my opinion), and find a way to get into a lawsuit with a large competitor, ADP. I don’t know Parker Conrad personally and only met him once, so I won’t speculate as to his motivation, but as a business owner myself I don’t know how getting a lot of people “shooting back at you” would contribute to the growth of an organization. I would think it would be a big distraction. Let’s give Parker credit though. He is an outsider who came into the benefits business and started the fastest growing benefits brokerage firm ever.

In the letter to the employees David Sacks states, “I believe a new set of values are necessary to take us to the next level. Effective immediately, this company’s values are: #1 Operate with integrity. #2 Put the customer first. #3 Make this a great place to work for employees.” Those are his words not mine. It is clear that while Zenefits was seeing record growth their culture was not aligned with what the new CEO and others on the management team along with their investors more than likely had in mind.

So what is next for Zenefits? I have said in the past that the Zenefits investors were not going to wait around until things blew up. It is their job to protect the investment whether it is their own money or the money from investors that contribute to various venture capital funds. So what we have is capitalism in motion. And what comes after version one of something is version 2. And version 2 will be better. Zenefits will get much better. I think they will become one of the most efficient small business benefits brokers/technology companies in the industry. Their value proposition is strong and in great demand. They simply have to get better at it.

In addition to a new CEO the firm has added some notable members to their board including Peter Thiel, co-founder of PayPal. I have referenced Peter’s book “Zero to One” in a few of my past articles including “Market Disruption is Coming to the Benefits Business and at it will Come from the Outside Not In”. Peter is focused on being different but not simply for the sake of being different. One of his quotes from his book is “All failed companies are the same: they failed to escape competition.” Zenefits will continue to try and avoid competition. I encourage people to read his book because it will certainly shed some light into the type of person and experience Zenefits is adding to their board and management team.

One thing I found curious is how the two articles I have read on this topic referred to Zenefits as a technology business for small businesses. In fact, David Sacks is quoted as saying, “I’m glad that Zenefits is one of the fastest-growing business software companies …. we help them (small business) achieve something larger than themselves, by making it easier to hire, onboard and manage employees.” It doesn’t say they help employers provide financial security for their employees by providing great benefits programs. The benefits advisory services still appear to be secondary to the Zenefits main purpose though don’t count on them keeping their head in the sand. I am sure their management team is well aware where their revenue comes from and will see even greater challenges in the event that small group commissions get reduced or even go away.

One interesting observation is that one of the main investors in Zenefits is Fidelity. Yes, the same Fidelity that recently entered the benefits business as a broker as an addition to their 401K business. I am sure their investment business is not that connected to their new benefits brokerage business but maybe there is more to it than one may think. Fidelity wasn’t in the benefits business and now they are in directly and through an investment in Zenefits. Is this a coincidence?

Zenefits is here to stay and is going to be bigger and better. And don’t think firms like Namely, Gusto, Paychex, and even ADP don’t take note of who is running Zenefits, who their investors are, and who is on their board. They know because it is their job to know. But Zenefits is not the only one. I hate to reference one of my recent articles again (well not really) but it was only a few weeks ago where I wrote, “Fidelity Enters the Benefits Business – Why Many Others Will Follow”. More non-traditional benefits brokers will be entering the business, and they will be doing so in droves. If you are a traditional benefits broker, I think you need to know.