This is only the beginning for Zenefits-style brokerages

This was originally written for Employee Benefit Advisor Magazine. The original post can be seen here.

As this election year unfolds, many are questioning what created Donald Trump. Why him? Why now? On the other end of the spectrum, the same could be said of Bernie Sanders. In the benefits world, I relate this to Zenefits and former CEO Parker Conrad. What is it that allowed Zenefits to come to be? As Zenefits now re-groups to begin its post-Conrad journey, firms like Namely are getting press and stepping into the market in a similar way.

Some will say it is the Silicon Valley arrogance that breeds and often enables young entrepreneurs to create new companies and attack the market and competitors with a vengeance. These young guns want to disrupt the market and change the rules of the game to deliver something new and better.

Whether you agree with the Zenefits model or not, one can’t argue with their results. According to Bloomberg, their revenue was close to $63 million annually as of the 4th quarter 2015. This means that:

• $63 million in customers fired their broker because Zenefits promised something their current broker was not delivering.
• $63 million in customers valued what I think is the equivalent of a $5 PEPM technology more than they valued the services delivered by their $25-$35 PEPM benefit broker.
• $63 million in customers did not care that there was no local service.

While Conrad has left this stage, the conditions that allowed him to grow his business still exist. And I am sure the Zenefits executives and investors — including Andreessen Horowitz and Fidelity — aren’t going to let $63 million in revenue slip away without a fight.

What Zenefits did do is let the world know that there are many employers out there that value what Zenefits promised to deliver. In fact, according to industry analyst and marketing guru Mark Mitchell of The Starr Conspiracy, there was $2.1 billion invested in the human capital management technology and services space in 2015, and $600 million in the first quarter of 2016. As Mitchell said at a recent conference, “Those checks are being cashed.”

What is about to come is a tsunami of new products, services and marketing in the HCM technology and services areas that are going to hit the market. Employers will be getting phone calls, webinar invites and attending conferences where these new solutions will be heavily promoted.

Case in point: Had you ever seen a TV commercial or heard a radio commercial about HR technology before Zenefits and Namely? This is a hot market, and as one venture capital firm representative said to me, “We are only interested in investing in firms that go after the benefits commissions.”

The commission is in play, and $2.1 billion in investment capital knows it.
I have been in the benefit business since 1986, and many of the same problems still exist. Administration is still complex. Benefits are still confusing, and getting more confusing. Costs are still going up. And now, in today’s world, cost shifting onto employees is creating financial stress on employees. It is getting worse, not better. As long as the current market does not solve these problems, then there is an opportunity for someone else to do so.

In the political arena whether Donald Trump wins or loses somewhat does not matter. The conditions that created him and allowed him to get the nomination aren’t going away. Certainly the millions who support him won’t disappear overnight. They are still Americans living in our society.

In the benefits world whether Zenefits survives or not also doesn’t matter. The conditions that enabled them to enter the market and grow still exists. Employers still want what Zenefits promised. Managing benefits is still burdensome. Costs are still going up. People still don’t understand their health insurance. The market conditions have not changed. The opportunity for another Zenefits, or 10 of them, or 100 of them still exists. And while Parker Conrad is in the rear view mirror others are coming. And it will be a tsunami.

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