It's so convenient for everyone if this is all on Conrad. Mr Sacks did an excellent job of throwing Conrad under the bus, but as COO for 16 months, a board member and with a desk adjacent to Conrad and a seasoned guy, it strains credulity that he didn't know. There's some schaudenfreude here (and an anonymous account) because these guys all acted like they were smarter than everybody else. I hope regulators do a real investigation and I suspect Mr Sacks will come out more culpable than he would have you believe.
It's interesting how Uber, Airbnb and Draftkings blatantly broke laws and won. They set the precedent that if you're growing fast enough, the laws will change to fit you.<p>Didn't work out that way for Zenefits. They seemingly lost.
It seems like a recurring theme in these "scandals" is that if you put too much pressure on your executives, they end up either quitting or doing something they shouldn't be doing in order to keep up with your demands.<p>Another example is with VW and their diesel emissions.<p>I feel like people just have a difficult time saying they were wrong or pushing back and saying they can't do something. I am guilty of this myself.
From the article:<p>"<i>Growth broke stuff. To increase revenue, the company moved beyond small businesses to customers with hundreds of employees — and the software struggled to keep up. Instead of pausing to fix bugs, Zenefits simply hired more employees to fill in where the software failed, including repurposing product managers for manual data entry.</i>"<p>From a different article about the downfall of Target Canada[1], which also suffered from trying to ramp up too fast:<p>"<i>Getting the details from suppliers largely fell on the young merchandising assistants... “There was never any talk about accuracy,” says a former employee. “You had these people we hired, straight out of school, pressured to do this insane amount of data entry, and nobody told them it had to be right.”</i>"<p>Don't underestimate the proliferation of data entry jobs, especially when there is chaotic growth/lack of a proper plan.<p>1. <a href="http://www.marketingmag.ca/?p=166300&preview=true" rel="nofollow">http://www.marketingmag.ca/?p=166300&preview=true</a>
I wonder why "The Macro" doesn't also highlight the perils of clueless regulators imposing moronic laws on HR departments.<p>The specific law that Zenefits violated was a law insisting that before selling insurance, your employees need to sit at a computer and click "next" for 52 hours. Once they've clicked "next" sufficiently many times, only then are they permitted to take the exam to determine whether they have enough knowledge to sell insurance.<p>Shouldn't this scandal also highlight the perils of a regulatory state?
Rhetoric aside, isn't this really just another example of "... Highlights Perils of Hard-Charging CEOs"? It's that simple. We can wander far from fast-growing startups and find the same kind of conduct anywhere in business.<p>The guy running my corner grocery store decided to set up a sit-down cafe without getting a city license. The folks running a nearby office suite are in no hurry to put in city-mandated sprinklers. Business founders/owners like to get things done without asking permission. That's how they roll. Trying to invoke unicorn valuations, VCs, etc. is silly. It's a classic case of finding an exciting anecdote and trying to attach causality theories after the fact.
Being good at starting a company and raising funds is no guarantee of being any good at running a company. Add to that growth from 15 to 1600 in two years is also likely to be a massive failure. Add to that insane pressure from investors to do the impossible (that you promised). I've seen a lot of people crumble at a much smaller size.
Come on now, NYT, there is virtually no evidence of corruption at startups being any worse than any other business or human endeavor. NYT, you're just spreading FUD because people look to you for guidance and you need to respond to their fear.<p>Yes, these guys (Zenefits) were, in one area, dishonest and cheated. But it's not like Cigna, PacTel, BoA, Citizens and zillion other companies are paragons of virtue. Nevermind Volkswagen.<p>[1] <a href="https://en.wikipedia.org/wiki/Accounting_scandals" rel="nofollow">https://en.wikipedia.org/wiki/Accounting_scandals</a><p>[2] <a href="https://en.wikipedia.org/wiki/List_of_corporate_collapses_and_scandals" rel="nofollow">https://en.wikipedia.org/wiki/List_of_corporate_collapses_an...</a>
Alternative title: "Zenefits Scandal Highlights Perils of Excessive Occupational Licensure". What exactly is the purpose of requiring a license for selling insurance? If consumers desire some assurance of quality in their insurance brokers, then certification, not licensure, would be sufficient. The only justification for licensure over certification is a paternalistic one: consumers are simply too ignorant to choose their own insurance brokers, even if some are certified and some are not. As Milton Friedman said in Chap 9 of Capitalism and Freedom, this argument "amounts to saying that we in our capacity as voters must protect ourselves in our capacity as consumers against our own ignorance."<p>This isn't to say that Zenefits hasn't made a huge misstep for seemingly little benefit (bypassing a 56 hour course?), but I wish there was some discussion of the absurdity of the law that was broken alongside the bashing of Zenefits for breaking it.
If we are to use this [0] definition, then "Hypergrowth at" can be omitted. It seems like a better title would include "in highly regulated industries."<p>It's interesting to note that the essay only includes discussion of law as it relates to defending startups from incumbents, not as a caveat to the advice: "The good news is, if you get growth, everything else tends to fall into place." Is it the case that Zenefits merely failed to grow fast enough to present a more credible threat to state prosecutors?<p>[0] <a href="http://www.paulgraham.com/growth.html" rel="nofollow">http://www.paulgraham.com/growth.html</a>
This article is terrible. The takeaway is the hypergrowth ultimately overcomes. Cleaning up the mess will be comparatively easy. Zenefits flouting regulations was silly and didn't appear to be necessary. With Sacks at the helm, a huge and growing business and $500m in the bank, Zenefits is very well-positioned.
Regarding unicorns (> U$1 billion valuation), the U.S should implement certain regulations.<p>These startups have market caps that are larger than thousands of public companies that go through several laws and openly disclosure their financial information.<p>Not only does this lack information hurt shareholders that are not "part of the club", but also stakeholders that rely on the company in other matters.<p><a href="http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2674420" rel="nofollow">http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2674420</a><p>"Regulation of unicorns should recognize that outsized power."
Had some personal experience in bending the rules (a very ugly experience) - and its better to follow the laws, even if the laws don't make sense.<p>In a B2B business especially, follow very closely and to the letter.
It is unfortunate that the public doesn't know much about insurance or how it's regulated. While what Zenefits did was wrong in several cases, there are some important things to understand:
- This macro program didn't have anything to do with whether an agent would/could pass an insurance exam. That's separate and in order for someone to practice, they need to pass the test.
- If this training program were so critical to understanding and effectively selling insurance, why wouldn't all state adopt it?
- The unfortunate fact is that the details you must study and know to pass the test have very little do with how you will sell insurance. The study packets, courses etc. do not prepare you in any way to sell these products better. Actually a lot of the test talks about annuities and things completely unrelated to medical insurance.
- The licensing issues largely relate to non-resident licenses, not the actual resident license where the test is required to pass. It's a common practice in brokerages across the US to get licensed when business is closed or about to be closed in the different state.
- If you want a comparable, lawyers obviously have to pass the bar to practice. But they can actually practice legal advice before ever passing the bar as long as they are working under a licensed attorney. This is how many pro-bono cases are worked by students in law school etc.
So what will Zenefits eventual business model look like if they survive this ?<p>I don't think they can be an insurance broker; customers would have to be incredibly stupid to buy insurance from them.<p>If they are going to be an HR software company, then do they even deserve that kind of valuation, as their current valuation seems to be base on an expectation of hypergrowth. HR s/w companies rarely have hypergrowth , what with SAP and Oracle owning large chunks of the enterprise market.
What I found particularly illuminating was this:<p>'Some investors said Mr. Dalgaard was as instrumental as Mr. Conrad in pushing for steep revenue targets, and that both men’s ambition pointed in the same direction — toward hypergrowth.'<p>(in fairness, later on, the article says this:<p>Another person familiar with the board disputed this, saying Mr. Dalgaard, who formerly ran the cloud software company SuccessFactors, was among those asking Mr. Conrad to restrain Zenefits’ growth plans and fix the culture. )<p>This is the same person that had a glowing profile written about them in the NYT:<p><a href="http://www.nytimes.com/2015/10/18/business/lars-dalgaard-build-trust-by-daring-to-show-that-youre-human.html" rel="nofollow">http://www.nytimes.com/2015/10/18/business/lars-dalgaard-bui...</a><p>With this beautiful paragraph:
'I learned so many things from my dad, but in particular he taught me about ethics and that there is no easy way to get to your goal. You’ve got to be like Lambeau Field in Green Bay and build for bad weather. That’s basically the only way to achieve any type of success.<p>But you often see with some companies, particularly start-ups, that they’re telling themselves and others a bit of a story, and not being honest about what the real issues are. Instead of taking all that energy and focusing on the core outcomes, they’re just glazing over it and hoping it will be O.K. There is no such thing as a quick fix.'<p>There's no way to know what the real truth actually is - but, wow, that's quite a contrast between the two articles.
At the center of this 'scandal' is a program that prevents auto log-out during license training.<p>Being licensed: Sitting at a computer for 52 hours and clicking on it before passing an exam.<p>What a waste of time. Pretty much an entire week and a half of full time staring at a screen to get a license to sell insurance. They were just skating bureaucracy, plenty of companies do this.
It is very interesting to read about other approaches for growth. For example, Google waited patiently several years until a business model worked.<p>Imagine Google starting today with a protoversion of PageRank.
it's a matter of risk.<p>when you're trying to be a billion dollar company, you have to take big risks. in that context, the risk of getting caught for breaking the law becomes palatable.<p>when you're trying to create a stable, profitable, but more modest sized company, that risk becomes a threat to your business.<p>it's a big problem when these types of risks start to make sense from a business perspective, because it's the public, not the people that create this environment, that end up suffering.
I don't understand what all the outrage is about. The online training keeps you logged in for a period of inactivity that COUNTS towards your 52 hours, which is perfectly legitimate. All they did was create and use a tool which extends this period of inactivity. How in the world is it that this is outragous in any way? This is a very minor fault, certainly not worthy of all the sensationalism that NY times has created, once again.