
How High-Flying Zenefits Fell to Earth - bootload
http://www.buzzfeed.com/williamalden/how-high-flying-zenefits-fell-to-earth
======
achow
Now I'm wondering whether Zenefits was even a technology startup or more of a
hustler operation which went online.

Excerpt:

Zenefits’ technology was frustratingly limited. The software is built around a
central dashboard and lets small businesses onboard new employees, generate
health insurance quotes, and manage 401(k) plans and other benefits. But while
this system looked slick and did a fine job with small tasks, much of the
important work on the backend was done manually.

“The back office is really heavy in terms of bodies,” one former Zenefits
employee said. “It’s really archaic. It just seems automatic to the customer.”

This kind of work is standard practice in the insurance brokerage business,
but it’s notable for Zenefits, which purports to be an “automated” solution.
The lack of true automation behind the scenes led to numerous problems. With
one customer, Plated, a food delivery startup in New York, mistakes by
Zenefits staff in entering payroll deduction information caused a string of
erroneous paychecks to be issued, according to one former employee and an
online comment by Plated co-founder Nick Taranto. Zenefits is “not connected
well enough with payroll providers,” Taranto wrote, “so we’re having to cut
lots of manual checks.”

The first public indication that something was amiss at Zenefits came last
summer, when BuzzFeed News reported that customers were complaining of
software glitches and seemingly careless errors.

~~~
dkarapetyan
Have you ever peeked into how payroll, healthcare, and insurance systems work?
This is a genuine question, I'm not trolling. The reason I'm asking is because
you can't really have automation and APIs for systems that have literally zero
automation to begin with. The entire industry is a combination of fax machines
shuttling paper back and forth between the different players. It doesn't
matter how much software you throw at this problem if you're just a broker
because from the perspective of the other players you're just another fax
machine. That is the level of electronic and computer sophistication of the
healthcare insurance industry, fax machines.

ADP, Trinet, etc. are just as manual and full of error prone human processes.
It's all just heroic human effort on all sides. If anything Zenefits has shown
the incumbents and everyone else in the space that you can indeed provide a
software solution that integrates well with human processes and in the long
run make things much more automated and efficient.

~~~
rtpg
[Dunning-Kreuger Warning!]

Maybe Zenefits lacked imagination? You can automate sending things via fax
machine. OCR exists. You can use web scraping tech (well that's kinda what got
them in trouble with ADP right?)

I feel like it's always possible to automate a bit more (or at least enough to
where you don't have staff manually copying numbers onto a piece of paper)

~~~
sithadmin
> You can automate sending things via fax machine. OCR exists. You can use web
> scraping tech

I've spent a fair amount of time working on infrastructure and operations
projects for insurance MGAs (a particular kind of broker), and can assure you
that these approaches are definitely in use by many players within this space.
If Zenefits hasn't implemented these methods, it would be pretty unusual.

Granted, even in spite of heavy automation in the broker space, there's still
a ton of very old school paper shuffling and processes that resist automation
because of a combination of the following factors:

* lack of standards * process complexity * the sheer number of 'one off' cases that pop up in the insurance world * when you do the cost analysis, it's often cheaper to rely on a manual process with manual controls than it is to automate, thanks to relatively inexpensive clerical labor

------
ivraatiems
> “Zenefits has changed a TON in the past couple weeks, and because of that a
> large part of what I fell in love with at the company no longer exists,”
> this employee, who insisted on anonymity, said in an email. “For Zenefits
> employees, it literally feels as if our Zenefamily was overthrown and
> replaced with government officials that could care less if we come or go.

> “It’s almost as if they want us all to quit so they can start over.”

Oh, wow, gee, that's so awful! Wow! I'm so sorry you can't get away with lying
to the government and your customers any longer. I'm so sorry you can't get
drunk at work and pretend you're still in college! Oh, this is just awful.
Won't somebody do something?

(/s, as if it were necessary)

The "move fast, break things, grow as much as possible" mindset is not always
a good thing. If the product you're making has high potential and low risk, if
it's replacing something that isn't critical to people's safety and livelihood
or to your customer's day-to-day operations, it's great. If you're making
something new the world has never seen before, it's great.

But if you're making sure people are getting paid and have medical coverage?
That's not an area where it's an acceptable mentality. I think the issue here
is not so much that this ethos is fundamentally flawed (though I guess one
could make that case), it's that it is not universal and shouldn't have been
treated as if it were.

Also - respect to Buzzfeed for taking what could have been a hit piece and
making it fairly comprehensive/thoughtful.

(edit: formatting)

~~~
sgrove
Your reply would have been significantly more compelling without the sarcastic
rant. Your point afterwards is worthwhile, but the first paragraph made me sad
to read.

~~~
ivraatiems
Fair. I was channeling the South Park cable company guys when I wrote it. I'm
gonna leave it as is, though, because to be honest the sentiment behind it is
important to me. It really cheeses me off to see employees in a toxic (for
this kind of work) culture playing the victim for what amounts to getting
caught.

------
lpsz
I'm still not catching why selling insurance requires licensing. This is not
practicing medicine, this is not giving people haircuts, it's not even
preparing food, all of which make sense to be regulated. It's just selecting
from a list of plans.

In an ideal world, people/employers should just be able to do it themselves
and cut out the middleman.

~~~
riffraff
I am not sure why the parent comment is being downvoted, but for one I'd also
like to know why selling insurance requires licensing.

~~~
minimaxir
The consequences of bad actors in insurance issuing are much more severe than
bad hairdressers or bad cooks.

~~~
lpsz
Only because of incredibly confusing pricing schemes with copays, deductibles,
lifetime limits, out-of-pocket limits, in-network limits, and so on and so
forth. This should be addressed by making information transparent to all
buyers, not through middlemen.

A bad hairdresser can slice off my ear and a bad cook can poison me.

~~~
TheOtherHobbes
It's rare for hairdressers to act in bad faith, because acting in bad faith -
slicing off ears for fun - is a bad way to make living.

In finance, it's incredibly easy to make a living by acting in bad faith. You
can offer insurance with no serious intention to pay out, and tie up claims in
bureaucracy and legal loopholes.

Good regulation should go some way to minimising bad faith actors.

In fact the industry seems quite scammy anyway. But it would be much, much
more scammy - to a criminal extent - with no regulation at all.

------
skywhopper
I'm out of the loop with SV startup culture, but banning alcohol in the office
is "a step that many in tech would view as crossing a red line"? I hope I'm
reading that wrong. If there are restrictions as to time and place, then sure
some alcohol in the office might be okay, but as a general rule alcohol + work
= problems.

~~~
rm_-rf_slash
The typical SV startup attitude is often: "get it done, we don't care how."
There are good reasons for this. People - especially in SV - value their
freedom. Having that peace of mind allows them to focus, which can be better
than the old school, Java-shop, get-20-support-tickets-done-by-Friday style of
management.

Another reason: there's a reason startup offices are so "fun": they don't want
you to leave. Nerf guns and hard liquor make the office seem like a place to
hang out at, so working 10,12,14+ hours a day doesn't seem so bad. You're
hanging out with your friends, right? Overtime pay? Never heard of it. We get
stock options right? No, our founders wouldn't dilute our shares to favor late
stage investors, would they?

So maybe that's the problem.

------
minimaxir
Note: there is a _lot_ of new information in this article relative to the
previous articles this week. (!) Such as the party culture and the influence
of a16z.

~~~
bootload
_" there is a lot of new information in this article relative to the previous
articles this week"_

Didn't see the previous ones, [0] and lots of them. What did stick out, was
this quote:

 _" “Why are you guys so fucking bush league?” Dalgaard said, according to
Conrad, who recounted the conversation while on stage at a software conference
in February 2015. While Conrad had planned to hire 20 sales reps by the end of
2014, Dalgaard said the target should be five times that. “You guys gotta get
your heads out of your asses, start focusing on going big here,” Dalgaard
said, according to Conrad."_

The expectation from Lars Dalgaard of Andreessen Horowitz to grow big at ^all
costs^. VC money egging on the unethical.

[0]
[https://hn.algolia.com/?query=zenifits&sort=byPopularity&pre...](https://hn.algolia.com/?query=zenifits&sort=byPopularity&prefix&page=0&dateRange=all&type=story)

~~~
minimaxir
Correct URL:
[https://hn.algolia.com/?query=zenefits&sort=byDate&prefix=fa...](https://hn.algolia.com/?query=zenefits&sort=byDate&prefix=false&page=0&dateRange=all&type=story)

~~~
bootload
thx @minimaxir

------
leroy_masochist
> While Conrad had planned to hire 20 sales reps by the end of 2014, Dalgaard
> said the target should be five times that. “You guys gotta get your heads
> out of your asses, start focusing on going big here,” Dalgaard said,
> according to Conrad. Conrad and Dalgaard would later clash, with the
> investor pushing the CEO to stop hiring altogether in the summer of 2015, a
> person familiar with the matter said. Dalgaard also urged Conrad to run
> audits, conduct an employee survey, hire more top executives, and expand the
> board — all things that Conrad resisted, this person said.

Hmmmm, "a person familiar with the matter" sure makes it sound like Dalgaard
was doing everything in his power to encourage Conrad to act responsibly. I
wonder who this person could possibly be and whether they have a personal
agenda of some sort.

Does it strike anyone else as _maybe a little bit_ irresponsible that a
partner at one of the world's preeminent VC firms would pressure a founder-CEO
to hire as aggressively as possible and shortly thereafter castigate said
founder-CEO for their company exhibiting all the telltale signs of hiring too
quickly?

------
bbulkow
Potential customer here. One guy's experience.

As a technical founder of my own company, the founder of Zenefits (
reportedly, they maybe use that line but coming from standard sales reps )
reached out and suggested I take a look at Zenefits.

I looked. I asked two different "startup CFOs" about Zenefits.

I found the following conclusions:

* The market is crowded. Trinet is what everyone in the valley has been using, and no one has serious problems with them. It's not like, you know, fighting the intrenched taxi mafia. Zenefits is not disrupting anything, they're simply competing.

* According to my sources, Zenefits is the hardest company to work with of benefits suppliers. Compared to Trinet, when your CFO-type calls Zenefits, they get long wait times and unprofessional answers. One of my sources was forced to use Zenefits ( by a founder ) and considered them a time sink.

* High prices. Because of a small installed base, Zenefits didn't have the ability to create a large insurance pool and have market power with insurers. They claimed low prices, and did have low prices for their service, but the numbers penciled out higher because of higher health insurance prices. If they think prices go down when they get bigger, maybe the would have needed to subsidize prices.

Not a win.

Part of our startup culture these days is "damn the law, make customers
happy". I'm not super thrilled about that attitude, but it is what it is.

The zing against Zenefits in this article is poor technology ( uh, chasing MPV
is all about poor technology ), and poor legal practices. I honestly didn't
care about either - I care about user experience and prices.

My internal recommendation not to use Zenefits was poor user experience, and
high prices. I didn't like having a sales person tell me prices were low when
I had done my research and prices were higher. I didn't like being told
Zenefits was easy to use when my people said it was harder to use.

And, yes, I sent a note outlining all the to the founder, in the interest of
helping a brother out. I don't remember what I got back, but it wasn't
encouraging.

------
dkarapetyan
This is beating a dead horse at this point. We get it. Hypergrowth at all
costs is not cool.

------
shade23
on a side note: Loving the diversity of buzzfeed. FB would be filled with
listicles And HN would get the occasional long form article which is a very
intersting read

------
Avenger42
> Managers urged new recruits to try to score not much higher than the minimum
> passing grade of 60% on the California broker license exam.

I don't get why the passing grade is so low. At the very least, I'd want
someone who only scores a 60 (and thus is barely qualified) to be forced to
take it again the following year to ensure they're still qualified.

I wonder if you could enforce a graduated system based on scores? If you score
a 60-70, you have to re-certify the following year; if you score a 70-80, you
have to re-certify in two years, and so on. In that case, scoring as high as
possible is in the best interest of companies, because then their employees go
as far as possible before having to retake the test.

------
ryan606
So was Lars Dalgaard from A16Z pushing Zenefits to grow faster, or more
methodically? This article makes it seem like he was trying to have it both
ways, or maybe it was just Lars trying an after-the-truth comes out CYA?

------
vincentleeuwen
"Pervading the offices in San Francisco and Arizona, meanwhile, was an almost
fraternity-like atmosphere, with whiskey shots, kegs, and bottles of
champagne."

Sounds like an awesome place to work.

~~~
nols
Just not a good place to do business with. I can appreciate having fun at
work, believe me I can, but as someone who spent nearly a month without
insurance because of a screw-up on my insurance company's side (completely
unrelated to Zenefits), and the absurd lengths I had to go to to fix their
problem, seeing all this shoddy work on Zenefits end makes me really
sympathetic to their customers. Medical insurance is heavily regulated for a
reason, and I can't imagine the clusterfuck that could happen if Zenefits
screwed something up when providing insurance for a company and one of its
employees ended up without insurance and then used their (nonexistent)
insurance at the hospital.

~~~
Smushman
I have to say that your attitude here is more forgiving than is deserved.

Problems such as being without proper health insurance can cost lives.

I myself have been forgiving in the past about such things; but that attitude
was born out of an ignorance I had that everything on the back end was being
handled as well as possible. After reading this article I am now much more
concerned.

