
Zenefits Was the Perfect Startup, Then It Self-Disrupted - hgennaro
http://www.bloomberg.com/features/2016-zenefits/
======
GavinB
So a company that blatantly cheated will pay some fines and still be worth
billions. The founders and early employees will all be rich, or richer than
they were when they started. The investors will get a very healthy return.

The lesson: break the rules and grow so fast that by the time regulators catch
up, you can put on a show of reforming and still keep most of the value that
you created.

Admirable disruption or horrible cheating? I don't know how to feel about it.

~~~
pkaye
Actually this how many successful people do it. It is better to break the
rules and profit from it and if caught, pay a small fine and keep your ill
gotten gains. I've learned this long time ago (watching coworkers, family,
etc) but will probably never do it myself because I'm just not that kind of
person.

~~~
tsunamifury
I think there is a stage where a genuine innovation is in a regulatory grey
state because society simply hasn't processed its effects yet. That wasn't the
case here... but it is in many other situations. Sometimes ex-post-facto the
innovation is ruled against regulation and sometimes not.

Take Tesla as an example -- a company who has tried to sell cars online. Since
many states hadn't seen that before, they tried to rule that it was illegal
due to dealer-sales regulation. Do you fault Musk for hacking this (bad)
regulation by trying to work around it? Is he not proving its spuriousness by
innovating in this manner?

In some cases its considered hero's work, and in other's villainous greed.

~~~
icebraining
_Since many states hadn 't seen that before, they tried to rule that it was
illegal due to dealer-sales regulation._

I don't see what being online has anything to do with it; the spirit of the
rule - preventing the manufacturers from competing with dealerships - is valid
anyway. I personally disagree with this rule, but the "online" part is just
Tesla trying to get off on a technicality.

~~~
msandford
I'm all for manufacturers being prevented from going back on the deals they
struck with dealers; the capital they raised from selling dealership
franchises was very important for the growth of the manufacturers.

But if a manufacturer never setup a dealer program? Fair game to them, IMO.

~~~
csours
It's one step more complicated than that. GM has 5 year renewable franchises,
so theoretically they could just wait 5 years and not renew.

The issue is that many states have laws preventing OEMs from selling directly.

There are similar laws for unions.

~~~
outericky
I feel the laws preventing OEMS selling directly are antiquated. Dealerships
are a scam. It's a game of "how much can i squeeze out of the other party" \-
which generally is bad for consumers. Since most aren't trained to take
advantage. OEM's don't need to sell directly, but allowing a "store" model
where prices are fixed, non negotiable would likely be best for everyone in
the long run. Well, except for the dealers. But at least there would be
predictability. Dealers shouldn't be a protected party - the consumer should
be.

~~~
jacalata
The laws are intended to protect the consumer by making sure there are
physical places that can repair your car in the state. The question is whether
that's necessary any more.

~~~
outericky
Yes, but that has nothing to do with dealerships as a POS location. Tesla
should be able to have a store, and be regulated to make sure it provides
service locations for vehicles.

~~~
jacalata
Sure, if you answer the first question with "yes there needs to be physical
service points in the state". I believe some people think this is unnecessary
altogether though, so they argue for scrapping the entire law instead of
changing it to allow for new ways of meeting the same goal.

------
tyre
They are anything but the perfect startup.

As an early ZenPayroll engineer, I'm biased but also informed. That company
was a shitshow from day one. Their recklessness caused a few sleepless nights
for our team including one time they overwrote every bank account number (by
scripting our front end, after asking SMB users for their passwords and
storing them in spreadsheets.) This caused tens of millions of dollars in
failed transactions. For _payroll_.

Rule 1 of startups: build something people loved. The last line of the
article:

    
    
      “Unless something else goes really wrong with Zenefits,
      we’ll stick with them for a while,” says BlogMutt’s Yates.
      “It’s too much of a hassle to switch.”
    

They are the epitome of what's wrong in Silicon Valley, not what is right. Not
caring about employees, setting a bar for professionalism as high as a reality
TV show, and, to quote Thomas Hobbes, "restless desire of power after power,
that ceaseth only in death." Not to mention ethics violations and breaking
laws that (unlike Uber and taxis) are on the books to protect protect health
insurance.

This was not a grey area.

The Valley has yet to prove that it can build sustainable companies. We can
get to about 6 years of hyper-growth, but outside of that it is really
questionable. Look at Square, Twitter, and Box post-IPO or the myriad large
startups that refuse to IPO. You've got Google, Apple, and Facebook, but
that's hardly proof of repeatable success.

~~~
untilHellbanned
Zenpayroll's hands aren't clean either. I have a friend who helped build out
one of their offices. There was an absurdly long courtship of literally
backbreaking labor (she was going for an administrative role) mixed with
dinners with executives only to be told that she wasn't a fit. Her follow up
emails to figure out what could have possibly went wrong weren't returned. Oh
the irony of a HR startup treating other humans as resources (to be
discarded).

~~~
tyre
I won't argue with you there. The interview process is quite involved and
oftentimes far too many cooks in the kitchen. It comes from a good place (a
bad hire is much worse than missing out on a good one), but not giving
feedback is inexcusable.

As for the irony, I could not agree more.

~~~
philovivero
Considering my viewpoint on hires being almost the opposite of that (an
occasional bad hire is acceptable risk to get a good one) I'd be interested in
the rationale.

But then, I've never been one to beat around the bush when it comes to parting
ways with an employee who's clearly not working out on the team.

~~~
tyre
The rationale is that a bad hire is very expensive. Not just salary, but
emotional and temporal investment. Let's say you need to hire a salesperson
and hire the wrong one. You fire them after two months and now have to context
switch into hiring again.

For small startups, firings have an effect on the entire company. Absolutely
make the right choice and let someone go if you have to, but it still has an
amplified cost across the team.

I personally take responsibility for the emotional cost on the candidate.
Asking someone to invest themselves in your company and then letting them go
is a rough experience for the employee. It is the manager's responsibility to
not churn and burn through people.

~~~
patrickread
Yea, I agree with this one as well. Hire slowly; fire fast. But, even if it's
fast, firing wastes a bunch of time for a bunch of people.

Missing out on a good one sucks, but in the best relationships both sides will
wait for the right timing if necessary, in my experience.

------
robbiemitchell
> There wasn’t even an IT person to fix the printers. Conrad hadn’t forgotten
> to fill these positions. The way he saw it, Zenefits was full of gifted
> engineers; if their computers weren’t working, they should be able to fix
> them. Of course, time spent futzing with the Wi-Fi was time not spent
> building the product or dealing with customers. To Conrad, that just meant
> the engineers needed to work harder.

> Zenefits uses its own product to manage its employees, and Conrad controlled
> the account, which meant he personally approved every benefits change or
> vacation request for hundreds of (later, more than 1,000) employees. “We
> have people in HR now, but they actually don’t have access to the HR
> system,” Conrad said in an interview at TechCrunch Disrupt last year. “I do
> all of it myself. I’m a little crazy.”

Forget the Chrome extension, this is simply psychotic behavior.

~~~
calcsam
It also isn't true.

Parker didn't approve every single vacation request. He also wasn't the only
admin -- his personal assistant, his co-founder, and a couple others had
access.

And starting in about Jan 2015, line managers had admin access for their
employees -- the feature was shipped publicly in May:

[https://www.zenefits.com/blog/zenefits-for-
managers/](https://www.zenefits.com/blog/zenefits-for-managers/)

------
drostie
So, the difference between a "hacker" and an "engineer" has always been this
idea that the engineer is designing something which is principled at all
levels, whereas the hacker is putting together something which works in the
most obvious cases but doesn't necessarily cover all of their bases. In
practice, I think we all know that a little of both is best; ideally you can
throw something together with copy-paste programming to sign a new client,
say, and then you can rethink it from the ground up once you've got that proof
that someone needs it. Hacking is much cheaper than principled design.

What I'm taking away from this article is that this is also true at the CEO
level. Conrad sounds like a hacker's philosophy, writ managerial. If there's a
regulation that your browser spend 52 hours on a web page, here's a script to
make your browser browse that web page for 52 hours, clicking aimlessly among
the pages. You're welcome; you've got other crap to do. Or, if you don't have
a license to sell this thing -- well, you still seem to be able to sell, so
let's just do it the way that works for now, as a proof-of-concept, and we can
always do-it-right later.

And that's not a bad thing! It works great for software! But it looks from the
article that therefore the hiccup that the company faced was somewhat
predictable given the personality of the CEO. It's hopefully an instructive
lesson for any venture capitalists who don't already realize that you need
that both-hacker-and-engineer versatility up-top. Because it's the exact sort
of hiccup you get when your software team is hacker-only and always put under
pressure to get more done, but never under pressure to do it right. Eventually
the code spaghettifies to deal with all of the real-world problems, and the
sooner you can catch it before it becomes a hairball, the better.

My job right now is, I maintain a big data processor. I can freely testify
that there are still a ton of quick hacks that are stuck in various places.
But every week or so, I get a little downtime -- and when I don't spend that
peeking into Hacker News, I spend it trying to modularize the hackery and then
swap in carefully-reasoned modules for quick-hack modules.

I implore other software engineers to do the same; and I will definitely start
thinking of more management-level decisions this way, in terms of "quick
clever hacks" versus "careful design."

~~~
jsprogrammer
>If there's a regulation that your browser spend 52 hours on a web page,
here's a script to make your browser browse that web page for 52 hours,
clicking aimlessly among the pages. You're welcome; you've got other crap to
do.

There is no such regulation. The regulation is that anyone selling insurance
must spend at least 52 hours going over the technical details of their
industry.

Zenefits incredibly conflated this with "only your browser needs to appear
active for 52 hours".

~~~
stale2002
That's basically what the real life effect of the regulation was though.

The "online course" that people had to take was kind of a joke, and most
people in the industry think it is an outdated formality.

Crossing all your Ts and dotting you Is in this industry is of course
important. Even if something is a stupid formality, you should still do it.

But let's not kid ourselves over how much "useful" information was probably in
that course.

------
untilHellbanned
> Dalgaard says. “I don’t think I’ve ever seen anyone—and I’ve seen a lot of
> people—think as comprehensively as [Conrad] did about the market he was
> going after and how to build his product.”

And this level of gullibility mixed with greed is why the world economy is so
jacked up.

Did you stop to think its because you know nothing about insurance? Conrad
went to Harvard? So that he was kicked out of his previous company didn't
signal anything? All I see is investors acting like Hugh Hefner going for the
startup equivalent of the blond-haired, big-boobed 22 year old.
Hollywood/Playboy is actually a good analogy because in those cases nobody
cares about the young hot thing's backstory either. Fake boobs/law flouting
masks everything.

~~~
jsprogrammer
You can't know everything about someone's past and past actions don't
necessarily dictate future actions, but to correct you slightly: Conrad says
he failed out of Harvard, but then later returned to finish an arts degree in
Chemistry.

I believe Harvard has the highest pass rate of any university (except,
perhaps, diploma mills), at 98%. Using a Harvard degree as overriding
credentials is a misstep.

~~~
meacham
Harvard doesn't offer 'science' degrees outside of its School of Engineering
and Applied Sciences – so the arts degree is a meaningless distinction.

------
wpietri
"Zenefits says it regrets any factual exaggerations that occurred under prior
leadership."

Nice bus you have there, Zenefits! But is it really big enough that all your
problems will fit under it?

------
mcguire
" _Zenefits sold its product all over the country, and its managerial chaos
seems to have kept it from properly tracking who passed their state exams or
got reciprocal licenses._ "

It's a pity that there is no way to track such things in software.

------
driverdan
> And yet, despite his downfall, Conrad is still a coveted name in Silicon
> Valley. People want to meet the man who created a $60 million company in
> just three years and made good on his promise to shake up the insurance
> industry. Dalgaard says he’s been getting e-mails from people eager to work
> with Conrad since the day his resignation went public.

This just shows how many unethical, delusional, or ignorant people there are.
The guy sounds like a nightmare to work for and completely threw the law and
business ethics out the window. Who in their right mind would work for or with
him?

------
serge2k
> The Star Wars-themed conference rooms will soon be renamed after
> inspirational entrepreneurs

Because that was the problem.

------
jpwagner
YC application:

[https://www.youtube.com/watch?v=-S83fysRwn4](https://www.youtube.com/watch?v=-S83fysRwn4)

~~~
SuperKlaus
Portrait mode :-/

------
jgalt212
This question is a bit troll-like, but how did the law-stretching/break of
AirBnB and Uber not have the huge negatives consequences for them as it did
for Zenefits.

One can make the argument that AirBnB has tried to finesse things more than
Uber, but in any case I do think Zenefits/Uber/AirBnB would make a good
B-School regulatory case study.

~~~
ChicagoBoy11
I think the key distinction is that for AirBnB and Uber, their law-breaking
activities were a key part of their strategy, and from the get-go they
strategized and positioned the company to spin a narrative that their
circumvention was actually a way to enhance customer well-being.

Take Uber, for instance: In most markets where it operates, it clearly
violates regulations in place for Taxi drivers. However, they were clever
enough and raised sufficient money that their strategy is to grow so quickly
in markets that they can establish a significant coalition of riders that can
create a political force sufficient to take on the taxi lobby. They (for the
most part successfully) show that the policies they are allegedly infringing
really aren't there for the safety of customers, but rather are policies
preventing innovation and better services to sprout up.

In the Zenefits case, however, these claims are much harder to substantiate --
or at the very least, they did a terrible job in dealing with them head-on.
The perception is that the policies that existed where there to protect
consumers, and by circumventing them they not only harm their own customers
but create a marketplace of unfair competition.

------
ScottBurson
_“From an investment philosophy … we look for the magnitude of the genius, as
opposed to the lack of issues,” says Andreessen’s founding partner Ben
Horowitz._

Fascinating quote. I'll remember it.

------
jheriko
seems like a lot these companies riding the 'disrupt' bandwagon are basically
just cutting corners and not doing their due diligence - then operating
illegally.

its really quite sad that vcs apply pressure to do this... but then i guess
thats what you get if you make your business beholden to something so
manifestly interested in the bottom line at the expense of everything else.

------
tedmiston
Does anyone else notice the ability to select text in this article
intermittently not working after a minute or two on the page?

------
tedmiston
Does Conrad's resignation mean forfeiting his own equity?

~~~
Geekette
Probably not: He owns whatever portion is vested, subject to dilution in event
of future fundraising. Some of his equity will already be vested based on his
tenure and vesting schedule used. Plus, if his agreement has any kind of
vesting acceleration clause that ignites upon material event (company sale,
key personnel replacement including his position, etc), he may well be fully
vested.

~~~
tedmiston
I found this in the BuzzFeed article:

> After Zenefits investigated the macro in late 2015 and early 2016, Conrad
> agreed to resign from the company at an emergency board meeting on Feb. 1,
> according to the Cooley report. But Conrad controlled three of the company's
> four board seats, giving him significant leverage in the negotiation over
> his ouster.

> This allowed him to secure a $130,000 severance payment from Zenefits, the
> people said. Conrad also kept his Zenefits shares and was permitted to keep
> unvested stock that would vest over the subsequent six months, according to
> the people.

[https://www.buzzfeed.com/williamalden/zenefits-co-founder-
so...](https://www.buzzfeed.com/williamalden/zenefits-co-founder-sold-stock-
months-before-scandal)

------
foreign-inc
Is yc going to return their stake in Zenefits? Sama & co always seem to be
pretty big on ethics. Or, are they going stop talking about Zenefits and
forget them? What Zenefits did is illegal by their own admission.

~~~
angelbob
There have been a number of dodgy ethical things in YC companies. I don't know
of Sama & co returning their stake in any companies as a result.

------
throwaway6191
This article is hitting a dead snake over and over again.

I don't see anything in this article that hasn't been mentioned in the
previous coverage by Buzzfeed.

------
MattBearman
Having just read The Website Obesity Crisis[0] I was instantly intrigued by
the video loop at the top of this article, so fired up Chrome's network
inspector.

Not only is it 6.7Mb, but it's sent using streaming (Status: 206 Partial
Content), and for me at least, every time the video reaches the end, it's
loaded again, and not from cache.

I didn't actually read the article, but according to Read-o-meter[1] it would
take around 18 min, during which time the 15 second video would play 72 times,
consuming 482MB of data!

0 -
[http://idlewords.com/talks/website_obesity.htm#crisis](http://idlewords.com/talks/website_obesity.htm#crisis)

1 - [http://niram.org/read/](http://niram.org/read/)

Edit: Ha, caught out by my own dev setup, ie: disable cache when dev tools is
open. My bad, feel free to ignore everything I said :)

~~~
ZanyProgrammer
How many HN threads get derailed by people complaining about the web site's
css, etc? It's practically a trope by now.

~~~
smcl
If it was a "this site is 1.8MB and only a few paragraphs" comment then I'd
agree - but if OP is correct (haven't personally verified) then that's a
pretty valid and worthy comment IMO.

