
How Zenefits' Big Bet on Sales Went Wrong - dsr12
http://www.buzzfeed.com/williamalden/how-zenefits-big-bet-on-sales-went-wrong
======
mathattack
Getting Sales right is VERY tough. Having the right Sales culture that is
consistent with the rest of the company is vital.

The aggression that Zenefits tried to copy was very similar to Oracle. If you
exceed your quota at Oracle, you are paid much better than any Engineer. But
if you miss your quota, you're fired. As such, Oracle frequently oversold and
underdelivered, but eventually grew big enough that it didn't matter - they
were the market standard and could invest in engineering.

This type of Sales culture wouldn't fly in Google, Apple or a lot of other
places. Some places choose to not pay their salespeople any commission. This
screens out any elephant hunters capable of generating very big commissions,
as well as people used to gaming the system.

Annual off-site "Presidents Club" weekends for Sales people who exceed quota
are very common - it's not just for the Oracles of the world. Part of it is to
incent Salespeople who are at 70 or 80% of their quota to push and get to
100%. In addition to raising revenue, it increases the predictability of
revenue. (Good for investors)

It's very clear that Zenefits got some parts of this wrong. Overpromising in
insurance is very different than overpromising in database software. Scaling a
salesforce also isn't linear - especially if you're not improving your
Operations at the same rate. I feel bad for a lot of the good employees who
get caught up in the mess.

~~~
josh_carterPDX
Well said. It makes me wonder how we're going to set up our Sales Team when
we're ready. It's such a tough thing to think about at an early stage of a
company, and since Zenefits have only been around 3 years, it was likely
really hard for them to establish a solid culture/ecosystem while having their
eyes on hyper growth. Definitely a lesson learned here and a lot of us new
Founders are paying close attention.

~~~
baudehlo
We blog a lot about that sort of thing if you're interested in it. (See my
profile so this doesn't come off as a sales pitch). Building a sales team from
scratch is hard and it's one of our aims to help in that goal. Good luck!

------
tswartz
Having worked in sales a while back I can attest to how important getting the
right sales culture is, and also how incredibly challenging this can be.
Companies need to align the reps' goals with that of the company, and too
often when high quotas are put in place the quality of a sale goes out the
window and it's sell the software to whoever can buy it (regardless if they
can afford it or use it properly) and let customer support / retention worry
about that. It's the, "just hit your quota" attitude which can be very harmful
to a company.

Best excerpt from the article:

>The machine, however, wasn’t nearly as sturdy as this confident talk made it
seem. Behind the scenes, operations staff scrambled to help customers enroll
in health care, an error-prone and frustratingly low-tech process that
involved manually entering data into spreadsheets and sending it to health
insurance carriers, according to former employees. Account managers felt like
they were constantly putting out fires, or resetting the expectations of
customers who had been given a hard sell.

>Zenefits’ compensation structure created big rewards for sales reps on the
enterprise team, who handled the largest customers, despite the reality that,
as Zenefits later acknowledged, its software and processes worked better for
smaller companies.

~~~
officialchicken
Zenefits currently handles payroll at my company. The machine isn't un-sturdy,
it's become rusty, lost all lubrication, and seized up. They need to fix their
software before allowing anyone to sign up and use it.

I haven't gone 1 weekly pay period in 2016 without some issue (late, missing,
short paychecks, shifting paydays) or another. But I can't convince my CEO to
go with some pros (ahem, ADP), yet. But they are very sales-centric and
realize they have a problem... so there's some hope for them.

Everyone here is pretty frustrated with the situation. And the next time
Zenefits fuck up, which I presume will be Friday, I will submit my already
drafted ADP-Or-I-Resign-Immediately letter with timeline of their 8+ previous
fuckups.

Edit*: It's 2016, not 2015... so every week we've use it

~~~
dragonwriter
> I haven't gone 1 weekly pay period in 2015 without some issue (late,
> missing, short paychecks, shifting paydays) or another.

If you want to motivate a change, you may want to research applicable labor
law: for instance, in California, failure to pay all wages due, on the posted
payday, is not only a violation subject to civil penalties, but also a
_crime_.

[http://www.dir.ca.gov/dlse/faq_paydays.htm](http://www.dir.ca.gov/dlse/faq_paydays.htm)
[http://leginfo.legislature.ca.gov/faces/codes_displaySection...](http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=215).

~~~
officialchicken
Thank you, I'm not a CA resident, but I will look into those links. I wish I
would have know that a couple of years ago - I'm certain that info will help
some HN reader though.

------
erdojo
Sales is merely the scapegoat in this mess. The real source of problems at
Zenefits was at the very top.

The CEO raised way too much money before having a stable and scalable product
(or evidently knowledge of the industry and legal obligations). The sales
goals were pure fantasy.

With $20M in revenue at the beginning of 2015, the CEO approved the hiring of
over 1200 employees. What?! Imagine the burn. And set a 5x revenue goal in
only the third year of business? Even on the heels of the previous year's 20x
rev growth, it's still eyebrow-raising.

As a result, the sales leaders simply threw money and inexperienced people at
the problem. They really had no other choice. You could have the smartest
sales execs and that would be the Only. Option. to even attempt to meet those
goals.

And it didn't work. Of course it didn't work. Even if the sales culture and
incentive comp structures were perfect, it still wouldn't have worked.

To grow that fast - from $20M to $100M in a year - your product has to
generate its own demand - to have so much value and solve an urgent problem
that your phone is ringing off the hook. Prospecting, outbound telesales, lead
gen etc. scale quickly in early days because of low-hanging fruit but then
level off.

Unfortunately laying off a too-large salesforce was probably necessary, but
NOT the fault of those people. At least the CEO is out. That was the best
first step.

But given that I'm guessing they ended up at +-$50M in revenue in 2015
(clearly they didn't hit the $100M goal), it's not hard to predict that more
big cuts are on the way.

------
rdl
I disagree that it went wrong. I don't see why the stuff they got punished the
most severely for was I inherent to their success -- fundamentally, scraping,
not re entering records, and a good user experience for employers is what
matters.

They could have done without the "macro" \-- fucking spend a week extra
training your people. Some other compliance stuff. This was just laziness on
their part, not fundamental to their business

I'm very optimistic that Sacks will fix this.

~~~
officialchicken
At least 2 states launching formal investigations to your practices of a
regulated industry? Then the CEO was fired for "the macro" which he authored.
If you write the goodbye, it's a resignation, but if someone else does it's a
firing.

If that's not wrong, I don't want to be right.

Full disclosure: messing with my money IS messing with my emotions.

~~~
rdl
I agree the CEO seriously fucked up -- I'm arguing it is actually worse,
because he didn't need to do that to build a great business, either -- it was
just a lazy shortcut. Zenefits could be a great company without doing things
like the macro, and while being compliant with the regulations (or, in cases
where the regulations are ambiguous or wrong, at least breaking them in ways
which are defensible legally and in the court of public opinion.)

------
rfrank
> Even if they hit their quota, some reps discovered that their commissions
> would be clawed back if a customer dropped Zenefits within 12 months of a
> deal closing. It’s difficult to estimate how often this happened, but
> several former reps interviewed by BuzzFeed News said they or their
> colleagues experienced clawbacks, with thousands of dollars withheld from
> subsequent paychecks.

Is that legal?

~~~
tswartz
I'm not sure on the legality of 12 months, but a cancellation clawback is
typical. The role I was in the clawback was within the first 60 days.

~~~
rfrank
For sure, I've never done the commission thing so I'm unfamiliar with how the
specifics work. 12 months feels like a large window for a clawback.

~~~
tswartz
agreed, that does seem really long, especially since the account executives
are handing off their clients to customer success.

------
tryitnow
I work out at the 24 hour fitness next to Zenefits HQ and I've overheard
several conversations that seemed like they belonged in a Wall Street boiler
room. I just assumed these guys were working for some rinky dink boiler room
type operation.

I had no idea it was Zenefits until they garnered more press, then I put two
and two together and figured most of these guys probably worked in sales for
Zenefits.

I would have never have guessed that would be the case - I just wouldn't
associate the tone and tenor of those conversations with a tech startup.

The upshot of the layoff is that now I have the squat rack all to myself.

~~~
cylinder
What is tech about insurance brokerage?

------
11thEarlOfMar
Isn't this essentially the same circumstances that took Groupon off its horse?

It is not difficult to imagine that what starts as a commitment on a
presentation to grow sales by X%, becomes mission impossible once the company
does the arithmetic and sees that the only way to sell the $250,000,000 worth
of services the commitment (and valuation) requires is to hire 100 sales
persons per month for a year. Growing from a couple of dozen to 10x that in a
year is really easy to f __* up and the Groupon and Zenefit scenarios play
out.

------
chris_wot
Every time I see such excessive spending on massive events like the Vegas one
detailed in this article, I see problems within the company. So you focus on
sales to the exclusion of providing service for customers? You need to spend
MORE on sales every year to gain the customers you lose, often far more than
having just spent more on operational staff and streamlining processes.

And then there's the hard sell. Is it surprising that sales reos and Zenefitd
management alike weren't following the law?

Then there's the hook - you give away HR software for free, but this gets your
company to use the vendor for medical insurance. How is that in the best
interests of the employee? How is there not a conflict of interest?

The entire model of Zenefits sounds so, so dodgy. What a nightmare.

------
smartpants
Came across this yesterday,

[http://www.bloomberg.com/gadfly/articles/2016-03-01/young-
so...](http://www.bloomberg.com/gadfly/articles/2016-03-01/young-software-
firms-pursuit-of-growth-comes-at-a-cost)

Some of these company's Sales and marketing costs as a percentage of revenue
is pretty high

