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Zenefits Was the Perfect Startup, Then It Self-Disrupted (bloomberg.com)
275 points by hgennaro on May 9, 2016 | hide | past | web | favorite | 219 comments



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.


You know how to feel about it.

But you rightly recognize that there is a prisoners dilemma when it comes to moral behavior. Your stomach is tempting you to defect. Your heart is telling you not to. And your head is wondering how the game could be structured to favor your heart over your stomach.


That's really good.

I'd normally just up-vote and move on, but I've gotta ask: Is that original or did that come from somewhere? If the latter -- I'd appreciate a reference because I'd like to read more.


I was thinking of the C.S. Lewis quote from The Abolition of Man: "The head rules the belly through the chest."


Thank you. Makes sense. I'm more of a G.K. Chesterton man myself, but maybe I'll come around! :-)


Your stomach is tempting you to defect. Your heart is telling you not to.

And then, thankfully, your brain chimes in, and reminds you that while short-term PD-like scenarios seem to reward defection, in iterative scenarios -- more comparable to PD-like situations we encounter in real life -- it is cooperation (or at least, not fucking your neighbor over for the sake of short-term gain) that is very strongly incentivized.


I wish some of my clients understood that.

One just ruined all the goodwill they built up with me over the past year (which got them countless free hours, crunch time at short notice, etc.) by stiffing my company of about a grand - literally a few hours' work - on some badly structured justification, the real reason being he felt his colleague was not negotiating hard enough with me and he "showed him".

Now I'm going to stick to the contract hours and probably prioritise other work over theirs; I also changed the payment terms to be upfront to avoid stiffing, and if they want extra hours, guess what, their sticker price went up from their discounted price for longstanding cooperative clients to "market rate". I guess the thousand bucks is visible and the value they lost isn't, so he probably thinks he was very successful.

It bewilders me that someone can be in business for years and not understand that cooperation is a better strategy, but there are a lot out there. I've found the short term cost of cooperating with defectors worth it in the long run, though.


It sucks about the goodwill being lost, and I'm sure it feels bad to have been stiffed by your client, but it sounds like you're going to make more money out of him now than before. And at the same time he thinks he's had a victory. In some ways this a win-win. Take your team out for a nice dinner on the extra profit and don't feel too bad about it :)


Just curious: if they stiffed you, why are they still a client?


Isn't what you're doing the ipd equivalent of "retaliate"?


I guess so. Retaliation is the best strategy in iterative PD, no? (I'm rusty on this stuff).

Nash equilibrium in a regular PD would be DD, but it assumes that the other side will defect. I think from experience that the payoff grid is different in business in that instead of CC resulting in a lower payoff for C than for D in CD, it's a much higher payoff; and the D in CD is not getting much more than in DD (maybe 20% more).


You are thinking of tit for tat, right? I remember reading about generous T4T where in ~10% of the cases they were generous [CITATION NEEDED] it performed better that pure retaliation. Now there is a new paper in Nature[1] that I just stumbled onto in trying to answer your question. It seems like extortion is at least competitive with a generous strategy, though I need to give it a closer read.

[1] http://www.nature.com/ncomms/2016/160412/ncomms11125/full/nc...


The problem with this is you only have so many shots at a startup (you only have so much energy / free time / savings / time before you have other obligations). So it is unclear to me whether there are actually enough iterations for the right strategy to not be to break rules when convenient and ask for forgiveness later.

Let's also not forget that Conrad is not going to jail. It's a billion dollar company that's going to pay millions in fines.


> 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.

> Zenefits might also survive for the one reason that made its product so appealing to business owners in the first place: Shopping for health insurance remains really frustrating. The company says it now has 20,000 accounts. “As long as their problems don’t affect our company, we’ll stay,” says Todd Harmond, vice president for finance and operations of the e-book service Scribd, which uses Zenefits to offer Kaiser Permanente and Anthem health insurance plans to its 85 employees.

> “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.”


In the long run we're all at the next startup.


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.


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.


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.


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.


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.


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.


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.


The laws are intended to protect the consumer by making sure there are physical places that can repair your car in the state.

A law that forced OEMs who wanted to sell directly to have repair shops in the region would have that intention. In this case, it's pure window dressing.


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.


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.


> I don't see what being online has anything to do with it

States regulate auto manufacturers from competing with their dealerships; Tesla selling online would be a federal issue (interstate commerce).

Ergo, Tesla gets around bad regulatory capture by using a law that supersedes state law.


Being a federal issue doesn't preclude it being a state issue as well, as far as I know.


Interstate commerce being a federal power under the Constitution prohibits states acting to regulate interstate commerce where the federal government has acted, without the permission of Congress, and prohibits the States from discriminating against out-of-state commerce generally. That doesn't mean that all State regulation of interstate commerce is prohibited, but the State's power is sharply circumscribed by the mere designation of the federal power as well as by federal action exercising that power.


Are you making a general point, or is this particular rule affected by such restrictions?


AFAIK, Tesla's argument in the cases over the direct-sales rule has been that the particular rule is a violation of the Commerce Clause at least as applied against Tesla's online sales, though I don't think any federal court has yet ruled on the specific issue.


I believe Tesla wants to handle this at the federal level, to negate the state's restrictions all in one go.


AirBnB, PayPal & Uber are better examples. The "follow the rules period crowd" would never have let them succeed. Is that really what we want?


With exception of PayPal, of which I know nothing that would explain them being included in this list, I'd say yes - that's exactly what we want. AirBnB and Uber are burning social trust to make money, they're literally poisoning the society. And to (literally!) add insult to injury, Uber management are also being assholes about the whole process.


It seems like your "poisoning the society" claim is highly subjective, based on how you perceive their actions and what you think is the the "ideal" society.

For me, and presumably a bunch of other people, AirBnB and Uber provide really services far superior to their predecessors.


I don't think it's that highly a subjective viewpoint, if you don't ignore the social aspects of their business altogether. I do agree that the level of service of Uber (and probably AirBnB) is superior; I may also agree that a lot of regulations they're working around should be revisited.

But the idea that when you don't like a law, you're free to ignore it is not something acceptable in a civilized society. There are ways and means to affect the legal situation (and numerous companies in Europe managed to use them successfully when it comes to taxis - so much that on the old continent, Uber is not really an innovative service), but you have to play by the rules. Breaking them should - and usually does - result in you getting fined or imprisoned.

Uber is exploiting the high inertia of local government bodies; their strategy is to gain enough popularity fast enough that they can play the local population against lawmakers - not unlike a fast-spreading virus that overwhelms the host before their immune system can mount a defense.

What I don't want is to see this blatant, unilateral defiance against the law to spread. Today it's a taxi company with a silly app and a big marketing budget; tomorrow it will be the next hot e-commerce site that plays fast and loose with customer protection laws; the next week it will be a biotech startup that thinks biosafety regulations are optional and otherwise a nuisance.


I fundamentally disagree with your belief that disobeying bad laws is an undesirable way to get bad laws to change. I think it is a very valid way to change bad laws, and in many cases the only remotely viable way. Do you honestly believe there was a viable way to get taxi regulations changed other than the general approach taken by Uber and Lyft? Granted, some of Uber's reported specific actions are slimy even to me, but I am convinced that their general approach (ignore the regulations and hope that the population realizes the superiority of your service faster than the government can shut you down) is the only viable way to do it. I'm tempted to go so far as to call this approach downright progressive, although I realize many self-proclaimed progressives will find that attribution repulsive.


Europe had its own taxi revolution going on for more than a decade. From personal experience in my city, the companies trying to change the status quo did exploit loopholes they could find, but they did not went and blatantly disregarded the laws. Ultimately the case of taxis vs. "people transport" companies got solved in court, proper adjustments to the law were made, and everyone is happy. That's how things should be done in a civilized society.

The superiority of Uber's service over regular taxi is true (a bit smaller advantage over "people transport" companies we have in Europe, but Uber brought some "innovative" solutions to the continent too, like controlling taxi radio via Spotify...), but I absolutely disagree with the approach they take and even more I dislike the way this particular company behaves. There's also some blame to be put on the governments too, for not reacting quickly and decisively enough (kudos to Germany for doing it right) - there's little that can undermine the trust in the rule of law more than seeing people getting rich by ignoring the rules.


> But the idea that when you don't like a law, you're free to ignore it is not something acceptable in a civilized society.

Civil disobedience is very much a part of civilized society, your premise is flawed.


This particular case is not civil disobedience, it's a company getting rich off illegal activity.

As for civil disobedience itself - it may be necessary sometimes, but this should be something rare, not a business model.


When a company ignores what they consider bad laws, it most certainly is civil disobedience.


Next week, it will be lawmakers soliciting terrible advice from the electorate. When will this horror end?


I think it's mainly exploiting that the laws are kinda dumb and only perhaps made sense in an earlier age.


It's probably a case of adding insult to injury. Looking at AirBnB specifically, their most vocal opponents seem to be cities who already have too few apartments left to rent. When a sizable portion of the remaining few apartments is then put on AirBnB rather then rented, rent prices go even higher than they already were.

At least, this is what happened in Berlin (and AFAIR also some other large German cities), which is why Berlin is looking into banning AirBnB (by requiring special permits for vacation homes). Source e.g. http://www.spiegel.de/reise/aktuell/bussgelder-ab-mai-berlin...

So, it may not be AirBnB's fault primarily. They're just making bad situations even worse.


Yep, and there is no incentive to create new homes. Except for airbnb.

Why would you create a new home when you just can increase the rent?


Usually there is a monetary incentive for developers to build new homes.


Even forgetting if the services are superior or whatever, is it all that crazy to be able to let people spend the night in your house or drive someone around for money?


This isn't. But people are using this to turn their apartments into cheap-ass hotels instead.


In what way are they burning trust? I wouldn't have trusted my AirBnB host if it weren't for AirBnB.

Now I say to other people "don't worry, AirBnB hosts won't harvest your organs or anything" and they may begin trusting AirBnB hosts (or hosts in general) more.


It's not about your trust in the service, it's about the trust that's present between various members of society. AirBnB is setting tenants against landlords (by encouraging former to do subletting, which leads latter to add terms to the agreements that otherwise wouldn't be needed), neighbours against neighbours (c.f. all the complains from people who'd like to be asked before having their apartment building turned into cheap-ass hotel) and people against cities (by encouraging violations of zoning laws).

Trust on a social level is something that keeps civilization together. It's what lets you do business and deal with people without constantly looking over your shoulder worrying that everyone is out there to fuck you over. AirBnB makes a lot of their money by eroding this trust.


Why PayPal?


For starters, acting like a bank.


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

Or both simultaneously, sometimes even by the same people!


> 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

Since you explicitly mention "grey state," it appears you recognize the subjective nature of both law and morality.


> It is better to break the rules and profit from it and if caught

I think the point the OP was making is that it might be better for you to do so, it's unclear whether it is better for everyone else.


> 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.

Heck, this isn't just a game plan for startups, it's standard operating procedure for big banks. The only real way to deter bad behavior is to send people to prison.


Which is why the fines should be relative to the amount of money made breaking the rules. As in, all of that money.


s/better/more profitable/


> 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)

Sounds like family christmas was a hoot :)


every sillicon valley investor knows it, the very famous quote "break the rules and ask for forgiveness later" plenty doing it from Zenefits, to Uber and AirBnb...


And yet when Union Carbide does it, they're the bad guys.


They forgot the crucial first step: be cool


They're breaking civil regulations, not (proximately) killing people.


Breaking rules to set up a sham business that scams and steals is one thing (and often the reason the rules exist). Breaking rules to create a product that most people like and find better than the alternative is completely different.

Unfortunately many of the laws created in the name of "consumer protection" do little to protect anything but the entrenched interests that lobbied for the laws.


How precisely do you determine which rules are breakable for a product/service that is "better than the alternative"? I'd love to stay in a hotel and not pay hotel taxes, as would Marriott, so I use AirBnb instead. I'd also like to present fake receipts for reimbursement to my employer so I can make more money. Both are "alternative products" that are better for me, but someone else suffers.

EDIT: Grammar.


I think that's a great question and to me it gets down to, 'What are the negative consequences or externalities created by breaking the rule(s)?'

With a mining company non-compliance could poison water supplies and sicken/kill people. With Uber (and a lot of the sharing companies) they can cheat workers out of the protections they would normally receive with a job.

On the other side with Tesla, selling directly to consumers doesn't hurt consumers at all, but it does create a slightly uneven playing field with incumbent manufacturers who have to sell through dealerships. With Uber, customers tend to get a better service but it creates an unfair playing field with taxi companies, who have to pay an enormous amount of money for medallions while adhering to tightly regulated fares.

From the government's standpoint, there's usually some amount of discretion in enforcement of the law. Laws that protect people from harm should be pursued more vigorously than laws that maybe protect old business models more than they protect actual consumers.


You determine it on a case by case basis.

There is no need to have a perfect system for handling all situations with bad laws and which should be broken.

Humans have brains, we should use them to determine that question for ourselves.


> There is no need to have a perfect system for handling all situations with bad laws and which should be broken.

If it was that easy, wouldn't we have made and edited the laws already to align to that?


What I'm saying is is that the existing system is working pretty well, IMO.

Using Uber as an example, what they do is they just move into a new markets regardless of the current regulations.

Most of the time, the regulators are extremely slow to act, and by the time they get around to acting, Uber has already won the hearts and minds of consumers.

And then the regulators try to act against Uber, until there is massive push back from consumers. This massive push back ends up scaring the regulators into changing the law in Uber's favor, and Uber never ends up being regulated, even though they blatantly broke the law in the first place.

And BAM, Uber wins in the vast majority of situations.

This strategy only works though because the laws are bad in the first place, and Uber is making the industry a much better place for consumers.


The issue with this, of course, is that people have to know what's legal and what isn't. It's not equitable if we allow Google but we don't allow Bing, for example. From this principle arises stare decisis. Thus, under our current system, law becomes written one way or the other.

It's very difficult to find the right balance between equity and flexibility.


Yes, the legal situation has become un-navigable. Many online businesses, even big players like Google, are based on flagrant violations of existing law (in Google's case: copyright and CFAA). Little guys get shut down by this all the time. Congress is not effective and can't be trusted to rectify the situation. The only viable option is to be a pragmatist about compliance and hope that you don't encounter bad legal luck.


An example might be Tesla and some states law requiring a dealership in the state. If I am recalling that correctly...


In Tesla's case, the laws were created specifically to block them. They didn't exist when Tesla started. The previous laws on the books were more along the lines of "if you have dealers, you can't sell direct" rather than a general "you must sell through dealers"


Thanks for the clarification.


The banks did exactly this before the financial crisis, and most of them came out of it just fine.

The reason this works in practice is because when a company becomes that big, it's impossible to place blame. Any repercussions against the company as a whole will mostly impact the honest and innocent folks.


I would think it's less about diffusion of blame and more about your last sentence there -- that the big guy can play the game of mutually-assured destruction. They warn of all the collateral damage from having to pay for what they did, and the public is too willing to believe it and/or too unwilling to endure the short-term pain of enforcing the rules.


It is certainly not impossible to place blame on indivudals. After the savings and loan crisis, hundreds of execs were rightly blamed, indicted, convicted, and went to prison. This time around, the criminals have bought off the watchdogs - nobody went to prison. Instead they get off with a fine and no admission of wrongdoing, and they live to do it again another day.


> The investors will get a very healthy return.

From the company's wiki page:

> In July 2013, Zenefits announced the completion of a seed round led by Venrock and Maverick Capital, with investors including Andreessen Horowitz, Yuri Milner, General Catalyst Partners, Garry Tan, Justin Kan and Alexis Ohanian. The round also included angel investments from Box co-founder and CEO Aaron Levie, Quora co-founder Charlie Cheever, former Googler and Twitter VP of Corporate Strategy Elad Gil, Weebly co-founder David Rusenko, former Googler and Badoo COO Ben Ling, Google’s Head of Spam Slamming Matt Cutts, BuildZoom co-founder and CEO David Petersen, and Inkling co-founder and CEO, Matt MacInnis. (...) Including the company's initial US$372,000 raised from Y Combinator,

Sad to see people like Alexis Ohanian and Matt Cutts in there, people that I personally respect. It's also interesting that Y Combinator and their founders haven't said anything of interest regarding this whole mess since it started, or maybe they're all waiting for it to calm down and for business to proceed as usual.


You sir are correct. I'm curious though; are there any really good solutions to this type of problem? You can't rewind time and go back and taking away all assets gained in such a manner, while doable, would pretty much put the company out of business even if they're willing to comply. Seems like there isn't really a good way to prevent companies from breaking the law. Well unless you do some sort of regular inspection / auditing but that is time consuming and insanely expensive.

So it seems advantageous to me that, as long as you're not directly putting someone into harm's way or trying to screw with the IRS, you should always break the law to get ahead.


What's wrong with putting companies out of business?

I understand that it ends up having impacts on people that aren't necessarily involved in the misbehavior, but it provides officers and investors a significant incentive to avoid wrongdoing.


The complication is that "wrongdoing" is in the eye of the beholder. Is Uber committing wrongdoing? The taxi companies certainly think so. Many municipalities think so. A lot of folks on Hacker News think so.

But the folks who had a few too many beers and missed the last Caltrain and would otherwise drive home drunk if Uber didn't exist? The innocent folks that would otherwise have been killed by a drunk driver if Uber didn't exist? The folks who drive for Uber to pick up some spare cash in their spare time, or the ones who do it because they can't find any other income and would otherwise be destitute? The folks who drive for Uber to meet interesting new people? The Uberpreneurs who pitch their wares to a captive market for the duration of a ride? They all benefit significantly from Uber's existence.

That's why this "get big fast and then hope you can avoid the consequences for your wrongdoing" strategy exists. The consequences will oftentimes not be known at the time an idea is conceived. Sometimes they will be much, much worse than is apparent at the time (look at the environmental pollution and global warming caused by heavy industry), while sometimes they will be a lot better (look at the liberalization and toppling of many totalitarian regimes since Facebook and Twitter came out). Oftentimes they will be both worse and better at the same time; someone killed in a revolution has clearly suffered, while someone who can open up a business that would previously have been shuttered by the government has benefitted.


> But the folks who had a few too many beers and missed the last Caltrain and would otherwise drive home drunk if Uber didn't exist? The innocent folks that would otherwise have been killed by a drunk driver if Uber didn't exist?

This is quite a stretch. Uber is eliminating drunk driving fatalities now? Those same people couldn't have called a cab before Uber existed?


> Uber is eliminating drunk driving fatalities now? Those same people couldn't have called a cab before Uber existed?

Speaking for myself, I take Uber/Lyft regularly but would have never even considered attempting to call a cab and dealing with the cost/uncertainty inherent to that. I'd much rather not spend an hour waiting outside for a cab that ultimately decides not to show up. Rather than deal with cabs, I would simply just not have had a drink if I didn't have a designated driver.


Not knowing where you live / have lived... I think people in big cities forget how hard it is to find a taxi elsewhere.

I can remember a specific example several years ago in Nashville (which is quickly becoming a big city) where after waiting for 15+ minutes downtown I had to start calling companies telling them to send a car to my corner.

Before Uber came to Chattanooga (a decent-sized city) calling a taxi wasn't even a viable option unless it was for a scheduled 4AM airport pickup.


Just as a point on a graph and being totally honest, I take a Lyft nowadays when I otherwise have (stupidly) driven drunk before there was such a thing as Lyft. I agree that they're not saving the planet, but they almost certainly are preventing deadly harm. At least potentially if not kinetically.


I share your skepticism but that's actually an official Uber position: https://newsroom.uber.com/us-illinois/dui-rates-decline-in-u...


Your entire 2nd paragraph is bullshit. There is absolutely nothing in that paragraph that indicates they had to break the law.


No one absolutely, positively, no-possible-other-options "has to" do anything ever. People make decisions on a spectrum and at the margins. There are people who never drink ever. There are people who drink every night but would never drive. There are people who drive drunk every single night. If you make it easier to get home without driving drunk, some people that otherwise would've gotten behind the wheel will make the responsible choice.


> What's wrong with putting companies out of business?

Well you have to decide what is or isn't worth destroying a business entity. Let's say Startup X breaks a law that, while illegal, has little to no impact on the general public. Let's say Startup X isn't found out until 5 years in and they're doing $300 million in revenue but without breaking that law they would be at some unknown number less than $300 million. Is that worth putting them out of business? If so, why? If not then what is the appropriate punishment?

Seems like a really hard problem to be fair all the way around.


Here's the problem: Doing anything other than punishing the company harshly, even if that means putting them out of business, signals to everyone else that the law is not serious, and can be broken at will.

As far as if it's worth putting them out of business, I don't see why that should even be under consideration. You can't do the time, don't do the crime.


Even then, you probably haven't solved the problem. A big reason that these products are structured as "startups" rather than within bigger companies is to limit the liability if they fail catastrophically or get caught breaking laws.

Investors keep pouring gasoline on the fire; the message is "GROW GROW GROW" ... but if the fire burns out of control, it's somebody else's problem.


There's a big difference between "illegal" and "wrong" though.


Yes.

Illegal is somewhat subjective.

Wrong is entirely subjective.


> I understand that it ends up having impacts on people that aren't necessarily involved in the misbehavior, but ...

The fact that you understand this could bankrupt and destroy people's lives simply because they worked at the wrong company at the wrong time, but still seek to rationalize it, is more than a little disturbing.

Having draconian penalties for line employees is not going to do anything to dissuade a C-level executive who wants to commit fraud from committing fraud.


> The fact that you understand this could bankrupt and destroy people's lives simply because they worked at the wrong company at the wrong time

Well, shit, best stop Uber from putting taxi companies out of business and Amazon from bankrupting booksellers.


> Having draconian penalties for line employees is not going to do anything to dissuade a C-level executive who wants to commit fraud from committing fraud.

Holding them personally responsible for fraud would help. As in you were the person in charge when this happened, here is a fine of millions + 2 years in jail.

That's why they get the big money right? To be the ones responsible?


How does getting laid off from a startup destroy someones life? I can understand someone getting annoyed at not getting rich or not getting ROI from lower pay. But, that's from being both an employee an an investor.


We destroy people's lives for lots of reasons in the US. Protecting the public from poorly behaved businesses would be better than most of them.


If you will go bankrupt and have your life destroyed because the place you work at goes out of business, then that's a different problem.


But this doesn't make maxerickson or anybody else who shares their opinion the bad guy - it makes the executive.


You could put some of the 'people in charge' in jail.. then the company would not be harmed, but the leadership in the future would hesitate to be so caviler.. it would give you the 'reform' part of punish and reform that is supposed to happen in the justice system..


> You can't rewind time and go back and taking away all assets gained in such a manner, while doable, would pretty much put the company out of business even if they're willing to comply.

It is a choice being made to prioritize the preservation of the company, though. Imagine a criminal justice system that prioritized the job of the criminal.


Why should a company that shouldn't have been in business be protected from being put out of business?

You can't really prevent people from breaking the law (why have the law if it's impossible for anyone to break it?), but predetermined consequences could be played out when the law is intentionally broken.

It seems that RICO would apply to this situation. Multiple individuals and companies/funds conspired to commit fraud.


Because sometimes you're dealing with a bad law.


If that's the case, then the company should have been lobbying to have the law changed, instead of brazenly disregarding it and making money from having an unfair competitive advantage.


Personally I don't have any problem with disregarding a bad law. YMMV.


Allowing people to ignore laws that they perceive as bad does not work on the scale of a society. What if, tomorrow, I decide that the Penal Code is a "bad law" and start to kill people because I disregard this law?

We live in a free society and therefore we have the freedom to disregard any law that we consider "bad". But we must also face the consequences of our actions.


There's a pretty simple standard for dealing with what is a good law, versus a bad law, that we should just adhere to. But instead of restating what has been said before (and better), I'll just leave this link here.

http://bastiat.org/en/the_law.html

and this quote:

* What, then, is law? It is the collective organization of the individual right to lawful defense.

Each of us has a natural right — from God — to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but an extension of our faculties? If every person has the right to defend even by force — his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right — its reason for existing, its lawfulness — is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force — for the same reason — cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.


This may surprise you, but humans aren't computer programs. They generally come with individual consciences and can decide what is right and wrong. It is insulting (almost a Godwin's law violation) to compare murder with the "crime" of disregarding arcane taxi regulations. It's very clear to everyone involved that the taxi regulations in question are designed mostly to protect the profits of a few fat cats who own license medallions (no, NOT drivers... most taxi drivers don't own medallions.) And taxi drivers were almost always contractors even before Uber came on the scene, so all the whining about how exploitive it is to be a contractor, etc. etc. is completely misinformed.


I think you may have found yourself in the wrong thread. This one us about Zenefits creating a computer program to cheat a licensing scheme.


Define "bad law". A law you disagree with? What about those you agree with, but others don't?


I'm going to echo all the other commenters: why not put the company out of business? Indeed, doing anything other than that is moral hazard.


"You can't rewind time and go back and taking away all assets gained in such a manner, while doable, would pretty much put the company out of business even if they're willing to comply."

Why not? If enough stuff like this happens, then companies are going to realize that breaking the law does actually have consequences.


According to my brother in law who lived there for 10 years this is how nearly all business is done in China. The variation is that you hope to get big enough to bribe or otherwise purchase influence.


Surely an example we all aspire to.


This is a high risk gambit inside an already high risk wealth creation strategy, see Aereo or Naptser for happy endings, or Bitinstant's Charlie Shrem or Liberty Reserve for tragic ones.

Not that Aereo or Napster were cheaters, or even doing anything wrong, but they were engaged in technological efforts to bypass the intent of the laws on the books, and it didn't pay off.


This isn't unique to the start-up world. The banking sector[1] and automakers[2][3] provide some prominent recent examples of similar behavior.

[1]: http://www.sec.gov/spotlight/enf-actions-fc.shtml

[2]: http://www.nbcnews.com/news/us-news/gm-justice-department-re...

[3]: http://www.nytimes.com/2014/03/20/business/toyota-reaches-1-...


Trying to outgrow regulators is one approach. Trying to outgrow competition in a business with low barriers to entry is another. See Groupon for example. My bet is AirBnB is probably next.


What would be interesting would be a lawsuit from renters arguing that Airbnb has reduced supply otherwise available and caused rent to go up.


Reminds me of a saying (paraphrasing): Sometimes it's easier to ask forgiveness than for permission.


Founders and early employees own common stock, so they won't get paid until all the investors got at least their money back, which means founders and early employees could easily end up with little


To be fair, the cheating was quite minor. They used a macro to click through a powerpoint. Employees were still tested on the content of the powerpoint and not permitted to sell insurance without passing the test.

In short, the law they broke was learning the material too rapidly.

I'd happily call this admirable disruption. The real failure lies with the California regulators who made it a crime to click through a powerpoint too fast - unfortunately, unlike the CEO of zenefits, they kept their job.


The article contains an example of a person who had failed to pass the insurance brokers' licensing exam for several months but who was still selling insurance policies to clients. I reckon he/she wasn't the only one in that situation inside the company.


In the mean time, who was harmed?


The reason you require licensing for insurance sales is because it's very difficult to track all of the individual instances of malfeasance. So, the answer to your question is, "I don't know."

But just because I don't have particular instances of harm, doesn't mean this isn't an problem. If you let anybody sell health insurance, you end up with con artists selling sham insurance, and by the time you track down the conman, real people are hurt. Sure you can fine the shysters, or maybe even put them in jail (but probably not), but in the meantime, families savings are wiped out to pay the medical bills, or worse, people get sick and die because they can't get treatment.


> The reason you require licensing for insurance sales is because it's very difficult to track all of the individual instances of malfeasance.

And what's the reason for handing out these licenses based on butt-in-seat study time instead of a proctored exam and/or interview?


Is Zenefits a con artist wiping out people's savings?


An interesting question. They're licensing highly dodgy insurance agents who can still misinform, break the law and cost people money. That's not as bad as selling full-on fake insurance, though.


I've struggled with this in the past as well, having been raised differently.

I was able to unlearn these less effective set of rules by studying different schools of ethics.


isnt this the same battleplan youtube, buzzfeed, and imgur used to get big? blatantly lift copywritten material, displace other content aggregates, and by the time you have enough traction and money you can fund some original content or pay the appropriate licenses. (albeit imgur isnt to step 3 yet, still stuck on profit.)


Uber took your advice very seriously.


Exactly what Uber is doing.


its easier to ask for forgiveness than permission.


I suppose it depends on the context. Considering America's oppressive regulatory environment, and that occupational licensing is bad, I'm usually inclined to call it 'admirable disruption'.


So, being 11th (of 178) in the ranking of the "Economic Freedom" you list below makes the American regulatory environment "oppressive" ?

From the viewpoint of most countries in Europe it would be considered "very liberal".

(EDIT: Also the source you mention is clearly politically biased. https://en.wikipedia.org/wiki/The_Heritage_Foundation )


All sources are politically biased. Some are just more honest about it.


Just making a generic statement like that without qualifying it serves only to excuse that one source. Are the government of China's comments on Tibet equal in weight to Amnesty International? No. Is the Heritage Fund pushing an agenda equal in trustworthiness to an academic international ranking? Probably not.

However, academic studies from two accredited institutions that don't have a particular ax to grind are probably equally credible.


"Heritage is biased" is the unqualified generic statement, and it serves only to reinforce the dangerous idea that some organizations are unbiased and can be blindly trusted.

Of course Heritage is biased. But their Index has a well defined methodology and provides the data that informs the final score for each country; it can stand on its own, and should be criticized as such.


Right. See the recent news about Facebook's curation 'algorithm'.


Oppressive regulatory environment? Relative to where, countries which have limited resources and can't enforce regulations to protect consumers?


Compared to the first ten countries here: http://www.heritage.org/index/ranking


It's worth noting that the index there accounts for "business freedom" and "labor freedom" but doesn't really account for what is on topic here: "startup freedom".

Occupational licensing has some overlap, but regulations are often very good for very big businesses since they impede competition from small challengers. Anyway, I'm mostly sympathetic to your points, but it's important to distinguish between being 'business friendly' and being 'friendly to status quo corporations'.


So, 90+th percentile for freedom makes the US oppressive?


In fairness, I haven't seen this objection when people complain about USA health care.


Because the complaint there is closer to "wow, we're paying the most and we're not even close to the top" rather than saying the quality of care is objectively bad.

And we're a good bit worse than 11th there.


How much separates them? Other than NZ which tries hard to bring investment. I don't think there is significant daylight between those at the top. And I don't think it's a good idea to relax the rules in this area of commerce.


I'm guessing you have done zero research as to whether Zenefits would have been violating similar regulatory law in any of those 10 other countries.


Occupational Licensing is not universally bad.

Licensed hairdresser? Fuckoff. Licensed doctor? Sounds reasonable. Lawyer? yeah. Engineer? Probably. etc...

Insurance salesperson? maybe.

Really depends on what the license is intended to protect. if it's just a silly barrier to entry that's one thing. If it is to ensure that a person has a minimal level of competence so as to prevent real harm to their customers that's a different thing. A lot will claim to meet the latter standard, I'm skeptical how many do. Insurance sales licensing I would guess to be mostly the former.

That being said, you spend 2 weeks getting licenses sorted out when someone starts and you avoid this whole mess.


Anyone afraid of breaking a few rules isn't a founder. The lesson: create something people want. The rest will work itself out.


Right. And what about the people you hurt on the way to the top?


Some rules are victimless. Or downright nonsensical. I don't like this tone of moralizing regulation. As if being non-compliant is inherently unjust.


Being non-compliant with the law is unjust in a society where people value rule of law. You can't just ignore laws that you disagree with. If you don't like a law, you should write your representative and try to fix it. That's a farce now of course, but we should fix the process so that it's not any more.


It's a lot harder to change a regulation when nobody has any idea what the landscape looks like without it, or how people could function without the incumbents that benefit from that regulation. Someone building a service people genuinely want, creating something useful that didn't exist before, and not doing any harm to people by doing so, may choose to go ahead and build it to prove that it's possible and sensible to do so. Sometimes that's the right thing to do; sometimes it's the wrong thing to do. But I'm not going to automatically assume that because there's a regulation on the books that that has anything to do with morality; there's far too many bought-and-paid-for regulations to believe that.


The morality is in following the law of the land regardless of your personal assessment of the law's merits or your personal assessment of the motives of the legislators. This should happen unless the law violates some fundamental human right. Respecting the rule of law is a moral principle.

Morally speaking, the law should be honored while it is in force, and if it is not a good law, it should be altered through the means provided by the political system.

Pragmatically speaking, implementing that moral ideal is becoming increasingly difficult, as governments reach farther and farther into daily commerce, become increasingly impenetrable to anyone of ordinary means, and fail to cope with the rapid social changes driven by new technologies.


> Respecting the rule of law is a moral principle.

> Morally speaking, the law should be honored

Emphatically no; law and morality are two different things, that hopefully correlate, but law does not ever define morality. (If anything it should be the other way around, but far too often it isn't.)

> and if it is not a good law, it should be altered through the means provided by the political system.

I already explicitly observed one reason why that's not always feasible. Often it takes a fair bit of momentum to get a law changed; momentum needs interested people, and people get a lot more interested when you have a practical demonstration that the law prevents them from getting something they want.

Nobody is going to go fight to change regulations to enable a business that doesn't exist yet; sometimes they'll fight against it because the incumbent has a better media machine and told them to. Regulations can kill a new business before it ever forms.

> Pragmatically speaking, implementing that moral ideal is becoming increasingly difficult, as governments reach farther and farther into daily commerce, become increasingly impenetrable to anyone of ordinary means, and fail to cope with the rapid social changes driven by new technologies.

Exactly. So perhaps you should start by not giving it the benefit of the doubt, not thinking of it as a "moral ideal", and instead just treating it as something that happens to exist and has various consequences associated with it.

There's a good reason why most regulations don't have particularly severe consequences: half the reason we can deal with the ones we already have is that they aren't actually enforced. Selective enforcement is also a problem, but the solution isn't universal enforcement, it's repeal.

(Also a good lesson for prospective implementers of a system that happens to encode procedures and regulations: if your system doesn't have some means for a knowledgeable human to bypass it, it's broken, and people will need to find ways to work around it.)


>Emphatically no; law and morality are two different things, that hopefully correlate, but law does not ever define morality

That's obviously not what he was saying. The point is that there is a moral obligation to follow the law under most circumstances.


Correct. The law does not mean anything if we simply discard and refuse to obey the elements that we believe are unfair. That would be anarchy. Part of the compromise we make in modern society is the willingness to submit to communal norms and standards that are codified into law even if we personally don't agree with the rationale behind those laws. Later, this same courtesy is extended to us when fellow citizens comply with a law that they find personally disagreeable but for which we had successfully lobbied. This is the compromise of living in a democratic society. We need to accept it and comply when the law makes a determination that contradicts our personal preferences, even as we continue to work on rectifying what we perceive as bad law through the democratic process.

In exceptional cases, compliance is not required because it would violate a higher moral principle, but most of the time, the moral thing to do is to honor the law.


It balances the moralising promotion of the idea that profit is inherently admirable no matter the consequences.


So we're counteracting the immorality of profits with morally sound regulatory code? What if I don't like your religion?


If no one else is playing by the rules, why should you?

When you're just starting out, you hope you are small enough to fly under the radar. When you are big enough for government to care, you hopefully have enough money and lobbiest to influence (read: by) government officials.

It's a myth that is perpetuated by those in power, to keep power: If you play by the rules, you'll succeed. If you don't, your break your social contract, or worse, bad for society and must be punished.

In America they say "Crime doesn't pay."

What they really mean "The crimes that the poor and middle class commit don't pay."


Hopefully with you getting tossed out because you decided to play the "above the law" game and lost.


And anyone afraid of breaking a few laws isn't a criminal. The lesson: take as much as you can get. Enough money and the lawyers will work it out for you.


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.


> The Valley has yet to prove that it can build sustainable companies.

I was with you until this line. The valley has been producing sustainable companies for decades. Some companies fail. This is the way things go.


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).


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.


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.


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.


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.


I'm confused, are Zenefits/Zenpayroll the same company?


No, though I understand the confusion.

Actually because of name confusion (not just with Zenefits) ZenPayroll rebranded to Gusto.


> 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.


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/


I wonder what sort of chilling effect this had on work/life balance. When the CEO is responsible for approving all vacation requests, are there fewer requests as a result?


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."


The thing that I picked up from the article wasn't so much that there was hacky managerial solutions, but that there was gaping operational holes in the company. This meant that the hacky solutions never got fixed.

A lot of early-stage companies have been known to engage in grey-area practices to hit that growth factor. Reddit, for instance, faked a bunch of early users to make it look like people were using it. But if it came out today that a large percentage of Reddit's users were faked, it'd be a huge blow to the company.

This becomes even more critical if you're dealing with any government/regulatory body- you're legally bound to fill these gaps before "plausible deniability" can't be used.


>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".


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.


I guess "regulation" was the wrong word because that gets into the legal aspect of it; I meant purely the programming side, "we won't give you this certificate unless our web app's counter for you hits 52." "Oh, well, I'll make something that clicks your app's counter for my employees!"

Obviously, yes, this fell foul of the actual regulations, which were not "the web app's counter hits 52" but rather "you need to spend 52 hours looking at this stuff."


"Conrad sounds like a hacker's philosophy"

I think I agree with your overall point, but not really with this phrasing. Say you apply the hacker concept to food. You can make some cool food at home while bending the rules and everything is fine, but if you open a restaurant and make all your customers sick as a result, then you're just a bad chef.

Hackers hack hacks. Bringing a hackers mindset to something else means that you can see when a hack is appropriate, not that you "hack" things that aren't.

It's like this popular quote... "Rebels learn the rules better than the rule-makers do. Rebels learn where the holes are, where the rules can best be breached. Become an expert at the rules. Then break them with creativity and style". Not "Be lazy, claim rebel".


With the Series B round, my startup began actively managing tech debt. When an engineer finds something major we create a Jira issue, user story style. The head of product (a technical person) prioritizes a blend of product features vs tech debt for each sprint. Usually that's 10-25% tech debt, which includes mostly non-critical but beneficial refactoring as you described. It's worked well for us.


I applaud you for taking the initiative to continuously improve the system you're responsible for. These kind of values seem to be hard to find these days.

Serious question, do you also enjoy working on/tinkering with old cars?

I have a few data points where I've found that people who do enjoy working on/messing with cars are also the same kind of people who do what you do. If this is true, it's something you can look for in interviews.


I would love to work on old cars if I were not living paycheck-to-paycheck. However if I had the free money, well before I started tinkering with old cars, I would probably start scheduling vacations in eastern Africa. I'm not sure what exactly I'd be doing there, but I figure someone's got to have wiring issues or plumbing problems or a broken tractor or something -- anything that I could put my Applied Physics degree towards.

Right now I've got a tutoring side-job; that's basically similar. My work boils down to the fact that I like people and I try to help them with whatever skills I've got.


Off-topic, but you would probably enjoy volunteering for Engineers Without Borders (http://www.ewb-usa.org/).


Thanks for the reference! Sounds like it'd be really fun.


> 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.


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.


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


> 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.

You appear to be assuming a rather uncharitable interpretation of this data, but there are, of course, a number of explanations for it.


> You can't know everything about someone's past and past actions don't necessarily dictate future actions,

That's precisely the parent's point. You can't praise someone without full context of their past actions. But that same praise was publicly used as a way to bolster the investment. "Well, heck if Lars Dalgraad says this guy is smart, then he definitely must be on to something. I should use this service" Equally there's no repercussions for making a positive statement when you're already in a position of power. I think the point the parent is trying to make is that these situations are signs of plutocracy, which perhaps is why "it's jacked up".


"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?


"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.


> 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?


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

Because that was the problem.



Portrait mode :-/


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.


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.


“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.


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.


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


Does Conrad's resignation mean forfeiting his own equity?


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.


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...


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.


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.


Why would they do that? "You guys did bad, here's $XXM..."

Or maybe you mean they'd sell their stake.


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.


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

1 - 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 :)


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


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.


That's a feature, not a bug. Technical nitpicking is part of the HN brand in my opinion.


Seems to be loading from cache for me (chrome 50). Did you leave "disable cache" active in network inspector?


That I did, oops


> 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 :)

I wouldn't feel too bad. Our homepage at Immuta originally had a background video near the top and when I was debugging something I looked at it and noticed it had downloaded 200MB from the server because it just kept looping over and over and re-downloading over and over while I had the web page open for a really long time. I practically freaked out, thought we were killing our bandwidth, etc. It took me probably at least an hour to realize that I had disable cache ticked =/


did you have caching disabled in your dev tools?


By default, caching is disabled whenever you have dev tools open.


Perhaps HN and reddit should block every website with an average page size larger than 1-2 MB? That would give those sites some incentive to optimize their pages.


Not really. HN traffic isn't really enough for most of those sites to notice. I'm certain that the only people at Bloomberg who would notice would be the reporters (who participate here) but they would probably have little sway over the technology and advertising platform, which would lose a lot of money getting rid of their auto-playing videos.


The amount of consumption usually equals the amount of resources available to consume.




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