Battered by scandal, executive changes and layoffs over the past two years, Zenefits is trying something new: playing nice.
Zenefits announced on Thursday that the company is shifting its focus entirely to human resources software, ending its brokerage business and shifting its accounts to OneDigital in a multi-year partnership.
“This is an exciting pivot for us,” CEO Jay Fulcher told Forbes. “We go from being the company that talked about going it alone and not partnering with anyone, to one that believes in working together.”
Zenefits will focus moving forward on software for managing human resources at small and medium-sized businesses, helping track payroll, benefits and compliance. The deal with OneDigital is one of several the company plans to announce to work with regional brokerages over its platform; the company also integrates with more than 40 office software tools today such as Box, Salesforce and Slack.
The move to partner with brokerages – the OneDigital deal will include a revenue share on the migrated business – is a total reversal from the position Zenefits maintained in past years as it grew quickly and became a Silicon Valley darling, valued at its peak at $4.5 billion. In 2014, cofounder Parker Conrad dismissed the notion of working with traditional brokers who were then facing what seemed like an existential threat. Conrad called the brokers’ peace offerings trying “to grab a lifeline,” telling The Mercury News: “I do feel bad for them, I hate it when I lose a customer. I know what that’s like. It sucks if your business isn’t doing well. But for my part, I’m trying to build something myself. I don’t get a particular joy out of it being painful for the next guy.”
But the pain was felt mostly by Zenefits just two years later, when Conrad stepped down amidst a compliance scandaland new CEO David Sacks had to crack down on a culture that was reportedly out of control. Then in February of 2017, as Fulcher took over the top job, Zenefits’ new leader had to lay off about 430 employees, or 45% of its workforce. At the time, Fulcher blamed the company growing too quickly in 2015 for the layoffs, calling it part of the recovery of the company’s health and foreshadowing a shift in business model and new focus on subscription software.
In the six months since, Fulcher says Zenefits was able to shift from a freemium model for its software entirely to paid customers, retaining 75% in the shift. Focusing on HR software now allows the company to move up the funnel into larger customers, Fulcher adds, away from the SMB market for serving as a brokerage he says often maxed out at companies of less than 25 people.
While Fulcher says he wasn’t privy to the company’s ins and outs prior to his taking the job, he did not that he’s taken a “kinder, gentler, humbler” approach to providing technology, partnering instead of choosing aggression.
Zenefits still has more than 10,000 customers and a name that’s not toxic outside of Silicon Valley, Fulcher claims. The company conducted surveys and focus groups nationwide and found that 60% of those polled nationwide viewed Zenefits positively, with less than 10% negative. The company only fared significantly worse around the Bay Area.
By moving into SaaS software for HR full-time, Zenefits is aspiring to compete with a whole cadre of HR players in the category, from Gusto to Namely and even Workday. With so many of its accolades on its way up stemming from the speed and simplicity of its brokerage business, Zenefits may find it difficult to prove its differentiation in its new space. But Fulcher says the company’s tech has a “4 year head start” on the field. “We’re the first ones to live in both the broker and tech world,” he says.