The changes at Zenefits may create further competition for independent agencies that target the small business market.
The HR tech firm announced late Monday that its CEO Parker Conrad is stepping down due to licensing compliance issues. Its new CEO, David Sacks, promised a culture shift and new focus on small businesses.
The sector “is a great market for us because (1) it’s huge (with many million small businesses in the US); (2) it’s ‘greenfield’ (meaning that it’s under-served by technology—in fact an Excel spreadsheet is often the main competitor); and (3) the free aspect of our product is extremely compelling,” Sacks wrote in a company memo.
The company’s plans to direct its efforts at smaller employers should give advisers pause, said Wendy Keneipp, a partner and coach at Q4intelligence, a benefits and insurance consulting company.
“When your competition is saying that they want to make ‘the lives of small business owners so much easier … and help them achieve something larger than themselves’ you better get to work quickly to make your own model and message as meaningful and targeted to your ideal employees and clients,” she said, quoting from a passage in Sacks’ employee notice.
Changes at Zenefits
In his Monday memo, Sacks told employees that, effective immediately, Zenefits’ values will be to operate with integrity, put the customer first and make the company a great place to work for employees.
Sacks said that Zenefits is taking a series of steps to strengthen its internal policies, procedures and controls. He said that in December it brought on a Big Four auditing firm to conduct a review of its licensing procedures and that it will launch a “top-to-bottom review” to ensure its operations are in order. The company also named Joshua Stein, a former federal prosecutor and Zenefits’ vice president of legal, its chief compliance officer.
Quote"For us, compliance is like oxygen. Without it, we die."
“In his new role, Stein is charged with ensuring that Zenefits is in compliance with all rules and regulations,” the company said in a press release, adding that Stein will continue to oversee a comprehensive review that Zenefits began last year by the accounting and consulting firm to assess the company’s operations, processes and policies related to broker licensing compliance.
“I believe that Zenefits has a great future ahead, but only if we do the right things. We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die,” Sacks said in his memo.
“Once we’re aligned as a team around core values, the next thing we’re going to do is sharpen our strategic focus.”
For Zenefits he said, that means “hyper-focusing on the small business market where we have product-market fit.”
The change in leadership is “the first thing I’ve seen from Zenefits that truly makes me worried for independent agencies,” said Keneipp. Not because agencies can’t compete against this business model, she said, but because agencies have spent so many years focused on technology advancements in the industry, they may be struggling to cultivate other aspects, including client relationships, communications and messaging.
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