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Why You Shouldn’t Bet All Your Chips On Zenefits

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Updated Tuesday, February 9, 2016

How the mighty have fallen.

On Monday, February 8, 2016, outspoken CEO of Zenefits Parker Conrad stepped down amidst allegations that the company’s salespeople were acting as insurance agents without proper licences in seven states. In a company-wide email sent to Zenefits employees on Monday, the company’s COO, David Sacks, admitted that some of the decisions Zenefits made under Conrad were “just plain wrong.”

Up until now, Zenefits, the wunderkind of the HR technology world, has certainly seemed invincible. It seems like they’ve got the whole world (and many investors) convinced that their “Software as a Service” HR model is so revolutionary that it will forever change the way businesses buy and use human resources information systems.

Of course, not everyone was convinced. In fact, several industry thought leaders have made their skepticism that the company could live up to the $4.5 billion valuation the company received in May well known.

Here are some of the reasons why experts are convinced that Zenefits will be the biggest bust in SaaS history:

  1. Growing pains can be debilitating in this industry.
    The human capital management (HCM) and human resources (HR) technology sector is no stranger to explosive growth. The real trick is to have a plan in place to scale the company to keep pace with its dramatic rise to power and prevalence, something we’re not convinced Zenefits has.
  2. “Software as a Service” can’t always replace actual service.
    The service aspect of SaaS HR has been the downfall of many startups in this space. Businesses are entrusting HCM companies with arguably their most valuable resource: their employees. And while glitches in an eLearning technology platform may be mildly annoying, errors in employees’ paychecks or benefits can cause a real mutiny. And just one mistake when it comes to regulatory compliance can result in thousands of dollars in penalties, hundreds of thousands if it results in litigation.
  3. Consistently posting losses isn’t as palatable for investors as it once was.
    Like many of its predecessors in the enterprise software space, Zenefits is sparing no expense when it comes to sales and marketing. In fact, the company said it was expecting to burn through upwards of $100 million in the coming year on development and expanding its sales force. That puts the company firmly in the red. Consistently running in the red isn’t a new growth strategy (just look at Amazon), but it’s one that investors tend to lose patience with quickly.
  4. It’s simply a new twist on an old game.
    “Isn’t Zenefits just a dressed-up PEO (professional employer organization) by another name?” That was the question posed to Steve Smith of The Starr Conspiracy recently, and it pretty much hits the nail on the head. Parker Conrad, the founder of Zenefits, wants people to see his company as revolutionary. Visionary. Disruptive. An outsider shaking up the traditionally closed-off world of insurance. But really, Zenefits is an insurance broker that entices clients by offering free HR software in exchange for being named the client’s broker of record. It’s certainly an interesting concept, but isn’t really all that earth-shattering.

With the benefits administration and HCM market expected to reach $16.4 billion (North America) and $15.4 billion (worldwide), respectively, by 2017, can Zenefits really expect to garner a quarter of that market share in just two short years? That’s what its investors believe, but we’re not so sure.

The one thing the meteoric (albeit inflated) rise of Zenefits has shown us for sure is that employers’ expectations are high when it comes to technology platforms and integration. But while today’s entrepreneurs and business owners might be initially swayed by a brilliant design, the “honeymoon” period is quickly over for HR technology vendors who fail to deliver on much else. This is a lesson that HR technology companies like Zenefits have historically learned the hard way, much to their customers’ dismay.

Employers shouldn’t have to settle for “software as a service” – they deserve software with the service, and that’s exactly what they get with G&A Partners. As a leader in the PEO and HR outsourcing industry, G&A combines innovative technology and more than 20 years of HR expertise with outstanding service to deliver a solution that is both high-tech and high-touch.

To learn more about how G&A Partners can help you grow your business, call 866-634-6713 to speak with an expert or visit www.gnapartners.com/get-started to schedule your free business consultation.

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