7 ms·

How Zenefits' Big Bet on Sales Went Wrong

121 points by dsr12 11y ago

tswartz 11y ago
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.
- siavosh 11y ago
  With SaaS services this is pretty straightforward, especially for small-medium sized companies: you don't want transactional sales. You end up with sales at all costs culture, and the mess is left for the account managers/dev/support teams to deal with and very unhappy customers. Building a good relationship based sales team is hard and slow, and frankly it's very hard to find sales folks who aren't colored by previous transactional experiences/mentoring. This culture creation slows down the trajectory of a start up with high growth pressures, hence why we see this sort of stuff. I've gotten my fair share of heavy handed, transactional sales calls from some other big named startups and it's always a negative experience. I can just imagine a boiler room environment in most of these startups.
- officialchicken 11y ago
  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
  - tswartz 11y ago
    interesting that you've had issues with your paychecks... <logs into Zenefits to check>
    - officialchicken 11y ago
      It may be the issues we are having have to do with the fact that we did not use their recommended default values for payroll, e.g. we initially defined the paydays, reporting days, and the requisite 3 days between reporting and actual funds transfer. Now that Zenefits is dictating our accounting for payroll schedule, we may be able to get around many of the software issues we've experienced up to this point. I still get 2-3 emails a week letting me know I got paid, once, and it's confusing always checking if I got double/triple paid too (which also happened). Of course, this may not be 100% Zenefits fault in every case, but the software makes it easy to make mistakes.
  - dragonwriter 11y ago
    > 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.xhtml?lawCode=LAB&sectionNum=215 http://leginfo.legislature.ca.gov/faces/codes_displaySection....
- shostack 11y ago
  I've experienced this in another side of the world--ad agencies. Very frequently accounts were sold on one thing and since the commissions were tied to closing the deal with the fattest margin possible and were completely divorced from the long-term success of the account, often times accounts ended up with lots of promises, and an understaffed, burnt-out team desperately trying to keep them happy because it was their asses if the account left. When I got to a level where I played a major role in pitches, scoping, and staffing teams, it was definitely a struggle at times to make sure an account was staffed in a way where the fees would support the staffing that aligned with a client's expectations of the work and deliverables they would receive. Ultimately we were able to get to a much better understanding of that through comparing the cost of retaining a client vs. the cost of new client acquisition, making our SOWs much more specific, and making sure people whose success was measured in the longevity of that relationship (ie. me and the people who would ultimately own the account) were involved in the scoping/pricing/contract part of the process with sales. That didn't fully get rid of the friction or differing incentives, but it made sure that there was a healthy data-driven discussion around the potential outcomes of selling in one thing vs. another. Unfortunately it took things getting worse before they got better to bring about that change, but it happened nonetheless. It does require buy-in from the top down though, and I'm not sure that is something that could realistically happen in a heavily-funded company with...optimistic...sales goals.
rfrank 11y ago
> 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 11y ago
  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 11y ago
    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 11y ago
      agreed, that does seem really long, especially since the account executives are handing off their clients to customer success.
  - chris11 11y ago
    I think a clawback makes a lot of sense. Otherwise you are basically incentivizing your sales team to sell to people who aren't a good fit for your product.
    - rfrank 11y ago
      Is there some sort of "industry standard" for clawback length? I understand the incentive it's putting in place, but after a point the sales team is pretty disassociated from the customer. For instance, what if you're a Zenefits salesperson who closed an account 6 months ago before their compliance issues hit headlines. If that customer then cancels based on the news, will the commission be clawed back?
11thEarlOfMar 11y ago
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.
mathattack 11y ago
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 11y ago
  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 11y ago
    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!
  - mathattack 11y ago
rdl 11y ago
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 11y ago
  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 11y ago
    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.)
erdojo 11y ago
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.
smartpants 11y ago
Came across this yesterday, http://www.bloomberg.com/gadfly/articles/2016-03-01/young-software-firms-pursuit-of-growth-comes-at-a-cost http://www.bloomberg.com/gadfly/articles/2016-03-01/young-so... Some of these company's Sales and marketing costs as a percentage of revenue is pretty high
chris_wot 11y ago
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.
tryitnow 11y ago
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 11y ago
  What is tech about insurance brokerage?

121 points by dsr12 11y ago

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.

siavosh 11y ago
With SaaS services this is pretty straightforward, especially for small-medium sized companies: you don't want transactional sales. You end up with sales at all costs culture, and the mess is left for the account managers/dev/support teams to deal with and very unhappy customers. Building a good relationship based sales team is hard and slow, and frankly it's very hard to find sales folks who aren't colored by previous transactional experiences/mentoring. This culture creation slows down the trajectory of a start up with high growth pressures, hence why we see this sort of stuff. I've gotten my fair share of heavy handed, transactional sales calls from some other big named startups and it's always a negative experience. I can just imagine a boiler room environment in most of these startups.
officialchicken 11y ago
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
- tswartz 11y ago
  interesting that you've had issues with your paychecks... <logs into Zenefits to check>
  - officialchicken 11y ago
    It may be the issues we are having have to do with the fact that we did not use their recommended default values for payroll, e.g. we initially defined the paydays, reporting days, and the requisite 3 days between reporting and actual funds transfer. Now that Zenefits is dictating our accounting for payroll schedule, we may be able to get around many of the software issues we've experienced up to this point. I still get 2-3 emails a week letting me know I got paid, once, and it's confusing always checking if I got double/triple paid too (which also happened). Of course, this may not be 100% Zenefits fault in every case, but the software makes it easy to make mistakes.
- dragonwriter 11y ago
  > 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.xhtml?lawCode=LAB&sectionNum=215 http://leginfo.legislature.ca.gov/faces/codes_displaySection....
shostack 11y ago
I've experienced this in another side of the world--ad agencies. Very frequently accounts were sold on one thing and since the commissions were tied to closing the deal with the fattest margin possible and were completely divorced from the long-term success of the account, often times accounts ended up with lots of promises, and an understaffed, burnt-out team desperately trying to keep them happy because it was their asses if the account left. When I got to a level where I played a major role in pitches, scoping, and staffing teams, it was definitely a struggle at times to make sure an account was staffed in a way where the fees would support the staffing that aligned with a client's expectations of the work and deliverables they would receive. Ultimately we were able to get to a much better understanding of that through comparing the cost of retaining a client vs. the cost of new client acquisition, making our SOWs much more specific, and making sure people whose success was measured in the longevity of that relationship (ie. me and the people who would ultimately own the account) were involved in the scoping/pricing/contract part of the process with sales. That didn't fully get rid of the friction or differing incentives, but it made sure that there was a healthy data-driven discussion around the potential outcomes of selling in one thing vs. another. Unfortunately it took things getting worse before they got better to bring about that change, but it happened nonetheless. It does require buy-in from the top down though, and I'm not sure that is something that could realistically happen in a heavily-funded company with...optimistic...sales goals.

rfrank 11y ago

> 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 11y ago
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 11y ago
  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 11y ago
    agreed, that does seem really long, especially since the account executives are handing off their clients to customer success.
- chris11 11y ago
  I think a clawback makes a lot of sense. Otherwise you are basically incentivizing your sales team to sell to people who aren't a good fit for your product.
  - rfrank 11y ago
    Is there some sort of "industry standard" for clawback length? I understand the incentive it's putting in place, but after a point the sales team is pretty disassociated from the customer. For instance, what if you're a Zenefits salesperson who closed an account 6 months ago before their compliance issues hit headlines. If that customer then cancels based on the news, will the commission be clawed back?

11thEarlOfMar 11y ago

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.

mathattack 11y ago

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 11y ago
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 11y ago
  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!
- mathattack 11y ago

rdl 11y ago

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 11y ago
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 11y ago
  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.)

erdojo 11y ago

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.

smartpants 11y ago

Came across this yesterday, http://www.bloomberg.com/gadfly/articles/2016-03-01/young-software-firms-pursuit-of-growth-comes-at-a-cost http://www.bloomberg.com/gadfly/articles/2016-03-01/young-so... Some of these company's Sales and marketing costs as a percentage of revenue is pretty high

chris_wot 11y ago

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.

tryitnow 11y ago

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 11y ago
What is tech about insurance brokerage?