An article in the May 9th edition of BusinessWeek profiles the recent challenges at HR benefits tech firm Zenefits. The company is a classic Silicon Valley tale of an entrepreneur with a disruptive idea taking it to a decidedly ‘stodgy’ industry. In fact, the fight hasn’t even been close with Zenefits growing from 15 to 1600 employees and a $4.5bb market cap in only three years.
The Zenefits story also illustrates the tradeoffs investors happily make between their lust for entrepreneurs who can make them money and the baggage that accompanies many of those same entrepreneurs. As one venture capitalist sugar coats it in the article, “from an investment philosophy …we look for the magnitude of the genius, as opposed to the lack of issues”.
In the case of Zenefits the founder is one Parker Conrad, a classic ‘outsider’ with no background in health insurance or HR benefits but a driving conviction that the industry is ripe for change. And he was just the guy to change it. He is described as ‘fiercely intelligent’ though a ‘little frenzied and disorganized’, visionary, brazen and sometimes prone to emotional highs and lows which are ‘amplified under pressure’. In other words, as with many entrepreneurs, Mr. Conrad’s gigantic assets are bundled with a few potential liabilities.
The Zenefits concept and business model resonated almost immediately in the marketplace and the became a sensation. According to the article, Mr. Conrad oscillated between certainty of world domination to ‘a near-constant fear that the firm would never make its numbers and he’d be fired’. A maniacal pressure to make those numbers permeated the organization creating a ‘low level panic that suffuse(d) it, and a constant pressure to keep moving faster and faster and faster’. Oh, and if some corners had to be cut in the interests of making some of those numbers, they were occasionally cut.
Mr. Conrad had other attributes often associated with founders and entrepreneurs. For example, he held the view that since the organization hired gifted, high performing staff they should be smart enough to figure out all manner of things on their own. Thus, functions such as IT and administration became everyone’s responsibility. If the resulting multi-tasking led employees to ‘futz with the WiFi’ instead of doing their ‘day’ jobs this simply meant they should work harder and longer. Mr. Conrad also boasted certain minutiae-management tendencies. For example, he retained the sole right to approve vacations and benefits for everyone in the company even after it had surpassed 1000 employees. As he admitted at one conference ‘I do it all myself. I am a little crazy’. Oh, and then there was the propensity to party……
At some point an ‘operator’ was hired as the second-in-command at the company. Such grown-up insertions are tricky even when the idea is the founder’s, let alone someone else’s. The article does not specify the genesis of the decision to hire one David Sacks to be COO or whether he was even particularly well suited to the job. In fact, the brief biography of Mr. Sacks outlined at the beginning of the article presents him as a serial entrepreneur rather than an operator experienced with these types of ‘delicate’ founder situations. I digress…
The ensuing unfolding of events has a certain ‘where have I heard this before’ predictability as the new guy uncovers the costs of shortcuts taken, sales growth starts to level off, egos collide, layoffs ensue, lawyers and regulators are called in, and Mr. Conrad ‘resigns’. As the article states, ‘since then (Mr. Conrad) has spent part of his time at home binge-watching StarWars: The Clone Wars….”.
Despite the somewhat quirky portrayal and the mistakes attributed to him, it is not expected that Mr. Conrad will be tied to his television for long. The Silicon Valley unicorn he left licking its wounds is expected to recover and remain a player in a very large industry. And as venture capitalists have come to know all too well, what Mr. Conrad envisioned and built cannot be bottled, bought or taught as part of an MBA innovation studies program. Though Mr. Conrad’s subsequent business ventures may never replicate the meteoric success of Zenefits, and he may or may not change his idiosyncratic ways, Zenefits has earned him several venture funded free passes to see if it was luck or magic.
About the Author
Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements.