Zenefits is laying off around 17 percent of its employees, or 250 people, with the layoffs largely concentrated in the company’s sales division, according to an email sent to the company by CEO David Sacks.
“When I became CEO of Zenefits, I promised on Day 1 to reset our culture, refocus our strategy on serving small businesses, and create a new beginning for success in the future,” Sacks wrote. “Today I have to make a very difficult set of decisions about how we do that. In fact, this is the most difficult decision I’ve had to make in my career, but it is necessary for Zenefits to move forward successfully.”
This follows regulatory concerns pertaining to the company — specifically pertaining to an internal program dubbed “the Macro” that allowed employees to pad the hours they said they committed for pre-certification in California, which led to an investigation by the state.
Zenefits as a company has run into regulatory issues across multiple markets as a result of all this. The company allowed unlicensed brokers to sell health insurance, according to a BuzzFeed report. BuzzFeed most-recently reported that 80 percent of the company’s deals in the state of Washington were done by unlicensed brokers.
Compliance issues also led to the company’s CEO, Parker Conrad, leaving both the company and the board of directors. That led Sacks, the former CEO of Yammer — which sold to Microsoft for $1.2 billion — to take over the company and promptly begin clearing house. Zenefits quickly grew to a $4.5 billion valuation over the course of just a few years.
“During my years in Silicon Valley, I’ve seen a number of attempted tech turn-arounds. Frankly, they don’t have a very good track record,” Sacks wrote in the email. “But that’s because those companies had become obsolete technologies; they had lost their product-market fit. That is not Zenefits. Zenefits has made mistakes but it never lost its product-market fit.”
Zenefits gives small- and medium-sized businesses human resource management tools that are supposed to work in a simpler fashion than existing tools. They also began offering payroll services recently, breaching into territory to which other startups like Gusto have been trying to bring a similar model. The company offers its software for free and makes money by receiving commissions.
Sacks explained in the memo that part of the reasoning behind the layoffs was Zenefits’ growth, which was “too fast, stretching both our culture and our controls.” That’s not too surprising for fast-growing startups, though at times it did seem out of control — like having to tell its employees not to have sex in stairwells, according to a report by The Wall Street Journal.
“This reduction enables us to refocus our strategy, rebuild in line with our new company values, and grow in a controlled way that will be strategic for our business and beneficial for our customers,” Sacks wrote.