CEO David Sacks on moving on from Zenefits’ troubled past


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Zenefits at one point was one of the fastest growing software companies in the world, rocketing to a $4.5 billion valuation in 18 months. It was on track to generate tens of millions of dollars in annual recurring revenue.

Then, everything went south; regulators started investigating the company, and its CEO Parker Conrad was fired from the company earlier this year. In short, it’s been a bumpy eight months since the incident for new CEO David Sacks, who took over when Conrad exited, and he’s eager to put all that behind the company and himself. He made it abundantly clear on stage at TechCrunch Disrupt SF 2016. Now the company is looking forward to the launch of its next version of Zenefits, due out next month.

“The way to win trust is to just make right a situation, whatever mistakes you’ve made previously,” Sacks said. “Our attitude at Zenefits today is to be very transparent and forthright about what happened, it’s not to double down on something wrong in the past, it’s to admit it, fix it, and move on. That’s what we’ve done, and I think as a result we’re in a great position to move forward. A lot of pain the company took upfront in the past six months, at this point it’s over, we’re excited to focus on the future.”

The issue there was that Zenefits was skirting regulatory requirements with a tool called “The Macro” that would help it grow more quickly. As a result of that, the company has faced scrutiny by state agencies and has begun aggressively self-reporting the issues to state officials. So far, the company appears to be getting by with a few slaps on the wrist — recently settling in Tennessee for $65,000 — but there is still quite a lot of work to do.

Sacks said that he, as well as many other executives, were not aware of the macro after thorough investigation that even drilled into emails. He said after joining as chief operating officer in December 2014, he did not have a number of divisions reporting to him, and was as unaware of the problem as investors were. It’s a small wonder it was kept as tight as it was, but in the end the company has had to aggressively pay for those mistakes.

And there’s still plenty of drama. Zenefits — and Sacks — still seem to have yet to shake the perception that it’s still under fire, even amid its vigorous efforts to put those problems behind it and settle with states. In total, Zenefits has paid out about $300,000 in settlements in six states, Sacks said, though the investigation in California is still ongoing.

Amid all this, the company has had to redirect both the company and its internal culture. In order to head off lawsuits from existing investors, Zenefits cut its valuation in half and the company has laid off more than 350 people. Sacks said the company was down to 900 employees, from 1,450 when he took over as CEO. To say the course-correction is aggressive is a bit of an understatement, but it’s pretty much required for a company that had so many issues when Sacks walked in the door.

“A lot of the stuff was honestly the media getting carried away, that was not something that happened,” Sacks said, likely in reference to a story from The Wall Street Journal about alerting employees not to have sex in the company’s stairwells. “In terms of the culture, what we’ve done is declare new values, the reason we did that is because compliance is really important.”

In terms of Conrad, and his potential ambitions to go after a similar company, Sacks didn’t have much to say. Conrad also took $10 million off the table ahead of his exit, plenty to get something rolling. Sacks said he had not been in touch with Conrad and did not know what he was up to (who, at least with that money, seems like he doesn’t have to just yet win back the trust of investors that Zenefits has to grapple with.)

“My attitude toward valuation, it’s never something you set, it arises through a process,” Sacks said. “People want to invest in a company and the valuation is determined through that. I never take a position on what valuation should be. I do think the company has an obligation to be transparent about everything that’s gone wrong.”

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