To say Zenefits has had a tumultuous year would be an understatement, but through all of its chaos — three CEO changes in just 12 months, multiple regulatory fines, rebranding schemes — there seemed to be a glimmer of hope that the HR startup would overcome its limitations and saddle up as the golden child of Silicon Valley once again.
That glimmer is all but fading, especially with the most recent news: Zenefits will let go approximately 430 employees. That’s a 45 percent cut to its staff, the largest round of layoffs yet.
I knew this was going to happen.
How did I know? I’ll get to that later. First, let’s start with some facts.
According to Buzzfeed, the layoffs come in an effort to cut costs. In its San Francisco headquarters, 250 employees have been let go, and another 150 in Tempe, Arizona. The layoffs leave Zenefits with 500 employees, about a third of what worked there under Parker Conrad just a year ago (another fun fact pointed out by Buzzfeed: the layoffs were announced just the morning after the one-year anniversary of Conrad’s ousting).
The news came to employees in an email from Jay Fulcher, Zenefits week-old CEO. According to Buzzfeed, he said he “strongly believe[s] these difficult decisions are essential in setting Zenefits up for success.”
Jessica Hoffman, vice president of communications at Zenefits, sent me the following when I asked for comment:
“This has been planned for some time and is the result of a lot of hard work over the past year to improve our products and service and make the operations of the company more efficient. As a result, we have a dramatically improved cost structure, the ability to deliver a market leading product roadmap that exceeds customer expectations, and enough cash to fund our operations for years to come. … This reduction in force is consistent with an overall turn-around program that began a year ago to correct regulatory compliance issues, reset our culture and values, increase operational efficiency, and introduce a new SaaS product and business model. All of these changes gave us the opportunity to attract a top-notch operator like Jay Fulcher, who will lead the company to the next stage of growth and profitability.”
Sound familiar? It should.
It echoes the words of David Sacks (who is possibly joining friend and fellow millionaire Peter Thiel in helping the Trump administration) in a June 2016 email wherein he announced the layoffs of 106 employees and presented the infamous “offer.”
In the note, Sacks said: “I believe that Zenefits has turned an important corner. We have done the hard work of remediation. We have reorganized the team to succeed moving forward. Now we need to focus on Z2. I believe that the launch of Z2 will reassert our market leadership and re-accelerate growth.”
(In case you’re wondering, Z2 didn’t meet its 2016 revenue expectations.)
Those are the facts. Now let’s get to why the news didn’t surprise me.
I met with David Sacks last summer. The company was holding an event in Denver and asked if I’d like to come.
Knowing the interest level surrounding Zenefits (and at this point, it was only three months post-Conrad), I emailed back immediately and asked for an interview with David Sacks on the day of the event, June 29.
On June 17, Zenefits agreed to let me interview David Sacks. By June 24, everything was confirmed.
By June 27, that interview was canceled.
“Good news/bad news,” the email from Zenefits began. “Unfortunately, we will not be able to do a sit-down with David this week. This is primarily due to his schedule, but also your recent article and, frankly, the tone of most articles about Zenefits in BenefitsPro. It is difficult for me to make the case for a balanced, forward-looking story given the track record of articles. However, I think we can work toward this starting this week.”
I responded the next day: “Sorry to hear this. I was really hoping BenefitsPRO would have the opportunity to tell a new narrative about Zenefits. … It would’ve been a great chance to tell a story that hasn’t been told at BenefitsPRO or elsewhere, and I believe it would’ve accomplished what you’re ultimately looking for — to end the rehashing of past issues.”
Just a few days later, that same PR person emailed me, saying David Sacks could give me 15 minutes after the presentation. “The only caveat is that this would be a background interview for you to meet David and get a better perspective on Zenefits. If you want to use quotes from that conversation, we just ask that you run them by us first.”
Our chat was brief, tense. When we sat down — David Sacks across from me, a PR representative to my left — the PR rep pulled out his phone, turned on the recorder, and said “just in case,” despite my iPhone recording app, open and already running, sitting on the table between us.
The first words out of Sacks’ mouth were something along the lines of, “Wait, what are we going to talk about?” It seemed odd; cagey almost. Why the trepidation over a 15-minute chat with a writer from a small B2B publication who had to get questions cleared through the PR team before she even arrived?
It wasn’t until the next day I realized why our meeting was rushed and terse: The company’s valuation had been slashed from $4.5 billion to $2 billion. I read about it less than 12 hours after my meeting with David Sacks. Maybe he thought I'd ask about it.
But how does all of this factor into today’s announcement? It matters because Zenefits’ ongoing reluctance to address its troubled history speaks volumes.
As much as David Sacks (and now, Jay Fulcher) wants to concentrate on the future, Zenefits’ history is still very much a part of the company's narrative, and it's what is making the future more fuzzy than focused. To gloss over it and sugarcoat a bright future is not indicative of the realities Zenefits has faced since its freefall began last year. Zenefits is still dealing with the backlash of bad decisions made in its infancy, and no amount of emails promising a turnaround will change that.
Because that’s the thing about history — it doesn’t disappear just because you’re ready to move on from it. Unfortunately for Zenefits, this seems to be a lesson in process, not one that has been learned.