How Zenefits' Big Bet on Sales Went Wrong

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.

> As such, Oracle frequently oversold and underdelivered, but eventually grew big enough that it didn't matter

This is an extraordinarily common pattern in so many industries, when incentives are not aligned and it's OPM. And the worst thing is, if everybody else is doing it, you also have to do it.

For example, bank traders could (and in some places, it seems, still can) just lever up risk since if things go well, they outperformed their peers (riskier stocks go up - and down - faster) and made a great bonus; if a crash made things thornier, the bank would be in bad shape anyway and nobody would pick you out. I remember greatly admiring a famous "value" long/short equity fund in 2006 and a friend who was a more senior and experienced trader pointing out that they were "just levered beta"; three years later that fund was down a good 50%, proving him right.

I was reading, back in 2008 or 2009, the annual reports of a bank I was interviewing at. The letter from the CEO was noting, through the 2000s, the increase in risk taking in the mortgage securitisation space with increasing worry, and reassuring shareholders that no, at Bank X, this was not done because the ROI was not there to justify the risk.

Then a couple years before Lehman, there was a change in CEO due to "relative underperformance" of the stock, and the letter said something along the lines of "I know we're a bit late to the game but we are investing a large amount in that space and hired some great people from the competition".

Naturally that bank then needed a particularly large government bailout a couple years later, although the chairman of the board during the period famously retired with a very large pension (in fact his car was stoned for it by activists), showing that this strategy is still a great way to improve one's personal situation.

> I feel bad for a lot of the good employees who get caught up in the mess.

It seems to be standard in the job market to use the same strategy: overpromise and push the cost of an employee down as a result - and HR is actually rewarded for this.

I've been approached by many large tech companies for jobs and when talking with the managers there, the valuation they put on the options part of the package can get REALLY ridiculous (in some cases, 4-5x what the market thinks, let alone savvy investors). Older developers are wise enough to counter these offers, but I see a lot of younger folks enthusiastically buy into the myth and quit burnt out a couple years later.

I took an HR guy from a very famous and large Bay Area company that is mentioned here often for drinks and he admitted after about 7 whiskies that most of the people working there - including top, APAC-region managers - were paid about half what they could get in more normal companies, and that this was by design and a target. To be fair, I can't completely criticise them for doing it, since there was real value in working there for a while, as all the other companies in Singapore would then bid higher for your output detecting a "competence signal" in the American brand.

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.

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

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.

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.

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.

I'm pretty sure this was standard practice at a place I worked at in nyc as well. I think because this is commission pay, not actual salary. I do think it would be illegal to claw back enough to fall below their salary, whatever that may be, but salaries in sales are often pretty low. eg $40k/year after a training period.

I'm consulting with a luxury vacation company where this is 100% on the up and up. The situation is:

* Sales person sells a luxury vacation for 20k for Jan 2017 * Consumer puts down deposit 2k * Sales person gets commission on 20k sale * Consumer takes vacation a year later (though sometimes this can be as much as 2 years)

If the consumer doesn't take the vacation then there's a clawback. To mitigate this the company pays out commission at 85% for sales more than 6 mo. in the future, and when the consumer makes their final deposit. then they get the remaining 15%.

If they were paid upfront for a 12 month contract, then probably. The clawback would be only for the unrealized revenue, so a proportionate loss of revenue.

This is pretty common on full commission jobs, or without clawbacks you would be incentivising sales people to submit bogus paperwork to paid.

What is tech about insurance brokerage?