In recent months, positive energy looks to have returned to the halls of Zenefits. Multiple factors are likely involved, but clearly, the company’s streamlining and narrowed focus on being a provider of HR software (and not an insurance broker) has helped to set the stage. As part of the company’s pivot, it recently announced its first benefits brokerage partner, OneDigital, made some new product announcements and took in the positive karma that emanated from its recent workplace culture conference. But perhaps more than anything else, the new and improved Zenefits is a story about a company that doesn’t just pay lip service to serving people in the workplace. It’s seeking to live up to its values and vision, which requires an effective communicator and strategic thinker at the top. That’s why The FR’s Gregg Schoenberg was happy to sit down with the company’s accomplished CEO, Jay Fulcher, in a candid, far-reaching conversation.
FR: Thanks for taking the time, Jay. The first thing I’ll ask you about is the changing demographics and structures of the workforce, such as the gig economy and how Zenefits figures into that future.
JF: Thanks, Gregg. Something like one in four or five workers is a contractor or part-time worker today. It’s a huge part of the workforce, and more and more companies now rely on these workers in more and more situations. While we currently support contractors on our platform, the increase in contractors is shaping organizations. As such, we will continue to invest in our platform to address this trend.
FR: But it’s not just about the tracking and monitoring tools for you.
JF: There are many cultural implications of part-time and/or contract workers. Employers have to be able to embrace these workers in a different way. And regardless of regulations, it's incumbent upon employers to embrace this important part of their workforce. We know we can play a role in that.
FR: On a related note, you've seen the trend where companies like IBM and Yahoo are saying, "We want you back in the office." I think this countertrend may be a last gasp, plus it’s a very family-unfriendly policy circa 2017. What's your sense of it?
JF: It's a big bell curve, and for every Yahoo or IBM, there is Microsoft, Google, Facebook and others who are on the other end of the spectrum by promoting more flexibility. I don't know about last gasp, but I do think it's ‘old school.’
JF: Well, I think you've got businesses that, in some ways, don't feel equipped, either from a systems perspective or from an organizational perspective, to create a distributed but connected workplace. Over time, I think there’s a big wave happening regarding flexibility around where and how people work. For one, businesses will benefit by hiring talent across the map — not just limiting it to where their headquarters are. Secondly, there’s transportation. Look at San Francisco, for example. This is not a big city, yet the pressure around transportation, like other cities, is very high. Sooner or later, it’s going to be really difficult to require rigid employment routines.
FR: By routines you mean…?
JF: I think work hours and personal hours are mostly a thing of the past and that companies have to embrace more flexible ways of meeting their talent where they are. Because the battle for intellectual capital is on, and it's not just in tech. It's true in a variety of industries, in nearly all geographies, and for companies at every size.
FR: On Wall Street, it's unbelievable. But on the other end of the spectrum, I'm sure you’re versed in the universal basic income debate.
FR: What’s your view on the viability of UBI in some form? Because while the demand for great talent is high, millions of people may be left behind.
JF: Look, I'm the son of a history professor. The concept of UBI, or the now more politically correct term, negative income tax, is not new.
JF: At the end of the day, this is a reaction, a fairly natural reaction, to the fact that median household incomes are not keeping pace with GDP. And that gap means that the middle class has evaporated, or certainly is in the process of evaporating. From Zenefits’ perspective, our responsibility is to be ready for all the stochastic shifts that happen in the economy.
FR: And by stochastic shift…
JF: The nature of work is radically changing today from where it was even five years ago, and for sure 10 or 15 years ago. And companies like ours — which provide very comprehensive platforms for everything from payroll to human capital management solutions, employee engagement and performance management, onboarding, talent, compliance and employee benefits — we've got to meet the challenges of a changing workforce and the new expectations that come with it.
FR: Another issue coming to light is around workplace diversity. As you know, most developers in this country are still young men, and now that AI is on the rise, my concern is that some of the algorithms that are going to be systematically important to our society may be infused with bias. Do you share that concern?
JF: I do share that concern, and I think we have a responsibility to try to provide better, more statistically accurate inputs that allow us to leverage all of the technology that is available. At Zenefits, for example, we have a great ability to measure and create insights from the data we're collecting, but we've got to be able to do that in a way that promotes more fairness and transparency than before.
FR: I believe you mean it, but I’m wondering if others do. Is Silicon Valley paying lip service to these issues?
JF: I live and work here in Silicon Valley, and I'm actually a native — there aren’t many of us left here. Based on my experience and friendships with other technology leaders, I believe most want to make sure that they’re building software, systems and analytic engines with fairness and transparency in mind. And I don't think that's something just intended for a press release. I actually think it’s real and genuine.
FR: You're from Silicon Valley. I live in New York. We can both agree on the importance of corporate benefits, health and wellness programs and the other things that Zenefits’ software manages. But look at the Rust Belt or other parts of the country.
FR: If your company is fighting for survival, it’s not so easy to spend money on health and wellness. Do you ever worry that Silicon Valley is so prosperous right now that sometimes companies like yours lose perspective on what's going on elsewhere?
JF: I think it's a great question and one that requires more time than we have, because it's such a multilayered thing. It's got political implications. It's got geographic implications, too.
JF: However, your point is well taken. I can’t speak for everyone here in the Valley, but I do think that there’s a healthy number who are very self-aware about our ‘bubble.’ We've been really fortunate for a sustained period, and we need to constantly remind ourselves how unusual that is. That said, a lot of technology is created here that makes it possible for other parts of the country to participate in the new economy. And, of course, the technological revolution continues.
New Business Model
FR: As you know, there’s been plenty of ink spilled on your new business model that calls for you to partner with brokers. Is it a fair characterization to say you want to offer your software to larger companies than you previously targeted?
JF: The strategy is going to allow us to expand our market. The average customer size that we had prior to that decision was something under 100 employees. Now, we're able to go beyond that in terms of the size of the companies we serve. It's a big shift for us, but it's one that is a natural evolution for us and allows us to serve more of the market.
FR: So Zenefits will now start bumping into other competitors?
JF: Inevitably. There are a number of small, very clever companies that have been focused on the sub-25-employee space. Some came from payroll, some HR. But most of those companies don't have the breadth or depth of capability we do, nor the customer base that we do. In some ways, we're being pulled upmarket by larger customers who are looking for our combination of enterprise-grade, sophisticated HR technology combined with a well designed, mobile, and consumer savvy user experience that can be implemented in days, not months.
FR: Do deals like OneDigital represent Zenefits’ future, or do you still want to have a vibrant direct business?
JF: We have a vibrant direct business, and I’d be surprised if that changed. The OneDigital relationship is the start of what will be a much broader initiative where we will have several certified broker partners. OneDigital wants to play offense with technology in a world that is not known for being technology-enabled.
FR: How will it play offense?
JF: By building their advisory services on top of our platform.
FR: Sounds smart, but are you at all concerned about being attached to brokerage partners? Because a company may love your software, but if it changes its broker, that could put Zenefits’ relationship in jeopardy.
JF: In the short term, it's a legitimate risk, but we're going about this very deliberately to make sure we get it right. That’s why we’ll choose just a few partners to start. And despite some snarkiness around whether Zenefits can be a trusted partner to the broker community, we’ve been inundated with inbound partnership interest. I think brokers see the potential of cooperating rather than competing going forward, and they see our sincerity in wanting to be a good partner.
FR: So more partnerships are going to follow soon?
JF: Yes. Very soon. So I think the point of vulnerability you referenced will be short-lived.
FR: Well I’m not surprised by all of the interest. I never heard anyone blast the Zenefits core software offering. All of the snarkiness that you referred to, I think—
JF: —Was all about the benefits part of what we were doing as a digital broker.
FR: In addition to the brokers, have you thought about trade associations or the WeWorks of the world as prospective channel partners?
JF: We have a long list of those kinds of opportunities. I’m not speaking about WeWork specifically, but there are a number of aggregator-type business models that are knocking at our door.
FR: Can you give a theoretical example?
JF: Good examples might be a tech platform like Amazon, because so many people rely on AWS. Or small- or medium-sized ERP vendors. They might have strong capabilities in the finance or manufacturing or supply chain area, but they don't necessarily have strong HR capabilities. There are opportunities in new employee benefits areas like reducing student debt.
FR: I see that you've made a couple of product announcements in your fairly brief tenure at the company. One is the launch of a performance tracker, Zenefits Connect. Anything else in the offing?
JF: We've got a very ambitious product roadmap and we're doing several key things. One of them is our payroll system, which is our fastest-selling product these days. We have already rolled out in 48 states and D.C. Another is our recently announced talent management product.
FR: Despite the entrenched players? Does the world really need another payroll system?
JF: We have a big opportunity there and, yes, while it may not be obvious that the world needs another payroll system, the world definitely needs a ‘different’ payroll system. This is a huge opportunity for Zenefits to emerge, not only as another payroll provider, but as the system that connects payroll and HR to make growing and managing a business easier.
FR: You’ve mentioned the quest for talent. One of the refrains I hear from senior executives at banks, asset managers, insurers, or start-ups for that matter, is “How are we going to get the talent to work for us rather than Google, Amazon or Facebook?”
FR: And I think about all the data that you have and all the insights you're getting. I'm wondering if you have whiteboarded what Zenefits could do in the talent space, specifically around recruitment or identifying internal talent.
JF: We're working on a variety of things related to that, for sure.
Mission and Culture
FR: Let’s turn to the Zenefits team. Soon after you arrived, you brought in a number of new people, C-level folks, into the organization.
FR: How did you coalesce them around a common mission and culture?
JF: I was focused on three things. One, we needed to change the business model. Two, we needed to become very clear on our core value proposition and where we wanted to focus our energies and leverage our strengths. The third part was the team. I've been very fortunate to have had a pretty good track record for building strong, coordinated, high-performance teams. As part of that, we needed to refresh the narrative around what we’re trying to do here. It has resonated because our team sees the opportunity in front of us.
FR: Recently, I think it was when you were interviewing Arianna Huffington, you said culture trumps strategy every time.
JF: Yes. It’s not an original thought, but one that I believe. It’s this focus on culture that inspired the format and name of our annual customer conference [SHIFT: The Culture Conference], which was as much a thought leadership conference as a customer conference. We are undergoing a major shift in how employees think about work, how they're motivated and what they expect from the companies they work for. Culture is not about office snacks and ping pong tables. It’s about a shared set of values that galvanize a company to succeed. It's about what people do when no one's watching.
FR: Do you think the importance of culture and HR is well understood by businesses across this country? Because I think HR is still viewed as a ‘soft’ issue by many.
JF: Real progress is being made. Look at what we did recently, Gregg. We threw a conference rooted in workplace culture here in San Francisco that over 700 people came to in person and over 140,000 people watched remotely via livestream on Facebook. That’s a huge signal that people really do want to tap into exploring culture issues — and the various implications — within a company.
FR: I agree that the conference tapped into something.
JF: People get it. Everything ranging from how employees treat each other to how they treat the outside world to the way we keep our commitments is up for discussion and vital to performance. I'm really excited about it, obviously, but I think there's more work to do. And quite frankly, I think there are more things that Zenefits can be doing to help other companies meet these changing expectations. Companies need to be asking some hard questions: Are we socially responsible? Are we being fair in the way we're treating our employees? Do we have the systems in place to allow employees to do their best work and not be bogged down with the stuff that doesn't make work all that interesting or fun? To me, that's a fun and audacious thing to take on.
FR: Well, good luck in your continued push for audaciousness.
JF: Thanks so much.
This Interview has been edited for content, length and clarity.