Four months after it fired its founding CEO following the disclosure of lapses in licensing requirements, benefits startup Zenefits said today it will fire 106 people, close a sales department in Arizona and offer buyouts to additional employees as part of a wider restructuring of its business.
The cuts, which amount to 9 percent of Zenefit’s total workforce, were announced in a pair of internal memos from CEO David Sacks, who replaced Parker Conrad as head of the company in February, and newly promoted COO Abhijeet Dwivedi. It was the second round of layoffs at the company since the shakeup. Zenefits let 250 people go on Feb. 26. Fired employees are being given three months’ worth of severance pay and an extension of their health benefits for six months via COBRA.
The restructuring also includes offers of voluntary severance for “employees who do not want to be here” as a result of the business changes, Sacks wrote in the memo. “The new Zenefits may be a very different company than the one many of you joined,” Sacks wrote. “If you do not agree with the new company values, or if your role has changed in ways that you cannot support, then you can take The Offer."
The deal includes two months’ worth of severance pay and four months of COBRA coverage, and is open only to employees who joined before Feb. 16. Eligible employees have a week to decide to take it or stay.
Sacks announced a major shift in Zenefits’ business strategy, one he called “Z2,” which will be formally unveiled at a company event in October. “Z2 will extend our market leadership in the category we pioneered: a unified solution for all of a small business’ HR, benefits and payroll needs,” Sacks wrote in the memo.
The company became the focus of attention earlier this year after BuzzFeed reported that more than 80 percent of Zenefits' health policies in force in Washington state had been sold by unlicensed employees. The practice was later found to extend beyond policies in just one state.
Zenefits had until recently been considered a Silicon Valley high-flyer, having raised $500 million from investors at a valuation of $4.5 billion, including Fidelity Management, the private equity firm TPG and the venture capital firm Andreessen Horowitz.
Correction: We initially reported that Zenefits is closing its office in Arizona. It’s actually leaving it open with about 350 remaining on the job. It did shut down sales operations there.
Here’s the first of two memos sent around to Zenefits employees. The first one is from Sacks.
From: David Sacks
Date: Tue, Jun 14, 2016 at 8:20 AM
Subject: Organizational Update and Offer
I want to give you an update on the status of our turnaround, let you know about some organizational changes that are happening today, and describe where we are going next.
We’ve made huge progress over the past 4 months. In that time, we’ve admitted and self-reported our mistakes, fixed our licensing issues, changed our leadership and governance, transformed our culture and values, and articulated our mission. We’ve refocused on our core small business market, sharpened our product roadmap, eliminated extraneous products, and improved the performance and reliability of our infrastructure.
As a result of our focus on transparency and remediation, we have reset our relationships with our key stakeholders. We will see the results of this hard work pay off soon, as we achieve a resolution to our historical issues and leave them firmly in the past.
Meanwhile, our 20,000+ customers have stuck by us, a testament to the value our product delivers to small businesses. Our revenue has not decreased -- ARR remains over $60 million -- even though we declared our intention to exit large Enterprise. Beneath the surface of this headline number is a favorable mix shift: SMB continues to grow, offsetting the decline in Enterprise.
Now it is time to look to the future. At our last all-hands meeting, we reviewed plans for version 2 of Zenefits, which we’ve dubbed “Z2”. As you know, this is a total redesign of Zenefits that takes the “All-in-One” promise of Zenefits to a new level. We will be debuting this at our first user conference on October 18 at the Palace Hotel in San Francisco.
Z2 will extend our market leadership in the category we pioneered: a unified solution for all of a small business’ HR, benefits, and payroll needs. Zenefits makes life easier for small businesses and makes entrepreneurship more accessible to anyone who wants to start a business. This is an important mission.
In order to get to Z2, we need to be structured correctly as an organization and all moving in the same direction, with the same level of motivation. To that end, we are announcing three changes today:
First, we are reorganizing Operations to be simpler and less siloed, to serve customers better, and to create a more holistic and fulfilling experience for employees. These changes are about working smarter, not just more efficiently. Please see Abhijeet’s email for more details -- I’m excited about this change.
Second, we are closing our sales office in Arizona in order to locate all of our sales & marketing efforts in San Francisco. We can iterate a lot faster on our growth initiatives and manage our sales effectiveness and training more easily when all of sales and marketing is located together in the same office.
This is a painful decision because we have a lot of great salespeople in Arizona and talented people in the Ops organization who will no longer be with us. But it is the right thing to do. Together, these changes will result in 106 job eliminations, which is about 9% of headcount. As we did previously, we want to provide generous support to our departing employees during this transition so we will offer 3 months of severance, 6 months of COBRA, and transition assistance.
That brings me to the final announcement. 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. We need everyone to be all-in on Z2.
However, I recognize that the new Zenefits may be a very different company than the one many of you joined. I want to be respectful and realistic of that fact. And if you are not motivated by our mission to make entrepreneurship easier, or if you do not agree with the new company values, or if your role has changed in ways that you cannot support, then you can take The Offer.
The Offer is a voluntary separation package consisting of 2 months severance and 4 months of COBRA. Every employee who joined before Day One (February 8, 2016) is eligible and has until noon on Thursday to consider it. If you would like to accept, please send an email to email@example.com and copy your manager. If you accept, the HR team will work with you and your manager to determine the best end date to ensure a smooth transition of your work.
As you consider your options over the next two days, please know that the company isn’t making The Offer because we don’t want you. We do want you, but we want the best of you. We want you winning core value awards. We want you prototyping a great idea at Hackday. We want you staying late to help out on a project. We want you busting ass on Z2. The next few months are going to be an exciting time at Zenefits and we want everyone participating in that.
But if you can’t get excited about that, then frankly we need you to make space for someone who will. Because Zenefits is at a point where will matters as much as skill, and we need everyone committed and contributing to the push ahead.
I have no idea how many people will take the Offer, but I’m certain that I want to work with people who want to be here and who are unified in the purpose of what we’re trying to achieve. I'm excited about The Offer for that reason. But I’m more excited about Z2 and what we do next.
I’m happy to answer questions about any of this at a special all-hands later today.
This second memo is from Dwivedi.
From: Abhijeet Dwivedi
Date: Tue, Jun 14, 2016 at 8:19 AM
Subject: Org changes
When I started on the job as COO, I took several steps to better understand Zenefits. First, I talked to lots of customers. I wanted to understand why they loved us and have stuck with us. For those customers that left, why did they make that decision? What could we do differently? Second, I poured over hundreds of jira tickets, and spent countless hours analyzing information flows to understand where we were excelling and where we were missing the mark. Lastly, I talked to the people on the front lines to understand their pain points and hear their suggestions. I have stolen shamelessly from those conversations. Everything we are doing today is based on the ideas that stemmed from my conversations with many of you.
What I learned is that we are too siloed, we have too much complexity and we have an opportunity to create a more customer-centric way of operating. The goal of the changes we are making today in operations is to amplify what we do well, and obliterate our deficiencies.
Over the last week, I have had discussions with many of you. I have been inspired by how deeply you care about our customers’ success and how much you want Zenefits to succeed. It has been motivating for me to see so many of you nod your heads when I lay out this vision.
So today, we will roll out the changes in operations that put us on the path to becoming the customer-centric company that we must become. Let me explain the four main drivers of these changes:
1. End to end ownership
o We have too many departments. For example, I remember one customer case that got bounced between teams because no one was clear about who “owns” it. From now on, ownership and accountability must sit together.
o When work gets passed around between highly specialized teams, some context gets lost in the transfer.
2. More empowerment = better customer experience
o Some of our colleagues engaged in hyper-specialized jobs feel stuck. They can’t see the whole picture / the whole customer.
o Instead of an assembly line where each person does one thing very well but doesn’t have ownership of the “whole car,” we are creating customer pods where craftswomen/men do the work end-to-end. We need to embrace the natural instinct to learn more and have a broad impact. Why? It’s great for the customer.
o There are some truly remarkable individuals in Operations at all levels. We owe it to ourselves to invest in that talent.
3. Reduce internal complexity
o Every now and then, we need to step back and ask - "Why is this done this way?" and change it if the answer doesn't make sense anymore.
o For example, we have rules about who can and cannot talk to the customer. These divisions were designed for a good reason - to ensure the customer hears from Zenefits via a single voice. However, in practice, the person who has the most knowledge often is not the same as the person talking to the customer. We must lead with knowledge and expertise.
4. Increase customer focus:
o We go to heroic lengths to do the right thing for the customers. It is truly inspirational. However, sometimes our silos can abstract us from our customers. A JIRA ticket = a customer that needs help. Too often, it can become “a work-item” that needs to be completed and when this happens, we become one step removed from the customer.
o We think that by empowering more individuals to own customer issues end-to-end, we will bring every team closer to our customers.
In an effort to execute on these objectives, operations will be organized in the following departments with the following leaders reporting into me:
· Broker services (all of our insurance operations) - Stephanie Ho
o Group services (combining BOR, renewals, AM, enrollments, custom plan loads)
o Member services (combining member processing, COBRA, carrier resolution, insurance support)
· Insurance marketplace (combining carrier operations and relations) - Colin Rogers
· Payroll services (payroll support will now report to payroll services) - J Zac Stein
· HR and Ancillary services (combining templates, FP, ancillary and HR/ancillary support) - Alli Tiscornia
· Quality (combining quality, audits and escalations) - Sarah Blanchard
There is a lot of change for all of us. These changes mean that some of you will be leaving us. I sincerely regret that we have had to make those tough decisions. For many of you, especially teams within broker services, you will have to make a transition from doing one specific thing for the customer, to ensuring end-to-end customer success. To help you with this, a team of 15 “blackbelts” who are experts in their domains will help train you.
Those of you that work on one part of “broker services” will have an opportunity to get licensed and go through BrokerU. For those of you who are unfamiliar, BrokerU is a comprehensive 2-month training program on the insurance industry and our insurance platform. It’s much loved, and produces what I like to call - “Ironman brokers” - i.e. smart individuals coupled with intense technology that excel as brokers. There are other benefits of going through BrokerU: doing so unlocks job opportunities within Zenefits and brings everyone closer to our core business.
My hope is that these changes enable us to live our three core values: operate with integrity, put the customer first, make Zenefits a great place to work. I am beholden to you to make this vision come alive and to realize our full potential. We have 20,000 small businesses out there that want to see us succeed and that are counting on us to help them.
I have a favorite quote from Abe Lincoln from which I have found inspiration over the last month especially: "The dogmas of the quiet past, are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise -- with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country."
Looking forward to the path ahead and to talking with all of you in the coming days.
This article originally appeared on Recode.net.