Reading through a recent article on bloomberg.com by Claire Suddath and Eric Newcomer, I cant help but laugh…

First, a little background:

Our firm, SCI & Associates, is a Santa Clarita (Los Angeles), based employee benefits advisor, specializing in employee benefits strategy, online enrollment, and compliance for groups between 5-500 employees.

In early 2013, our team could sense a change was coming… The employee benefits space had rested in its laurels for far too long, and we knew that major disruption was going to force a huge change… With this inevitable shift coming, the last thing we wanted to be, was complacent for the next few years, only to look back at missed opportunity to use technology to serve clients and prospects. So we sought new direction, with a focus on online benefits administration (HRIS platforms really…).

After a bit of searching, we came across a small company named Zenefits.. At the time, Zenefits had roughly 20 employees, and were offering a “complete” HRIS platform at no cost to anyone who’d appoint them as their benefits broker. Not only were they attempting to disrupt employee benefits management, by bringing everything online… They also planned on taking the whole HR department, and bringing everything online.

The idea of using commissions, which the carriers pay brokers to assist groups, was brilliant! Afterall, how many groups are there who seldom hear from their broker anyway? (At least this was the train of thought.)

This was it!

We had to partner with them.

So over the next few months, we kicked off a seemingly endless stream of phone calls and emails to Parker, Laks, and Matt. Anyone who’d listen to us really.

They finally gave in.

So off we went to bring the (unknown at the time) Zenefits solution to the marketplace. We re-branded, opening a new company called “HR Brilliance”, which served as a fresh brand to coincide with Zenefits. No simple DBA would do for this new venture. HR Brilliance was it’s own entity. Ready for war. This was initially supposed to be a white label version of the Zenefits platform.

Sounds pretty good so far right?

Well, as the story goes on, the partnership didn’t work out. The white label solution was never delivered, and we quickly discovered that our business philosophies were very different. Sure, our people and the Zenefits crowd both valued the idea of bringing an online benefits and HR solution to the marketplace, but that’s about where our similarities ended.

Fast forward to 2016, and our firm has moved on. We’re now in a partnership with Maxwell Health, and offer their industry-leading employee benefits information system to each client we serve. This is a night and day turnaround from the days with Zenefits. In fact, we’ve come to believe, this approach of combining best-in-breed online enrollment technology, with time-vetted benefits expertise from a firm like ours, is the only way a company’s best interests are served. This division of roles is not only ideal, but necessary, as we continue to cope with today’s complex and constantly evolving health care and legislative environment. Well… At least for companies with more than 5 employees.

Back to Zenefits.

What makes the Zenefits story so interesting?

We believe it’s the fact that Zenefits has gone so far out of their core-competency (benefits), to fund what they actually do pretty well (software).

In the very early days, Zenefits had average group sizes of roughly 10-12 employees. While this was surely challenging for a group of people with limited experience in the employee benefits space, the level of complexity you see with 10 employee groups tends to be much different than say, a 100 or 500 employee group. As group size increases, the service and technology needs to accommodate increasing complexity.

The Bloomberg article I mentioned earlier says it perfectly:

“Zenefits makes online software that automates health insurance, payroll, and other essential office drudgery—kind of a human resources version of TurboTax”

Bingo.

Zenefits is indeed the Turbo Tax of the employee benefits space.

Now, Turbo Tax is great – As long as it’s used for the right application right?

It gets the job done, offers some limited guidance… But ultimately, we all accept that using Turbo Tax means you’re on your own for the most part.

Because software, once designed and functioning well, scales relatively easy. The heavy lifting is done early, then you can grow at a huge pace.

Excellent customer service, in a complex space like benefits… Does not scale in the same way at all. There’s heavy lifting to do before you start, then you need to continue to provide custom tailored service on a continual basis. So yeah… Not the same as software.

This is the problem that Zenefits didn’t seem to fuly comprehend when taking on the role of a benefits advisor. The role as “trusted advisor” is not to be taken lightly. In the employee benefits advisor space, we understand this role to include developing a deep understanding of our clients… Taking the time to consider every variable about their business possible, then making informed recommendations based on all of this. In other words, helping clients with their benefits enrollment has never been simply a logistics problem. Sure, benefits enrollment (actually getting employee’s selections to the carrier) is extremely important. And sure, it can absolutely be improved by using a killer employee benefits information systems, but that’s really only one small part of the employee benefits experience. That’s the LAST part of a rigorous and comprehensive process… Not to be confused with the process itself.

After all, you might have a killer enrollment platform, but if employers aren’t given the best advise on the plans to offer, employees don’t understand which plan works best for their lifestyle, then who cares how smooth the enrollment software or experience is??

And if that’s not enough, what if the enrollment information isn’t transmitted or entered correctly on the back end? What if the carriers don’t receive all the selections your employees had intended in the system? Then you really have a problem. This is a huge problem because there are actually many systems in our space that do online benefits enrollment really well. And a select few tech companies choose to offer their software solution through experienced broker partners who really know how to dig into your company’s unique needs and offer a benefits strategy accordingly. What this reveals is a simple truth about our space: A holistic approach to employee benefits services means bringing the employee benefits advisor together with the right online enrollment platform. One cannot substitute the other. Online enrollment, in fact, should only be scrutinized after the advisory services are solid. (And I say this at a firm that values online enrollment to a high degree.)

So, with issues in these all-important areas, Zenefits is in hot water indeed.

This is not even factoring in the various compliance issues at the company lately. That’s a whole separate blog post! (But it is interesting to note… If they’re not taking their own compliance seriously, are they really capable for being engaged in the compliance needs of their clients??)

Here’s the ironic conclusion for today’s post:

By chasing carrier commissions, and thus, the role of a benefits broker, Zenefits has forced themselves into a very precarious position. The money looked easy at first, but we can safely assume, after all the issues they’ve encountered over the last year, Zenefits would no longer refer to the broker role as anything close to easy. Sure, if Zenefits had pursued an alternate way of charging for their service (monthly PEPM pricing or partnering with brokers) they would most likely have scaled much slower… But they’d likely be in a better position for continued growth over time. This doesn’t make for fun Techcrunch headlines, or astronomical VC returns necessarily… But would the companies using the software been better off this way? We’ll never know.

To summarize, I’ll turn to a well known saying among car people. Sorry… I’m a car guy…

Fast… Cheap… Realiable… Pick TWO…. You want fast and cheap? That’s great as long as you’re ok walking to work from time to time!

Online benefits and HR aren’t so different are they?

Outstanding service, Industry leading tech, Free… Pick two.

That is… Unless you partner with an experienced broker, who happens to partner with an industry-leading tech company like Maxwell Health… Be sure to click below to learn a bit more about the best alternative to Zenefits available.

-Nolan Waterfall

SCI & Associates