A lesson in doing the right thing — David Sacks & Zenefits
Steve Jobs and Larry Ellison, founder of Oracle used to walk regularly together. On one of those walks, Steve told Larry about his plan to go back and lead Apple again. Larry suggested that he didn’t see how they could make any money out of the deal that Steve was proposing.
Jobs then said to Ellison: “Larry, this is why it’s so important that I’m your friend. You don’t need any more money. … I’m not doing this for the money, I don’t want to get paid. If I do this I need to do this standing on the moral high ground.”
I believe that Steve’s motivation played a large part in why Apple became the most valuable company in the world. He wasn’t motivated by greed, he was led by a deep desire in himself to do what was right.
Zenefits, the four year old HR startup that set a revenue goal of $100m in it’s third year, had been set on a growth at all costs approach to scaling the business.
Zenefits created a software platform that allows you to manage staff payroll and benefits such as 401k (known as superannuation in Australia). Customers could use their platform for free, provided they chose an insurance provider that was listed in the platform, which in turn triggered a commission from the insurance company to Zenefits. They grew to 1,000 staff in just two years and investors were jumping over themselves to get onboard as the valuations climbed to $500m, and then to $4.5b just 11 months later. The valuation was based on a long term projection that the company said it could deliver on. Revenue was $20m a year up from $2m the previous year.
I watched Zenefits grow with great interest. I listened to interviews with the founder, Conrad Parker, and a presentation on growth by his Chief Marketing Officer. They were going after hyper growth and they could see their pathway to hundreds of millions of dollars a year in revenue.
I am not sure if the founder was motivated by solving a big problem, or if he was more motivated by creating a company that was valued at billions of dollars, but one thing that is obvious now, is that the company lacked ethics in pursuit of growth at all costs.
As part of their legal obligations, each Zenefits representative in California was required to pass an online course, which took 50 hours, before a representative could offer insurance products. The founder, Conrad, wrote a piece of software that bypassed the online process and allowed people to pass the course without completing the work. This was a big mistake, that brought the company to it’s knees.
Stories have emerged of large drunken parties to celebrate big customer wins, limited internal checks and balances, and a general lack of respect for regulatory obligations. It was what I imagine “growth at all costs” looks like in a tech company.
Since this has emerged, the founder resigned, and the COO at the time, David Sacks, (founder of Yammer) became CEO, and a public cleansing has taken place. Investors threatened legal action, citing that they were not advised of the unlawful conduct at the time they invested. David Sacks fixed that, by reducing their previous funding round buy price of $4.5b down to $2.5b, which gave them more shares. He personally handed over a significant portion of his shares to make the deal work.
Sacks reduced sales staff, he completed settlements with regulators and he has provided a real-time and very public turnaround of the company. His mantra of Admit. Fix. Settle. Repeat. has been a lesson in doing the right thing.
Rarely do we get to see such a public righting of the wrongs. Sacks has delivered in spades, and in the tech industry where “fail fast” is the mantra, Zenefits has demonstrated that ethics isn’t one of the pillars that should be put up for a failure test.
Steve Jobs did the right thing when he returned to Apple at a time when it would have been easier to walk away. The company was going to be declared bankrupt within months. David Sacks was faced with an equally tough decision at Zenefits and he chose the road less travelled. I look forward to watching the next chapter in their success.
