Zenefits: Unicorn Comeback?

Remember Zenefits — the cloud-based benefits-administration startup that was going to revolutionize the industry by providing a benefits platform to small and mid-sized businesses and which was valued at $4 billion just two years after it was founded? The high-flying unicorn plummeted back to earth amid revelations that Zenefits’ co-founder and CEO, Parker Conrad, led an effort to help the company’s sales reps skip over state insurance-licensing requirements so they could start selling as soon as possible. More fuel was added to the bonfire when details started emerging about Zenefits’ rowdy office culture, in which managers had to send out a memo specifically banning employees from having sex in the building’s stairwells. The company parted ways with Conrad, laid off hundreds of employees, and cut its valuation in half in order to avoid a lawsuit by investors.

Now the company is struggling to regain its once-lofty perch, but its got robust new rivals to contend with. In today’s New York Timestechnology columnist Farhad Manjoo interviews Zenefits’ current CEO, David Sacks, about its soon-to-be-released software redesign, the internal reforms he undertook to fix the company’s culture and its new branding campaign, which include billboards throughout Silicon Valley that ask: “What is Z2?” In the wake of Conrad’s resignation, Manjoo writes, Sacks worked hard to rebuild Zenefits’ reputation by being open and honest about previous wrongdoings, describing his strategy as “admit, fix, settle and repeat.”

But Zenefits’ path to redemption faces roadblocks in the form of  new, well-funded competitors such as Gusto, which has 40,000 paying customers and was recently valued at $1 billion, Manjoo writes. Gusto has a much different corporate culture than did the earlier incarnation of Zenefits, where the philosophy had been “ready, fire, aim”: Gusto is taking a slower, more deliberate approach to building its business under the leadership of its CEO, Joshua Reeves. Its offices “has the air of a meditative retreat,” Manjoo writes, with plants, couches and a ban on wearing shoes “to make it feel more like home than work.”

Yet regardless of whether Zenefits or Gusto ultimately prevails, this heated competition for the SMB market probably means the ultimate winners will be the small to mid-sized companies that had previously been unable to afford the sort of benefits-administration software that large companies have long enjoyed. Despite the sordid behavior that marked its rise, Zenefits’ early founders at least deserve props for being one of the first to use the cloud to help this long-underserved market.