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Startup Spotlight: Zenefits

we take a look at the HR software company's success

12Jan

The startup community has yet to define the point at which it becomes unacceptable for a company not to have an HR department. With margins so tight, especially early on in company development, startups often don't see the need for an HR division. In many instances, this is justified. HR workers cost money, and a young company might not be recruiting enough people to warrant having a designated person to overlook the HR process.

HR isn't just about recruitment. It's also about keeping current employees motivated. Departments are often so big in multinationals that it's difficult for managers to give accurate individual feedback, but in startups, this isn't normally the case. This means that they can provide feedback regarding individual progress.

The HR process, however, is still arduous for small companies, and can divert attention from important projects. In 2013, Parker Conrad set up Zenefits - a free, cloud-based software package - to help small companies deal with HR more efficiently. It helps organize payroll, benefits, talent, compliance and general HR management.

The company has grown a lot since 2013. It now has 450 employees, with plans to add another 1,300 over the next three years. Zenefits already has 2,000 clients, which provide income by using their service to purchase healthcare, or, alternatively, to choose a payroll provider.

After raising $500 million in funding, the company's valuation rose to $4.5 billion, making it one of the most successful startups in recent times. It hasn't always been plain sailing though. In November 2015, Fidelity slashed the company's valuation by around a half amid failure to meet aggressive sales targets. In November 2015, the Wall Street Journal reported that the company had started to freeze hiring in a number of departments and that pay cuts were becoming increasingly prevalent.

With these cuts has come some of their own HR nightmares. Cromwell Schubarth, TechFlash Editor states: 'It [the business journal's source] said that some former employees now claim they weren’t paid for vacation time accrued before the change [after cost cutting moves], as required by California law.' This would be damaging for any company, but for a company which sells HR software, it leaves an even sourer taste in the mouth.

In an interview with Business Insider, Conrad has been keen to accentuate that while there are reports implying his company's demise, nothing could be further from the truth. He said: 'we were planning on being at 5X our ARR from last year, and we are today more than 4x our revenue from a year ago. I think there’s literally no company that has grown that quickly,' all showing that the Fidelity valuation might not be as reliable as once thought.

As one of the world’s fastest growing startups, Zenefits could disrupt the HR division and change the way companies both hire individuals, but also keep their employees happy.

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