At the age of 34, Parker Conrad’s life has been so fantastical, so filled with highs and lows, that it sounds like a made-for-TV movie.
As the cofounder and CEO of Zenefits, today he’s a Silicon Valley golden boy, a major success story.
Zenefits could be the fastest-growing cloud company ever — and in terms of revenues, too, not just freemium users.
“We launched in May 2013 and by the beginning of 2014, (8 months later) we were at a $US1 million of run-rate revenue,” Conrad tells us.
A year after that, at the end of 2014, Zenefits was at just over $US20 million in run-rate revenue, and the goal for this year is $US100 million.
“As far as we can tell, we’re the fastest growing SaaS out there. Salesforce is one of them, Workday is another, and it took those guys four years to get to $US20 million. We did it in less than two. It took them five to six years to get to $US100 million. We’ll do that in less than three,” he says.
And his team would know. Zenefits has raised $US83.6 million in three rounds from such backers as Lars Dalgaard, currently a VC for Andreessen Horowitz. Dalgaard famously sold his own fast-growing cloud startup, SuccessFactors, to SAP for $US3.4 billion in 2011.
An insanely lucrative business model
San Francisco-based Zenefits is on fire because it offers an easy-to-use free cloud service for human resources functions — onboarding, payroll, benefits, vacation tracking, and so on.
The service is free, and Zenefits makes its money from providing benefits — for example, companies can use it to purchase health insurance. Zenefits is the insurance broker, taking a broker fee. But even if they don’t buy such things through Zenefits, the service is still free.
It is to the insurance industry what Uber is to the cab industry and Airbnb is the hotel industry. And it’s got the insurance industry in an uproar. It even got banned in the state of Utah after insurance brokers lobbied the Department of Insurance. The Utah state legislature is working on a bill to make Zenefits legal in Utah again.
Zenefits is so hot that in December, PayPal mafia member David Sacks became an investor, and an employee, signing on to become COO.
Sacks sold the last startup he co-founded, Yammer, to Microsoft for $US1.2 billion in 2012. He’s also one of the most successful angel investors around. Sacks doesn’t have to work at all, much less work for someone else. Nabbing him as COO shows just how impressive this startup is.
Conrad’s life wasn’t always so wonderful
This fast success feels “incredibly exciting, really thrilling, often overwhelming, of course and stressful,” Conrad tells us.
But just two years ago, in January 2013, the day he incorporated Zenefits, Conrad was at a very low point.
He had just been fired from the previous startup he co-founded, SigFig (originally called Wikinvest). His college friend and co-founder kicked him out.
And this was just another humiliatingly low moment in a roller coaster career peppered with them that including flunking out of Harvard and getting cancer.
His roller-coaster story is inspiring to anyone struggling through a rough time.
From wunderkind to Harvard flunk-out to cancer
Although he’s got plenty of smarts, his high school grades were mediocre.
“But then I did this thing called the Westinghouse Talent Search, now called the Intel Talent Search, where I spent about 2 years doing research on neuroscience lab and I ended up coming in third place in that nationally.”
That helped him get into Harvard where he joined the college newspaper, The Crimson, which he loved. He was eventually named managing editor.
“I was spending all my time at the Crimson, like 70 hours a week and I didn’t go to class for like a year,” he said.
“But then I failed out of school. I had to leave Harvard, really halfway through my tenure as the Crimson managing editor. It was this incredibly humiliating and shocking experience.”
He returned a year later, graduated, and got a great job at biotech firm — Amgen — based in Southern California.
“I had a very great stable life, where I was living two blocks from the beach in Santa Monica. I felt like I was a big star in the company. I was very, very junior, but felt like I was moving up and getting lots of attention,” he says.
Shortly after college he got, and got rid of, testicular cancer.
Living in an old-folks home
He was starting to get frustrated with the slow pace of advancement at Amgen when his old college roommate called — a guy he used to do day trading with in the dorms. He wanted to do a startup.
“We had this idea of starting a Wiki for stock research. So I left my company, left LA, and moved to San Francisco.”
With no job and no money, they moved into “an old folks home” in Walnut Creek, a retirement community called Rossmoor.
His co-founder’s grandparents had an apartment they weren’t using, so they lived there for free.
One catch: No one under 65 was allowed to live there, so “we were sneaking in and out each time,” he explains.
“We lived there for about six months. It was by far the worst six months of my life. There was a store outside of Rossmoor that was literally called ‘A Better Denture’ right outside the gate.”
He admits, “It’s a funny story now — but I sort of felt then like my life fell off a cliff. I had this great life, living situation in Santa Monica, a great job. Suddenly, I’m living in the old folks home, trying to do something like god knows what, to get something off the ground, not having any idea what we were doing.”
Fired from his own startup by his co-founder
Being broke and stressed out at his startup “sort of stayed like that for like five or six years, to be totally honest.At Wikinvest, which got renamed Sigfig, we were constantly just two or three months away from not being able to make payroll. We constantly pivoted, two or three times.”
He and his co-founder were co-CEOs, “which everyone will tell you is a very bad idea. Eventually, there was a critical juncture where Mike’s family put in a whole bunch of money and part of that agreement was that he would become sole CEO. He and I really started not getting along after that. And not long after that he fired me.”
He continues, “And to really make the situation really bad, I stayed around for another year, working at the company, closing out some deals and finishing up some stuff, which was incredibly unpleasant.”
There was only one way to go.
“So when I started Zenefits, I was kind of at the bottom. I had been fired. I left in disgrace. And I was thinking, ‘How am I going to do this to come back from this?'”
The day he left SigFig, he incorporated Zenefits and launched the company on a shoestring. He had about $US20,000 saved up from his exit, but his wife had a job so they could live on her salary while he tried to get the company going.
Resentment leads to a great idea
The idea of Zenefits came from SigFig, which at its height had about 30 employees, too small to hire an HR person.
As a former cancer survivor, he was vigilant about health insurance, and employees always asked him for advice since he knew so much about it.
“There’s a lot of just administrative work that comes along with having employees,” he says. “It was like a couple of hours every month, and it was a couple of hours I deeply resented. I felt like, ‘Man, if this stuff was all connected up and all integrated and all worked together than a lot of this stuff would go away. It could run on its own.'”
For instance, the only way to enroll a new employee in the insurance program was to fax the form in. He had to go to Kinko’s to do that because the company didn’t own a fax machine.
After he launched Zenefits, Conrad taught himself to code (Python), just enough to build an early version of his idea for Zenefits. “I was non-technical at the last company, and I’m still obviously a sh–y engineer.”
He was accepted into the Y Combinator program in 2012 and once in, he took on a co-founder, Laks Srini, a top engineer from SigFig. He hired a bunch of others away from SigFig, too.
To build the Zenefits site, he talked to a lot of insurance brokers and others, trying to find out why the paperwork was done the way it was. That’s when he discovered how much money they all made.
And inspiration struck: the “hub and spoke” business model. Give Zenefits away for free and charge for services it could sell them.
“The insight in our business model is that if you could be the hub, it’s such a powerful place to occupy that you could make so much money off all of the spokes that you can give the hub away from free,” he says.
Failure’s biggest lesson
In less than a year he had proven the model.
By year two, it grew its user base 1,600%, and signed up more than 2,000 companies across 47 states, serving over 50,000 employees.
The two-year old company currently employs 570 employees, mostly in San Francisco, and has launched a new office, in Phoenix, housing 200. Right now, there’s no end in sight to the growth.
Although he wouldn’t share the company’s valuation, we would not be shocked to hear investors call it a $US1 billion, if not now, then very soon.
What has he learned from it all?
“The only thing I learned is that failure sucks and you never want to do it. There’s not a lot to be said for that particular lesson,” he laughs.