The roller-coaster ride of a startup known as Zenefits is not quite done with its dramatic drops. The company is cutting 45% of its workforce, it confirmed to Business Insider after a report by BuzzFeed’s William Alden.
The full email sent to the Zenefits troops is below.
Most of the cuts — about 250 people — will be within its headquarters in San Francisco. Another 150 will be cut from its office in Tempe, Arizona.
The memo says a handful of others will also go — 430 people, all told.
Zenefits will have a workforce of about 500 when done. However, it plans to hire more people for its engineering teams in Vancouver, Canada, and Bangalore, India.
Zenefits offers HR software and sells insurance to small businesses, and it was known for some time in Silicon Valley for its skyrocketing growth. Venture capitalists plowed $582 million into it in its first two years, valuing it at a stunning $4.5 billion.
With all that cash, the company quickly crashed and burned. It hired like crazy, bloating its payroll to over 1,600 people, and chaos ensued, with no one knowing what other workers were doing. Zenefits became known for its parties, drinking during the day and taking shots to celebrate contracts.
Zenefits missed its sales goals, and founding CEO Parker Conrad was forced to resign after the company was found to have sold software in some states without proper licensing. The company also accused Parker of writing a software program that helped employees skirt the law when studying for their insurance licenses.
A year ago, COO and investor David Sacks took over as CEO and began whittling the company down, at first by offering employees a chance to voluntarily resign, then with rounds of layoffs. He renegotiated with investors to give them a bigger stake and cut the valuation to $2 billion. He put licence compliance in place, negotiated settlements with states, and released a new version of the core product.
In December, Sacks announced he was leaving, too. Some speculated he was leaving to take a role in President Donald Trump’s administration, as Sacks is close friends with Trump adviser Peter Thiel, who has acted as a liaison between Trump and Silicon Valley.
This week, Zenefits appointed a new CEO, Jay Fulcher. However, the company says this round of layoffs wasn’t his idea alone, and that it had been planned by the board and Sacks.
Here’s the full statement from Zenefits:
“Today, we took a hard but necessary decision to position Zenefits for long-term growth. We are saying goodbye to 430 employees. This has been planned for some time and is the result of a lot of hard work over the past year to improve our products and service and make the operations of the company more efficient. As a result, we have a dramatically improved cost structure, the ability to deliver a market-leading product roadmap that exceeds customer expectations, and enough cash to fund our operations for years to come.
“There are a number of important factors that went into our decision to reduce the headcount in our company.
“First, we decided to centralize our operations organisation in Arizona. Additionally, we will be partnering with third parties for some of the seasonal work we do around insurance operations.
“Next, we will be building out our product and engineering teams in Vancouver and Bangalore to better complement the already established and proven team we have in San Francisco.
“Finally, our market (small- and medium-sized businesses) is very cost sensitive and requires the lowest cost, highest value solution possible. These changes are going to allow us to continue to build and deliver the industry’s best all in one HR platform and service.
“Today’s actions have been planned for some time by the board, the prior CEO David Sacks, and the executive team, to put our new CEO Jay Fulcher and the organisation as a whole in the best position for long-term success. This reduction in force is consistent with an overall turn-around program that began a year ago to correct regulatory compliance issues, reset our culture and values, increase operational efficiency, and introduce a new SaaS product and business model. All of these changes gave us the opportunity to attract a top-notch operator like Jay Fulcher, who will lead the company to the next stage of growth and profitability.”
And here’s the full email sent by CEO Jay Fulcher to the staff.
LETTER TO EMPLOYEES:
Today we made some very difficult decisions about how we align our company for the journey ahead. We will be reducing our headcount by roughly 430 employees. These changes are company wide and impact all departments. You will be notified if you are impacted.
It is important to note that this is a reduction in force (RIF) – we are not cutting these jobs for performance reasons. We are saying goodbye to many talented people today that have helped build the company to this point, and it is through no fault of their own that we have to let them go.
In 2015, Zenefits grew too quickly, hiring employees to support revenue projections that far surpass where we are today. Today’s action aligns our costs more closely to our business realities and gives us the runway we need to build the business properly for the long term. It is part of an overall turn-around program that began a year ago to correct regulatory compliance issues, reset our culture and values, increase operational efficiency, and introduce a new SaaS platform and business model. Now we can responsibly grow the company in a way that is best for our customers, our employees, our partners and our investors.
This reset signals our move toward an operating model that is sustainable and better reflects the needs of our current business. We will relocate our operations organisation to Tempe, AZ. We will utilise a seasonal employment model for parts of our services organisation to accommodate the seasonality of our insurance operations. And we will build out our product and engineering teams in Vancouver and Bangalore to better complement the large team of engineers and product managers we have in San Francisco.
All of our colleagues that are affected today have given a piece of their heart to Zenefits. Rest assured, we will be doing all we can to make this transition for them as painless as possible, providing them a generous severance package and job search support.
It has been a winding road for this company, but I believe our best work and ability to be the best company we can be is ahead. Few start-ups have a second shot at success – and we do. We defined this market and we now have the opportunity to lead it. If we remain focused on the things that matter – building innovative products, creating great partnerships, and delivering outrageously good customer service and support – that’s just what we’ll do.
There has never been more demand for our product than there is today. Our product-market fit is as strong as ever, and our technology and vision is truly the best in the industry. Our customers want us to win and are rooting for us – they don’t want to go back to the pre-Zenefits days of paperwork and frustration.
This isn’t how any CEO would choose to spend his first week on the job, but I strongly believe these difficult decisions are essential in setting Zenefits up for success. One thing that has already struck me about the people at Zenefits is how much you care – for each other, and for our customers and partners. Zenefits has so much heart and that makes this week very difficult. But we will get through it together. We will grow stronger together. We will make each other proud as we grow this company together.
Correction: Business Insider previously identified the statement sent to us as the full email. We apologise for the error.