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HR software leader Zenefits looks to regain its mojo with 'Z2' launch

David Sacks, CEO of Zenefits.
Source: Zenefits
David Sacks, CEO of Zenefits.

After dealing with a lot of bad buzz, Zenefits is looking to get back to growing its business with a redesigned and expanded HR software platform.

"I think this month will be the month where we turn the page and move into the future," CEO David Sacks said Monday, a day before the company launched its online Z2 platform. The platform is tailored to help small businesses with a wide array of human resources tasks.

"A lot of people are going to be surprised by how a big a release it is, and I think it's going to force the entire HR industry to respond to it," said Sacks, a veteran of PayPal, and founder of the work-chat app Yammer.

In Z2, Zenefits is offering its own payroll service to customers for the first time.

Z2 also features a suite of fully integrated apps for a slew of functions, including expense reporting, stock options, performance management, recruiting and productivity. Zenefits has partnered with 17 companies to provide those apps — including Salesforce, Slack, Quickbooks, Expensify and eShares. It also has built Z2 to allow potentially hundreds of other third-party applications to be integrated into the system.

"Zenefits was the first all-in-one solution to the market three years ago," Sacks said. "What we're doing with this release is redefining what 'all-in-one' means, and the way to have that is through partners. There's no way that one company can do everything."

Z2 also will offer small businesses the ability to browse thousands of health insurance plans. To help narrow their choices, businesses will also be able to see how cost-effective those health plans are for individual workers, and how close geographically doctors in a plan's provider network are to employees.

Sacks is more than ready for the different-looking future that he believes Z2 will bring. For the past eight months, Sacks has been dealing with the fallout of a series of scandals at Zenefits, which had resulted in the then-chief operating officer taking over as CEO from Parker Conrad in February.

Under Conrad's watch, Zenefits had grown spectacularly with its HR software platform, eventually getting valued by investors as $4 billion.

But there were problems — a number of problems — at the San Francisco-based company.

First, it was revealed that many of the health insurance brokers Zenefits had on staff were not licensed to sell plans in states where Zenefits was operating.

Then, Sacks learned from Zenefits' lawyers that Conrad had written a piece of software — the so-called macro — that allowed company workers to satisfy California broker licensing requirements without actually doing the required work. That discovery led to Conrad's resignation, under pressure from Zenefits' board.

In the following months, there was a series of stories about the hard-driving, often hard-partying atmosphere at Zenefits, where big deals were celebrated with staffers gathering to down shots of alcohol.

A June 2015 email that Business Insider obtained revealed that Zenefits' director of real estate and workplace services admonished employees not to "smoke, drink, eat or have sex" in the building stairwells, where the building's manager reported that cups of beers, cigarettes and used condoms had been found.

During a recent interview with CNBC, Sacks still cringed about that email. He noted that Zenefits isn't the only the tenant in the building, so it's not clear that the company's workers were the guilty parties.

Still, he has overseen a dramatic transformation of the 3-year-old company during his tenure at CEO.

Sacks worked to quickly resolve the issues related to health insurance licensing by admitting the company was at fault, got sales staff licensed in every state where the company operates, and shed some of the behavior and people that were in place under Conrad.

Sacks banned alcohol in the Zenefits office. And about 350 people were laid off, representing about 30 percent of the staff.

But even as Zenefits was preparing to launch Z2, the company last week was issued a $550,000 fine from the Texas Department of Insurance for the use of unlicensed sales staff to sell health plans in the Lone Star State during Conrad's tenure as CEO.

The fine, which Sacks said Zenefits agreed not to contest, made Texas the ninth state that the company has settled with over issues related to licensing.

Sacks said "it's hard to know" how many other states Zenefits might need to settle with. But he added that "the major one is California," and he expects a settlement with that state to happen soon.

Despite the negative publicity that surrounded Zenefits earlier in the year, the company did not lose a significant amount of customers, Sacks said.

The company has more than 20,000 customers, he said. However, the mix of that customer base has changed after "we declared a focus on small business and we got out of the 'enterprise' segment,'" he said, referring to larger companies such as Netflix, that Zenefits had served.

And "while publicly we were fixing those compliance issues" related to the Conrad era, Sacks said, Zenefits' engineering staff was working on getting Z2 ready for launch.

Sacks said that many small business don't have their own comprehensive human resource systems. "By and large, they're still working out of small spreadsheets and file cabinets," he said.

Z2 "saves them a lot of time," he said.

Once a company enters data about an individual worker — such as name, address, pay and date of birth — into one app on Z2, that information is shared across the platform, greatly reducing the workload devoted to human resources, said Itai Turbahn, director of product management at Zenefits. "What's really cool about it is that we ask for this information once," Turbahn said.

Sacks said, "The power that I'm describing has previously only been available to large entities."

"We're really democraticizing this type [of service] for small business, so a small business can have their own HR suite," Sacks said.