
Zenefits Scandal Highlights Perils of Hypergrowth at Startups - tpatke
http://www.nytimes.com/2016/02/18/technology/zenefits-scandal-highlights-perils-of-hypergrowth-at-start-ups.html
======
throwaway-zcs
It's so convenient for everyone if this is all on Conrad. Mr Sacks did an
excellent job of throwing Conrad under the bus, but as COO for 16 months, a
board member and with a desk adjacent to Conrad and a seasoned guy, it strains
credulity that he didn't know. There's some schaudenfreude here (and an
anonymous account) because these guys all acted like they were smarter than
everybody else. I hope regulators do a real investigation and I suspect Mr
Sacks will come out more culpable than he would have you believe.

~~~
mathattack
My guess on this situation... You have a group of people sitting around the
table saying, "If we do nothing, the value of the company goes to zero. We
have to do something visible and credible." Conrad had to agree to jumping on
his sword - as the largest shareholder, he has the most to lose if the company
goes under. So he jumps on the sword, and lets everyone kick him while he's
down, because it increases the likelihood that the company survives.

I have no real information though, so for all I know he could have been
stabbed in the back instead.

------
gkoberger
It's interesting how Uber, Airbnb and Draftkings blatantly broke laws and won.
They set the precedent that if you're growing fast enough, the laws will
change to fit you.

Didn't work out that way for Zenefits. They seemingly lost.

~~~
___ab___
I think the reason that {Uber, AirBNB, DraftKings} succeeded in flouting the
law is that they operated in industries that are consumer-facing, and where
the cost of regulation is obvious to consumers.

Many people understand that taxi regulations (for the most part) negatively
affect them, and in many cases are extremely frustrated with them: see
Washington, DC. Most people aren't familiar with and don't care about the
company that manages their health insurance, and as a result there's little
public support.

~~~
pron
Exactly, but I'd phrase it a bit differently: when it comes to taxis and
apartments, regulations are bad for _you_ , the consumer, and good for the
people in your community (taxi drivers, neighbors), while in insurance,
regulations directly protect the consumer.

Because people (especially in the US) couldn't care less about other people,
regulation that annoys consumers is "bad", and the consumers then defend the
companies breaking those particular laws. Those companies exploit the fact
that in _every_ industry, consumers always outnumber providers (or conversely,
every person consumes from many more industries than those where they
provide), and so the disregard for this kind of regulation will always work.
Every new company will get consumers to gang up on the far fewer incumbent
providers until they break the regulation that protects them, and so on,
industry by industry.

It's a little like the robber barons, who used every new wave of immigrants to
beat up the previous generation of immigrants who tried to unionize, and then
hired the new ones in their place... that is, until the next wave of
immigrants. Except the new way of doing this is far more effective, because
it's always easy to obtain a majority that supports you _and_ feel like
they're doing the right thing at the same time.

~~~
lazerwalker
For the most part I think you're spot-on, although it's worth emphasizing the
nuance that not ALL taxi/hotel regulations are bad for the consumer.

Most of the AirBnB and Uber horror stories you hear are things that don't
happen, or happen far less relative to the overall volume, in a world of
licensed taxis and professional hotels/B&Bs.

Does the good of current regulations outweigh the bad? Likely not, in many
cases. But there are reasons (at least some of) these regulations exist
outside of capitalism being terrible and the successful trying (and
succeeding) at pushing out competition.

~~~
nommm-nommm
I would argue that many (most?) housing regulations are good for the consumer.
My landlord has to provide me with a safe and structurally sound place to
live, which is good for me. If my heat breaks in the winter he's obligated to
fix it, he can't evict me and leave me on the streets on a whim, or turn off
my water if I am late on the rent, etc. Laws around security deposits are
usually good for the consumer as well. Nobody wants what is referred to as a
"slumlord."

Landlords often are annoyed about regulations (and some tenants unfortunately
abuse them) but many came about because of the abusive practices of the
slumlords.

Our society deems having a safe place to live pretty essential so landlords
have a massive amount of power over their tenants if unchecked.

------
rifung
It seems like a recurring theme in these "scandals" is that if you put too
much pressure on your executives, they end up either quitting or doing
something they shouldn't be doing in order to keep up with your demands.

Another example is with VW and their diesel emissions.

I feel like people just have a difficult time saying they were wrong or
pushing back and saying they can't do something. I am guilty of this myself.

~~~
mcguire
"You" who?

The system can be as rotten as you like, but in any particular case, at some
point, someone said, "Let's start cutting corners."

~~~
bsder
> The system can be as rotten as you like, but in any particular case, at some
> point, someone said, "Let's start cutting corners."

Yes, but... Normally things like this build up gradually from "just one step"
on something that is patently stupid.

And, let's face it, if you can get a certification from an online course, it's
stupid, prima facie.

So, you need to get one more person online to file benefits. Get them
certified. Okay, these certifications are stupid and any idiot can sit through
these. Okay, let's get the same idiot to sit through each one. Okay, we're
still not getting certified fast enough. Okay, hire more idiots to sit through
this. Okay, but they'll have to learn this. Okay, let's put some programmers
on this so we only need one idiot to do things on multiple sessions. Okay, now
that we have the macro, we don't need the idiot anymore. etc.

If the feds weren't clamping down on this, everybody would be singing their
praises like Uber and AirBnB.

It's all about the bandwagon, baby.

------
stygiansonic
From the article:

" _Growth broke stuff. To increase revenue, the company moved beyond small
businesses to customers with hundreds of employees — and the software
struggled to keep up. Instead of pausing to fix bugs, Zenefits simply hired
more employees to fill in where the software failed, including repurposing
product managers for manual data entry._ "

From a different article about the downfall of Target Canada[1], which also
suffered from trying to ramp up too fast:

" _Getting the details from suppliers largely fell on the young merchandising
assistants... “There was never any talk about accuracy,” says a former
employee. “You had these people we hired, straight out of school, pressured to
do this insane amount of data entry, and nobody told them it had to be
right.”_ "

Don't underestimate the proliferation of data entry jobs, especially when
there is chaotic growth/lack of a proper plan.

1\.
[http://www.marketingmag.ca/?p=166300&preview=true](http://www.marketingmag.ca/?p=166300&preview=true)

~~~
Lawtonfogle
>“You had these people we hired, straight out of school, pressured to do this
insane amount of data entry, and nobody told them it had to be right.”"

My first guess is that it was worse than this. The people doing data entry who
took the time to do it right were likely showing up as doing worse on what
ever metrics were being ran and were replaced by people who were fast but
error prone. Bad metrics leading to bad optimizations.

------
yummyfajitas
I wonder why "The Macro" doesn't also highlight the perils of clueless
regulators imposing moronic laws on HR departments.

The specific law that Zenefits violated was a law insisting that before
selling insurance, your employees need to sit at a computer and click "next"
for 52 hours. Once they've clicked "next" sufficiently many times, only then
are they permitted to take the exam to determine whether they have enough
knowledge to sell insurance.

Shouldn't this scandal also highlight the perils of a regulatory state?

~~~
maxerickson
Modest amounts of wasted time? Oh no.

I suppose one way to estimate how onerous this requirement is (I agree that to
the extent it is arbitrary that it is dumb) would be to compare how much
compensation the insurance license makes available to how much compensation
spending the equivalent time learning a skill like welding makes available.

(I think most people wouldn't be very good at welding after 50 hours of
training and practice)

~~~
yummyfajitas
All you propose measuring is the _individual_ benefit to sitting through
training. That's a terrible way to measure the social cost of a bad
regulation.

The social cost is 52 hours of productive output from moderately skilled
employees. (Or moderately less - if learning the material takes 20 hours, then
the waste is 32 hours assuming people can simultaneously learn the material
and click.)

The right thing to do is simply make people take the test, and if the test
isn't accurately measuring people's insurance selling ability, fix the test.

~~~
st3v3r
And what's the social cost of unlicensed, untrained people selling insurance?
What's the societal cost of people who have not studied selling insurance that
they might not understand?

~~~
yummyfajitas
I don't see a very high social cost from licensed insurance salespeople who
passed the exam selling insurance. Do you? If so, what is it?

Again, note that we are discussing _spending 52 hours clicking through a
powerpoint_ before you are allowed to take the test to get the license.

~~~
st3v3r
"I don't see a very high social cost from licensed insurance salespeople who
passed the exam selling insurance. Do you? If so, what is it?"

How do you know that they passed the exam? They told you?

"Again, note that we are discussing spending 52 hours clicking through a
powerpoint before you are allowed to take the test to get the license."

No, we are not.

~~~
yummyfajitas
All anyone has accused Zenefits of doing is using a macro to prevent people
from being auto-logged out of training. E.g.:
[http://www.buzzfeed.com/williamalden/zenefits-program-let-
in...](http://www.buzzfeed.com/williamalden/zenefits-program-let-insurance-
brokers-fake-training#.qmexedRMl)

 _The Macro functioned to keep a person logged into the course and prevented
the person from being logged out for inactivity. The Macro did not advance
through the required material or quizzes in the education course — the Macro
only kept the person logged in. The Macro only pertained to the prelicensing
education course and did not affect the broker exam taken later._

If you have even accusations of some other activity (let alone evidence of
it), go ahead and post it.

~~~
manigandham
Have you not read any of the articles? The cheating on the time is just one
issue. They had unlicensed brokers selling insurance in two states, which is
an actual crime.

------
GCA10
Rhetoric aside, isn't this really just another example of "... Highlights
Perils of Hard-Charging CEOs"? It's that simple. We can wander far from fast-
growing startups and find the same kind of conduct anywhere in business.

The guy running my corner grocery store decided to set up a sit-down cafe
without getting a city license. The folks running a nearby office suite are in
no hurry to put in city-mandated sprinklers. Business founders/owners like to
get things done without asking permission. That's how they roll. Trying to
invoke unicorn valuations, VCs, etc. is silly. It's a classic case of finding
an exciting anecdote and trying to attach causality theories after the fact.

~~~
unoti
> The guy running my corner grocery store decided to set up a sit-down cafe
> without getting a city license.

The guy at the corner grocery store isn't discussing my employee's private
medical records with me in between slamming down hits on the beer bong.

~~~
mdonahoe
Are you referencing something in particular with this beer bong comment, or
just being hyberbolic?

~~~
untog
Reasonably sure it is exaggeration for comic effect. We are not in a court
room.

~~~
mcguire
Bam! mdonahoe is overruled!

------
coldcode
Being good at starting a company and raising funds is no guarantee of being
any good at running a company. Add to that growth from 15 to 1600 in two years
is also likely to be a massive failure. Add to that insane pressure from
investors to do the impossible (that you promised). I've seen a lot of people
crumble at a much smaller size.

------
chillingeffect
Come on now, NYT, there is virtually no evidence of corruption at startups
being any worse than any other business or human endeavor. NYT, you're just
spreading FUD because people look to you for guidance and you need to respond
to their fear.

Yes, these guys (Zenefits) were, in one area, dishonest and cheated. But it's
not like Cigna, PacTel, BoA, Citizens and zillion other companies are paragons
of virtue. Nevermind Volkswagen.

[1]
[https://en.wikipedia.org/wiki/Accounting_scandals](https://en.wikipedia.org/wiki/Accounting_scandals)

[2]
[https://en.wikipedia.org/wiki/List_of_corporate_collapses_an...](https://en.wikipedia.org/wiki/List_of_corporate_collapses_and_scandals)

------
jmckib
Alternative title: "Zenefits Scandal Highlights Perils of Excessive
Occupational Licensure". What exactly is the purpose of requiring a license
for selling insurance? If consumers desire some assurance of quality in their
insurance brokers, then certification, not licensure, would be sufficient. The
only justification for licensure over certification is a paternalistic one:
consumers are simply too ignorant to choose their own insurance brokers, even
if some are certified and some are not. As Milton Friedman said in Chap 9 of
Capitalism and Freedom, this argument "amounts to saying that we in our
capacity as voters must protect ourselves in our capacity as consumers against
our own ignorance."

This isn't to say that Zenefits hasn't made a huge misstep for seemingly
little benefit (bypassing a 56 hour course?), but I wish there was some
discussion of the absurdity of the law that was broken alongside the bashing
of Zenefits for breaking it.

~~~
CPLX
Insurance is _important_.

Unlike many other consumer products you really don't have any idea what you're
buying until after you've bought it. Making an incorrect or misled choice in
health insurance is sufficient -- literally -- to completely ruin your life
financially in a matter of hours, or cause unnecessary death via untreated
illness.

If you want to claim that you can read a health insurance policy binder and
understand it be my guest. I am a frequent writer and editor of technical
literature and capable of writing code and I have a pilots license and I find
health insurance policies almost incomprehensible.

We make sure that you don't get a bad _haircut_ by requiring licenses for
barbers. You can't fix my sink or chimney without licensing. We require
licensing and testing to act on someone's behalf in the legal system, and in
nearly all sales of securities, and of financial products, of which insurance
is one mind you.

If Zenefits wanted to make an in-public argument that these rules are not
necessary they were free to do so. I would have disagreed, and I'm sure others
would have shared my opinion. Maybe they could have won the argument.

They didn't do that. They aren't righteous crusaders passionate about consumer
choices and regulatory issues, they're opportunistic business people who broke
the law and committed fraud instead of following the rules or working to
change them.

~~~
yummyfajitas
Since you would have disagreed, can you explain why you think 52 hours of
clicking "next" is a necessary step in becoming a broker?

Zenefits employees did pass the exam, and they possess the knowledge you
believe is necessary. It's just that the law requires 52 hours of clicking
before you are even permitted to take the exam. Why do you think this is a
good law?

~~~
CPLX
You're being disingenuous.

The requirement isn't "clicking next for 52 hours" it's spending that amount
of time studying an online course. You're required to actually pay attention
for 52 hours and then certify that you did.

For another example, the requirement inherent in a multiple choice exam isn't
a matter of "filling out a semi random sequence of the letters A, B, C, and D"
it's _knowing the answers to the test._

The filling out the letters is a signal that you know. Signals aren't perfect,
in that example if you don't know but copied answers from someone else that's
cheating and the signal would be unreliable then, and you've subverted the
actual intended requirement.

The requirement in this case is _spending about a week of your life actually
studying this material_ and the clicking of the next button as well is a
signal that you did it.

Don't confuse the means with ends. You could have argued that the amount of
hours spent studying the material is also a useless metric. But that's a more
nuanced argument that you haven't made, and one that has defensible positions
on both sides.

Clearly clicking next isn't a meaningful requirement, but so what, it's not
actually the requirement. Spending time studying is, and they cheated and lied
about it.

~~~
yummyfajitas
What the law actually requires is clicking for 52 hours.

But lets take your claim as a premise; why is it important that a person spend
time learning? Suppose two people know the material equally well, but one of
them learned it faster than the other. Why is that a good regulation? How does
it benefit consumers to make it illegal to learn things fast?

I know a former algebraic geometer (lots of category theory) who learned
Haskell very rapidly. Would it benefit consumers of his services to pass a law
saying he needs to learn Haskell at a slower rate comparable to a RoR hipster
without a math PhD?

~~~
CPLX
I'm going to go out on a limb and guess you have no idea what the law actually
requires in detail. It's ok neither did I. Here's an example of what it looks
like, there is a _lot_ more on the linked pages, which collectively comprise
the actual requirements:

[https://govt.westlaw.com/calregs/Document/ID813F6A0622011E4A...](https://govt.westlaw.com/calregs/Document/ID813F6A0622011E4A9828577DD5F1BF2?viewType=FullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=\(sc.Default\))

> why is it important that a person spend time learning? Suppose two people
> know the material equally well, but one of them learned it faster than the
> other. Why is that a good regulation? How does it benefit consumers to make
> it illegal to learn things fast?

I don't know. But I do know that basically every educational institution
requires some level of engagement measured in time. You can't just pass tests
to get an undergrad degree or a PhD either. The requirement to spend actual
time is hardly cruel and unusual.

I also know that the requirements were clear enough to be known to Zenefits
and they willfully evaded them.

What is the difference between a Harvard graduate in Economics and someone who
attended and completed all the requirements for an Econ degree but was short
one art elective class and never got a degree? Should he just fudge his job
applications since the art class isn't important?

What's the difference between someone assigned 100 hours of court ordered
community service who did it and someone who went back to court with forged
paperwork saying they did it?

In all the examples, and Zenefits as well, the difference is that the person
is committing fraud, is lying, and is not ethical.

Cheating on requirements isn't the same as arguing to change the rules,
regardless of how confused you continue to pretend to be about it.

~~~
dsp1234
_You can 't just pass tests to get an undergrad degree_

Yes you can. Almost every school has a procedure for taking a test or
convincing a professor that you have the knowledge the class provides. You
still pay the cost of the course, but do not actually attend it.

Getting my degree many, many years after entering the field, I skipped a huge
swath of undergrad classes this way. Stuff like non-computer related classes
was all that I needed to do 'in person'.

In other words, I skipped 'pressing buttons' for a large chunk of time due to
fact that I knew the material and could prove it.

The main difference to the above being that the school recognized that it was
possible for a student to understand the core material completely without
taking the class, and the above rules do not admit that possibility.

~~~
frotak
_Getting my degree many, many years after entering the field_

So would you say you had experiential learning in the subject matter of the
classes you were being allowed to skip after demonstrating both evidence of
this experiential learning and the attendant competency?

Testing out of a course due to earned knowledge is different from passing a
multiple choice exam with Cliff Notes awareness of the material.

~~~
dsp1234
_is different from passing a multiple choice exam_

Some of the classes did just have multiple choice tests that would have been
easy enough to 'Cliff'. Though it's not really relevant to larger discourse.

That still doesn't change the facts of the original situation. The test is the
determining factor of whether or not they 'completed' the course. Indeed,
someone who 'Cliff'ed the notes, and passed the test, and watched Netflix on a
second screen while pushing all of the right buttons would still be accepted.
Which is the ultimate failure here. Either the time limit is necessary and
can't be skipped (due to the physical limitations of some inherent process),
or the time limit is artificial and the actual possession of knowledge is
sufficient.

Who is served by putting an artificial time limit in place that does not
actually prove knowledge of the material?

------
Pxtl
Wait, all it did was prevent auto-logout? That's it? Seriously?

~~~
ritchiea
It does seem to be low scale cheating but a culture of writing and
distributing internal software to cheat on tests required for certification
sounds toxic.

~~~
jmckib
Someone correct me if I'm wrong, but I believe they were cheating on the
broker license course, not the exam. It would be similar to skipping a class
with an attendance policy because you already know the material.

~~~
st3v3r
It still shows an incredible amount of unethical behavior, and more of this
pattern of "I'm a startup! I'm special! The law shouldn't apply to me!"
Special snowflake syndrome, just exhibited by a company.

------
amsilprotag
If we are to use this [0] definition, then "Hypergrowth at" can be omitted. It
seems like a better title would include "in highly regulated industries."

It's interesting to note that the essay only includes discussion of law as it
relates to defending startups from incumbents, not as a caveat to the advice:
"The good news is, if you get growth, everything else tends to fall into
place." Is it the case that Zenefits merely failed to grow fast enough to
present a more credible threat to state prosecutors?

[0]
[http://www.paulgraham.com/growth.html](http://www.paulgraham.com/growth.html)

------
pbreit
This article is terrible. The takeaway is the hypergrowth ultimately
overcomes. Cleaning up the mess will be comparatively easy. Zenefits flouting
regulations was silly and didn't appear to be necessary. With Sacks at the
helm, a huge and growing business and $500m in the bank, Zenefits is very
well-positioned.

~~~
tyre
You may be right, but it isn't that one-sided.

1) Sacks was COO when all of this happened. These were specifically lapses in
policy and operations. Are you sure he is immune to the repercussions?

2) "[H]uge and growing" as of last year. Every one of these articles
discourages new companies from signing up and talented people from joining the
company. Trust is a tremendous factor in health insurance, especially when
there are many other options on the market.

If I have other options, why go to a company under investigation with a
horrendous culture?

3) Based on the state of their operations (poor), company culture (dismal),
and customer feedback (even worse), I would push back on them being "well-
positioned."

$500 million can buy you a lot, but if culture, brand, and operations were
that easy, Comcast could turn itself into a modern company in a few months.

~~~
pbreit
1\. Sacks has a sterling reputation (and a JD from U of Chicago). He's immune.

2\. Zenefits now has a PayPal CEO, exec staffer and board member plus the
backing of A16Z. It is an attractive to place to work and obtain services
from.

3\. I think those things will come around (if they are even as bad as you
opine).

Comcast is a 50 year-old, former monopoly, $140b company. SO not only a bad
comparison but a terrific outcome.

------
financedfuture
Regarding unicorns (> U$1 billion valuation), the U.S should implement certain
regulations.

These startups have market caps that are larger than thousands of public
companies that go through several laws and openly disclosure their financial
information.

Not only does this lack information hurt shareholders that are not "part of
the club", but also stakeholders that rely on the company in other matters.

[http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2674420](http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2674420)

"Regulation of unicorns should recognize that outsized power."

~~~
alexc05
I'm not actually sure I agree with this.

Consider that the people & companies investing in pre-IPO U$1B companies are
_extreme_ expert investors. They take the risk on.

Now if we're talking about post IPO, then actual financial regulations kick in
and market-traders are afforded the protections that they have now (which is
still sometimes significant)

Imposing additional regs on a 'privately held' company simply because they
accepted enough money to give them a U$1B valuation punishes them for growth.

Additionally, valuations are sometimes voodoo calculations for example (and
someone else can check my math) but is someone gave me $1 for 1/10,000,000 of
my company, wouldn't that be a billion dollar valuation?

Obviously not a _credible_ one - but - where's the line? $1M for 1/1000? It's
still not a billion real dollars.

If you look at linkedin's valuation it's based on current potential for future
revenue. But revenue that is like 10 or 20 years in the future. (reference: my
foggy recollection of Peter Thiel's lecture in Sam Altman's startup school)

Maybe I'm confused as to how valuations actually work.

~~~
st3v3r
"Consider that the people & companies investing in pre-IPO U$1B companies are
extreme expert investors"

And regular employees getting paid in options.

"Imposing additional regs on a 'privately held' company simply because they
accepted enough money to give them a U$1B valuation punishes them for growth."

No, it doesn't. It shows an acceptance of reality.

~~~
alexc05
> And regular employees getting paid in options.

Ahhh... That makes more sense to me.

> No, it doesn't. It shows an acceptance of reality.

Fair point. Consider my mind swayed.

I'm not sure valuation is the right meter stick, but as another point in the
thread, total $$ raised _might_ be closer to the right answer.

There is probably something there.

------
dpweb
Had some personal experience in bending the rules (a very ugly experience) -
and its better to follow the laws, even if the laws don't make sense.

In a B2B business especially, follow very closely and to the letter.

------
whoknowsnotme
It is unfortunate that the public doesn't know much about insurance or how
it's regulated. While what Zenefits did was wrong in several cases, there are
some important things to understand: \- This macro program didn't have
anything to do with whether an agent would/could pass an insurance exam.
That's separate and in order for someone to practice, they need to pass the
test. \- If this training program were so critical to understanding and
effectively selling insurance, why wouldn't all state adopt it? \- The
unfortunate fact is that the details you must study and know to pass the test
have very little do with how you will sell insurance. The study packets,
courses etc. do not prepare you in any way to sell these products better.
Actually a lot of the test talks about annuities and things completely
unrelated to medical insurance. \- The licensing issues largely relate to non-
resident licenses, not the actual resident license where the test is required
to pass. It's a common practice in brokerages across the US to get licensed
when business is closed or about to be closed in the different state. \- If
you want a comparable, lawyers obviously have to pass the bar to practice. But
they can actually practice legal advice before ever passing the bar as long as
they are working under a licensed attorney. This is how many pro-bono cases
are worked by students in law school etc.

------
manishsharan
So what will Zenefits eventual business model look like if they survive this ?

I don't think they can be an insurance broker; customers would have to be
incredibly stupid to buy insurance from them.

If they are going to be an HR software company, then do they even deserve that
kind of valuation, as their current valuation seems to be base on an
expectation of hypergrowth. HR s/w companies rarely have hypergrowth , what
with SAP and Oracle owning large chunks of the enterprise market.

------
Fede_V
What I found particularly illuminating was this:

'Some investors said Mr. Dalgaard was as instrumental as Mr. Conrad in pushing
for steep revenue targets, and that both men’s ambition pointed in the same
direction — toward hypergrowth.'

(in fairness, later on, the article says this:

Another person familiar with the board disputed this, saying Mr. Dalgaard, who
formerly ran the cloud software company SuccessFactors, was among those asking
Mr. Conrad to restrain Zenefits’ growth plans and fix the culture. )

This is the same person that had a glowing profile written about them in the
NYT:

[http://www.nytimes.com/2015/10/18/business/lars-dalgaard-
bui...](http://www.nytimes.com/2015/10/18/business/lars-dalgaard-build-trust-
by-daring-to-show-that-youre-human.html)

With this beautiful paragraph: 'I learned so many things from my dad, but in
particular he taught me about ethics and that there is no easy way to get to
your goal. You’ve got to be like Lambeau Field in Green Bay and build for bad
weather. That’s basically the only way to achieve any type of success.

But you often see with some companies, particularly start-ups, that they’re
telling themselves and others a bit of a story, and not being honest about
what the real issues are. Instead of taking all that energy and focusing on
the core outcomes, they’re just glazing over it and hoping it will be O.K.
There is no such thing as a quick fix.'

There's no way to know what the real truth actually is - but, wow, that's
quite a contrast between the two articles.

~~~
poof131
The most telling quote for me was “The two men also differed over whether to
address employee morale by re-pricing stock options to the new lower
valuation, according to people familiar with the matter. Mr. Conrad favored
the move, but Mr. Dalgaard believed it would train employees to expect a re-
pricing any time the company’s fortunes changed.”

So the “we support founders” mantra may also mean we support founders and
ourselves at the expense of employees. Despite all Conrad’s miss-steps, such
as the ill-mannered Quora response, I now have a new respect for him. At least
he was trying to fight for the employees. Sad to see a16z in this light. With
fantasy valuations crashing to reality, repricing options should become the
standard. Or you can follow the current SV playbook and hope employees don’t
really understand what’s going on with equity.

~~~
JoeAltmaier
Ok, so I have a new interview question for any startup job: "Will you reprice
options should valuations decrease?" They say No, I walk.

------
kneel
At the center of this 'scandal' is a program that prevents auto log-out during
license training.

Being licensed: Sitting at a computer for 52 hours and clicking on it before
passing an exam.

What a waste of time. Pretty much an entire week and a half of full time
staring at a screen to get a license to sell insurance. They were just skating
bureaucracy, plenty of companies do this.

~~~
run4yourlives2
At the centre of this scandal is a company selling insurance with unlicensed
brokers.

That means people advising others on what insurance to buy where their health
is concerned who didn't know what the hell they were doing.

The software made to skirt the licencing requirements is only a subset of the
overall issue.

Frankly, I'm getting a little tired with the group of commentators on here
that think its a-ok for a company like zenefits to tell people "Sure, you're
covered for that in this policy" when they frankly have no idea if that is the
case.

Selling insurance advice without a license is exactly like selling financial
services advice without a license. And both actions are illegal for very good
reasons.

~~~
mattmanser
I worked with mortgage brokers for a while. They had a big exam, all
complicated and they were supposed to be able to advise.

What they actually did was put 5 figures into a computer and pick the mortgage
nearish the top with the biggest commission.

I have no idea how complicated health insurance is in the US as I'm from the
UK but I'm willing to bet £100 that's what 90% of health insurer brokers do
too.

~~~
run4yourlives2
>I have no idea how complicated health insurance is in the US

Exactly.

~~~
mattmanser
Your comment just drips with enlightening anecdotes and interesting exposition
explaining how picking health insurance is so much more complicated than all
the other financial advice that today is basically little more than:

Put client's answers in brokerage program

Choose highest commission in top 10

Recommend product

~~~
run4yourlives2
1\. Mortgage brokerages are not financial advice brokerages. A mortgage broker
finds the best deal for the consumer, usually for products that are more or
less the same.

2\. A financial planner or investment advisory is about helping a client gauge
what product works best for their particular situation, and being able to
communicate the very real downsides of certain courses of action.

3\. An insurance broker acts in a very similar way to #2, in that there are
some very real concerns that may not be obvious to the layperson that the
broker should be providing advice on. For example: what a health insurance
product covers, and why (for example) not providing coverage for children in
your female dominated company could result in very real losses to your
employees, and by extension, you as a company.

>Put client's answers in brokerage program; Choose highest commission in top
10; Recommend product

..is PRECISELY the type of thing that licensing is designed to protect the
consumer from.

Group health insurance is extremely complex, particularly in the US where it
is really the ONLY health insurance a person has. These are people's lives
we're talking about here...you can't wait until you HAVE cancer to find out
that your plan doesn't cover it.

The only thing this entire thread is showing is exactly why not having
licensed, knowledgeable professionals advising on insurance is a very real
concern.

------
wslh
It is very interesting to read about other approaches for growth. For example,
Google waited patiently several years until a business model worked.

Imagine Google starting today with a protoversion of PageRank.

------
snappy173
it's a matter of risk.

when you're trying to be a billion dollar company, you have to take big risks.
in that context, the risk of getting caught for breaking the law becomes
palatable.

when you're trying to create a stable, profitable, but more modest sized
company, that risk becomes a threat to your business.

it's a big problem when these types of risks start to make sense from a
business perspective, because it's the public, not the people that create this
environment, that end up suffering.

------
pascalxus
I don't understand what all the outrage is about. The online training keeps
you logged in for a period of inactivity that COUNTS towards your 52 hours,
which is perfectly legitimate. All they did was create and use a tool which
extends this period of inactivity. How in the world is it that this is
outragous in any way? This is a very minor fault, certainly not worthy of all
the sensationalism that NY times has created, once again.

------
jonesb6
"Zenefits scandal highlights the perils of breaking the law at startups"

------
auggierose
>Mr. Conrad had overseen a company that had become _derelict_ in its culture
and ethics

Zoolander much?

