Zenefits ditches embattled broker business to focus on tech

Zenefits revealed Thursday that it's getting out of the brokerage business. The once embattled, once unicorn-level startup has decided to shift gears away from one of its core businesses to focus resources on its technology and role as a software company.

For background, Zenefits, a SaaS startup that helps small businesses manage health insurance coverage for employees, was accused in the past of allowing its salespeople to act as insurance brokers in a number of states despite lacking the proper licenses.

The controversy led to the ousting of Zenefits founder Parker Conrad as CEO and a slew of state investigations, fines, and bad press. David Sacks took on the CEO role after Parker's removal in a moment of crisis management, but earlier this year Sacks stepped down and the company named Jay Fulcher as its new chief executive. Sacks said the shakeup was "the last step in a planned transition."

Now, rather than operate a brokerage business itself, Zenefits will partner with brokers and bolster its software platform to make it more useful for its partnered brokers to use. To facilitate more partnerships, Zenefits is also launching an official certified partner program. Employee benefits company OneDigital is the first partner in the program.

On the tech side, Zenefits also announced a new product called Zenefits Pay Connect, which will provide a new way to integrate its platform with third-party payroll products. Brand-wise, Zenefits toyed with the idea of a complete overhaul and name change, but opted for a redesigned logo instead.

Zenefits cited several points of rationale for the dramatic shift in corporate strategy. Primarily, Zenefits said the shift will help the company serve larger clients more effectively. It will also allow them to decouple the brokerage business from its HCM platform and better connect its technology with local brokerages.

The partner program is also an effort for operational scale, geographic reach, and a way to play offense with its technology, Zenefits said.

"Our vision is for Zenefits to become the technology backbone for the benefits industry," said Zenefits CEO Fulcher. "This shift in our go-to-market strategy is customer-driven. This is a continuation of our founding vision and I'm delighted to see us take such a big step forward."

Zenefits knows a thing or two about corporate turnarounds. Almost a year ago, the human resource software provider launched Z2, a total platform redesign that included a bevy of new services.

At the time, then-CEO Sacks and his team were trying to sweeten the overall Zenefits package for small businesses with the pitch that its all-in-one platform could relieve many of the pain points surrounding HR, payroll, and benefits. In January, Zenefits announced that it was shifting away from its freemium roots to a new tiered pricing structure -- a move that the company hoped would spur revenue growth.

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