Zenefits plans to cut about 250 jobs, or 17% of its employees, as the once high-flying startup seeks to remake itself after a period of breakneck growth, according to an internal memo this morning.
The cuts at Zenefits, the San Francisco-based human resources startup, are coming "almost entirely" from the sales organization and will heavily affect the sales development reps, who prospect for leads, CEO David Sacks told employees in the memo. The enterprise sales team, which focuses on the biggest customers, will be eliminated, he said. About a dozen of the cuts will affect the recruiting department, he added.
"We are letting go of many great people today, and it is not their fault," Sacks said in the memo. "It is no secret that Zenefits grew too fast, stretching both our culture and our controls. This reduction enables us to refocus our strategy, rebuild in line with our new company values, and grow in a controlled way that will be strategic for our business and beneficial for our customers."
The layoffs reflect the urgent challenges facing Zenefits, which offers free human resources software to small businesses and collects commissions after selling health insurance policies to those businesses. For much of last year, as Zenefits rapidly hired new sales reps, many reps regularly failed to hit their monthly quotas, former employees say. Sacks has previously said he plans to refocus the company on "the small business market where we have product‐market fit."
In addition to the job cuts, which Sacks called a reduction in force, Zenefits plans to reset expectations for the sales reps who remain. This afternoon, he said, sales reps would be given new plans and quotas. "By expanding the size of territories and concentrating lead flow, the sales reps who stay will be in a great position to succeed," Sacks said.
Sacks became CEO earlier this month, succeeding Parker Conrad, the Zenefits co-founder, who had resigned in the wake of a number of compliance failures, according to the company. BuzzFeed News has reported that Conrad, early in Zenefits' history, created a program that allowed sales reps to shortchange a broker licensing requirement under California law.
Zenefits achieved a little more than $60 million in annually recurring revenue in 2015, Sacks said in the memo, three times the level a year earlier but short of the $100 million that the company had projected. Last May, Zenefits raised $500 million from major investors, at a $4.5 billion valuation.