Two months after reports surfaced that Zenefits was burning through hundreds of millions of dollars a year and losing its interim CEO, the embattled HR software provider has laid off almost half of its workforce, according to a BuzzFeed report. That amounts to about 430 employees, made up of roughly 250 workers from Zenefits’ San Francisco headquarters and 150 from the company’s location in Tempe, AZ.
The news comes just a few days after Zenefits named Jay Fulcher its new CEO, ending a round of leadership musical chairs that started when founder/CEO Parker Conrad stepped down last February and was replaced by temporary chief executive David Sacks. The CEO shakeup began last year when Zenefits, which makes human resources and health insurance software, became the target of an investigation after BuzzFeed reported the company was allowing employees to act as insurance brokers without the proper licensing, essentially enabling widespread fraud.
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The fraud claims, along with reports that Zenefits maintained an alcohol-heavy, fraternity-like company culture, led to Parker’s resignation. After Sacks took the reins, the company appeared to be trying to turn itself around. Among its efforts were a few rounds of layoffs, including a shutdown of its Arizona sales office that led to a 9% reduction in the company’s salesforce.
But the efforts haven’t proven successful, at least not in the short term. Zenefits, which was valued as highly as $4.5 billion in May 2015 with a $500 million+ financing, saw its valuation drop to a reported $2 billion within a year as it faced a series of major problems with regulations, image and leadership. This past December, the company lost more than $200 million in the fiscal year ending January 2016 and is on track to record a similar loss this year.
The new round of layoffs is one of Fulcher’s first moves as the company’s new head. “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,” Fulcher said in an email to employees that was obtained by BuzzFeed.
Time will tell whether the layoffs help temper Zenefits’ revenue losses for 2017, and whether Fulcher’s leadership will finally turn the troubled company around.
Article by Dana Olsen, PitchBook