How Zenefits CEO Jay Fulcher grew Zenefits to $100M revenue and 10K customers in 2020.

hello everyone my guest today is Jay Fulcher he's the chairman and CEO at zenefits he brings more than 20 years of experience in leading both public and private technology companies to zenefits before the company Jay served as CEO of another company and agile software before that he was seen her executive at both PeopleSoft and sa P he's a member of the global leadership Global Leadership Council at the Lukas graduate school and College of Business at San Jose State University Jay are you ready to take us to the top let's go Nathan all right so you have fun stories to tell you know I want to kind of hop right in and then talk about where zenefits is today and where you and the organization is going on the future but first I've got to talk about something only you can talk about which is taking over a unicorn right amongst all kinds of different things your first week you're having to cut almost 50% of the company but still keep everyone motivated around and unite around a new vision what was that first week like back in 2017 yeah I mean it's not the way any CEO would want to kind of start to hear that's for sure but in in some ways it was kind of an exciting time right we were reimagining what we thought zenefits could really mean to the marketplace it did require really a resizing of the organization and a rethinking of a really our business strategy and one of the reasons why I was really attracted to the opportunity when you know the the partners at Andreessen Horowitz called me to see if I would be interested was the fact that you know the company had already accomplished so much and we had done some really really incredible things in terms of establishing some kind of land speed records for SAS company growth but what we hadn't yet done is we hadn't necessarily perfected our business model and really what we wanted to do with the company in terms of our value proposition and so you know it's not often when you have thousands of customers and plenty of cash with which to be able to kind of effect this pivot and to go in this new direction and so it was a hard first week but it was also one that basically was really the thing to kind of set the tone for where we are today in 2016 this was reported by CNBC the the annual corn Rebbe by the middle that that euros about sixty million down from obviously projections that Parker had raised on previously around a four billion dollar valuation their reports evaluation was cut in half and that you know there was about a hundred million loss the first six months in 2016 all that being said you know that at that time the company has basically on track to run out of cash by the end of 2017 let me ask you a question about VC a lot of times people will say when you raise venture capital it just you have to be on a different track than what you would rationally do because the nature of EC and timetables how much of managing and dreesen and other investors expectations how many how much resetting did you have to do in that first couple months on the job well first of all I'm really fortunate because we have very sophisticated investors who really understood the overall opportunity that the company was trying to pursue and quite frankly was able to kind of get over some of the crisis management work that the company obviously had to work through when we were kind of going through some of our compliance challenges I didn't really have to reset a lot of expectations instead what I basically tried to help everyone understand is that I felt like it was more important for us instead of being a broker of insurance we needed to kind of get back to our roots of being a technology company and we felt that by being a technology company we could actually instead of competing with brokers we could collaborate and cooperate with brokers in bringing a completely new paradigm new value proposition to small business where you could have HR Payroll and benefits products side by side on a single platform and do all of the things that I think zenefits now has become pretty broadly known for so it really didn't take a lot of rethinking with the Investment Group in general what we really tried to do was we tried to resize kind of the the cost of goods and the expense line for the business you know you talked about being out of cash in 2017 that's clearly not the case at this point we have actually several years of runway to go if we never raised another dime and we have you know sort of cash flow breakeven in our sights and so we've got we've got a lot of nice momentum now where the companies really reap imited itself in a very healthy way to be a sustainable long-term high growth business what or to the things you did to really control the cost of goods sold that's obviously what extended your runway significantly and now has put breakeven in your in your crosshairs yeah there's several things Nathan I think number one as you say we did in fact kind of right-size the company and so as hard as that was because these are employees that quite frankly did nothing wrong they were actually stellar performers they did great things for zenefits but we basically had to get to a better headcount perspective and part of that was not only in San Francisco but across the the three or four offices we have around the world so that when he's compete was as I said before um basically no longer being a broker and instead relying on third-party brokers to basically build their brokerage and advisory services on top of the zenefits platform that allowed me to take a lot of the headcount and a lot of the the focus and the organizational calories that are expended around insurance brokerage and instead shift that to these partners and it allowed us to retreat and kind of double down on being this tech platform I think those two things were substantial kind of resizing elements that allowed us basically to kind of be in a very different place from a cash Byrne perspective as well as making sure that you know the couple hundred million dollars that we had to work with was gonna really serve us over the course of the next several years Jay did you have to go through a period you know when you're pushing that insurance line of business off to now brokers doing it and building it themselves on top of your tech platform that sounds like that's what the refocus was but did you temporarily lose revenue as you push that revenue stream essentially onto somebody else to manage yeah you know the initial transition of what we call our book of business which was the insurance business that we had and that was a very large business at the time you know this is any quantify it yeah that's a you know a business that was coming up on 100 million dollars in revenue that was a substantial kind of transition as you shift that to third parties and so for some of the customers who potentially wanted to work with any and and whatever broker they wanted or if in fact they really prefer to work with zenefits as their brokerage gave them an opportunity to think about for the first time well what brokerage relationship do I really want and so there's some breakage that occurs in that kind of a transition which is exactly what we what we expected we were really excited in that not only in all of the modeling that we did in that process we actually lost a lot fewer customers that we sort of expected to but the most exciting part of this is that when we moved everyone off of our brokerage we also basically move from a freemium model where people got our software for free in exchange for the brokerage commissions that we that we received to a subscription pay model and you know the thing that was clearly a huge point of validation for me that I was excited about is more than 70% of our customers moved with us oh that's great now today are you pure-play SAS company with SAS like margins in the eighty-five percent range that's right we don't don't have margins in the eighty-five percent range and I know that in the past I've heard you say that you talk to a lot of companies that claim that I'm actually dubious about that but the reality is you think do you think do you think they're lying or not they're not putting cost in the right spot I think that I think that there is a lot of interpretation around cogs what do you put above the line well I think you know kind of rather than going through sort of an accounting tutorial I think it's more of a situation where there's a certain amount of fixed costs that are serger data at a floor we're sort of at the sixty five percent gross margin place right now today overtime by the way each incremental dollar I put on the top of that floor causes that 65% to start to get into the eighty-five percent range so I do believe that we have some targets that get us into the 80% plus gross margin range my view is I believe that we're sort of somewhere between 12 to 18 to potentially 24 months away from now not it argue though today a pure place ask company or are there other professional services kind of high-cost we're we're a pure play subscription software company and we're basically focused on HR Payroll and we think really importantly benefits so it's not a single platform and that's specifically focused on what we call SMB companies which are defined as sort of 1 to 500 employees got it and in that range I mean if an SM kind of company listening when I wants to sign up with you what are they gonna pay to get kind of a base layer and in month one yeah I mean it can be for really small companies that are maybe less than ten...