The Exchanges

Q Number two, Jay, is there a CEO you're following or studying right now?

A So I had the luxury of reporting to both Dave Duffield at PeopleSoft and Hasso Plotner at SAP, and that just means I'm really old, but it also means that I, I got to see these guys up close and personal, so I learned so much from those guys, but the guy that right now I think is really blazing a trail for what I consider to be sort of next generation CEO thinking is Mark Benioff. I think Mark's done a great job around being a socially responsible company. I think he's done a great job around the one-one-one model, Uh, I love what, what he means around the whole diversity and inclusion, uh, ethic. And then lastly, you know, he built a platform business in a SaaS context when people kind of made fun of him for doing it. And now look at all of us. We're all wanting to build a business like that. That's exactly what we're doing here at Zenefits.

AI assessment note: “the guy that right now I think is really blazing a trail... is Mark Benioff”

Q 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 of the nature of VC and timetables. How much of managing Andreessen and other investors' expectations, how many, how much resetting did you have to do in that first couple months on the job?

A 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. Um, 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, a broker, uh, of, of insurance, uh, 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 Zinovitz now has become pretty broadly known for. So it really didn't take a lot of rethinking with the investment group. Um, in general, what we really tried to do was we tried to resize, um, kind of the, the cost of goods and the expense line for the business. Um, you know, you talked about being out of cash in 2017. That's clearly not the case at this point. We have actua…

AI assessment note: “I didn't really have to reset a lot of expectations.”

Q What were one of the, or two of 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.

A Yeah, there's several things, Nathan. I, I think number one, um, as you say, we, we did in fact kind of right size the company. And so, um, 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, um, 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 was one piece. Second piece 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 head count 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, um, kind of resizing elements that allowed us basically to kind of be in a very different place from a, a, a cash burn perspective, as well as, uh, making sure that, you know, the, The couple hundred million dollars that we had to work with, um, was going to really serve us over the course of the next several years.

AI assessment note: “number one... right size the company... Second piece was... no longer being a broker”

Q Come on, Jay, totally not for sale. If, if, if Benioff comes and offers you 10 X AR, you don't look at that?

A Oh, we look at everything. You asked me, am I in a conversation with somebody? I'm not. Um, and you know, if you know something about my background, you know that I've been relatively active and successful in monetizing companies over the years. So, you know, uh, for me, my job is to make sure all the options are on the table, whether we take the company public, whether, whether there's some other kind of a monetization event out there. Um, quite frankly, like I said, you know, maybe I think you were the one that said it, Um, you know, having the leverage to be able to make those choices as and when you want to is, is basically the key for any entrepreneur.

AI assessment note: “Oh, we look at everything.”

Q Got it. And in that range, I mean, if an SMB kind of company listening right now wants to sign up with you, what are they going to pay to get kind of a base layer in, in month one?

A Yeah, I mean, it can be for really small companies that are maybe less than 10 employees or less than 20 employees. It can be as inexpensive as five dollars per employee per month. On up to potentially 50 dollars per employee per month. So, you know, our average contract value today is in the sort of four to 5000 dollar range. A month? A month. Well, we have them per month or per year. It depends on the size of the company. Um, but the, the thing that we're pretty excited about is that we've got a, um, we've got a fairly, uh, broad and deep set of capabilities across those three, uh, product areas that I mentioned. Um, And that really allows us to, um, provide value to companies of all sizes. And so on the one end of the spectrum, we might have somebody paying us 10 or 15,000 dollars a year for what Zenefits is managing across HR payroll and benefits. In other cases, we may have somebody paying us 150,000 dollars a year. But on average, we probably mostly have the bulk of our contract values are somewhere between five and 15,000 dollars per year.

AI assessment note: “It can be as inexpensive as five dollars per employee per month.”

Q A hundred percent year over year growth. I mean, that's good stuff. Um, tell me though, I am doing some sort of math here wrong. If I take those 10,000 customers times that four grand ARPU, that puts you at forty million a month. I know you're not there. Maybe in a couple years. I know you're not there yet, but where am I doing that math wrong?

A Well, obviously, first of all, it's a bell curve, right? So you've got, you've got customers at all different places in terms of, of, of how much revenue and how much revenue per customer. The other, the other part of it is that, uh, it's not all SAS. Some of it's also a part of our brokerage business. One of the things that we think is kind of unique about our insurance business is that when we did move that to a third party, we created a rev share vehicle over the course of several years now. Where we claim some of that revenue, as does some of our partner. Fairly soon, we're going to be announcing some additional new broker partners who will also be starting to build some of that capability on top of our platform, which means it gives us an opportunity to sell more of our HR and payroll and benefits products to their customer bases. Conversely, they're able to use, you know, some of the efficiency that we provide with our tech Into their insurance book. So it's a, it's a very kind of a symbiotic relationship with the broker community. We're excited about that, but it's, it's sort of, Um, in motion. So some of what you're doing there is you're kind of conflating our SAS business with our insurance business. And of course there's customers of all different sizes.

AI assessment note: “some of what you're doing there is you're kind of conflating our SAS business”

Q What do you, what do you put above the line?

A Well, I, I think, um, you know, kind of rather than going through sort of an accounting tutorial, I think it's more of a, a situation where there's a certain amount of fixed costs that are sort of at a, at a floor. We're sort of at the, at the 65% gross margin place right now today. Over time, by the way, each incremental dollar I put on top of that floor causes that 65% to start to get into the 85% 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 that.

AI assessment note: “rather than going through sort of an accounting tutorial, I think it's more of”