Zenefits once again caused a stir, this time by announcing a change of business models and committing to work with the very brokers they once promised to make obsolete.
This is a big freakin’ deal! Or is it?
Despite what the executives involved have said, this is not “something that has never been done before”. At least it doesn’t appear to be on the surface. On the surface, it’s simply a broker choosing a technology partner. Or is it a technology company choosing a broker partner?
I contend it’s more of the latter. OneDigital is a very capable brokerage, but I don’t see this as some grand scheme that they’ve concocted. Instead, I see it as a technology company that has been masquerading as a broker hearing the clock strike midnight and deciding to trade in their chariot before they are left with nothing but a pumpkin.
It can’t be easy being Zenefits
By all accounts, the retention of their book of business has been poor. There are now countless competitors in the benefits tech space. They have taken black eye after black eye for their attempts at being insurance “advisors”. And, on top of it all, their investors cannot be happy with the results.
I’m assuming most of their investors would classify themselves as “tech investors”. And, as tech investors, I can only imagine that they are not at all satisfied with the trajectory of their investment. Recognize that, at best, brokers strive for maybe a 20% margin with 15% organic growth. And, while those results would make them the envy of most of the insurance industry, it doesn’t even get on the “acceptable” radar screen in the tech world.
The pressure has to be real.
They have no choice
Here’s how I see it. As some have observed ; ), their original model had significant flaws. While those flaws went ignored for a long time, the time has come to finally take action. In order to survive, Zenefits had to rid itself of what it originally perceived to be the golden egg, the insurance relationships and the commission revenue that went along with it.
Admittedly, I have no insight into how they came to choose OneDigital, but I can only imagine Zenefits saw in them the greatest opportunity to cash out on the commission revenue they have accumulated.
OneDigital makes sense as the enabler that gets Zenefits out of the broker business. They have a national footprint, are seemingly more comfortable leveraging technology to service a book of business than most, and seem to have figured out how to make the small-group business profitable. All of these attributes seem to align with the needs of Zenefits.
Where is this going?
The initial buzz seems to think that this will all of a sudden increase the relevance of OneDigital. I don’t really think so. For that to be the case, OneDigital would have to become very adept at preparing their salesforce to go out and sell the Zenefits technology platform. I have my doubts of their ability to do so.
While OneDigital may have leveraged technology for internal operations better than most, they haven’t yet proven their ability to go out and sell technology to their clients. And it’s not been from a lack of desire, but rather, like most agencies, they appear to struggle with this industry-wide challenge.
About a year ago, OneDigital became an investor in GoCo (another HR/benefits tech platform). At that time, there was some buzz that OneDigital had raised their game. Sound familiar? It’s almost like déjà vu all over again.
However, that broker/tech partnership appears to have been replaced with one where Zenefits is the new dance partner. Is it because OneDigital sees the Zenefits platform as a more appropriate fit? Well, that would be a good spin, but I wouldn’t buy it.
I’m putting my money on “volume” being the driver of the deal.
This latest move is about OneDigital’s opportunity to increase their revenue by some proportionate share of $50,000,000 (the speculated revenue Zenefits has accumulated through its brokerage side). It’s kind of hard to argue with that motivation, especially if your previous technology relationship was not fully leveraged by your organization.
I also have to wonder if they are positioning themselves to be sold.
Zenefits brought more than one date to the party
Or, at least there will be more showing up very soon. While OneDigital may be enjoying the benefit (or some may say burden) of being the first announced broker to partner with Zenefits, there will be more. There have to be more.
In order for Zenefits to flourish as the technology player they have always been, they need volume. More volume than any one brokerage can deliver and certainly more than OneDigital has been able to produce with their previous technology partner.
How long is the collective memory?
Not surprisingly, many brokers have been vocal that they wouldn’t trust Zenefits. It is interesting to speculate as to how the broker community will ultimately respond – will they give Zenefits a shot at redemption?
The thought of Zenefits partnering with brokers seems like an improbability for many. The line of those who have cast stones at the Zenefits’ glass house is pretty long. However, revisionist historians surely lie in wait if there is potential new revenue on the line.
When Zenefits announces their intent of working with the broker community, I have to wonder how inclusive they will truly be. I predict there will be a handful of brokers who are ultimately afforded the “opportunity” to partner with Zenefits and an even longer line of outsiders looking in, picking up more stones.
What does this mean for you?
Zenefits proved you right – it’s freakin’ hard being a broker. And, it’s getting harder every day.
No doubt Zenefits’ approach was wrong out of the gate. And, no doubt it took them longer to rethink their business model than it should have. But, they did. They now charge for most (if not all) of their services and they recognize that the technology only reaches its true potential when placed alongside the right strategy and advice. It’s only a matter of whether or not they gave the competition too much time to catch up.
For OneDigital, I think it is still to be proven if they have learned any lessons from their first foray with a tech partner. They have proven, as many of you have proven to yourselves as well, it’s not enough to simply have access to technology. You better know how to use it effectively.
If you take this latest Zenefits announcement as anything other than a call to action to 1) get your shit together, 2) make the necessary adjustments you need to in your business model, and 3) ensure your ability to address the increasingly complex needs of your clients, you, my friend, are in trouble.
Photo by PIRO4D / 2163 images.
