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a16z Podcast | How One Startup Went from Being Banned by Regulators to Being Open for Business
10 segments available
When (now) two-year-old startup Zenefits was banned in Utah because it offered its HR management software for free, CEO and co-founder Parker Conrad felt upset, anxious, and scared. Especially because it was a B2B company with a much smaller supporter base: "If you're Uber or Lyft, then you have this built-in constituency using the service and millions of people to complain and go to the mat for you... But man, we make HR software. That's totally unsexy. No one's even going to pay attention to this,” he says. In this episode of the a16z Podcast, Conrad shares how Zenefits went from being banned to the state reversing the ban. As the state governor stated, "Utah is open for business... There are always going to be innovators and disruptors as technology accelerates business growth and we believe government needs to be able to work with these innovators to ensure strong and efficient economic policies and an open marketplace.” Of course, this is just the beginning...
Segments Timeline
Introduction to Zenefits' Challenge
In this segment, Parker Conrad introduces Zenefits and outlines the regulatory challenges the startup faced in Utah. He explains how Zenefits offers HR management software for free, which led to scrutiny from regulators who believed it created an unfair competitive advantage.
"so hi guys I'm sonal Choksey on from a six and a tutorial i'm here with parker Conrad from zenefits and zenefits recently went through a couple of regulatory issues in Utah and we thought it'd be inte..."
The Regulatory Response
Parker discusses the Utah insurance commissioner's decision to take action against Zenefits, claiming the free service gave them an unfair advantage over traditional brokers. He shares the emotional impact of this decision on him and the startup, highlighting the anxiety and fear it created.
"basically what happened is zenefits is a service that sort of helps companies manage all of their HR and sort of one place so a lot of different specific individual functions like you know payroll med..."
Navigating the Political Landscape
Parker reflects on the lengthy back-and-forth with the Department of Insurance and the realization that they were in a political battle rather than a legal one. He emphasizes the importance of understanding the political dynamics at play when facing regulatory challenges.
"of them is that we act as a broker on companies lines of health insurance and in most states you know the regulators have said well you know this isn't really this doesn't look like the kind of thing ..."
Building Support and Advocacy
In this segment, Parker shares how Zenefits mobilized support from the tech community and customers to advocate against the ban. He recounts the creation of a petition that garnered significant attention and support from various stakeholders, illustrating the power of community in overcoming regulatory hurdles.
"get there well so we were kind of going back and forth with the DOI for several months um you know before everything kind of blew up and and then you know we thought maybe we were going to work it out..."
The Role of Constituencies
Parker discusses the importance of identifying constituencies that can support a startup during regulatory challenges. He highlights how Zenefits found unexpected allies among small business owners and conservative political organizations, which helped sway public opinion and government support.
"SAS company like us where we're selling the businesses they're just fewer constituents that are customers of ours who want the service to be available and so I was like oh oh you know maybe we're goin..."
Legislative Changes and Support
Parker explains how state representatives and the governor's office responded positively to the advocacy efforts, leading to the introduction of a bill that clarified Zenefits' legal standing in Utah. He emphasizes the collaborative effort that resulted in overwhelming legislative support.
"customers that came out of the woodwork and said gosh like we really love zenefits you know we use the software we had one customer that was a non-profit she said they were a nonprofit that used Enif ..."
Shifting Regulatory Perspectives
In this segment, Parker reflects on the broader implications of Zenefits' experience for regulatory reform in the tech industry. He discusses the need for states to adapt their regulatory frameworks to support innovation while balancing the interests of existing industries.
"second is not what Utah's all about there are a lot of people in Utah we're saying hey this isn't this isn't right and that led a state representative named John not well you know who who kind of said..."
Lessons Learned for Startups
Parker shares key takeaways for other startups facing similar regulatory challenges. He emphasizes the importance of recognizing when a political battle is underway and the need to engage with decision-makers early in the process to advocate for their interests.
"incumbent out there in the world who's going to be upset about sort of the ground shifting beneath their feet as a result of this new development in in most cases in fact I think you know if if you ar..."
Proactive Engagement with Regulators
Parker discusses Zenefits' proactive approach to engaging with insurance regulators across the country following their experience in Utah. He highlights the importance of building relationships and communicating openly with regulators to prevent future issues.
"you're if you're a state out there that you know is trying to develop you know tech jobs and tech technology industry the best thing that you can do is to sort of shield technology companies from you ..."
Final Thoughts and Future Outlook
In the concluding segment, Parker reflects on the journey Zenefits has taken and the relationships built in Utah's tech community. He expresses optimism for the future and the importance of continuing to advocate for innovation in the regulatory landscape.
"like were you still doing demos or were you just telling them a bigger story like or were you doing the exact same thing with a different audience it wasn't like we were telling them something differe..."