00:00so hi guys I'm sonal Choksey on from a
00:02six and a tutorial i'm here with parker
00:04Conrad from zenefits
00:05and zenefits recently went through a
00:09couple of regulatory issues in Utah and
00:12we thought it'd be interesting to hear
00:14their perspective and also what other
00:15startups might be able to take away from
00:17that experience so Parker do you and I
00:19just kind of give us a really quick
00:20summary of like what went down yeah so
00:22basically what happened is zenefits is a
00:26service that sort of helps companies
00:28manage all of their HR and sort of one
00:31place so a lot of different specific
00:33individual functions like you know
00:35payroll medical insurance and commuter
00:37benefits and time and attendance
00:39software and FSA's and things like that
00:41all through one central system and a law
00:43online so that you don't have to spend a
00:45lot of time running around doing a lot
00:47of paperwork and setting people up in
00:49all these different places and one of
00:51the sort of interesting wrinkle in our
00:53business model is that we give the core
00:56system away for free and we make money
00:58in a variety of different ways but one
01:00of them is that we act as a broker on
01:01companies lines of health insurance and
01:05in most states you know the regulators
01:08have said well you know this isn't
01:09really this doesn't look like the kind
01:10of thing that we should be getting
01:11involved in and they've taken no action
01:13but in Utah the insurance commissioner
01:16in Utah decided to take action said that
01:18listen to one of their missions as a do
01:20I was to make sure that there was fair
01:22competition between all brokers in the
01:25state and everyone was on a level
01:27playing field and they said that
01:28zenefits this technology actually gave
01:30us an unfair advantage in competing for
01:34these clients because we made it so easy
01:36for companies to get up and running with
01:38insurance that it was unfair to other
01:41brokers and so they said that we had to
01:43start charging for our service or they
01:47were going to start levying some really
01:48big fines on benefits obviously we're
01:51probably frustrated and struggling with
01:53hearing all that when you start it off
01:55but you ended up with a very successful
01:57outcome like how did you guys actually
01:58get there well so we were kind of going
02:01back and forth with the DOI for several
02:05um you know before everything kind of
02:08blew up and and then you know we thought
02:10maybe we were going to work it out that
02:11you know they weren't really going to
02:13sort of do this it didn't make any sense
02:14and then you know they kind of like
02:17issued their decision or they sent us a
02:19preview of their decision and I mean I
02:21felt like I've been punched in the gut
02:23because you know in starting a company
02:25like this I feel like you know I
02:26understood sort of like sales and I
02:29understood how to build software and and
02:32how to build good products and stuff
02:33like that but this was just like a real
02:36you know something completely out of
02:38left field where suddenly there's it's
02:40like government agency that's like you
02:42know telling us we're not allowed to
02:43operate and you know we're quite a bit
02:45bigger now but at the time we were
02:47really you know small start-up and you
02:50know it didn't seem like we were doing
02:51anything wrong or anything illegal you
02:53know and so it was it was it was quite
02:56upsetting or created quite a lot of
02:58anxiety at first and actually quite a
03:01bit of fear because I thought about it
03:03as like gosh if your uber or lyft and
03:06like everyone and uses uber then you
03:09have this built-in constituency of
03:11people who are using the service and you
03:14know just like millions of people who
03:16want to sort of complaint and and go to
03:19the map for you and say this is
03:20ridiculous that that the service is
03:22being banned but you know man we make HR
03:24software that's totally unsexy there's
03:28like no one like everyone's eyes are
03:29gonna glaze over or like no one's even
03:31gonna pay attention to this they're just
03:33these natural constituencies for
03:34consumer technology companies because
03:36there are so many consumers that are
03:38using their service but for like a b2b
03:40SAS company like us where we're selling
03:43the businesses they're just fewer
03:45constituents that are customers of ours
03:47who want the service to be available and
03:49so I was like oh oh you know maybe we're
03:51going to be in really in really big
03:53trouble here because you know we're not
03:54gonna be able to kind of get this done
03:55so but constituencies you mean like
03:57people that would actually be able to
03:59speak up for your product I mean not to
04:00make it literal but obviously a lot of
04:02people like in Congress a lot of people
04:03use lyft and uber so if they're not
04:05getting access there personally
04:07inconvenience and so is that what you
04:09mean by a constituency base like that
04:11who's going to stand up for zenefits
04:13things like you know like our consumer
04:15based in measured of numbers in terms of
04:17number of people is much much much
04:18smaller and the cause
04:21seems like superficially much less sexy
04:23because it's HR software instead of you
04:26know uber which is you know a sort of
04:29you know much more in the public eye at
04:31least at the time but one of the things
04:33that was really great as you know we
04:35kind of like went to the mat we sort of
04:38you know started telling people who try
04:40to access the service that Utah was
04:41blocking us and and you know created you
04:45know a change.org petition about this
04:47issue that went straight to like the
04:49governor and the governor's chief of
04:51staff and the lieutenant governor and
04:53the Insurance Commissioner and stuff
04:54like that and suddenly there was just
04:56this like overwhelming response from
04:58lots and lots of people in the tech
05:00community but also just lots and lots of
05:01customers that came out of the woodwork
05:03and said gosh like we really love
05:06zenefits you know we use the software we
05:09had one customer that was a non-profit
05:11she said they were a nonprofit that used
05:14Enif it's to help underprivileged kids
05:17apply to college and she said swishing
05:19the zenefits helped them save three
05:21hundred bucks a month over you know sort
05:23of who they were using previously and
05:25because of that they were going to be
05:26able to send two more kids to college
05:28this year and so there were a lot of
05:29like you know interesting stories like
05:31that where it was like gosh from like a
05:33political and like a policy perspective
05:36you know we were able to say listen I
05:38understand that brokers are an important
05:40constituency for some for a lot of
05:43politicians in the state in fact some of
05:46the politicians actually are brokers
05:47themselves but there's another side of
05:50this argument which is that benefits is
05:53able to make life easier and sort of
05:56ease the administrative burdens for you
05:58know millions of small businesses and
06:00that makes a difference to you know it
06:03and that has to be those sort of impacts
06:06have to be weighed against the fact that
06:08insurance brokers are losing out and are
06:11upset and and luckily for us that you
06:14know I think there were a lot of people
06:15you know the governor of lieutenant
06:17governor and you know some critical
06:20folks in the state legislature kind of
06:22looked at this and said you know wait a
06:24is not what Utah's all about there are a
06:27lot of people in Utah we're saying hey
06:30this isn't this isn't right and that led
06:32a state representative named John not
06:34well you know who who kind of said this
06:38is you know a bad thing for Utah we need
06:41to change this and so he introduced a
06:43bill like almost immediately I forget
06:46what the technical term is but he
06:47basically before there was even a
06:49language for a bill he sort of like said
06:51listen I want to you know he kind of
06:52reserved a spot for a bill that would
06:55and technically what the Bill dugg bill
06:57did is I think it actually didn't change
06:59the law what it did is it clarified that
07:01the the existing Utah law never made
07:05zenefits illegal in the first place so
07:07it was a clarification rather than a
07:09change to the law but he he sort of
07:11announced his intention to do that
07:12almost immediately you need to
07:14lieutenant governor and and the governor
07:17reached out to us and and said they were
07:20you know incredibly supportive and and
07:22there was a state senator named Kurt
07:25bramble who would support it as well and
07:28and then you know we worked with those
07:30constituents to sort of get this bill
07:32passed you know then it was you know we
07:34had you know some folks that we hired to
07:36kind of help us out on the ground and
07:38make introductions so we could sort of
07:39plead our case to you know all the all
07:41the various different legislators and
07:44and luckily for us it got passed with
07:47sort of overwhelming support so okay so
07:49I think the bigger picture question is
07:51that you know it feels like there's like
07:53a definite shift in how states have to
07:54start thinking about reform and
07:57regulation around new technologies I
07:59mean how did that sort of play into your
08:00views of how things played out well you
08:03know I think what happens is you know
08:05anyone who's trying to build a
08:06technology companies almost anyone is
08:09going to run up against some kind of
08:10incumbent out there in the world who's
08:12going to be upset about sort of the
08:15ground shifting beneath their feet as a
08:17result of this new development in in
08:20most cases in fact I think you know if
08:21if you are going growing really quickly
08:23and sort of taking over more hitter in
08:26industries you know those those existing
08:29constituencies are going to seek out
08:31some kind of protection from regulators
08:34or the government pretty much in every
08:36case whenever they can
08:38it's just something they're going to
08:39turn to and one of one of the challenges
08:42is that you know there are always more
08:46entrenched constituencies for the
08:48existing way of doing things than there
08:50are for something new one of the great
08:53things about Utah is there is a sort of
08:56really neat and budding tech community
08:58there and you talk cares a lot about you
09:00know trying to develop Salt Lake City as
09:03a tech hub you know they talk about
09:05silicon slopes and sort of all the
09:07companies that are out there and I think
09:09a lot of folks here's a guy named Clint
09:11Betts from bee hive startups and Josh
09:13James from-from Domo and previously from
09:15embouchure who you know are really
09:18strong and influential members of that
09:20community who kind of rallied rallied a
09:23lot of those folks but also sort of
09:25reached out to politicians and said hey
09:27guys like you know you guys are talking
09:29all the time about how you want to sort
09:31of nurture this sort of protech
09:33environment in Utah this is like a great
09:36example of a real failure of doing that
09:38and you can't you can't kind of have it
09:41both ways you can't say listen you know
09:43we want there to be lots of success
09:44successful technology companies in Utah
09:46but only as long as they don't tread on
09:48the toes of any of these other
09:50entrenched interests or any of the
09:52existing companies and existing markets
09:54out there that's not just that that's
09:56just not the way it works I think if
09:58you're if you're a state out there that
09:59you know is trying to develop you know
10:01tech jobs and tech technology industry
10:05the best thing that you can do is to
10:07sort of shield technology companies from
10:10you know from attacks by incumbents
10:13through the regulatory authority of the
10:15state and to say listen you know we're
10:18going to try and have I think in general
10:20it's probably a good idea to have you
10:22know a little you know only the
10:23regulation that's really needed for
10:25consumer protection and if there isn't a
10:27real reason from a consumer protection
10:29perspective to have regulation then gosh
10:32like it's probably getting in someone's
10:34way somewhere who's trying to do
10:35something yeah so you know Parker so
10:38what is this this is mean that you're
10:39done you don't have to worry about this
10:40anymore and what about other companies
10:42who are confronting similar issues with
10:45different technologies like how do what
10:47would you tell them to do I mean what
10:48would you do differently if at all
10:49I think what I probably would have done
10:51differently in the case of Utah is I
10:54probably would have I wish I had
10:56realized earlier in the process that we
10:59were in sort of a political battle
11:01rather than a legal battle with with the
11:04Department of Insurance it took us a lot
11:07longer than it should to sort of reach
11:09outside of the ordinary channels you
11:12know we were we were getting an inquiry
11:14we were sending our response we were
11:16getting on the phone with the
11:17investigator to go through a demo and
11:19you know we thought we were sort of like
11:21following the process and really what we
11:23should have been doing much earlier on
11:25was you know trying to hire someone who
11:28could help us get to the people that
11:31were much much much more senior in the
11:33state government so that we could sort
11:35of plead our case with them and say hey
11:37here's what's going on you know because
11:39the I think the some of the folks like
11:41on the ground level were a lot more
11:44subject to influence by sort of the
11:46broker community and and it wasn't
11:49really until we sort of broke out of
11:50that and we're talking with you know the
11:53much more senior folks in the state that
11:55they were like hey listen this is not
11:56how we want to do did you change the
11:58information that you presented to them
12:00like were you still doing demos or were
12:02you just telling them a bigger story
12:03like or were you doing the exact same
12:04thing with a different audience it
12:06wasn't like we were telling them
12:06something different but I mean we were
12:08probably trying to cast it in in sort of
12:11much broader terms and broader language
12:13about Utah and Technology and and sort
12:17of economic development well it's like
12:19with the insurance investigator you know
12:22we were talking much more about the
12:23specifics and of like how our product
12:25actually worked so yeah at the end of
12:27the day it probably was a good thing for
12:30us because like the amount of press
12:31coverage that we got like in Utah this
12:33was a really big deal and the amount of
12:35press coverage that we got there you
12:36know now that we're back in the state
12:38we've got tons of companies that are you
12:40know really interested in like hearing
12:41more about the service the other thing
12:44that we started doing you know very
12:45early on in sort of when we were sort of
12:48having trouble with Utah as we started
12:50reaching out proactively to all of the
12:53insurance departments for every state
12:55around the country and so we're actually
12:57you know meeting with them at any IC
13:00which is you know the National
13:01Association of Insurance Commissioners
13:03they have meetings twice a year so we
13:05you know we we go there you know for
13:07each of those meetings and we have a
13:08room and try and set up meetings that
13:10sort of talk people through zenefits and
13:12and so we're doing that twice a year
13:16you know like sending people a lot of
13:18information about zenefits and saying
13:20hey listen you know we're here to answer
13:22any questions about our service here's
13:23what we do and that's that's probably
13:25helped us head off issues in other
13:28states I'm sure that you tell will not
13:30be like the last crisis we have like
13:32this but you know if you can get out in
13:35front of stuff you can probably sort of
13:37reduce the number that that you
13:38encounter so let's talk about some more
13:40takeaways for other startups we're going
13:42through the same kind of things what
13:43would you tell have told Parker a year
13:45ago I would say listen understand when
13:48you're in a political battle versus just
13:51sort of a legal dispute and if you're if
13:54you have a political battle you want to
13:56sort of very quickly move outside of you
14:00know just the sort of regular legal
14:02framework with us you want to try and
14:03figure out a way to get access to the
14:06sort of decision-makers and the powers
14:08that be at a much more senior level so
14:10that you can plead your case to them I
14:11think you want to identify you know who
14:15are your your constituencies who are the
14:17people that are going to support you for
14:20us we thought like gosh they're going to
14:22be no constituencies or any supporting
14:24benefits because like it's HR software
14:26no one cares but that actually wasn't
14:28true I mean there there were really
14:30there were three constituencies that we
14:32had that were all extremely helpful and
14:34one constituency was the startup
14:36community in the technology community in
14:38Utah itself and so there are a bunch of
14:40folks that were extremely helpful to us
14:42and and really cared you know this was
14:44that you know I think in part because a
14:46lot of them saw that you know gosh maybe
14:48someday if they were successful you know
14:51someone was going to be trying to ban
14:52them and so they responded really well
14:55to this the other natural constituency
14:58were our clients and you know as a b2b
15:01Fast Company they're just fewer people
15:03that are clients than there are for like
15:06a lot of concern companies but it turns
15:08out I think a lot of a lot of the people
15:10like small business owners in our case
15:12like tend to be politically very
15:15cares about the technology economic
15:16engine of your state you would care
15:18about nurturing that small and
15:19medium-sized community for sure exactly
15:21and so when you have you know small
15:23business owners who you know in Utah who
15:24have you know if you have a company that
15:26has you know 50 or hundred employees
15:28like that's a pretty big deal you know
15:29you you probably know your local estate
15:32representative and he or she's going to
15:34pick up the phone when you give him a
15:35call and so you know that was actually
15:36the customers were small in number but
15:39incredibly influential and the third one
15:42in our case was actually a lot of sort
15:44of conservative political organizations
15:46there were a lot of you know
15:47conservative think tanks that were very
15:50much supportive of zenefits
15:51you know Utah's is obviously a very
15:54conservative state politically and so to
15:56have conservative think tanks saying you
15:59know man Utah really got this one wrong
16:00you know what's going on here how are
16:02you guys going to fix this I think that
16:04was for particularly for the folks in
16:06the government that were predisposed to
16:07agree with that they kind of said yeah
16:10gosh you know we've got a we've got to
16:11turn this around this is not what we do
16:13in Utah the great thing about this whole
16:15thing is it does feel like you know I've
16:17met I mean I feel like I really know a
16:19bunch of people in Utah now and so it's
16:22been really fun you know as part of this
16:24whole process I went and spoke at a Utah
16:27Tech event and you know really got sort
16:29of I thought a front-row seat at what's
16:31going on in Utah was technology was
16:33quite exciting met a lot of the key
16:36players there also so you know in Utah
16:38specifically got to meet all sort of all
16:40the folks in the technology industry and
16:42also got to meet some of those state
16:44legislators and you know learn a bit
16:46about their jobs and what they were up
16:48to and that was a lot of fun but then
16:50also you know more nationally and so
16:52it's sort of put us in a position where
16:53we're out talking to insurance
16:55regulators in all these different states
16:57and really sort of establishing a
16:59relationship early on with them by
17:01having a conversation upfront about what
17:02we do and why we think that some people
17:05might complain but this is you know very
17:07much within the law and very much a good
17:10thing from a public policy perspective
17:11and so you know if you do get complaints
17:14you know you you know where to reach us
17:16you know please give us a call so that
17:17we can talk through it with you well
17:18thank you Parker really appreciate your
17:20taking the time to talk to us about this
17:21today and congratulations by the way
17:23we're really we love what you guys are
17:24doing refute and okay cool great thank
