Zenefits Scandal Highlights the Perils of Rapid Growth

18state-illo1-master675Stuart Goldenberg

Zenefits can serve as a cautionary tale of a startup that grows too quickly and results in as much of a tremendous failure as growing too slowly. Zenefits is a health-insurance brokerage firm and offers small businesses HR benefits without the middleman. The HR software was highly favored and brought high expectations for serious growth. These promises led investors to pour $500 million dollars last year at a $4 billion valuation, one of the largest recent financing rounds.

Unfortunately, just last week, Zenefits announced that Parker Conrad, its co-founder and chief executive had resigned and that the company had become irrespon
sible in its culture and ethics.  In return for the massive fundraising valution, Zenefits over promised and undelivered. Mr. Conrad had promised the moon, but instead he was unable to grow a tiny start up to unattainable goals and the company spiraled out of control.

Zenefits began hiring people who had little experience in the software sales in highly regulated industry that led to a growth from 15 to 1,600 employees in just one year.  With all the speed bumps and things that can get in the way of such incredible rapid growth, Zenefits inevitably fell short of its revenue goals. Changes in management, and changes in their business ethics only made things worse.

What can we learn from this? Growth is important for any business but it should not be a race. As a small business owner for many years, I know short cuts are not worth it in the long run. Rapid growth is not for everyone, and certainly not for the faint of heart. And most of all, integrity counts, especially if you want to be in business for the long run.

Read the full article here.