Zenefits CEO David Sacks Talks Compliance, Mobile Aspirations

Photograph by Bloomberg via Getty Images

It took the better part of four months, but Zenefits CEO David Sacks believes the startup’s questionable licensing practices are a thing of the past.

He’d much rather talk about the human resource software company’s big mobile push—which it is kicking off today with a major app overhaul. Indeed, Sacks sees mobile technology as an opportunity to reach a far broader universe of small businesses over the long term—companies who don’t necessarily provide their employees with computers.

“We have brought our licenses into compliance,” Sacks told Fortune during a company update Wednesday. For evidence, he pointed to the company’s own internal investigation, which was outlined in a company blog post last month.

Sacks, who took over from ousted Zenefits founder Conrad Parker in early February, again faulted leadership for failing to address training issues and other cultural issues far earlier in the startup’s fast growth trajectory. Zenefits actually never had a mission statement until Sacks, who was previously COO, stepped into his current role. Here’s the new one: “Zenefits is committed to making entrepreneurship easier and more accessible for everyone.”

Sacks noted:

Where I feel good is where we have brought our licensing into compliance. But the thing I said when I took over is that we couldn’t just see the licensing problem as a failure of technology.

Zenefits now employs more than 300 licensed brokers—out of a 1,000-plus total workforce—representing 10,000 different state licenses, he said. Just to be safe, Zenefits has built controls into its sales software systems based on geography that prevent customer prospects from being assigned to accounts in states where they’re not qualified to practice, Sacks said.

And what of ongoing state investigations in California and Washington into Zenefits’s regulatory policies? The company continues to cooperate with authorities, Sacks said, noting Zenefits was “proactive about self-reporting issues that we have now fixed.” He doesn’t have anything else to say about the matter.

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Zenefits’s cloud service allows small companies to manage employee-related information and process—such as payroll, time-off requests, and insurance selection. The company gives away its software, but receives fees for managing or representing certain services.

The venture capital community was extremely kind to the company, last valued at $4.5 billion, although investment firms like Fidelity marked down the value of their holdings. But a string of high-profile challenges—including the compliance issue, employee shenanigans in the workplace, and a lawsuit by ADP (since settled)—have inspired its rivals to go on the attack.

Among the most vocal is Gusto, which sells many of the same services, and is also a software “unicorn”—a startup valued at more than $1 billion. Gusto is a much smaller company than Zenefits, which had about 300 employees as of March, but Gusto claims more than 30,000 customers compared with Zenefits’s latest count of “more than 20,000 accounts.”

There’s also a whole army of Zenefits-rival software startups focused on making allies out of insurance brokers, such as Maxwell Health, which lined up another $22 million in late March.

Sacks hopes that the company’s big mobile push, relaunched this week with a big app overhaul, will help Zenefits look forward. Unlike the core service, the app is meant for employees who need to gather information about benefits or do things like submit time-off requests. (The previous generation of the app acted mainly as an employee directory.) “The HR person might have a computer, but the employee may not,” Sacks said.

For that reason alone, the mobile push should build name recognition for Zenefits beyond the HR administrators or managers that traditionally interact with the service. Will it be enough to restore the company’s mojo? The prognosis is uncertain.

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