October 10, 2013
You know the other hardest part in a startup. Apart from selling what you have build? The boring and uncool, administrative tasks which require resources and attention. Most often ignored amidst the cool work you are doing. Key activities falling under these activities include managing payroll, HR, health insurance and other benefits of the employees. So many startups face issues later on as things keep piling up. Zenefits, incubated by Y-Combinator is helping other startups to manage the insurance, travel and 401k plans for SMB's and startups.
Zenefits was Launched in Feb 2013 by Parker Conrad (Co-founder and CEO) and Laks Srini (Co-founder). The initial capital of $372,000 was funded by Y-Combinator’s Andreessen Horowitz, Yuri Milner, Garry Tan, Justin Kan and Alexis Ohanian. In July 2013, Zenefits has also landed $2.1 Mn as seed capital from venture firms and angel investors including Venrock, Maverick Capital, Aaron Levie, Charlie Cheever and David Rusenko.
Zenefits’ claims to allow SMBs to seamlessly manage their employee’s health insurance and ancillary benefits for their employees. Some of the benefits include access to medical insurance, dental insurance, vision or their 401(k) plans. What used to take months and filling of endless forms, is done with a single click from a local browser through Zenefits.
Everything seems ok, but you may still ask How do they make money? Zenefits’ business model involves getting money from insurance companies every time a client opens a new plan and thus offers services to customers for free. Zenefits adopts new technological processes to accept cashless payments from the insurance companies. This keeps their operating costs low and the service for their customers is provided at no cost. While innovative, the revenue model is dependent on growth of the health care insurance industry and regulations which may prove to be risky.
However, all this adds up to be working currently in the favor of Zenefits. For example earlier, the price of insurance deductions changed every 10 years. Post introduction of Obamacare, such deductions occur every year. As a result, when small businesses, start seeing more paperwork, companies like Zenefits get to manage their paperwork and get paid from insurance companies.
Zenefits has grown at a healthy rate. They had around 110 companies enrolled by July, 2013 and were recording 20% growth week on week according to Parker Conrad, CEO.
Startups such as Simplee and Cake Health are also trying to make it easy for companies to manage health care expenses and reduce costs. However, as compared to the demand, the competition is emerging as of now. Organizations like Trinet offer similar services but are expensive and cater to the small group of rich start-ups who can afford such services.
LTP View: Technology coupled with law and regulations could help startups like Zenefits make revenue by eliminating middle men (insurance brokers). Accepting cashless payments from insurance companies may have a positive impact on Zenefits' revenues considering their no-fees to user, business model. However, it will be interesting to observe, if Zenefits continues to grow amidst policy changes.