The ADP and Zenefits Kerfuffle, Part 2: 5 Lessons for HR Technology Customers and Vendors

Earlier this week, I tried to make sense of just what the hell happened with the ADP and Zenefits kerfuffle. On the surface, the primary issue is about security and employee data privacy. This is a big issue, but when you step back, there are a number of lessons for HR technology customers and vendors alike to learn from this feud.

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If you’ve been paying attention, you know that between Part 1 and the very popular “5 Reasons Zenefits Will Be the Biggest Bust in SaaS History“ post by my colleague Steve Smith, it’s no secret that TSCIU is squarely in the skeptics camp when it comes to Zenefits. That said, $500 million can fix a lot of issues, and I hope the Zenefits board decides to take these issues seriously and somehow miraculously prove Steve’s post wrong. What’s good for Zenefits is good for the HR technology segment, but it cuts both ways. The last thing we need, just as HR technology is starting to emerge as a serious B2B tech category, is a famous flameout. Especially with the stakes being so high for the small businesses that kind of spectacle would impact.On with the lessons …

5 Lessons for HR Technology Customers

The Zenefits customers who “didn’t know what they didn’t know” when they signed up for what sounded like such a no-brainer are left having to sort this out. Whether you put the fault on Zenefits for offering a connection to payroll that wasn’t actually licensed to be supported by ADP, or whether you fault ADP for flipping the switch to protect what was seemingly a growing liability, fault doesn’t matter to the small business now having to manually move payroll data around. Here are a few lessons to learn from this kerfuffle if you’re looking at an HR technology license in the near future.

There’s no such thing as a free lunch. Did your parents ever tell you that? Well, it’s true in the world of technology, too. Zenefits isn’t a nonprofit organization. Small businesses getting bundled or unbundled services in exchange for the brokerage of their insurance is a concept that has been around for a long time in the form of professional employer organizations (PEOs). There are some really good and profitable PEOs out there, like TriNet. When it comes to technology, you have to think about what happens if something goes wrong with your “free” solution. What then? If you’re a growing firm, get a handle on where you think you’ll be in a few years and consider whether the technology will scale with you and your future benefit needs. Should the tech be bundled as a part of your brokered insurance? PEOs, for example, typically start to get less attractive from a cost perspective after about 50 employees.

Don’t play fast and loose with employee data. The implications if something goes wrong are just too big. When a vendor tells you they can integrate with your payroll provider, or any other system, don’t just take their word for it. You should be able to easily get validation from the payroll provider either via email, website, or a call to the vendor that the integration is not just technically possible, but is supported. Zenefits’ customers are finding out firsthand the cost of what going with an unsupported “integration” is.

Look for vendors that support their integrations like a product – not a service. When the integration is supported like a product, there are no costs in addition to license fees. Look for supported “APIs,” “connectors,” or “cloud-to-cloud” integrations. The recent announcements by SAP/SuccessFactors and IBM/Kenexa/BrassRing are a good example.

Don’t believe the hype. Do your homework. There go Mom and Dad again. What Zenefits is doing may be disruptive to the benefits brokers they might replace, but it isn’t actually all that new in the world of HR technology. This goes hand in hand with never getting a free lunch. Do your homework upfront and look at what the industry is saying about what’s available to you. Talk to a consultant, like IA, about what you want to accomplish in HR from a service and cost perspective and see what they say. Do some online research on your own. Talk to vendor customers before you call the vendor. You’ll find customers of just about everyone in communities like the HR Technology Conference LinkedIn group, or on message boards on the SHRM.org site, or on sites like Software Advice.

Maybe you’re just more comfortable with having it all in one system. Maybe you don’t want to separate your payroll from your benefits or HR technology. Payroll providers like ADP and Ceridian provide a depth of services. There are also new systems built expressly for small businesses that also broker benefits as an additional service, like Namely.

5 Lessons for HR Technology Vendors

Lessons abound from this kerfuffle for vendors in the HR technology market. When it comes to scaling a cloud-based HR technology product, last week highlighted a few things.

You’re entitled to a fair market opportunity, but not to another vendor’s data. Innovate. Disrupt. Scare the hell out of the status quo. Take what’s yours in the free market by winning the hearts and minds of HR customers. Just realize what’s not yours without “pen on paper”: someone else’s data. Whether it’s an integration with ADP’s payroll system with to LinkedIn’s profile database (another market leader with data everyone wants), follow the rules. When you scrape data out of someone else’s system without their expressed written permission, you’re taking chances that your customers will pay for. Like Zenefits’ customers are now.
 
Don’t believe your own hype. Do your homework. You might not be that much smarter than everyone else. I see hundreds of tech products every year. Most of them new. Very few of them are new ideas, just new implementations. I tell all of the startups that I work with to get a little perspective on the buyer and the market they’re entering before they go too far. I can’t say that Zenefits didn’t consult with anyone, but I can say that all of the experts TSCIU have asked never got the call. A mishap occurs when you do everything you can to avoid a problem, but something beyond your control goes awry. Repercussion result when our actions, or lack of actions, cause the problem. What Zenefits has here looks like a repercussion to me, and one that would have easily been avoided with input from any of a dozen industry experts I know.

If you’re hosting employee data, you have to protect it. Sometimes even at the cost of speed to market. See Part 1

Focus more on making your customers successful than disrupting a competitor or category. It might be different outside of the HR space, but true disruption here — the kind that catapults new market leaders — isn’t a result of a good-looking business model on a spreadsheet. It just can’t be achieved without passion for the HR customer and HR technology community. Take a page out of Dave Duffield’s book at Workday. He’s famous for building bridges in the industry and he’s building his second industry leader in his career. Disrupt the market with your success and your actions and by leading it.

You can raise too much money. When it comes to venture capital, there can be too much. You don’t have to believe me on this. Take it from Sam Altman, the president of Y Combinator. He told Business Insider that, “… the track record of companies that raise huge amounts of money at a huge valuation as their first round, like Color or Clinkle, is not good," he said. “The culture gets messed up.”

(Disclosure: The Starr Conspiracy is a customer of ADP TotalSource, and ADP has been a client of The Starr Conspiracy in the past.)