Rita from Zenefits explains why they focused on small businesses under 100 employees. The segment has over 6 million firms, mostly stuck on spreadsheets, and offered shorter sales cycles and better retention than larger customers. She advises entrepreneurs to dominate one small market first before expanding, like Facebook and Amazon did.
Thank you, Sam. Hey guys, I'm Rita, and it's great to be here at HustleCon. Now I just have a few minutes up here, so I thought I'd share with you guys just one lesson that Zenefits has learned about hustle, which is the importance of clarity. Clearly defining your target market. Let's see if we can get the clicker to work. There we go. Oh, can I get— oh, there we go. Perfect. All right, so before I jump in, really quickly, for those of you who don't know a lot about what Zenefits does, we solve this problem that I think pretty much every business owner in the US has, which is that you have 20 different systems related to HR. Health insurance, you have payroll, you have time and attendance. And because all of those systems are disconnected, every time you need to hire or terminate somebody, you have to add or remove them from 20 different places, right? Every time somebody changes their address, you have to update that in 20 different places. So what— and that creates this huge administrative load that the HR departments of most companies have to deal with. So what Zenefits does is we take all those different systems, we connect them, and we give companies and their employees a single place to do everything, which makes, which takes a lot of work and a lot of time off their plates. Now, because this problem that I described of all of these different disconnected systems is a problem that just about every company in the US has, what we found at Zenefits was that customers of all different shapes and sizes were knocking on our door. We found ourselves serving everybody from a 7-person tech startup to a 1,000-person healthcare consulting firm, and everything in between, even though they all have slightly different needs. And you know, it's really tempting when you raise a lot of money, and you have a really big vision, to think that you can do everything all at once. But the reality is that no matter how many resources you have, and how big you are, companies execute better when they ruthlessly prioritize, and then sequence their efforts. So we asked ourselves, is there a, you know, should we better define our target market? Is there a specific market that we should focus on first before we expand from there? And if so, how should we define that? Should that be based on geography, based on customer size, based on customer vertical, based on something different? And I know this is a question that some of you guys might be thinking about now, or some of you guys might need to think about in the future, so I'll share with you how we approached it. We took a look at our customer base, and we thought a lot about product-market fit, and we looked at a bunch of internal data, and it became pretty clear that for us, it made sense to define our target market based on customer size, and more specifically, that we should focus on the small business market. There we go. We should focus on the small business market, or companies with under 100 employees, for a few different reasons. One is that it's a huge market, so there are over 6 million small businesses in the United States, but it's also a market which is really underserved by technology. So typically our main competitor is an Excel spreadsheet. Um, in addition, the free aspect of our product was particularly compelling for small companies. We felt that we could have the most impact with small businesses because they typically don't even have one HR person to manage this big administrative burden. And then from a product perspective, the needs of this segment are the least complex to serve and to build a robust feature set for. So whether we looked at all of those factors or we looked at our internal data, like sales cycles and close rates and retention rates, it was pretty clear that for us, we would outperform in the small business market. And so that was a target market that we should hyperfocus on first. Now the broader lesson here that I hope is helpful for some of you guys who are here today is that if you find that you're growing, but you're growing in multiple directions all at the same time, consider instead trying to proactively define and then dominate a small but extensible market before you expand further. And now this has been a proven strategy for growth, right? If we look at Facebook choosing to focus on just college campuses or the different decisions that other companies like Amazon or Netflix or Uber have made, they all chose to start out with just one vertical or one customer or one geography before they expanded from there, sort of sequencing their journey so they could build strength along the way. That's my advice for you. I hope this has been helpful, and I wish you all the very best of luck. Thank you very much.
