Now, I don't know who I am to criticize the business model of a startup company who has successfully raised $80 million in venture capital, but I'm going to do it anyway. Beyond developing this solution, Zenefits' business model is based on the oldest play in the producer playbook. Their pitch to their prospects is, “We'll give you our solution for free, and all you have to do is make us the broker of record.”

I feel that Zenefits, or anyone else who makes such a myopic pitch for business, is setting themselves up for future problems. Beyond that, I also believe such an approach has the potential to be misleading, irresponsible, and problematic for the clients.

The way I see it

Zenefits appears to pride itself on being the outsider coming into an industry to “do it better.” I'm going to share an insider's view of what they appear to be doing, where I believe flaws exist, and how the brokers they are trying to put out of business can compete with them.

I feel the following assessment is fair because the Zenefits approach isn't really new at all. It's the same approach I've seen used by other brokers, and it's the same approach I have been criticizing for quite some time. As I identify the flaws in this approach, be honest about how many of them you have in your own model.

Flaw One

The first fatal flaw of so many brokers is pretending to be free. If “we're free” is your message, what happens when the carriers slash or remove commissions and your agency is suddenly faced with a revenue stream that is a fraction of what it once was, if it still exists at all?

Flaw Two

The second flaw is the result of an approach myopically focused on a single, however valid, need of the employer. As soon as the employer has another need that becomes more critical, or once someone else creates a superior solution to that single need, that employer will once again be assigning a broker of record letter.

Flaw Three

The third flaw is in a service center model. I'm not saying that in today's technology-driven world, there aren't services than can be delivered remotely. However, it is my belief that those services tend to be restricted to tactical and transactional. I also believe that a service center model would struggle to meet the strategic needs of the relationship. I have to believe that someone sitting in a cubicle with calls in queue will not be able to provide the same level of strategic advice and guidance as a local broker who has the time and ability to truly learn the business of the client.

Flaw Four

The fourth flaw is in just how expensive a “free” solution could prove to be. Sure, there are many instances when, in terms of the insurance policy, the price is the price. However, in a typical transactional model the emphasis tends to be on speed and quantity. Often times this emphasis is at the cost of effectively establishing plan design strategy, implementing cost control measures, and in aggressively negotiating renewals.

The costs can add up quickly. If every 10 employees (averaging $7,000/year/employee) are overpriced by 3 percent as a result of a transactional model, then a “free” service could be costing them as much as $2,100/year for every 10 employees. And, those clients could be overpaying by 5 percent to 10 percent with the wrong funding mechanism. “Free” is all of a sudden very, expensive and sound strategy and advice very, very valuable.

Flaw Five

The final flaw could be the most dangerous of all. I was having a conversation with Brett Rosen, SVP of M&A for Digital Insurance, and he really shed some light on this point. As he so correctly identified, the health and financial lives of the employees and their dependents depend on having a comprehensive plan beneath them. It is the strategy that goes into benefits selection, an insightful eye during contract review, and an effective education and communication strategy that provides the protection they need when it comes time to make a claim – a time that has the potential to be one of the most difficult and stressful times in their lives.

At these moments of greatest need, NOBODY cares the payroll and administration systems were “free.” The employee and their dependents are worried about one thing: Were the right benefits decisions made? They depend on those decisions to help ensure they get the treatment they need.

Beyond being concerned for the employee or dependent, the employer has another concern. As the plan sponsor, the employer depends on having made those right decisions to ensure they haven't put their business at risk. Could it be argued that the result of choosing a “free” solution (from anyone) over sound advice is that the employer failed to satisfy their fiduciary responsibility? Obviously, this is a position in which NO employer ever wants to find himself.

My Call to Brokers

Don't cower to anyone who tries to compete with a myopically focused, single solution; expose the flaws in their approach. While I absolutely believe that such an approach poses an immediate threat, I don't believe it will prove to be a long-term threat, at least not one of any significance. Again, make sure you aren't exposed to the same flaws.

Running an agency and/or a book of business is harder than it has ever been before. Employers are more demanding, they need help in ways they haven't before. The challenge to stay on top of trends, legislation, and compliance requirements increases every day. Your commitment to staying on top of all of this should give you an unbelievable advantage over most anyone, no matter how intimidating they first appear.

Don't let Zenefits be another distraction. Don't fall into the trap that you have to give more away for free than they do in order to keep your business. You do that and you will be out of business in a heartbeat.

Let Zenefits be a call to action. They are hungry and aggressive and are hunting in your backyard every day. Beneath the intimidating presence they have created is a vulnerable value proposition against which you can compete successfully.

It takes a team

I realize most of you don't have the resources to address the laundry list of needs I mentioned above, and may be too small to afford them on your own. However, I do believe you have the capacity to create collaborative networks with other professionals with whom you can collectively address those needs. Your job is to build the coalition and then be the “quarterback” of that group.

Your ability and willingness to collaborate may be the most powerful approach you can take. Zenefits seems to have made the decision to go this alone and, to my knowledge, are not interested in collaborative efforts. As strong as their single solution might be, it pale in comparison to the value proposition you can provide through a strategic and collaborative effort.

If you are losing business to Zenefits, it's because your clients see their one, single solution as more valuable than everything you are doing for them. If that's a fair assessment, then maybe you deserve to lose the business. If it's not fair, then you need to communicate with your clients more effectively about what they need, and should expect, from their broker.

Build your own

Go build the team that competes in a game Zenefits and other competitors don't even recognize.

This is the type of transformation we're driving because it's what our industry and clients need. Not only is transforming in this healthy manner critical to your business, it's also critical to the business of your clients.