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Scott Orn

Scott Orn, CFA

Jesse Freese of Sequoia Consulting on the PEO Approach to Startup Benefits

Posted on: 05/24/2017

Jesse Freese

Jesse Freese

Senior Business Consultant - Sequoia Consulting

Jesse Freese of Sequoia Consulting - Podcast Summary

Jesse Freese of Sequoia Consulting Group discusses the PEO approach for employee benefits at startups. Sequoia is a highly regarded, full-service Benefits and Risk Management provider that delivers payroll, benefits and other compliance needs. Rapidly growing startups often turn to Sequoia’s PEO solution, Sequoia One, to help scale benefits and people management.

Jesse Freese of Sequoia Consulting - Podcast Transcript

Scott Orn: Welcome to Founders & Friends podcast with Scott Orn at Kruze Consulting. Before we get to an excellent podcast with Jesse Freese at Sequoia, have a couple quick reminders for you; first of all, this podcast is brought to you by Kruze Consulting, the wonderful firm that I work at, my wife founded it five years ago, we do everything a start up needs for tax, accounting, monthly financials, valuations, anything you could possibly need, we do it. You just tell us what you want, give us a call, check out our website, tons of free information there, including this podcast, so hopefully that is how you found us. But again, anything under the sun for a startup, accounting, finance whatever it is, Kruze Consulting does it, and we have fun doing it, and we love our clients. So check out Secondly this podcast is brought to you by Gusto our favorite payroll provider, we love Gusto, they have a wonderful autopilot feature, which means we do have to log in to run payroll, it just runs, it saves our clients tons of money, it saves us tons of time, it lets us do way more interesting work and also their customer service is actually just amazing. There is a guy named Henry Vu there who is just like an incredible customer service person, who is dedicated to Kruze Consulting because we have so many clients on Gusto, I think we’re at about 140 now on Gusto, I think we’re their fifth largest channel part in the country, so highly recommend Gusto, their customer service shut out to Henry, Josh Reese if you’re listening to this, give Henry a raise, but otherwise, it’s our favourite payroll provider, we love it definitely check it out, I think there’s a link on our website, you can get I think two months free and 20 percent off, into perpetuity something to that effect, if you go through the Kruze Consulting site to sign up for Gusto. And that’s it, I hope you enjoy the podcast, Jesse Freese from Sequoia and enjoy. And please let us know if you have any questions, thanks. [music intro]
Scott Orn: Welcome to Founders & Friends podcast with Scott Orn of Kruze Consulting, and today my very special guest is Jesse Freese of Sequoia One. Welcome Jesse.
Jesse Freese: Thank you, it’s a real pleasure to be here.
Scott Orn: Thanks, so we work together, we referred Seqouia to a few clients, I’m very pleased by that, and I’ve known you for a while and I wanted to have you on the podcast to talk about benefits, and specifically kind of Sequoia One’s brand and benefits; makes sense?
Jesse Freese: Likewise, yeah we’re a big fan of Kruze Consulting as well.
Scott Orn: Thank you, I’m sure you tell it to all the girls, thank you, thank you very much. So maybe start by just kind of walking us through your career, like how you got here?
Jesse Freese: Sure, yeah I’ve been in and around the recruiting HR space for about 20 years, right out of college I got hired to manage a government contract providing disaster relief professionals for humanitarian disasters. It was the best job ever, I had a corner office on Pennsylvania Avenue, I got to watch the presidential parades, and all the escorts come and go down the Pennsylvania Avenue. I ended up meeting my wife out there and moving out to San Francisco about 12 years ago, and that experience didn’t necessarily translate to the Bay Area, and I got hired by a recruitment process outsourcing firm, so I would go on site to help companies staff up, build out the recruiting function, and really manage their people operations for a bit. And 2009 came along, unfortunately companies were no longer hiring, they were trying to fire employees as quick as they could, and I jumped over to another HR outsourcing firm, really well known company locally here, in the Bay Area and I spent 7 years managing the early stage practice, working on channel development, and then I was fortunate enough to meet the Sequoia folks over the last couple of years, and they finally lured me away and I joined the company last summer.
Scott Orn: What made Sequoia so special for you, like I know they have a great reputation in the industry, but what attracted you to the Sequoia?
Jesse Freese: They are just approaching the market in a really innovative way, the companies that we support largely tech, mostly venture backed, growing very quickly, they really think like a startup, and in many ways they are, even though Sequoia consulting group has been in business for 15 years as a boutique benefit brokerage, they’ve grown and nearly doubled in size in the last 18 months.
Scott Orn: 18 months?
Jesse Freese: 18 months, yeah, so they are about 220 employees now, and it’s been a really incredible.
Scott Orn: I’ve heard great things about management, I’ve heard they’re really good people.
Jesse Freese: Yeah, they really have a good sense on the industry itself, and how it’s become very stagnant through the years, and are innovating, we’re building some technology in house, we’ve got a new mobile app that we’re launching that we’re really proud of, and we’re building products for scaling tech companies. And that’s really why Sequoia One, which is a division I represent is a new creation of Sequoia, it’s been around for about two and a half, three years; we’re starting with companies very early, in the 15, 20 employee space, scaling them up to a point that HR has brought in house, and we can work with a company up until thousands of employees, in fact, we’re now rolling out a self insurance program to help companies that would like to take advantage of that arrangement.
Scott Orn: I guess when you get big enough like a Google or something like that, you can just self insure and you don’t have to go through a carrier, right, is that a deal?
Jesse Freese: That’s right you can be a lot more creative on how you structure your benefits, how you price and how you manage the risk.
Scott Orn: Awesome, benefits are such an emotional thing for a company, and for the employees, maybe talk about the importance of doing it right?
Jesse Freese: Yeah, well it’s really important.
Scott Orn: Not that we won’t ever do anything wrong on purpose, but it’s like, you want to really focus and choose who you’re working with, for all the right reasons.
Jesse Freese: Yeah, I’ve advised a lot of founders through the years on thinking of it not as a transactional business, a lot of entrepreneurs, they raise around, they’re very excited about their product, whether it’s software or hardware, whatnot, and they at the last moment decide that, oh we need to spin up payroll and get employee benefits set up, and it really is treated as something I need to do on a Sunday afternoon before I get back with the guys and gals, you know coding on Monday, and they don’t give much thought, they think of very much as an off the shelf product that I just need to get done. And that might work for a small seed funded startup but it really isn’t the right approach, you really need to think holistically about where your company is going, who you are going to be hiring, and how to structure a benefit program that will scale without organization.
Scott Orn: It’s something that like everyone in the company touches right, it’s a complete reflection of management, how much they care, it’s one of the most important things you can do, I think.
Jesse Freese: Yeah, no absolutely, it’s really intriguing actually, the more I’ve spent time in the benefits world and even though I’ve been in the HR space, putting together benefit programs for many, many years now, joining Sequoia One was the first time that I actually had to go and get my insurance brokerage license, so I’ve learned a lot in the last 8 to 9 months, but it is really important to structure benefits, I mean we’re talking about human lives, we’re talking about people that are spending a tremendous amount of time working for a company, really putting in that sweat equity, but also realizing that these people get sick, or they have wives or dependence, and unfortunately bad things happen occasionally, and you need a safety net, you need really well thought out programs so that if an individual has to go and see a doctor, the coverage is there, it’s not going to be a huge financial loss.
Scott Orn: I totally agree, yeah. The worst, a couple times we’ve gotten calls where like an employee is in the emergency room, because their kids got hurt or something like that, and it’s like, it’s so it’s so nice to know that the company has taken care of and the employees are taken care of, and I know that reverberates throughout the employee base, people want to know that this basic need is covered, and covered. And that’s one of the reasons we always talk to clients about do you have benefits, how can we help you with benefits, it’s just a super important thing for each company.
Jesse Freese: Yeah, I mean it is a human business and it’s a very confusing business, we’re seeing that every day in the news now, with the consideration of removing the affordable care act, just you look at the statistics and very few people actually understand the issues in play and even more so, they don’t understand what is involved in a plan design, it’s shocking how many times I sit down with individuals and we look at the price and then we dive into the plan and there really isn’t an understanding of what is actually covered, and unfortunately many people end up learning too late that things are not covered, and so on. So it’s an area where people frankly and I understand why and they just don’t want to dive into really dense plan documents, but you have to when you’re sick, and you find out that there’s some gotchas in there.
Scott Orn: For sure. Let’s dive into it, like you guys are a certain brand of insurance company and provider, what is the difference between a PEO and something that’s more transactional, like transactional payroll or transactional benefits?
Jesse Freese: Yes Scott, I am happy to explain professional employment organization and coemployment, it’s a really interesting industry. I got started about 35 years ago and the essence of the structure is that companies join together in an aggregated style to be able to leverage the collective number, to gain better benefits, to gain access to technology and services. How it’s done is every company and every employee at that company files their taxes under the co-employers or in this case Sequoia One’s federal employee id number, and we can negotiate on behalf of all of the employees to the insurance carrier, so collectively we can bring back much better benefits.
Scott Orn: Do you guys get everyone a better deal, right, because you have like a deeper pool of people; so the insurance carriers are competing for your business much more aggressively than they are competing for like 10 person startups?
Jesse Freese: Yes, that’s correct, I mean particularly in the Bay Area where the demographics of the startup companies are very clean, the benefits are that, the insurance companies would love to work with one company in this case Sequoia One to manage a fairly large book of business. They know they can come to us when there’s plan changes and so on, and in turn, there’s economies at scale, the companies that do engage with us or any PEO for that matter, are able to provide a number of plans that just aren’t available in the open market.
Scott Orn: People don’t really realize that the small company plans are highly regulated, so they are just kind of like cookie cutter so even when people ask us it’s like well there’s not that much difference, it’s just going to be kind of a cookie cutter plan which is what Kruze Consulting is on right now, we’re a twenty person company right; but when they go to work with someone like Sequoia One, they are getting the benefit of like thousands and thousands and thousands of people, with bargaining power, and a lot of customization and the employees can pick and choose from a lot of different stuff, and usually the prices a lot lower too.
Jesse Freese: Yeah, I mean, that’s great I mean and that’s one of the real advantages of Sequoia and I think going back to your question about why Sequoia- we have a place in the market that’s really differentiated because of our Sequoia tech program, because of our benefit brokerage which is really our parent, even though Sequoia One is relatively a small, new division, we normally wouldn’t be able to compete with large or PEOs but because our benefit brokerage is able to leverage our consulting division, we’re able to be a real small nimble startup, so we’re scrappy and very responsive and all those good things that one likes in a startup, but yet we can leverage the benefits and have a really great infrastructure to offer our clients.
Scott Orn: Basically the insurance companies know they are working with the people who get it, Sequoia is a big name and because you have so much bargaining power, you’re going to get a better deal for people. And, I think one of the things people don’t quite realize is the employees of a startup are actually like co-employees of Sequoia, they get their tax documentation from you guys, you guys send them their W-2s, things like that, right?
Jesse Freese: Yeah that’s correct, technically they are. There’s a work site employer record which is what the client is, and again that’s the best way of explaining it is the startup hires and fires, the startup directs the employee, the startup provides the employee, the employee agreement and the intellectual property, in no way does the PEO interfere with that at all. If an employee goes out to a cocktail party they work for that startup. However, in the eyes of the government, both a federal and the state authorities look to the PEO as being what’s called the administrative employer records, so we’re making sure that the taxes are being handled appropriately, if that employee needs cobra, or there’s a workers’ comp claim, the PEO is responsible for all that. So all the kind of the fun stuff of managing and growing a company is really retained by the startup, all the boring kind of data driven stuff that typical founders don’t want to do, or simply don’t do well, is handled by PEO.
Scott Orn: That’s a great way to say that. What are some of the services that you offer; so you talked about benefits, what other kind of things do you do for startups?
Jesse Freese: Yeah, we really try to be an end to end partner for companies, particularly on the employee benefit side, and because of our DNA on the insurance side, we tend to be introduced to companies that are 15, 20 employees, that got something set up, but they’re just not doing it well, and they’re getting to a point that might be a pretty large inflection point, that might be hiring a number of folks locally, it might be expanding domestically or internationally, and they’re trying to put systems in place, and so we take a look at what are their growth plans, we do a human capital plan, and we really dive into do they need stronger business insurance, do they need a robust HR information system, have they put in place a 401(k) or flexible spending account. We have partnerships with a lot of the other firms out there for well being, and trying to improve their employee culture. And that’s beyond just the employee benefits, I mean without a doubt the employee benefits and how we structure and how we support them in partnerships with for example one medical group, which is complementary with all of our client engagements, we increase the relationship, our hope and our desire, and it’s kind of proven through the years, is that if we can build a strong partnership with these companies as they scale will become their partner for life.
Scott Orn: Yeah, I totally see that. You guys, if they’re doing like, if they have to do a termination or have to do something like that, they can call you for a kind of advice and things like that, right?
Jesse Freese: Yes, absolutely, they can come to us for anything human capital related. Something I didn’t emphasize during the co-employment piece is we also share the risk and liability of our companies that we support, so we’re very involved in making sure the employee handbooks are written accurately, that employee agreements are put in place appropriately, and if there is a termination and managers need coaching or need somebody to come down and help, we certainly will do that, we tend to be a very on-site type of service, we want to be visible we want to be there when folks need it. We also at the employee level, we have employee advocates that handle questions directly, so this is a service in which we’re not just working with the executive team, we are working with every single employee throughout the organization and their dependence, so it’s really important that we see and we view the client not just as the startup but also the team.
Scott Orn: Yeah that’s a great distinction. And you guys handle payroll too, right, like you’re handling all the companies’ payroll, payroll taxes, all that jazz?
Jesse Freese: Yeah it’s full end to end, so it is literally in replace of building out an HR function, we are handling end to end payroll HR workers comp, everything that’s employee related with the view that at some point the organization will grow up and mature and grow to a size in which you’d want to bring it in house, at which time your employees would stay on the same benefit plans we’ve put you on, so there would be really no loss in coverage. But we’d flip over and we’d help coach you and mentor you on who to choose for a payroll provider, how to build in another HRIS, how to build infrastructure so that that company can scale on its own, and then we become the benefit broker.
Scott Orn: What is a trigger for like flipping over and bringing all the stuff in house?
Jesse Freese: Yeah it’s a good question, and there’s not a perfect answer for it, there’s certainly regulation milestones if you talk to the HR group they’d say 50 employees is a natural breaking point because a lot of compliance regulations come in, family medical leave act or FMLA triggers at 75 employees; sometimes it has to do with who is actually in roles already, if there’s a really good head of town or people operations person than it might actually extend out to a 100, 150 employees. Costs certainly contribute to that, if you have a really good head of talent or head of people you could work with a HR outsourcing firm to well over a 100.
Scott Orn: One of the things we talked about off mic was just like the ACA and how that’s changing, what’s your viewpoint on that? It’s kind of hard to know because right now we’re taping this and like the Congress is trying to push stuff through, and things might change really quickly, but like what your guys’ viewpoint on that?
Jesse Freese: Yeah, nobody really knows, we’re paying really close attention to it, because once things are decided, then we’re going to have to advise all of our clients, and make sure they’re in compliance. Things that are of certain value are that any change, any confusion, any noise in this industry causes confusion, and that requires advice. I’m sure you see that in the financial world.
Scott Orn: You said it perfectly, like people don’t even understand what ACA is doing for them, or not doing for them. It’s like, there’s a ton of confusion.
Jesse Freese: Yeah, I mean, one thing that is interesting to understand is that a lot of the noise, a lot of the press that you do hear about that changes in the ACA, actually doesn’t affect the market that we’re talking about; the vast majority of individuals in this country get their health insurance through companies, and most of the conversations that you hear on Capitol Hill and so on, is actually in the private market.
Scott Orn: I didn’t know that.
Jesse Freese: It’s on individuals going to the exchanges themselves, and it’s actually a very small percentage of the actual purchases.
Scott Orn: It is kind of interesting how like employment has been connected to benefits for a very long time. I remember talking about this in business school and wondering if it was ever going to change, but for the most part it seems like that’s something people, that the perk that people really like from their job and probably won’t change that much long term.
Jesse Freese: Yeah I mean, as much as personally I would love to see the ability for employees to not have to work, and to be freelancers, because that’s where the economy is going, to be able to work multiple jobs and secure insurance on your own, the reality is that insurance is getting exceedingly expensive, and it is nice to have a company contribute to that piece.
Scott Orn: Going back to like PEO versus transactional, what are like the biggest strength of the PEO? Like the Sequoia One model?
Jesse Freese: Yeah, I mean it really falls into three main areas, I think working with a fully bundled provider a PEO for example, it really simplifies the company’s HR. One of the other aspects of HR which makes it really complex and really hard to do well, is that there is so many other companies in that value sphere, for example if you’re going to manage HR on your own, you’ve got to set up payroll, which means going to an individual company, you’ve got to set up employee benefits, which means you get to work with an insurance broker, that person may or may not be able to set you up with workers comp, but as you scale you’ve got to set up with a FSA provider or flexible spending account, you’ve got to work with 401k provider, if you want commuter benefits that yet another provider, so managing that wheel of partners becomes really challenging. So if you work with a PEO, literally you can spin it up within a couple of weeks, and you have that entire value proposition already to go. Second aspect is simply benefits, to your point Scott, you can put together a benefit package that’s on par with companies that you hear in the news. There is as strong or stronger than what these big companies are doing and it’s just amazing what you can get as a small individual company. And then lastly, the reduction of risk is shifting some of the ongoing risk of managing your company to a company that does it professionally.
Scott Orn: What is the size of a company that should be working with Sequoia One, is it 10 to 15 people or is it 40 people, like what is your sweet spot?
Jesse Freese: Yeah I’d say our sweet spot is less about the employees and more about the DNA of the company. If the company is growing rapidly, if the company is fairly well financed and wants to invest in their people, if the company is hiring individuals that you really have an obligation to provide really great benefits to.
Scott Orn: It’s a competitive thing, like you can’t get the best engineers or executives if you’re not taking care of people.
Jesse Freese: You don’t really think about that, and so those types of companies really tend to lean towards working with Sequoia. If you look at our client base and the companies that have partnered with us for many years, a lot of them started very early and wanted to invest in their people, and wanted to put the systems in place knowing that if they chose the right partner, if they did the due diligence and worked with somebody that has a strong reputation, that really thinks about partnership, that really focuses on coming through for people at a personal level, then this could be a relationship that they will have for the entire run of the organization and that’s really our goal.
Scott Orn: Yeah that’s awesome. Is that what happens like when people bring HR in house and they go away from the PEO, or they are using the Sequoia consulting side of the business to find their next health care and all that kind of stuff, is that the natural progression?
Jesse Freese: It is, I mean really the vision and why Sequoia One was started a couple years ago, was for us to provide value for smaller companies that had not yet gotten to a point where they could manage HR themselves. Once a company is able to bring HR in house, that’s where we really specialize, because that’s what we’ve been doing for 15 years, it’s providing really strong advice, really strong guidance on what the benchmark data shows, helping these companies craft their benefit strategies to be super competitive in the market, whether they’re doing really well or they’re trying to pull back and conserve funds, we can guide them through what is a really expensive line item in a company’s budget and make sure that they’re effectively keeping their company going.
Scott Orn: Yeah, also circling back to your original point of like everybody in organization touches the stuff and it is important it’s done right, it’s a real clear signal from management, like how much they care about the people working there, so getting it right is really important. And you guys do that and that’s why we at Kruze Consulting refer companies to you and we like working with you guys and specifically you, you’re awesome. Well maybe you just kind of wrap it up, you can tell everyone where they can find you, and find Sequoia One and maybe just what you guys specialize in?
Jesse Freese: Well it’s really easy to find me, you can email me and One thing I will note is that we do put out an employee benchmark report annually, and so if you do e mail me I’m happy to send that to you, we have also just released a survey for the 2016/2017 version, so if you want to fill it out and get on our email list for the next benchmarking report, I’m happy to connect you with that survey link, we’d love to have you fill it out. Our goal is to have over 800 of the tech startups in the Bay Area fill it out and it’s really becoming a really robust document and the go to document for venture backed growth companies that are looking to try to benchmark their data against others.
Scott Orn: Yeah, that kind of information is really valuable, that’s awesome, it’s very generous of you guys to offer it for free. If your start up is anywhere from 10 to 15 people all the way to like 50 or 100, you should be looking at Sequoia One, please reach out to Jesse, and thank you for coming by, it’s been awesome.
Jesse Freese: Thanks Scott, I appreciate it.
Scott Orn: Thanks Jesse, take care, bye.

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