GROWING PAINS: Why $345 million HR startup Namely lost its CFO, CTO and many others

The internal changes have raised eyebrows and stoked speculation of more trouble in a corner of the tech industry already famous for the high-profile implosion of Zenefits in 2016.

Namely was one of the startups that saw a pickup in its business as a result of Zenefits' troubles, making recent reports of layoffs and turmoil at Namely all the more notable.

CEO and founder Matt Straz acknowledges the sweeping changes across the company. But he says the changes are not an indication of a struggling business but rather of the need to evolve from a startup into a more structured organization.

It's true that the within a few months of each other, the company's CFO and the CTO agreed to resign, Straz told Business Insider.

Their departures are part of reorganizations in various departments throughout the company, as Namely looks for more experienced managers to guide a bigger company, he said. Namely is now well over 350 employees and 800 customers, its website says.

"We are growing and doing well and that's what driving the change," Straz explained. "We've gone from $0 to $30 million in revenue" from the company's founding in 2012 to last year, he said. "When we grow from $30 million to $300 million, I expect we'll need another transition," he said.

Namely is one of the payroll and benefits startups that benefited greatly when Zenefits melted down in early 2016 after Zenefits admitted it was selling insurance in some states without proper licensing. Zenefits was once the poster child for low-cost HR cloud software for small businesses.

When Zenefits grew troubled, VCs doubled down on competitors, such as Gusto and Namely, which saw its growth explode in 2016. Out-of-control growth was ultimately to blame for Zenefits troubles, sources told us at the time.

The companies stepping into this market are therefore under increased pressure not to go down the same road.

Namely has raised about $159 million in total venture funding, with nearly half of that coming in 2016 and 2017 in the wake of Zenefits' implosion. Investors have valued the company at $345 million, and its backers include big Valley names like Sequoia, Matrix and True Ventures, according to Pitchbook, a database that tracks such things.

A new layer of management

One former early employee who recently left the company as part of these internal changes basically verified Straz's explanation. This person told us that there's been turnover in the rank-and-file, as well within VPs too, something confirmed by a quick search on LinkedIn.

This person also attributed the changes to growing pains, not missed sales projections.

"Yes, there's been people quitting and getting laid off, both. People are leaving because they are dissatisfied and people are leaving for better opportunities. People are leaving because they've been let go from restructuring as the company grew and people are being fired for various reasons," this person said.

"As the company grew, it hired in management, and some of the people that had been there, some wanted the wild west feeling of a startup. That's not managements fault," this person said.

Others, however grew frustrated because, instead of rising in the company as it grew (which is one of the appealing promises of working for a startup), they found themselves working for managers being hired from the outside. Instead of being able to talk to the CEO as they had been doing for years, they now found these managers running interference, this person said.

This person also believed that ou need to delegate long before your company gets to be 300-and-something employees. It may not be that he has the right people to delegate to, but Matt has good intentions and wants the best for the company he’s created."

Painful and transparent

We also talked to a former sales person, who said that after the big growth of 2016, there is intense pressure on the sales teams to make rising quotas, and that has caused some frustration and some of the exodus. This is, of course, true for the sales teams at all fast-growing startups.

Straz denies that sales quotas are unreasonable and tells us that the sales team has been making its internal projections.

Interestingly, Straz also tells us that these management changes have been done in an atmosphere of "transparency," which he describes as a "painful" choice. By that he meant that he called in the senior people that he wanted to replace, let them know up front that changes would be made to their roles, talked to employees about it, and gave them as soft a landing as possible to find new roles.

He says that some of the people that left were "his friends" and says he's still on good terms with them.

He also says that the board knew that people would talk when the company started to reorganize, particularly at the C-level.

"I knew doing it [changing the CFO and CTO] with that timing would raise questions. Be we decided to do it all now rather than let it linger," he said.

Namely just announced a new CTO and has given itself until the end of the year to hire a new CFO.