Zirtual – The Sad, Seedy Saga Continues

Tradeshift

We recently reported on the sudden shutdown of Zirtual, a virtual assistant platform based in Las Vegas. The shutdown occurred without warning literally overnight, reportedly resulting in the layoff of about 400 employees. The management of Zirtual – seemingly euphemistically – referred to the shutdown as a pause in operations in an email to clients and employees.

We later learned this turn of phrase was actually correct, as Zirtual management announced in another email that the company had been “acquired” by Startups.co, a “start-up launch platform.” It was also announced that the company would resume operations and would be attempting to hire back some its former employees. According to management, this string of careening events was the result of a funding deal that fell through at the last minute and the company having “grown too fast,” burning through its reserves of cash. (Apparently costs were increasing faster than revenues). Since October 2014, the company received a total of $3.5 million in debt financing in 3 funding rounds.

A Personal Interest in the News

We at Spend Matters take an acute interest in these developments for a number of reasons. First, we are covering the work intermediation platform (WIP) space, not just as observers, but by using some of these platforms ourselves. We also were a customer of Zirtual and had a very functional, satisfying relationship with one of its virtual assistants. This assistant was hardly virtual to us – rather a real, competent person we greatly relied on and appreciated. Needless to say, we will be continuing our relationship with this assistant, independent of Zirtual – something which Zirtual encouraged its assistants to pursue at the time of the shutdown. (Note: Somewhat shockingly, Zirtual has now seemingly reversed course and is trying to get its customers back. Spend Matters, however, will not be returning to Zirtual.)

The Risks of Digital Labor Platforms

The events at Zirtual as well as a customer service snafu with another platform provider, which we reported on earlier this year, have caused us to think about the risks and potential shortcomings of some of these digital labor platforms, particularly those that are start-ups at an early stage of maturity.

First of all, some of these platforms are quite young, may have unsustainable business models and may be in the hands of inexperienced entrepreneurs.

Second, we have entered a period of great uncertainty as to the legal status of workers with respect to these platforms – whether they can be classified as independent contractors or employees. This variable means legal and cost structure risk. We have heard through those close to Zirtual that worker classification and costs of direct employees may have proved a negative tipping point for the investors.

Third, these digital platform business models are highly self-service and imply very lean organizations. Often customer service is limited or difficult to access, at least on a timely basis.

Fourth, while these platforms can function well for the sourcing of needed workers, their ongoing value to clients and workers may be more questionable. Many of these platforms maintain a single percentage of the spend transaction fee after the initial sourcing. And while some are continuing to introduce client and worker-centric features and functions to add value and enhance retention of clients and workers, the rates at which clients and workers may take their engagements off of the platform remain unclear.

Finally, most of these platforms that connect specific workers with those who need their services are primarily used by small businesses, not larger enterprises. With a few exceptions of platforms with enterprise offerings, most are marketplaces that are not geared to be engaged by enterprises through their procurement functions.

Our ‘Buyer Beware’ Stance Still Stands

To sum up, while Spend Matters sees these platforms as being highly significant in the future of contingent workforce programs, most are not ready for prime time. Going forward, we are not saying to avoid engagement with these platforms; but we are saying tread with caution. Be sure to differentiate young, less-tested platforms from those that have operated successfully for some time and have achieved scale – they have different risk profiles and support capabilities and should be managed differently.

It is good sign if the platform already has an established orientation toward enterprises, in terms of platform and required services. A strong balance sheet should be a paramount supply risk test as well – even if is backed by investors rather than generated through cash flow.

In short, at this stage of the game, as we said in the last article, buyer beware.

 

*An earlier version of this story had a misspelling of the company Startups.co. It has been corrected. 

 

Voices (2)

  1. Andrew Karpie:

    John, Thanks for your note. I don’t know all of the details, but I do understand that Chimes was a catastrophic failure that resonates to this day. I think Zirtual pales by comparison–a small start-up versus an already well-established company. Supplier solvency definitely is a supply chain risk may be the only connection between my post and Chimes. I think perhaps my post here was also about not getting deluded in an age of Unicorns… 🙂 I’ll talk over here whether a revisiting of Chimes is something that makes sense for us. As always, many thanks for your inputs/discussion. Andrew

  2. John Seaver:

    Andrew,

    Your posts are always great. A relative new comer to the industry, I have been doing my history homework and came upon a rather major event in the history of the staffing industry that I was surprised that no one had told me about as part of my training. You are probably aware of the failure of the vendor management provider Ensemble Chimes Global. For readers who aren’t as aware of it, Ensemble Chimes was an early VMS that suddenly went belly up in 2008 leaving the staffing firms it supported with $42 Million of unpaid invoices.

    What is the connection to your post? Supplier financial solvency is and has always been a major supply chain risk. History does repeat itself. I think an expose on Ensemble Chimes Global could be a great history lesson for your readers.

    All the best,

    John

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