Rippling made waves this week as TechCrunch reported the startup is raising another $870M in cash, on the heels of a $500M raise in 2023.

And although this news will receive all of the headlines, there is another recent piece of Rippling news that I find even more interesting:

Rippling recently decided to make its payroll module an optional feature, a surprising shift since payroll has been a required module since the company's founding in 2016.

This decision may not sound groundbreaking on the surface, but this decision may give us some unique insight into Rippling's strategy and future plans.

Let's dissect this decision to understand the potential implications for Rippling and the HR Tech industry at large.

A Bold Strategy for Growth

At first glance, making payroll optional appears to align Rippling more closely with some of its aspirational enterprise heroes like Workday, Oracle HCM Cloud, and SAP SuccessFactors.

These behemoths have long viewed payroll as a complementary offering, not the core of their value proposition. Workday, Oracle and SAP focus on providing a robust permissions, workflow automation, and analytics backbone, often deferring the intricacies of payroll to specialized providers, like ADP or Dayforce.

For Rippling, this decision could be viewed as a calculated step towards becoming a high-margin, SaaS-centric business, distancing itself from the intensive, lower-margin services that payroll processing demands.

This shift aligns with Rippling's Silicon Valley ethos of scaling quickly, leveraging software for high-margin returns, and reducing dependency on service-heavy, complex processes.

In essence, Rippling could be repositioning itself for the kind of exponential, high-margin growth its investors crave, focusing on its strengths in workflow automation and data management with Rippling Unity.

The Risks of Turning Away from Payroll

As I've watched Rippling evolve from a promising start-up to a hypergrowth, venture capital heavyweight, I've been asking myself one big question:

"Does Parker Conrad have the patience to do the unsexy work that is required to succeed in this space?"

Payroll, with its intricate web of compliance, tax, and workforce management issues, represents the less glamorous but utterly essential heart of HR services.

This departure from a full-service offering could be interpreted as a reluctance to engage in the painstaking, iterative work necessary to master payroll—a cornerstone of HR Tech.

While this decision could launch Rippling on the Workday, SAP and Oracle trajectory to being one of the most valuable companies in the world; the potential downside of this move cannot be overstated either.

The HR tech landscape, particularly within the SMB and mid-market segments, is fiercely competitive. Without payroll at the heart of its platform, Rippling's differentiation becomes less clear.

How does Rippling stand apart from HiBob's global HRIS capabilities, BambooHR's affordability, Darwinbox's enterprise experience, or Deel's leadership in global payroll?

Even Lattice is entering the HRIS market this quarter (more on that in next month's newsletter).

A Crossroads for Rippling

Rippling's decision to make payroll optional is not merely a business strategy shift; it can also be viewed as a statement of intent and possibly an acknowledgment of the challenges inherent in payroll processing.

This decision might be pragmatic, considering the technological and service demands of the payroll domain, but it also could introduce a strategic vulnerability.

And, of course, it's crucial to remind ourselves that making payroll optional does not equate to Rippling abandoning the payroll field altogether.

That being said, the decision does make it easier for established providers like ADP, Paycom, Paylocity and Paycor to poke holes in Rippling's ability to be a one-stop shop for all HR needs.

It is easy to picture a sales rep at one of those companies saying, "Rippling's most complex customers use us for their payroll. Are you sure you want to put all your eggs in that basket?"

Looking Ahead

As Rippling embarks on this new chapter, its success will hinge on its ability to convincingly articulate and deliver on its vision of a unified HRIS platform that can cater to the modern era's needs—payroll included or not.

Rippling's ambition to revolutionize HR Tech remains commendable and we are lucky to have ambitious innovators in our space.

But with the amount of money Rippling has raised, they can't just be moderately, or even handsomely, successful. For its investors and employees to realize real returns, Rippling needs to hit a grand slam.

In the end, whether this decision is seen as a masterstroke or a misstep will depend on Rippling's ability to differentiate itself amidst stiff competition, and continue to innovate in ways that add undeniable value to its users.

Only time will reveal the full impact of this strategic pivot, but for now, it certainly has our attention.