Bill Randle is a survivor. A bank executive turned tech entrepreneur, Randle has managed to keep his software start-up alive for nearly eight years against all odds. There was the implosion of two huge and critical deals, a dispute with prospective customer Wells Fargo, and, through it all, investors with increasingly cold feet. Then, last September, just as his company was finally getting some big contracts and gaining momentum, Synoran got dragged down yet again by the subprime lending crisis.
Now, Randle's company, consisting of jus t 10 employees--down from 120 in late 2002--is attempting to reinvent itself. It's focusing on the fast-growing market for secure online billing and recordkeeping systems that hospitals and insurers have been eagerly buying. Up against larger, better financed companies, though, Synoran has a hard road ahead. Within the next 12 months, Randle faces a series of critical decisions that will likely determine the fate of his company.
Randle was so confident in the original concept that he left his bank job to build a business around it. The main product worked a kind of software magic to integrate disparate back-end technology systems. It allowed banks to connect different transaction systems such as ATMs, automated clearinghouse networks, paper check verification systems, and other payment networks that in the past could not talk to one another. All this promised big efficiency savings while also allowing banks to offer better service: They could give customers one easy place online in which to view all sorts of accounts, from checking and savings to mortgage and auto-loan balances. The product also would give banks a real-time unified view of balances, inflows, and outflows, which could help them make more informed lending and financing decisions throughout a day. At the time, most banks were unable to gauge their cash level until the close of the business day, when accounts were reconciled in a laborious process.
Randle, who led the development of the product as an executive at Columbus, Ohio-based Huntington National Bank, left that job in 2001 and soon thereafter bought control of the software. He named his new company e-Bank (later renamed Synoran), raised $35 million, and hired a CEO to run the business while Randle focused on identifying other start-up possibilities.
The timing was far from ideal. True, many banks feared losing business to online upstarts, such as Charles Schwab (NASDAQ:SCHW) and TD Waterhouse, and were looking for ways to offer similar online services. But many were also feeling tapped out after a tech spending binge to prep for anticipated Y2K glitches. Then the Internet bubble burst, taking the wind out of the U.S.'s economy and drying up spending for products like e-Bank's. When the World Trade Center fell, the economic gloom deepened, and e-Bank struggled just to reel in a few new customers willing to pay the $3 million to $8 million annual cost for the technology.
Then there were e-Bank's frustrating false starts. In late 2001, for instance, banking giant Wells Fargo signed a five-year, $40 million contract. But less than a year later, the contract fell through. Randy Orkis, Synoran's chief technology officer, says Wells Fargo opted to build a similar system for itself. Susan Stanley, a spokeswoman for Wells Fargo, says, "These claims are baseless and without merit." The dispute remains in arbitration.
The Wells Fargo loss was a tough blow. With an annual operating budget of nearly $25 million but revenue of just one-half to two-thirds that amount, e-Bank was quickly burning through cash, much to the alarm of the board and investors. "We could never really get it going," says Randle. "We could not grow the business the way we needed to grow it."
In a bid to revive the company, Randle ousted his CEO, in late 2002, and took charge of the business himself. A few months later, he slashed the work force in half. To give the company a fresh image and distance it from the dot-com bust, he renamed the company Synoran, an ancient Greek word meaning "to see everything all at once."
Most important, Randle completely shifted the company's strategy. Rather than go after bank contracts directly, Synoran would work through big consulting outfits, such as Electronic Data Systems (NYSE:EDS) and IBM (NYSE:IBM). As part of the reorganization, Synoran also developed an easy-to-use document sharing network that allowed groups of individuals or businesses to securely share and track legal, architectural, financial, and other sensitive documents over the Internet using encryption and standard Web browsers. The plan was to sell to telecom companies, which would offer the Synoran service to corporate and consumer customers.
The strategy appeared to be paying off: In 2004, telecom giant MCI was on the verge of signing a big contract with Synoran to offer its document sharing program. Then Verizon (NYSE:VZ) acquired MCI, and the Synoran deal was put on ice. "It was a big blow," says Orkis. "The deal could have been a contract worth millions and millions of dollars to us."
Synoran still had a lucrative arrangement with EDS and an ongoing contract with Randle's former bank, Huntington. But the company's overreliance on these two customers proved a liability. In 2006, a large five-year contract with Huntington expired. Then, in the fall of 2007, as the subprime lending crisis spread, Randle began to worry that EDS would scale back its business with Synoran. With Synoran's cash flow looking ever more tenuous, Randle knew the day of reckoning had arrived.
