Can he hang on long enough to succeed?
Can he hang on long enough to succeed?
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.
The Decision Attempts to raise more capital failed. EDS, though, came through with more business than Randle had been expecting, providing Synoran with a little breathing room. Still, Randle felt he had no choice but to reduce spending. He slashed two-thirds of the remaining Synoran work force last September. This left a skeleton crew of just 10 to maintain contract obligations. Randle and the board felt that the focus on selling to banks and other financial institutions was no longer viable. "The feedback we got from the market was that they didn't like our product as much as we had hoped," he says.
In a radical shift, Randle decided to turn to the health care sector for new customers. The logic was simple. Large health care institutions face tech problems that are similar to those of banks. They deal with a mass of incompatible computer networks among insurance companies, testing labs, third-party plan administrators, and others, all of which must function in a highly secure environment. Synoran's technology, when adapted to health care, could also help customers conform with government compliance rules. "We see that 18 percent of total GDP is spent on health care," says Randle. "Out of that, about $800 billion is spent through Medicaid and Medicare." He believes Synoran's products can not only provide cost savings to medical customers but also reduce fraud and waste.
To increase its chances of selling to big government insurance networks and hospitals, Synoran retained George Vorys, a former Medicaid administrator for the state of Ohio and a well-connected medical consultant. So far, Synoran has had no takers, but contracts in the health care sector can take months or even years to work out. That's cutting it close, because Synoran's backlog of business with EDS gives Synoran only another year or so of life. Randle is hoping that EDS, which has a strong health care IT practice, will help peddle Synoran's medical offerings. But in this sector, just as in banking, Synoran and EDS face stiff competition. Every major IT consulting company is working to get a piece of the business created by the rapid digitization of the health care system.
At the same time, Synoran is trying to sell its secure document software to consultants like Accenture and large Web players such as Google and Yahoo. Consumers and businesses would pay either a subscription (in the neighborhood of $20 a month per user) or a per-document fee to use the network. "The market could be huge, in the billions of dollars," says Orkis. "Our product is something that didn't exist three or four years ago."
Still, such fee-based consumer and small-business Internet offerings have so far been a hard sell. What's more, a key question Randle needs to address is to what degree Synoran, with its skeleton staff, should be splitting its focus in its attempt to succeed in two highly competitive yet very different markets. Randle and Orkis are keeping their fingers crossed that their offerings are impressive enough to reel in customers, because, with just a handful of staff and limited funds, they no longer have the resources to develop new products or mount big marketing efforts.
Will the customers come through this time around? "The timing is finally right," says Randle. "We've got a great shot." That may be wishful thinking. But Randle figures he's still got a year left to finally breathe new life into a business most other entrepreneurs would have long ago given up for dead.
Bill Randle is a terrific example of what it takes to be a CEO of an emerging technology company. You have to passionately believe in your business and somehow manage through the ups and downs. However, the ultimate challenge for CEOs in this situation is to retain objectivity on the soundness of the business model and prospects for providing shareholders an attractive return in a reasonable period of time. Eight years is a long time with no return and no clear sign of return in sight.
Redwood City, California
Stick with banking
With a skeleton staff and no budget for marketing, splitting the company's focus is a sure-fire recipe for failure. Synoran's core competency lies in banking, and that is also where Randle's business connections are. Synoran should focus on smaller banks, savings and loans, e-banks, and online financial service providers. Randle should leverage EDS and Huntington as references and turn all of the company on selling. As for the remaining products, mothball them. What's needed here is laser focus and relentless execution.
VP, Corporate Marketing
Identify key risks
The question shouldn't be about focus versus diversification. It should be whether the CEO has identified all key risk factors and has a plan to avoid them. It's not only about identifying growth markets. That's pretty easy to do. That said, the company still exists, while many similar start-ups have failed. However, it's doubtful the company has generated the type of return the company and investors initially envisioned. So, is success survival, or is success a blockbuster IPO?
San Jose, California