ONLINE—Eye on the Prize

In September, Digital Insight Corp. landed in the No. 1 spot on the Deloitte & Touche ranking of 50 fastest growing technology companies in the L.A. area, clocking a growth rate of 19,793 percent since its founding five years ago. The Calabasas-based company, developers of e-finance products that allow small- to mid-sized banks and credit unions to provide their customers with online banking services, projects $60 million in revenue in 2000 with more than 1,150 accounts. Customers maintaining those accounts are signing up for online banking at ever-increasing rates. But none of that has stopped the tailspin of Digital Insight’s stock, which is trading close to its initial public offering price of $15 after soaring to more than $80 per share in the months that followed the IPO in October 1999. The job of navigating the company through both its lightning speed growth and the tech wreck on Wall Street falls to John Dorman, the company’s chief executive officer. Dorman, who studied philosophy in tandem with business administration and became treasurer at Union Bank of California at the age of 29, started his own financial services software company, Treasury Services Corp., and in 1997, sold it to Oracle Corp., where it became the backbone of Oracle Worldwide Financial Services. After managing Oracle’s global division, Dorman had expected to retire off the proceeds of the sale of his company. But two years ago, Digital Insight’s co-founders, Paul D. Fiore and Daniel Jacoby, tapped Dorman to run their company instead. Question: How much has online banking been accepted by consumers, especially as compared to the way people adopted automated teller machines? Answer: It’s actually running statistically significantly ahead of ATMs. Something like 60 or 65 percent of the banking population uses ATMs. But it’s taken 26 or 27 years to get to that level. Three years ago it was taking financial institutions about three years to get to about 6-percent penetration of their customer base (for online banking). Now we have clients getting there in from three to nine months, and it’s continuing on a steady curve upward. There’s a lot of inertia in the way people bank. They’re very guarded about the privacy and security of their banking relationships, and they never have and never will change how they do banking overnight in the way that Amazon.com was able to come in and sell books and instantly change the whole dynamic of the book selling industry. Q: The company’s third-quarter revenues rose 139 percent to $17.3 million, but Digital Insight also reported a net loss of $5 million (18 cents per share) compared to a loss of $4.7 million (or 25 cents per share) for the comparable quarter last year. What was the reason for that? A: It was because two of our three acquisitions closed in the third quarter. That was the impact of the acquisitions. What investors look at more is the loss per share, and actually loss per share quarter to quarter went down. Q: What has been the strategy behind the acquisitions you made this year? A: We’ve done three acquisitions that really characterize three different sets of motivations. The first one, nFront Inc., was, for all practical purposes, a direct competitor, so that was a market share acquisition. 1View Network was almost purely a technology acquisition. They had two products that we thought were very strategic and very complimentary to our product line, and they were far enough along that we thought we could get to market much faster with those products than building them on our own. And the third case, AnyTime Access, was a combination of market share and extending our product line in that they were selling to the same target market we do, but they were selling online lending services. That represented the opportunity to extend our product line. Q: How has the drop in the price of your stock impacted the way you manage the company? A: The stock price really means nothing other than it’s a barometer of how the stock market is currently valued and that’s relative to other companies. The way you impact that isn’t by rushing out to hype your stock or issuing press releases, because that doesn’t really work. The way you impact that is by focusing on the execution of the business. Over the long run, the stock price takes care of itself. Q: So, does that mean you haven’t had to do any hand-holding on Wall Street? A: No, it doesn’t mean that. That’s one of the impacts. In this kind of environment, investors and analysts on Wall Street need a constant flow of information and need to be retold or resold the story from time to time. I’m not sure you need to do that more in this environment than any other environment but it’s tougher in this environment. Investors in general are in a negative frame of mind right now, so they’re skeptical and cynical about anything, and they tend to look at the empty portion of any glass. That’s more stressful. You spend more time answering questions, and you get less benefit out of the positive part of the story. Q: Has the drop in your stock price made it more difficult to pursue acquisition opportunities? A: In general, our acquisitions have been for stock, not cash. When you acquire for stock, having a lower stock price just means that the price you pay for the acquired company is lower. In some cases, that actually helps because when your price is real high, the company being acquired worries about whether there is downside risk in the stock price. At our current price level, anybody who understands the sector and understands the business would look at our stock price and think it’s seriously undervalued, so they’re willing to accept a lower price because they think the stock will go up. Q: Many young, high-tech companies don’t get outside managers until they run into trouble and their founders get ousted. What is it like to be managing a company when the co-founders continue to be involved? A: It gives you a real deep sense of responsibility. One of the reasons that Paul and Daniel and I were able to get along well through that process is that I had started companies before myself and grown them from startup. I had to go through the whole psychological impact of selling my baby to someone else, so I could relate personally to a lot of emotional challenges that Paul and Daniel were going to go through, and I think that helped both them and me manage through it. The biggest ingredient for our success was the fact that they were both incredibly rational about it. They just looked at it as, “We’re going to be better off, the company is going to get further, we’re going to have more fun watching the company get further and, in the end, we’re going to make more money as shareholders.” The degree to which they were willing to subordinate their egos and remain engaged in the business but not try and retain founder control was very unusual, but really has been a godsend to me in terms of doing the things I needed to do to build a management team and rapidly scale the company up to the next level to realize its full potential. Q: Do they ever second-guess you? A: Sure, but when you sit in my chair, everybody second-guesses you. I sort of expect that and I welcome it. You need to be able to challenge and question to have a healthy learning, growing environment, but they never second-guess me in ways that are counterproductive or destructive. Q: You’ve run your own company, managed large international divisions and now you’re running a young business. Which has been most enjoyable? A: What I would say in common with all of those jobs was I love building things. I would honestly say this one is the most fun I’ve ever had. Having sold my former company, having created enough wealth to be able to retire, I was doing this because I chose to do it, not because I need to make any more money. I was doing it just for the excitement and the passion of it, so I felt coming in to this one that I both had nothing to prove and nothing to lose. And I was able to come into a situation that I felt almost perfectly fit my background and strengths and skills in a way that I could apply everything I had learned and done wrong before.