Building a successful business alone is not easy, which is why many entrepreneurs prefer to have a partner. But what happens when one of them decides to retire after many years of success? Steven Greenwood, the co-founder of ERP software vendor Magstar, had to tackle this issue when his founding partner Ronald Ross decided to retire. Ross’ initial idea was to have Greenwood purchase his share of the company and take over his duties as the president, but due to the steep demands of his buyout plan, the idea fell through.
So, instead, Ross sold Magstar to Perseus Group, an operating group of Constellation Software Inc., which in turn appointed Greenwood as the company’s new president and provided him with the tools to implement several key improvements.
Click on the 2-minute video below to watch our interview with Steven.
Ronald Ross and Steven Greenwood founded Magstar in 1986 to provide mid-sized retailers with an all-in-one solution to effectively control every aspect of their business – from point-of-sale and in-store operations to warehouse and supply chain management.
“At the time, there was nothing out there that mid-sized retailers could use to manage their operation, other than spreadsheets and manual systems,” said Greenwood. “So, we took the opportunity to develop a solution that would bring all these different bits and pieces of retail management together.”
Through continuous innovations, Magstar has grown into a successful software company that’s been recognized as a Top Performer by the RIS Software LeaderBoard for 16 consecutive years. As of today, Magstar works with a wide
variety of retailers – from liquor stores to auto-care vendors.
Despite the stiff competition in the retail software market, Magstar has remained a strong company, which is why in 2010, Ronald Ross decided that it was time for him to retire. However, this turned out to be a bigger challenge than expected since he couldn’t immediately find someone to purchase his share of the business.
Greenwood was Ross’ first choice, but since Ross owned roughly 85% of Magstar, while Greenwood owned only 15%, there was no feasible way for Greenwood to make such a hefty acquisition.
“We couldn’t come up with a buyout plan that I could afford or would want to pay,” said Greenwood. “So, Ron decided to find someone outside the company.”
After two years of searching for the right buyer, Ross decided to go with Perseus Group – an organization that was willing to accept Ross’ buyout proposal and ensure that Magstar could prosper without him.
After Ross pitched his buyout plan to Perseus Group in 2012, it didn’t take long for both parties to agree on a reasonable price. However, since the agreement involved buying 100% of the company, Perseus Group was hesitant to go through with it if it meant alienating Greenwood – who had close ties with many of the company’s clients.
To make the transition smoother, Perseus Group offered Greenwood the position as the President of Magstar.
“Since my other options were to either match or raise Perseus Group’s offer, I agreed to it,” said Greenwood. “Perseus Group bought all the shares and gave me full control of the company’s operations, while Ron rode off into the sunset.”
The unpredictable nature of the retail market in the 21st century put Magstar’s longevity into question. Customers in particular were concerned since replacing an ERP system is a long, expensive and complex process that most retailers would rather avoid.
However, the team-up with Perseus Group washed most of these concerns away – after Magstar was able to use Perseus Group’s expertise to improve its margins, profitability, efficiency and overall stability.
“It’s much easier to make adjustments based on proper business analytics and ratios, which is what we were able to do thanks to Perseus Group,’’ said Greenwood. “Perseus Group helped us identify where we could optimize each area of our business by exposing us to benchmarks across their portfolio. This helped us realize the potential that would not have been possible on our own.”
It didn’t take long for Magstar to gain the reputation of a stable company with a long future ahead of it, which allowed it to keep its existing customers satisfied and attract new prospects.
Magstar was also able to observe how other software companies overcome similar challenges through Perseus Group’s Quarterly Strategic Review (QSR) meetings.
“Perseus Group provides you with the ability to interact with peers both inside and outside your industry,” said Greenwood. “You begin to realize that you are not the only company with a particular problem.”
By continuously participating in these QSR meetings and connecting with other businesses, Magstar has gained the expertise needed to overcome some of the industry’s most common challenges, and has grown into a much stronger
organization as a result.
The intense competition within the retail software market means that Magstar has to continuously enhance its offering to remain afloat. Now that Magstar is part of a large public organization, we have been able to position ourselves as a more stable and well-funded business.
“With Perseus Group, I have access to all kinds of resources and people to help me with the business,” said Greenwood. “That way, when we see challenges coming up, we can plan for them in advance.”
Explore the latest news, insights, and articles from our vertical market investors and operators.