Microstar Software

n late 1998 Microstar Software, Ltd. was a firm seeking to change both its market position and its economic situation. Based in Ottawa, Canada, Microstar had been doing pioneering work in developing SGML technologies for approximately a decade. By 1998 the company had reached a point where it had developed a respected professional services business serving high end publishing clients. The services operation produced reliable, if not rapidly growing revenues. Microstar also had a number of SGML products that were highly regarded in the marketplace for sophisticated SGML publishing tools. And, since XML is essentially a lineal descendent of SGML, Microstar had been doing cutting edge work in developing XML technologies, including some OEM work for one of the more respected, rapidly emerging players in the XML management and publishing space.

Building on these products and services, Microstar had money in the bank, was profitable, and had assembled a strong management team. However, as a public company they were concerned that stock performance was lackluster. Worse, management and the board of directors feared that if they did not move aggressively to establish critical mass in the emerging market for XML products, they would ultimately see a contraction in revenues as the SGML business tailed off over time.

With board of directors backing, Microstar management brought in Fastwater to help the company assess its situation and to identify a number of possible growth scenarios. Fastwater dug deeply into Microstar's core technologies, into its professional services operations, and into its sales organization. Working collaboratively with the management team, we were able to identify a number of possible directions for business development. Alternatives included expansion of the services business, an aggressive new push into product development, and transformation of the company into an applications service provider to meet the needs of the new emerging net marketplaces. We also provided Microstar with a high level assessment of the levels of investment, risks, and potential for return for each of the alternatives.

The path that was most interesting to Microstar was the one that was most familiar: focusing on innovative new product development. Consequently, in the next phase of our engagement we worked with Microstar to develop a high level specification for a new XML product that would meet identifiable market needs. We were able to estimate the approximate level of development effort required to build the product, identified key partners, and sketched out the time frame that Microstar would need to work within in order to hit the window of opportunity for the product. It was clear that the development would require bringing in additional investment in the company; consequently we began participating with Microstar in conversations with investment bankers.

As we began to develop the picture of the plans and requirements in more detail, the Microstar management and board began to come to a new and important realization: once they were able to look clearly at the risks, investment, and effort involved in transforming the company and reaching for a new future, they were suddenly not sure they wanted to make those investments. Prior to the process of looking really hard and carefully at the future, the company had always assumed that there was a bright future out there, within relatively easy reach, if it could just find it. Fastwater helped the management team and board develop a more realistic and somewhat more somber view of what would be involved in repositioning the company.

Microstar asked one of the Fastwater partners to join the company's board of directors, taking on fiduciary responsibility for helping the company identify and execute an appropriate transition. We accepted this offer, and commenced an intense evaluation of alternatives and prospects. The board and management reached a unanimous decision to seek a buyer for Microstar and exit for Microstar's largest shareholders, rather than undertaking a new round of investment and development. Fastwater participated actively in the process of identifying and evaluating potential suitors. In the fall of 1999 Microstar was sold to Open Text in a cash deal. Ex-Microstar management is currently serving at the upper levels of management within Open Text. Fastwater assisted in creating a transition that was successful for all parties.

The Microstar story is important because investment and growth is not always the most desirable path for all companies. But seeing the right path is possible only when a company has access to good information about alternatives, costs, and risks. Fastwater's commitment to clients is flexible and clear eyed. Our approach is not one-size-fits-all; we do not come into a job knowing the "right answer." Our commitment is to listen, uncover new information, analyze the facts, and help clients reach new insights and develop new alternatives, even when those alternatives involve making difficult decisions about the company's core vision and mission.