In the past, Jonas Software’s parent company, Constellation Software (CSI), has been compared to Berkshire Hathaway. You can see the article here. We are humbled by the comparison, as we have a lot of respect for what Warren Buffett and Charlie Munger have built at Berkshire over a very long period of time.
Here are a few of our favorite topics and quotes from Buffett that relate to how we think at Jonas Software and CSI:
“What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” ~ Warren Buffett
“CSI’s strategy is to be a good owner of hundreds (and perhaps someday thousands) of growing autonomous small businesses… Our strategy is unusual. Most CEO’s of public companies would rather run a single big business – perhaps two or three big businesses… We recognize that economies of scale, centralized management and world-class talent competing in large and growing markets can be a great business-building formula. But, it isn’t what we do. We seek out vertical market software businesses where motivated small teams composed of good people, can produce superior results in tiny markets. ~ Mark Leonard, CSI Founder & President (2017 President’s Letter)
We value the “circle of competence” concept and are big fans of being focused at Jonas. We acquire business to business software companies who are focused on specific industries and typically in specific geographies. This could be software for private golf courses, the hair & beauty market, and the hotel industry, just to name a few. There are many other potential industries to invest in, but software is our circle of competence, and we stick to it.
- A Different Kind of Owner
“We find it meaningful when an owner cares about whom he sells to. We like to do business with someone who loves his company, not just the money that a sale will bring him (though we certainly understand why he likes that as well). When this emotional attachment exists, it signals that important qualities will likely be found within the business: honest accounting, pride of product, respect for customers, and a loyal group of associates having a strong sense of direction.” ~ Warren Buffett
“Our favorite and most frequent acquisitions are the businesses that we buy from founders. When a founder invests the better part of a lifetime building a business, a long term orientation tends to permeate all aspects of the enterprise: employee selection and development, establishing and building symbiotic customer relationships, and evolving sophisticated product suites. Founder businesses tend to be a very good cultural fit with CSI, and most of the ones that we buy, operate as standalone business units managed by their existing managers under the CSI umbrella. We track many thousands of these acquisition prospects and try to regularly let their owners know that we’d love the chance to become the permanent owners of their business when the time is right for them.” ~ Mark Leonard, CSI Founder & President (2012 President’s Letter)
At Jonas, we think we have very appealing differentiators vs. other acquirers. We refer to it as our ABCs:
- Autonomy: We have a decentralized structure and do not seek to take over the day-to-day operations of our companies. We like to think of ourselves as a “culture of cultures” – we have guiding principles and common metrics, but decisions regarding operations are left up to the business units. In the vast majority of our acquisitions at Jonas, the person running the business pre-acquisition has stayed on to run the business post-acquisition or retired shortly after the sale. These folks are experts in their respective vertical markets, having built customer and employee relationships over many years and decades, which we admire (and prefer not to change).
- Buy & Hold Forever: We never sell our acquisitions – this is our “Software for Life” motto. We will discuss this in more detail below.
- Culture of Sharing Best Practices: We place a high value on sharing our experiences on how to run great vertical market software companies with those who are a part of the Jonas family. We are a learning organization and continue to share what is working and what is not with others.
- Long Term Orientation
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” ~ Warren Buffett
“Our objective is to be a great perpetual owner of VMS businesses…As perpetual owners, we care about the long-term health of our many small businesses.” ~ Mark Leonard, CSI Founder & President (2017 President’s Letter)
Buffett and Munger are long-term investors. A great example of this within Berkshire Hathaway is See’s Candy: “We’ve owned that since 1972, and we love it, and we continue to love it… We put $25 million into it and it’s given us over $2 billion of pretax income”, said Buffett.
Our buy and hold forever strategy at Jonas was already referenced above, but it’s worth covering in more detail here. Most other acquirers purchase a business, and then look to sell it after a few years of ownership. At Jonas, we completed our first acquisition in 2003. Since then, we have completed over 95 acquisitions and have never sold a business. We strive to be a great, permanent home for companies that join the Jonas family via acquisition. We care deeply about the long term health of the employees and customers of businesses within the Jonas family.
- Keeping Score
“From the start, Charlie and I have believed in having a rational and unbending standard for measuring what we have – or have not – accomplished. That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.” ~ Warren Buffett
“An investment only becomes a lesson if we diligently track its post-acquisition performance and take the time to analyze the outcome while the investment is still fresh in everyone’s mind. We have a process for this that we call a post-acquisition review…” ~ Mark Leonard, CSI Founder & President (2017 President’s Letter)
Despite many different countries, currencies and verticals at Jonas, we have some common metrics and financial guidelines for our businesses that unite us and allow us to benchmark performance. We are big believers in a data-driven culture that has strong financial discipline.