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April 5, 2024

The Beginning of Komartek: “It is actually the only job search process I have ever had to go through” – Ari Korhonen on how he steered Komartek to conquer the niche markets

By Evli Growth Partners
Ari Korhonen
Growth Partner
Growing up in a farming family, Ari Korhonen became accustomed to hard work and an entrepreneurial spirit from an early age. Now, Korhonen shares how the energy crisis of the 1970s kick-started his career and what led him from the sugar beet fields to the helm of Komartek, a Finnish vertical software company that would soon become an international success story.

This blog post is part of The Founder Files series, exploring the human side of entrepreneurship, where the distinction between success and failure is often a fine line. From founding and scaling, all the way to the exit, we reveal the unfiltered, authentic stories behind entrepreneurial journeys. Ready to hear the truth?

In the 1970s, geopolitical tensions and supply disruptions triggered a global energy crisis, causing oil prices to skyrocket and leading to energy technology becoming the talk of the town. Inspired by this, quite literally, burning topic, Ari Korhonen, freshly graduated from high school, decided to pursue a degree in the field. Completing his academic journey in precisely four years and eight months at Lappeenranta University of Technology (LUT), Korhonen was the first among his classmates to graduate, soon pondering the next steps of his career.

Having grown up in a farming family, Korhonen learned the value of hard work and money from an early age. That entrepreneurial spirit proved invaluable for his future career, which, surprisingly, turned out to be just around the corner. 

Korhonen’s master’s thesis instructor, Dr. Lasse Koskelainen, had recently co-founded Komartek with another university professor, Dr. Esa Marttila, and they were in need of an extra pair of hands to run the company’s operations. In 1984, Korhonen joined the company as its first official full-time hire.

“My founder story is a bit atypical, as Komartek was already in existence when I joined. It is actually the only job search process I have ever had to go through – and it was over before I knew it”, Korhonen recalls.

The early days of Komartek's story, however, were just like many other startups. The team started working at both Lasse’s and Esa’s homes, which was almost like the classic image of starting a successful tech company in a garage.

Korhonen and Marttila at a marketing event for HVAC software at Hotelli Torni in the late 1980s.

Initially, Komartek was more of a consulting company for the Heating, Ventilation, and Air Conditioning (HVAC) sector, but when Korhonen came on board, they pivoted to become a software company in HVAC planning, recognizing a clear demand for such products. At Komartek, Korhonen started by developing software for HVAC designers but soon transitioned to a role in sales. He quickly acquired a share of the business with a bank loan, and within a few years, Korhonen found himself with the help of additional bank loans, at the helm of the entire company as the original founders, Koskelainen and Marttila, exited early, selling a major part of their shares to secure funds for other projects. 

“Anyhow, Esa held a small ownership stake and remained my mentor until the exit, and beyond, which I respect a lot.

“While most companies were still developing software for minicomputers, we bet on the newly emerging PCs, which was a game-changing move.”

Komartek's competitive edge stemmed from the robust technical know-how of Koskelainen and Marttila, as well as a focus on niche deep tech markets. In the 80s, the company began selling planning software for HVAC designers, soon expanding to hydraulic calculation and planning software for both district heating and sprinkler companies. Komartek in the 80s and 90s would have been surely called today a deep tech company.

"PCs revolutionized the tech scene in the 1980s. While most companies were still developing software for minicomputers, we bet on the newly emerging PCs, which was a game-changing move. In that sense, we had nearly impeccable timing with Komartek”, Korhonen explains and continues: “Komartek in the 80s and 90s would have been surely called today a deep tech company."

However, navigating the niche market for HVAC designers soon posed its own set of challenges. The Komartek team quickly realized that small, private companies weren't ready to pay big bucks for a planning software – the market was small, and the budgets were even smaller. They had to come up with something else.

The turning point came when the Komartek team recognized that public district heating companies, which held regional so-called “areal monopoly” positions, not only possessed substantial financial resources but also had a significant demand for billing and collection solutions.

“At that time, Finland had approximately 125 district heating companies, of which about 110 purchased our solution. That was a major breakthrough for us.”

Later on, Komartek introduced a similar product to 450 Finnish waterworks companies, of which 400 decided to invest in the solution. Eventually, securing that market share of over 80 percent took them around 15 years, but as Korhonen describes, "it was a wise move, indeed".

“At some point, we had to learn the hard way that we needed to let go of verticals where our performance was lacking, the market size was too small, or competition was more intense.”

Korhonen describes Komartek’s journey as a continuous path where each step has naturally led to the next. Like many other startups and growth companies, the Komartek team felt the need to seize every opportunity that came their way. After the team noticed the high demand for billing and collection software in the district heating and waterworks industry, they developed a similar product for waste management and real estate companies as well. In addition, they sold hardware, developed maintenance management software for heating plants, waterworks, and the real estate sector, and created bespoke solutions for some of the biggest clients in the Finnish energy industry, such as Neste and IVO – and much more.  

“As you can see, we did product development like crazy, but clearly, maintaining a product or even vertical focus was not our strong suit.”

The Komartek team capitalized on every opportunity that came their way and expanded rapidly – perhaps somewhat unnoticed – as there was not as much competition back then as there is today. When reflecting on what he would do differently if he were to become an entrepreneur now, Korhonen mentions focusing on the right verticals and product lines.

"At some point, we had to learn the hard way that we needed to let go of verticals where our performance was lacking, the market size was too small, or competition was more intense. We had to make the difficult decision to close unprofitable verticals, subsidiaries, and even give away one of our original HVAC business units for free to our main competitor. Then, we were able to focus on clients who were actually more profitable – Energy & Utilities and Real Estate Management." 

In the next part of the series, we will dive deeper into the ups and downs of Komartek’s scaling and explore how Ari Korhonen navigated through the challenges of the 90s depression.

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