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April 16, 2024

The Scaling of Komartek: Ari Korhonen reveals how he saved Komartek from the brink of bankruptcy by selling his company car

By Evli Growth Partners
Ari Korhonen
Growth Partner
The late 1980s and early 1990s marked a period of new product development and rapid market expansion for Komartek. However, as the severe economic depression of the 1990s hit Finland, similar to many companies, Komartek soon found itself grappling with a debt burden. But how did Korhonen’s decision to sell his company car rescue Komartek from the brink of bankruptcy?

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?

During the booming 1980s, marked by rapid economic growth, technological advancements, and unwavering optimism, many things fell into place for the Finnish software company Komartek as well. Serving a diverse clientele all the way from district heating and waterworks to real estate management, the business ran smoothly – even though a lack of clear vertical and product focus posed its own set of challenges in the beginning, as Ari Korhonen, the co-founder of Komartek, described in the first part of this series.

Despite money always being a bit tight, the Komartek team consistently aimed for growth. So much so that Korhonen was perpetually dissatisfied with the current state of things, always aiming for something even higher.

“To be honest, I don’t recall ever pausing to think that we were in a good place or doing well, content with the way things were. However, I distinctly remember when things really began to take a downturn”, Korhonen recalls.

“It was a stroke of luck that we dodged that bullet since we could manage the amount we had taken.”

The shift from the golden age of the 80s into a new decade introduced a period of economic depression. Construction halted, banks went bankrupt, and securing funds became nearly impossible. 

“At that time, banks granted a loan of 1,200 euros per guarantor, meaning that my name on the paper was literally worth 1,200 euros.”

Fortunately, Komartek's lifesaver proved to be the fact that it didn't have a huge amount of foreign currency loans on its balance sheet when Finland decided to devalue its currency.

“Government-owned Finnvera was actively selling those loans to companies like ours, which soon found themselves grappling with 50 percent more debt after the devaluation. It was the death blow to many businesses”, Korhonen explains and continues: “It was a stroke of luck that we dodged that bullet since we could manage the amount we had taken.”

Komartek’s resilience during the depression could also be attributed to its earlier years of robust growth before Finland’s economic downturn. Even during the downturn, the company continued to grow and was able to handle its interests with cash flow. But although Komartek fared better than some and managed to avoid bankruptcy, it was by no means an easy period.

"At its worst, the stack of unpaid invoices on my desk exceeded several months' worth of turnover."

Ari Korhonen, Timo Tommila, and Tero Sven at Komartek's office on Laserkatu 6 in Lappeenranta during the 1990s.

Desperate times called for innovative measures, leading to Korhonen selling his company car to meet payroll obligations.

“I had always taken pride in paying our employees' salaries on time, and I never failed to do so. However, one time payday was approaching, and there was absolutely no money in the company account. I remembered that one of my former employees had always been very fond of my purple-red Volvo 740, so I called him in the evening before payday and asked if he wanted to buy it for 100,000 Finnish marks, as it was going on the market the next morning. And that was a deal.”

The next morning, Korhonen went to deliver the car, closed the deal, headed straight to the bank with a 100,000 FIM check in his pocket, and was able to pay everyone their salaries on time. Yet, the relief was short-lived as he soon found himself without a car, facing an eight-kilometer walk home.

“So, instead of walking home, I walked to the car dealership and requested a test drive from the same salesman who sold me the car I had just sold. Well, the test drive lasted for a month, but after trying out two cars and driving thousands of kilometers around the country for sales meetings, I eventually ended up buying the car”, Korhonen laughs and continues: Afterwards, I purchased six cars from the same salesman over the years and even had to switch from Volvo to Mercedes because of him. But now that he is retired, I can buy any car I want. After this episode, I have always remembered the importance of cash flow forecasting.”

Similar to many fellow entrepreneurs, the depression years were extremely challenging for Korhonen, also on a personal level.

“For many years, I could only afford to pay myself the minimum wage. I had to plan when to go to the grocery store – and even when to return bottles – so I could feed my family. Those years were the toughest ones in my career.”

“Looking back, one might wonder if it was worth pursuing this endeavor in the first place.”

In a way, the 90s depression also became a blessing in disguise for Komartek. It compelled the company to streamline its operations, shed unprofitable business units, and focus solely on its core verticals. During those years, Komartek also embarked on a global expansion, initially extending its operations to Sweden and later to Estonia, Poland, Latvia, and beyond.

There appeared to be a clear demand for Komartek's applications abroad, particularly within the district heating sector. Over time, the company successfully distributed hydraulic calculation and planning software tailored to district heating networks to more than 10 countries. However, the Komartek team had to once again face the limitations of the niche market. 

“Ultimately, the market was just too small. Looking back, one might wonder if it was worth pursuing this endeavor in the first place.”

Korhonen emphasizes choosing the right sales model as one of the most important lessons learned from Komartek's scaling journey, as it proved to be instrumental in the company's success. At Komartek, the team tried it all: from retail to direct sales and partnerships, eventually opting for a subsidiary model. That's when the critical role of recruiting the right people for management positions became evident to Korhonen.

“Poor hiring decisions are a barrier to growth – that’s something we had to learn the hard way. But recruiting is challenging, especially when you are doing it for the first time in a new market.”

In the next part of the series, Ari Korhonen will reveal the real story behind his exit from Komartek. Was it a part of a grand plan, or simply an unexpected twist of fate? 

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