Ørn Software has grown its annual recurring revenue (ARR) 11.5 times, from NOK 21 million to 244 million in the last 4.5 years. Sten-Roger Karlsen, CEO of Ørn Software, shares how they have succeeded with their growth strategy. He sheds light on how to win your acquisition candidates and how to utilize customer success and pricing as a fundamental part of organic growth.
Interview with Sten-Roger Karlsen (Header image)
– When Viking Venture invested in Ørn, I started as VP of Customer Success at Ørn Software. It was good timing, as I was ready for new challenges and found the prospect of working with a company so focused on customer success and backed by Viking Venture exciting. I knew Viking Venture well from a previous role, where they were also owners. After approximately a year, I took over the CEO role and have been there ever since.
– As CEO, my ambition was to deliver on our company’s growth strategy. The growth strategy was primarily set before I started, in close collaboration with the then-CEO and CFO. The goal was to increase ARR to more than 200 million in 3-5 years. Consequently, we needed to deliver organic and inorganic growth. When I took over, we had already made two acquisitions in which I was partly involved. Following my arrival, we completed seven acquisitions, gradually the size as we gained more experience. These acquisitions have been essential to take the company from 21 million in ARR when Viking entered to 244 million when EG acquired us in June this year. So, in conclusion, an 11.5 times increase in ARR.
– Being CEO was a new role for me, but to my advantage, I had been in boardrooms in previous roles and knew Viking well. Looking back, it went surprisingly smoothly. As Viking practices active ownership, you feel you are dealing with colleagues rather than owners. I received a lot of help and support on my way into the role. Additionally, Viking Venture appointed Lasse Sten, CEO of House of Control, as my mentor, which was a helpful initiative.
– To me, the strategy was clear, so I made a 100-day plan on how to deliver. It should be mentioned that I started at a challenging time, as it looked like we were about to breach some covenant requirements with the bank. Consequently, we had to restructure the company and cut costs. Several of the points in the 100-day plan were about delivering on the company’s restructuring. I managed to deliver on that plan within the first 100 days, and then I was up and running.
– Downsizing is always challenging, even though I had already been through similar processes. Luckily, I had a strong team around me. With our HR manager Christina in charge, we managed the process well with the rest of the management team. We brought in external advisers who ensured that we did everything correctly. In addition, we helped those affected into new jobs. Although this is a tough process, it went very well and is something you can be proud of later. In the aftermath, we got a pat on the back from the organization because they thought it had been a tidy process. There have been several rounds like these, and eventually, this becomes part of normal business. We make some adjustments to ensure the “right size” of the organization. You need to be confident that you have the right people, in the right place, at the right time.
– Our acquisition strategy continually improves, and we have mainly pursued three different tracks. The first is to strengthen ourselves within an area we already represent. Here you typically buy companies that may be competitors to take larger market shares within a space. Another strategy is expanding within a selected area. In this case, you generally purchase companies with complementary solutions to be more successful with cross-selling and up-selling to existing customers. In addition, to take a more prominent position within an area, you have not represented before. A third area is a geographical growth, where you buy companies in other countries. You presumably do that within a space you already know, as it is easier when you must establish yourself in a new country with a different culture.
– The acquisition strategy has changed over time. Earlier, it was primarily about growth. Then we just had to find someone who seemed to fit us and for whom we had the right gut feeling, with joint plans and goals. In addition, the company needs to have a good cultural fit. We have gradually become a bit “pickier” in terms of the tech stacks. It should be a very high technological fit and a solution without too much technological debt. We have learned that this debt makes our business even more complicated. We are at a point where we have a number of different products in the market, which is challenging. Thus, before buying, you must consider how to position the products together in the portfolio.
– We were a bit more opportunistic initially and have become stricter on the M&A strategy. In 2021, we brought an M&A manager into the team, which quickly improved our ways of working. We professionalized the processes and did better due diligence before making a bid, which we could not have done before. We have also become more professional along the way, enabling us to make good choices and select suitable targets. There is no doubt that M&A has been a fundamental driver for the growth we have had.
– It can be challenging with M&A, and you put a lot of effort and time into it. There are many exciting companies out there. However, we are not alone in having M&A as an essential pillar in our growth strategy. Consequently, we have tough competition with many other players who are P/E-backed and want to grow through acquisitions. Almost every time we have been in dialogue with acquisition candidates, 3, 4, or 5 others have been in discussions before us.
– Throughout the entire period with Viking Venture, we have had a compound annual growth rate (CAGR) of 78%, with 35% coming organically. Not necessarily primarily because we have been excellent at selling software but because we have been good at price optimization and converting customers from old software contracts to new recurring SaaS contracts. We have done a lot of upsells from early on and gradually improved our numbers on new sales. However, the rest comes from acquisitions, and we would only have reached our goal if we had gotten nine companies on board.
– Except for the 2-3 cases we withdrew from, we have always reached our goal. I think that is because we have spent a considerable amount of time getting to know the management and owners of these companies. We have spent time aligning strategies and plans and made it visible them that we are stronger together than alone. This way of building relationships has been the success factor in most of our M&A processes. Honesty is one of the company’s core values, and I am convinced that playing with open cards and being transparent and honest throughout the process has made them want to sell to us.
– If we look at the case of the first acquisitions we made, the founders were most often concerned with ensuring that the new owners would look after their products, employees, and customers. In these cases, honesty and transparency are vital. When you compete against acquisition machines such as Visma or others who have made many acquisitions, I think we are the preferred buyer.
– Our ability to create customer success has been crucial. I have learned a lot about customer success since I came to Ørn Software. Not least by Viking Venture but also by the other portfolio companies. We work proactively and closely with customers to ensure they get value and are always satisfied. The key is constantly delivering products and solutions that solve customers’ challenges. Therefore, we measure and continuously ensure that we create real customer value. Because as mentioned, we have had good organic growth, and much of this growth comes from price optimization.
– The fact that we have been able to get customers to accept price increases steadily without leaving us has been a critical success factor. We have examples where we have increased prices by 100% without increasing customer churn in the years afterward. Of course, it also confirms that we deliver business-critical solutions and have sticky software. But I also believe that it is because we focus on customer success.
– The biggest challenge we have had, which we have been working on since I joined the company, is to build an effective sales machine and achieve good organic growth through new sales. Selling software is not always easy, and for many of our solutions, there are broad enterprise systems with long sales cycles. To win new customers, we often need to persuade several stakeholders in the companies. New sales are about being successful with inbound marketing and having sales people with good sales techniques, but that usually is not enough. You must also have domain expertise, understand the customer’s challenges, and know enough about the product to be convincing.
– At first glance, it could seem that you can just hire a salesperson who has succeeded in another job and sold SaaS well. However, getting the salesperson up to speed takes a long time. If it doesn’t work, we must replace the person, and then time passes fast. For us, it has been a lot of trial and error. Although we have focused on new sales from day one, I feel that this past year is the first time we have delivered new sales at a level we should be doing. Undoubtedly, this has been our primary pain over the years.
– Another challenge is that when you grow through M&A, you end up with a lot of products in your portfolio. You get at least one new product every time you acquire a company. With the M&A strategy we have had, we ended up purchasing some competitors and several products with quite a lot of functional overlap. The implication is that you eventually become rather complex and partly capital-intensive product management. Although on paper, you think that if you buy a competitor, you only need to decide which product you want to focus on and migrate all customers to this solution, it is seldom that simple.
– As an example, it might be simple functionality that is important to a customer that the other solution does not have. There may be public customers the acquired company won through public tenders, meaning you cannot simply switch solutions even though you are in the same company. There are several challenges here, which can quickly become difficult to deal with in terms of product management. Such challenges are fun but also very demanding.
– Initially, there was some uncertainty about what implications it would have to bring in a new investor. Many might think that when a financial investor owns you, it’s only about profit and return on investment, and that you don’t think so much about the people and the company. In contrast, we have experienced that this has not been the case. I already knew the P/E world, and I think it was positive for the employees that I could share my experience with Viking Venture as an investor. Viking Venture aims to build solid and profitable companies; to do so, you need to focus on people and culture.
– All in all, I feel it has been exclusively positive. I find it welcoming amongst employees that you accommodate processes and other things that have been frustrating for a long time. In general, improving processes, interactions and professionalism is considered positive. Growing and becoming more prominent and robust also provides employees with career opportunities, especially for ambitious people who want to try new things. We have many examples of people who have made careers within the company who might not have had the same opportunity if it weren’t for the growth journey.
– We have spent a lot of time aligning expectations within our organization. We talk a lot about why we make different decisions in the boardroom or by Viking Venture, which we sell to the organization as important decisions for our journey. By doing so, we create a culture for change. When faced with acquisitions, IPOs, and delisting, it is hugely important to have a culture of change. Thus, we often anchor why growth is positive for all decisions you make.
– As CEO, you can incentivize your management team to achieve growth. However, in our case, we have put together a team driven by building things and succeeding in doing business. I am also an advocate for ensuring that employees should not feel like they are left standing on the platform as the management team’s train moves on. They must feel like they are taking part in the journey. Then it is critical to involve people in processes and discuss with everyone what is happening, why we make certain choices and be open and transparent. It made a significant change for us when we realized how important it is to get the employees on board.
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