Scaling challenges and growth strategies with the co-founder of Varbi

Written by Christine Hammeren 14. Sep 2023

In this interview, Magnus Mollstedt, one of the founders of Varbi, discusses his entrepreneurial journey and the evolution of the company. He co-founded Varbi in 2007 with a subscription-based SaaS model for recruitment tools. Despite challenges during the 2008-2009 financial crisis when recruitment was low, Varbi has steadily built its system and customer base. Mainly through focusing on user-friendliness and strong support. Mollstedt goes in-depth into their breakthrough moment, the challenges of scaling a SaaS company, and the complexities of merging Varbi with equally sized companies Workbuster and Grade in 2021.

Worst time to launch a recruitment software

In collaboration with founder John-Erik Hassel and angel investor Anders Ström, Magnus Mollstedt established a SaaS company named Varbi in 2007. However, the timing coincided with the financial downturn in 2008 and 2009, making it a notably challenging period for launching recruitment software. Reflecting on those times, Magnus recalls:

– When we reached out to potential customers, their response often leaned towards something like, «Do you offer a tool that facilitates downsizing a workforce of 300 employees? If so, then we’d be interested in acquiring it.»

Building a system around the customers’ processes

Despite challenges and without enough capital to scale up initially, they were determined to build the most user-friendly recruitment tool and offer world-class support. They had a clear plan and worked hard and long before it took off. Sitting together with a few customers helped them build a system around the customers’ processes.

– I think that was part of the success, that suddenly, after working with our customers, we were left with a system that was not on the market before. We tried to build a system for dialogue recruitment, where candidates could keep track of their applications and employers could keep track of the candidates over time. We made it extremely easy to use, focusing on removing clicks and having all the support in the system.

By prioritizing user-friendliness, Varbi could offer free telephone and email assistance to all users in the recruitment system, administrators, HR, recruiters, hiring managers and candidates, resulting in a seamless experience. Additionally, their efforts in enhancing usability and support have led to positive feedback and user loyalty. Consequently, a substantial portion of sales comes from relationship building, where users who change employers often take the system with them.

The breakthrough moment

One key milestone in scaling Varbi was winning a public tender with Sweden’s largest organization. A significant health region with 55,000 employees, back in 2009. This achievement marked a turning point and showcased their ability to build a scalable system adaptable to both large and small businesses.

– Many people think public procurement is just about price, but that’s wrong. Public procurement is about going through a long process, where you are in dialogue with customers for many years before they issue their request for information (RFI), the basis for the procurement, says Magnus.

Furthermore, Magnus credits winning the public tender to a combination of careful analysis of procurement weightings, sales efforts, and strategic investments.

Quote, Magnus Mollstedt, co-founder of Varbi

– After that, when you have the largest organization in Sweden as reference, you can win them all. After all, they have been a key reference when we have won the City of Stockholm, the Stockholm region, Lund University, Uppsala University, the Employment Service, the Migration Agency as new customers. We have many of the 20 largest public organizations in Sweden. And we would have a hard time doing that if we hadn’t won the first one, continues Magnus.

SaaS scaling challenge

No start-up comes without challenges, and the main challenge of scaling Varbi revolved around maintaining the SaaS model while resisting the temptation to depend on consulting income for survival.

– It is so easy to sell consulting hours for survival. Therefore, the biggest challenge is persistence through difficult times and financial constraints. Daring to continue, even if it looks bad, you are in the red and can’t afford to pay salaries.

Build, buy, or merge?

After 14 years of independent operations, Varbi found itself with a single product in the market. Recognizing the necessity for diversification due to increased market consolidations, the company encountered challenges when participating in public tenders.

– We were considering whether we should build the products ourselves, buy them, or merge with another company to access them. We had taken a considerable risk for 14 years, so now we did not want to increase the risk again. Leaving us with only one option: to merge. It was also time to take some money off the table after such a long time.

Varbi wanted a partner who understood where they wanted to go.

– We wanted to find add-on products for existing customers and start cross-selling. That’s why we found Viking Venture and the plan about merging with Workbuster and Grade interesting.

Merging three equals

– It was easy for us to join forces with Grade and Workbuster as it is a perfect product fit between the three companies. In addition, we liked Viking Venture’s structure and the people working there.

However, a distinctive challenge emerged when three equally sized groups merged, each with their own corporate cultures, levels of maturity, and customer demands. The complexity of integrating these differences and finding a common path took much work. This was exacerbated by the diverse customer groups served, ranging from small businesses to enterprises and the public sector, each with varying requirements.

– In hindsight, each office should have had an office manager. The former companies are still located in their original offices at different locations, and we need someone handling the day-to-day operations rather than just a CEO at the group level. In addition, we should set up clear communication channels for everyone in the organization and between departments. After we merged the companies, we were clear that we wanted to work more in silos, but that requires good communication across the silos. Improving communication between departments is something we are still working on.

Impressive growth

The newly formed HR tech group changed its name to Grade. Magnus Mollstedt gladly stepped down as the CEO and now holds a position as VP of International Expansion.

– My goal was never to be the CEO; I wanted to build something great. Then, what role I have is less important. I have had all sorts of hats, from sales to product owner and customer success. The CEO role is not something I have dreamed of. It just happened.

Since merging, Grade has acquired three new companies, increasing its ARR from 90 MEUR to 230 MEUR. In the first half of 2023, the company has grown its revenue by 71%.

Advise to other SaaS leaders wanting to scale

After many years as founder and CEO of a start-up and scale-up company, Magnus’s advise to other SaaS leaders is to be transparent and build structures and processes to share information.

– Set up daily stand-up and weekly meetings. Communication is critical to building an organization to follow you. Also, you need a solid foundation to build something that can grow. Therefore, you should focus on continuous improvement work. Introduce risk analysis as soon as you make a change. Lastly, use deviation reporting to turn negative things into positive things. Write down a process on how to work to avoid deviation and mistakes in the future.