"Your offering must be essential” – Axel Ahlström on industrial tech growth and profitability

This blog is part of a series introducing the Kvanted team, including its Venture Partners who support Kvanted’s investment team and portfolio companies in building solutions that shape the future of industrial innovation. You can get to know the entire team here. 

In every team, there’s that one analytically minded force. At Kvanted, this is Founding Partner Axel Ahlström. With over a decade of experience in the industrial sector as a private equity investor, strategy consultant, and board member, Axel leverages his expertise in value creation and strategic repositioning to help startups shape their strategic direction and achieve operational excellence in building a more sustainable world.

Axel's curiosity for technology as a sustainability catalyst ignited when he worked with Trioworld, a leader in circular plastics. For over 50 years, Trioworld had been a pioneer in plastic packaging solutions. However, as the market demand for recycled plastics surged, the company recognized an opportunity. Trioworld embarked on a major repositioning journey, transitioning from a traditional plastic packaging provider to a global leader in recycled plastics.

Throughout this period, Axel supported the company in the strategic repositioning, gaining invaluable insights into how swiftly responding to evolving customer demands can not only align a company with sustainability goals but also drive profitability and enhance margins.

In this interview, Axel shares his insights on the building blocks for industrial tech growth, along with expansion strategies and potential exit opportunities. We also discuss how early-stage companies can strategically position themselves for these long-term opportunities from the beginning. Continue reading to learn more.

How can industrial tech companies expand in Europe?

Axel: We invest in European companies, which are likely to expand in the European market first. However, Europe consists of multiple markets with their own languages, local networks, and regulatory requirements for doing business. Sometimes entrepreneurs can be overly optimistic about expansion plans – expansion can be very challenging, even for larger corporations.

The sales cycles in the industrial sector are long, and ramp-up takes time. This is why Kvanted’s fund lifetime is longer than average, and we are there to support our portfolio companies in the long term.

However, industrial tech holds great growth and expansion potential. Once you've secured an industrial customer, the potential for upselling and expansion can be significant, both in the existing business but also across different geographies, verticals and departments. In the industrial sector, pain points and processes are often consistent across various markets within a single corporation. For instance, an automation or robotics solution designed for industrial use can typically be applied similarly in factories across different markets.

What to consider for building a great growth machine for industrial corporations?

Axel: Sales processes in the industrial sector are long and complex. You need a clear understanding of your Ideal Customer Profile (ICP) and who your first customers will be. Knowing the target sector is not enough; you need to identify high-likelihood customers and key decision-makers – who in the company you should talk to, and who makes the buying decision. This is crucial for your business and future funding.

This understanding should extend beyond just the company level and buyer persona, reaching down to the use case level. In the industrial sector, it's more effective to go narrow and deep rather than broad and shallow. In the sector, 'narrow' doesn’t mean small or limited to a single market – excelling in a specific use case can unlock substantial opportunities. Dominating a niche can lead to capturing a significant share of the market.

In B2B, when developing an industrial solution, it’s never just a 'nice to have' like it sometimes is in B2C. Your offering must be essential to your customer, directly addressing their business case and demonstrating clear benefits in euros. Whether you bring better performance, cost-efficiency, or innovative technologies, these advantages must ultimately translate into financial and business gains for your customer. If you can’t achieve this, sustaining your company will be challenging in the long term.

How should a startup consider potential exit opportunities right from the start?

Axel: Start building networks early on – it’s not only crucial when it comes to acquiring new customers, but also for your company’s long-term plans. In the long term, you have three exit options: financial sponsors, strategic acquisitions, or an IPO. If you can identify opportunities in trade sales early on, you can build your business with potential trade sales partners in mind. I wouldn't advise making this your main focus in the early stages, but at some point, you need to consider how your solutions and product portfolio fit into the bigger market picture.

Industrial companies look at how the business would integrate into a larger organization. A prime example of the value and synergies that can be achieved when a business aligns perfectly with market conditions is AMD's recent acquisition of the Finnish AI company Silo AI. This acquisition highlights how strategically positioning a company to meet market demands can lead to significant opportunities and enhanced valuation.

How would you advise an early-stage company to balance growth and profitability?

Axel: The VC market is very focused on growing revenue, but in the end, future companies need to be profitable and have cash flow. If you are building a business for the long run, you need a healthy business model to not only generate revenue but also profit.

There are many great smaller companies with very high margins. Not all sectors are driven by “winner-takes-all” dynamics. While revenue growth is crucial, when you look at private equity transactions or publicly listed companies, companies with high margins often get a valuation premium.

In the early stage, building takes most of the time, but you need to be aware of your KPIs and key metrics that lead to profitability. If you’re only moving from one funding round to the next, you’ll lack a clear vision for creating a profitable business. 

There’s no magic formula – ultimately, it all comes down to solid unit economics and an efficient go-to-market model, regardless of the industry or market.

What kind of industrial tech trends are you especially interested in?

Axel: Trends come and go, but long-term structural drivers in the industrial sector remain. The labor force is diminishing across Europe, and the industrial sector has the highest emissions. This increases the demand for industrial automation, sustainability, and supply chain resilience.

Instead of looking at the next 6-month technology hype, we look at these megatrends and solutions that can drive a major transformation in the industrial sector while building a more sustainable future. We evaluate cases based on their use case and alignment with these megatrends, rather than the underlying tech that enables them.