Scientist on a Mission: Johanna Småros Saving The World From Food Waste

crush talk show Mar 12, 2023
 

RELEX Solutions raised the largest funding in Finnish history, 500 million euros, at the beginning of 2022.

RELEX Solutions refines retail data into information that guides the supply chains of consumer products, makes them more efficient, and reduces, among other things, food waste. Anna Pyykkö sat down with Johanna Småroos, one of the three founders of RELEX.

How was such funding negotiated? What tips would Johanna give to other entrepreneurs for growth? In Johanna's opinion, how could female founders get more funding than they currently do?

Johanna Småros (Ph.D.) is one of RELEX Solutions‘ three Co-founders. Before founding RELEX, Johanna conducted ground-breaking research on consumer goods supply chains. Johanna created a code to simulate retail store replenishment, which was the basis for the company Relex Solutions.

The impact that they can achieve for the clients is truly motivating for Johanna. At the same time, they have managed to reduce food waste by 40 %. As Johanna is building a better and more sustainable world for us all, what is the myth she wants to crush?

Interview with Johanna Småros

Finnish software company Relex raised a record-breaking 500 million euros in funding. This is the largest funding round in the history raised by a growth company in Finland so far, for example much larger than Wolt’s, which was really widely discussed and written about recently.

Johanna, tell us a little bit about how your entrepreneurial journey got started and, also, what exactly does Relex do?

 Johanna: I’ve said many times that I have never really had a real job. Except for a few summer internships. 

Already during my studies, I fell into research, and my background is from the research side. 

I did research with the other two founders, Mikko Kärkkäinen and Mikael Falk back in the school, and we all enjoyed doing research. 

It's intellectually challenging, interesting, you get to dive into things, but it's also outrageously slow. 

We did kind of applied research and then we got the feeling that it would be nice to actually apply it and see if these ideas could actually work in practice, and how they could be improved. 

That’s how Relex practically got started. 

In the beginning, we focused mostly on forecasting demand, and automating store restocking. 

In practice that means how to deliver, say, a certain brand and flavor of yogurts to the storeshelf so that there is just the right amount, the consumer is able to make his purchase, but there is no overstock. 

So the inventory turnover remains good, the products do not go bad, and the processing costs are as low as possible. 

Since then, we have practically extended it to the entire supply chain of consumer products, all the way to the manufacturing industry.

 

And at the same time, we’ve expanded to retail optimization, i.e. how to make smarter campaigns. 

How should the store displays look in order to sell and be effective without processing costs? How to plan work shifts in collection and distribution in the stores?

 

 Was this a topic you have always researched? Or was this some side discovery to something you were researching before?

 

Johanna: We had quite a lot of all kinds of fun research ideas, and store replenishment was one of them.

But everything kind of revolved around the supply chain management and we've been able to practically use of all of them. 

For example, I ended up doing my dissertation on supply chain cooperation. 

And now that there has been all this disruption of the supply chain, the demand has changed, but the supply side has also changed quite a lot, so the topic is now 20 years later more relevant than ever.


 Let’s return to that record-breaking funding you received. What it was like to negotiate such a large amount of funding, and did you ever think along that you were breaking records in Finland?

 

 

Johanna: First of all, no, there was no thought at all of making any records. 

The funding decision was made purely on the basis of what we think would be best for Relex, and this was not the first time we raised funding. 

We have a few rounds behind us already, so in a way this was no different from them. 

Maybe we just knew how to do it better than before. But the point is that it is a purchase and sale transaction. 

Meaning, the better you understand the value and how the other person sees the value, the smoother the conversation will be. 

We were in a really good situation, with profitable growth and all key figures in a way best in class, so investors understood the situation very well.

Blackstone, who was the lead investor, they had also done their homework very well.

That was one of the reasons why we chose them because we felt that they were really focused on this industry and understand this field, they understand the competitive landscape and what kind of value we provide to our customers.

So it wasn't one of those clichés -  blood, sweat, tears and being awake for weeks and then finally shaking hands?

​​Johanna: No, no, it was quite an intensive process because we wanted to get it done quickly. 

Sure, there was a huge amount of meetings, but nowadays you can do them remotely and save a lot of time. 

We also had several investor candidates, so it's much more efficient when you can manage it from Helsinki, without traveling. 

Of course, it was an intensive process, but I think we went into it quite prepared. We had all the data ready.



At Relex you have a mixed founding team, men and women. 

According to the statistics, it is more difficult for female founder teams to get funding. Women get less, although the same studies prove that it actually produces better return for investors. 

What do you think could be the cause of this and how could this be fixed?


Johanna: I think this is a really important topic, but I think the question is actually difficult for two reasons. 

First of all, funding and fundraising, should not an intrinsic value and for example Relex, we raised funding for the first time after the company had been running already for 10 years. 

For this reason, as a metric, I think it's a bit dubious and really depends on the industry: different companies need funding at different stages and for different things, and it's quite a big difference whether a company makes a software like Relex does, or whether you're setting up a production plant to scale a new product that replaces animal protein, for example. 

When we make comparisons, I think it would be really important to make sure that same kind of companies are compared, because that funding needs are different in different sizes and stages.And then secondly, there is sort of built-in confrontation in that question. That makes it easy to draw conclusions where there are two alternative answers. 

Either that means men discriminate against women or that women are too wimpy and don't dare to try. 

I don’t have facts as to what the actual answer is, but I'm pretty sure it's neither of those.

Certainly there are attitudes and it's quite clear that there are a lot of men on the investor side, and it's also been studied that it's easy to hire people similar to yourself, a bit like using autopilot when you don't actually have to steer the car in the other direction, so it's probably the same for investors as well. 

So when you have invested in companies and seen which ones work, you easily want to duplicate the same thing. But I would still believe that these reasons are much more complicated, and that we should perhaps also look at what kind of companies female founders are founding.

 Are they, for example, on the technology industry, which has actually raised a really large part of all of the funding in recent years?

If it’s the case that women do not start technology companies, then are we faced with the bigger question: why are there even fewer women in the technology sector?


I think you raised a couple of really interesting points. If the majority of investors are men, and we are talking about the liking-phenomenon that appears in social psychology, i.e. this very fact that you hire people of the same type as yourself, then do men subconsciously finance technology companies where there are men, because it feels familiar to them?

Anna: We came across exactly this kind of discussion on LinkedIn, where a male investor was specifically looking to finance a female founder’s company.

Then the female founders were declined one by one. "We don't invest in that sector", "we don't invest in that kind of companies".

Is there a certain kind of problem here, that there is money and even will to invest, but only in certain types of companies? And then if women only found other kinds of companies, different from men's companies? Could the investment challenges be due to something like this?


Johanna: Yes, I believe that we have that, quite a lot actually. 

Then, of course, you can ask why women start certain types of companies and whether it is worth financing them, and that requires a much more in-depth analysis. 

But it's quite clear that the technology industry has absorbed a lot of funding and that makes perfect sense, it's a scalable business and exactly what investors are looking for.Venture capitalists willingly take the chance that the majority of companies will perhaps stagnate a bit or do OK, but the return on the investment will be made with those few big successes. 

The software field offers a good opportunity to scale globally. 

On the other hand, some other business ideas are more difficult to scale or require much more time or something else. 

If there is a fast-growing technology company as a contender, it might just be a more attractive investment target. 

Now I'm not saying that it's right or wrong, when it's the logic of investors that they want to multiply the return in a few years and it results to certain types of business.

 

 Do you see that at some point the investor side would have other guiding values than just the fastest and biggest possible return on the invested capital? 

Will values like responsibility or others like it, which may not economically seem valuable?

Johanna: I think that responsibility as a value is already here, I think, for example, all the investment firms we work with work like that. 

They are already currently collecting quite a lot of data about the responsibility of their own companies and are also creating teams on how to develop responsibility further.

But investing is not charity. 

They support it because they see that in the future, responsibility is a condition for any company to be able to survive. As rudimentary as it sounds, the more responsibility becomes a market economy, the faster change we will see, because in a way it then automatically aligns the incentives of many actors towards the same direction.

Relex currently employs more than 1,600 people. If you could give a couple of quick tips for growing a company, what kind of tips would you give?


Johanna: Now I'm contradicting again, but employee number is not an absolute value either, and I believe that quite a lot of companies would be happy to do what Supercells does, that is, to make a really big profit with a small number of personnel. 

It’s easier in some industries than others, but there are quite a few other indicators of growth, for example turnover. 

How, for example, can you increase or maintain turnover and profitability at the same time? I think the most important factor for growth is creating value.

It sounds like it's self-evident, why even bring it up. 

But quite often when I've talked with new entrepreneurs, they have surprisingly big challenges in defining what value they produce.

Although if you think about things that support, for example, the employees' mental health or enjoyment at work, then of course this is a good idea. 

But in order to get from the "nice to have" to the "must have" state, you should be able to transform that idea into something even more concrete, even if, for example, you can get less absenteeism through this or be able to get a better team spirit that leads to better productivity, otherwise it will be difficult to move forward. 

Everyone thinks that yes, it's a really nice idea, let's think about, ponder a bit. And maybe next year, if we could get a little budget for this. But getting the budget is much easier if you are really clear about what you will influence and how it will be measured and verified that this is a good investment.

And in my opinion, there are surprisingly many flaws in "what's in it for the client". If you have an outrageously good value proposition, it enables it to grow. Then there are other things that have to be right too, but that value is always the most important.

You probably have that value proposition and that "must have" is the efficiency and cost savings and others, but in addition to that, your technology is also able to and strives to minimize food waste, because it alone causes 8-10% of the world's greenhouse emissions. How important is it to you to also work for this goal?


Johanna: Originally I ended up on the supply chain side because I was attracted by the concreteness, it is clear what we are trying to accomplish. You can measure that, and I think the same can be seen quite well in Relex's operation. Even when expanding into the new areas, we always try to think about where that value comes from. How can it be measured?

 

Are we sure that we will be able to give a tenfold return to the customer and at least twice as good as if you chose the competitors? We really have a lot of work to do to improve efficiency and eliminate waste, and in our industry it's nice that all what we do is linked to the environment. 

When waste is eliminated, unnecessary transport or even air cargo is also eliminated. Everything we do is in sync with what should be done from an environmental point of view, and that's a really big plus for me.


  If you had to say one thing or myth that you would like to dispel, what would it be?

 

Johanna: One thing that I think has been on the surface a lot, maybe for the last decade, is this kind of talk about passion work. 

Meaning that you should follow your passion and then things will just fall into place. 

In my opinion, that is not entirely true.

First of all, if that passion, if it can't be turned into a suitable realism, then the thing won't necessarily work out. 

Secondly, I think it creates a huge amount of pressure, especially for young people, that you should have some passion. What if you're just a normal person and interested in a little bit of everything, but you don't have any one topic that is "the thing"?

 

And I'm talking about this because I've been in this situation myself during my senior year of high school when I had to decide my next step. 

I didn't know what I wanted to do when I grew up, and on top of that, when someone tries to talk you some passion speech like "I will succeed because I have passion and fire and I knew that this is what I want to do", it's quite unnerving. 

I would like to open the door to the idea that you don't have to have the passion to try new things. You do the things you like, and you find new things that you might like a little more. You will find your own strengths. Things go well when you kind of know what you're doing already. After that, one step at a time, and anything can come out of that.

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