Tallinn

Mission to Tallinn: Codeborne

Norbert Gehrke

10 Dec 2025 — 9 min read

The fifth stop of our "ICT & FinTech Mission to Tallinn" last week, courtesy of Enterprise Estonia, led us to Codeborne, where we were hosted by software entrepreneur Toomas Talts. The meeting provided a deep dive into Codeborne’s operational philosophy, technical methodologies, and its unique, long-standing relationship with the Japanese market.

Codeborne distinguishes itself as a pure software development partner, avoiding off-the-shelf software resale in favor of custom-built, high-complexity systems. The company operates on a flat hierarchy with no project managers, utilizing Extreme Programming (XP) principles such as pair programming and Test-Driven Development (TDD) to ensure high code quality and knowledge redundancy.

A significant portion of the discussion focused on Codeborne's strategic alignment with Japanese business culture, highlighted by their ability to operate on "gentlemen’s agreements" without signed contracts—a testament to mutual trust. The meeting also covered the company's pragmatic stance on Artificial Intelligence (AI), the specifics of their Time and Materials (T&M) business model, and their extensive portfolio in Fintech, Energy, and recently, defense technology.

1. Company Introduction and Structure

1.1 Leadership and History

Talts introduced himself as one of the founders of the company. Despite holding the title of Chief Executive Officer, he emphasized that he remains deeply involved in daily engineering tasks, including requirement engineering and system architecture design. He noted that his role is not purely administrative; he sits with the team and engages in the same work, highlighting a leadership style grounded in practical execution rather than distant management.

The company was founded in 2010, initially with a team of ten people. It has since grown to 65 employees. A unique aspect of the company’s structure is its shareholder composition; approximately one-third of the employees working at Codeborne are also shareholders. This structure aligns employee incentives with company health. Codeborne is entirely self-funded, having taken no external Venture Capital (VC) money, allowing them to remain independent of external interference.

1.2 Financials and Operations

Codeborne functions exclusively as a software development company. They do not retail third-party components or build systems from pre-made blocks. Every solution is custom-developed in-house. This approach is positioned to serve businesses that have outgrown "off-the-shelf" solutions and require custom development to manage complexity.

Turnover: The company’s annual turnover is approximately 7 to 8 million Euros.
Growth: Growth has been consistent and organic ("hockey stick" growth typical of VC-backed startups is not the goal).
Operational Model: The company runs very lean. Salaries are paid from revenue generated by customers, ensuring self-sustainability from day one.

1.3 Human Resources Strategy

Out of the 65 employees, 55 are hardcore software engineers. There are also five UI/UX designers who are technically proficient and capable of coding. The organization is extremely flat; there are no project managers, analysts, or distinct middle-management layers. This structure is intentional, designed to facilitate direct communication between the developers and the client, eliminating "proxies" that distort information.

2. The Japanese Connection

A central theme of the presentation was Codeborne's unusually strong and durable relationship with Japanese clients.

2.1 Market Presence

Japan represents a critical market for Codeborne. Despite being based in Estonia, the company has built 8 or 9 different information systems for Japanese companies, with 6 or 7 distinct Japanese companies currently on their client roster. This relationship spans over eight years of non-stop projects.

2.2 Cultural Alignment and Trust

Talts highlighted a profound cultural alignment between Estonia and Japan regarding business ethics. He noted that Japan is the only country in the world where Codeborne has successfully started operations without signing a formal contract first. He described this as a "gentleman's agreement" based on a handshake, which he views as "rock solid" in Japan.

This level of trust is a significant competitive advantage and a point of pride for Codeborne. Talts humorously contrasted this with other regions, noting that starting a business without a contract in a country like Italy would be impossible. This mutual respect allows the teams to focus entirely on business goals rather than wasting time on contractual disputes.

3. Technical Methodology and Philosophy

Codeborne’s engineering culture is defined by specific, rigorous practices derived from Extreme Programming (XP).

3.1 Pair Programming

Codeborne utilizes pair programming for almost all development work. Two developers sit together (or share screens) to work on the same task.

Quality Assurance: This acts as a continuous code review, significantly reducing errors.
Knowledge Transfer: It ensures that no single person holds a monopoly on knowledge about a specific part of the system.
"Truck Factor": Talts referred to the "bus factor" or "truck factor"—the risk to the project if a key team member is hit by a truck. By using pair programming and rotating pairs, Codeborne ensures that if one person leaves or is unavailable, the project continues seamlessly because others are fully up to speed.

3.2 No Separate QA Department

Unlike traditional software houses, Codeborne does not have a dedicated Quality Assurance (QA) team or testers. The developers are fully responsible for the quality of their code. This forces engineers to write robust, testable code from the start, rather than relying on a safety net of testers to catch bugs later.

3.3 Direct Communication

The company removes the "proxy" layer. Developers talk directly to the customer's business side. This eliminates the "Chinese whispers" effect where requirements are misinterpreted as they pass from client to project manager to analyst to developer. By having developers understand the business context directly, they can offer better technical solutions.

3.4 Automated Testing and CI/CD

The team relies heavily on Test-Driven Development (TDD). They build automated pipelines inside the customer's infrastructure. This allows for rapid deployment and immediate feedback loops, which are essential for the agile environment they operate in.

4. Domain Expertise

Codeborne has diversified its portfolio across several high-stakes industries.

4.1 FinTech

This is the Codeborne's strongest area. They have built over 100 information systems in total, 32 of which are specifically FinTech solutions. Their clients include banks (building core banking systems, internet banks) and credit institutions (credit decision engines, card issuing systems). They have approximately 90 different customer accounts historically.

4.2 Energy and Utilities

Codeborne has significant experience with gas and electricity utilities. Talts mentioned a specific case involving "Tokyo Energy Alliance". They started with one company and expanded "sideways" to provide shared billing systems for a group of companies within that alliance.

4.3 Other Sectors

Telecommunications: Experience building systems for telecom operators.
Medical Tech: Development of medical technology solutions.
Defense/Military: Due to the geopolitical situation in Ukraine, Codeborne has become heavily involved in military technology. They have developed software for surveillance trailers and drone detection systems currently being used on the front lines in Ukraine.

5. The Role of AI in Development

A significant portion of the Q&A addressed the usage of Artificial Intelligence in their workflow.

5.1 Pragmatic Adoption

Talts confirmed that Codeborne uses AI heavily (referencing "billions" of uses conceptually) but with extreme caution. Developers use AI for:

Routine tasks and "boilerplate" code generation.
Prototyping.
Benchmarking and learning new technologies.

5.2 The "Stamp of Approval"

The critical policy at Codeborne is that AI does not relieve the developer of responsibility. Talts used the metaphor of a "stamp of approval". If AI generates code, the human developer must review, understand, and verify it before it goes into production. If that code causes a bug later, the developer cannot blame the AI; they are responsible.

5.3 IP and Security Concerns

There is a strict boundary regarding Intellectual Property (IP) and sensitive data.

Client Secrets: They do not upload client business secrets or sensitive banking logic into public AI models (like generic ChatGPT).
IP Rights: Codeborne assigns full IP rights of the developed software to the client. This raises a complex legal question: if AI writes the code, who owns it? Codeborne mitigates this by ensuring human oversight and modification, ensuring the final deliverable is legally robust and owned by the client.
Banking Regulations: When working with banks, strict compliance is required. Codeborne works with compliance officers to ensure that while AI assists in efficiency, the decision-making and data handling remain compliant with banking & data privacy laws.

6. Business Model: Time & Materials

Codeborne operates almost exclusively on a Time and Materials (T&M) basis, rejecting Fixed Price contracts.

6.1 The Rationale

Talts explained that innovation is inherently unpredictable. When building a new product (e.g., a new internet bank), it is impossible to know all requirements upfront.

Fixed Price Flaw: Fixed price contracts force both parties into a rigid scope that resists change. If the market shifts or a new requirement is discovered, a fixed price contract becomes a barrier to necessary adaptation.
T&M Flexibility: T&M allows the customer to change direction at any moment based on new information or market feedback. This aligns the developer’s incentives with the client’s success, rather than just delivering a spec sheet that might be obsolete by the time it is finished.

6.2 Building Trust

Talts acknowledged that T&M requires high trust. Clients might fear the project will drag on forever. Codeborne mitigates this by delivering working software very quickly (generally weekly) to demonstrate value immediately, thereby justifying the ongoing investment.

7. Case Studies

During the presentation, specific project examples were highlighted to illustrate their speed and capability.

7.1 Internet Bank Launch

Codeborne built a fully functional internet bank for a client in just four months. This project utilized only two pairs of developers (four people total). This example was used to demonstrate that small, highly skilled teams using agile methodologies can outperform large teams bogged down by bureaucracy.

7.2 SME Credit System

Codeborne constructed an end-to-end credit decision and issuing system for Small and Medium Enterprises (SMEs) in eight months. This included the customer onboarding interface, the back-office decision engine, and the core credit management logic.

7.3 Japanese Utility "Sideways" Expansion

Talts described a project where they built a billing system for a Japanese utility company. Because the system was successful, other companies within the same energy alliance adopted the system. This "sideways" expansion—where a solution spreads to competitors or partners within a group—was cited as a unique feature of the Japanese market that Codeborne has successfully navigated.

8. Q&A Session Analysis

The meeting concluded with an open floor for questions, which provided further insight into specific operational details.

Question 1: Managing Talent and Skill Disparities

Context: A question was raised regarding how Codeborne manages the skill gap between senior and junior developers, and how they prevent the "knowledge drain" if a key person leaves.
Response: The answer lay in the Pair Programming and Rotation system. Juniors never work alone; they are always paired with seniors. This functions as an intensive, continuous boot camp. Furthermore, pairs are rotated frequently. This ensures that knowledge is spread across the entire team, preventing any single individual from becoming a "single point of failure" (the Truck Factor).

Question 2: AI and Legal/Compliance in Banking

Context: The audience asked how banks, which are heavily regulated, accept the use of AI in code generation given the risks of hallucinations or security flaws.
Response: Talts explained that while they use AI, they do not let AI make the final decisions on sensitive data. The human developer is the "compliance filter." Furthermore, they work directly with the bank's legal and compliance teams to define the "sandbox" in which they can operate. They do not feed the bank's customer data into the AI; they use AI to help write the structure of the code, which is then populated with secure logic by humans.

Question 3: Working with Japanese Large Enterprises

Context: A discussion arose about the difficulty of agile development within rigid Japanese corporate structures (Orico was mentioned).
Response: Toomas admitted this is a challenge. Large enterprises often have layers of middle management that want detailed specifications and fixed prices. Codeborne's strategy is to try to bypass these layers where possible and speak directly to the business owners who feel the pain of the market and need results quickly. They also rely on their track record in Japan to prove that their method works, even if it looks unconventional to a traditional procurement department.

9. Conclusion and Key Takeaways

The presentation by Codeborne painted a picture of a highly disciplined, engineering-led organization that prioritizes agility and quality over bureaucratic process. Their success in Japan is notable, proving that trust-based, contract-light relationships can flourish even between culturally distinct regions when delivery is consistent.

Key Takeaways for the Audience:

Agile is Non-Negotiable: Codeborne does not compromise on XP practices (Pair Programming, TDD). This is the source of their speed and quality.
The "Japanese Model": Their ability to work on handshake agreements in Japan is a unique asset, reducing legal friction and accelerating project start times.
AI as a Tool, Not a Replacement: AI accelerates development, but human liability remains absolute. Codeborne protects client IP by strictly controlling what data is fed into AI models.
T&M is Essential for Innovation: Fixed price contracts are viewed as an impediment to building the right product. Codeborne relies on T&M to maintain the flexibility required for modern software development.
Direct Access: The removal of Project Managers and Analysts allows for faster, clearer communication between the client's business needs and the engineering solution.