Startup DNA in Japan
Setting the groundwork for change, innovation and creation.
startup — a new business; the act or an instance of setting in operation or motion; a fledgling business enterprise. [Merriam-Webster Dictionary]
Startup culture is rampant in California, well established in Berlin and rapidly growing in places like Israel with not-so-much-isolated bush fires all over the place — Singapore, Sao Paulo, Barcelona, Helsinki… So where is Tokyo on this map? The world’s largest metropolitan area with over 35M people, the capital of one of the world’s top economies and technology innovators from the second half of the 20th century onwards.
Tokyo’s indie entrepreneur scene could be described as a volcano that is probably active. “Probably”, because things have to be put in perspective, but yes, it is active. The question is: is it going to erupt? Things are definitely moving forward and the Japanese career landscape is shifting slowly towards the startup state of mind. It is no longer only about job security for life but also about building amazing new stuff and pushing yourself to the limits of innovation; similarly to the impressive wave of innovation that, although a product of a different corporate mindset, was a symbol of Japan following the 1950s.
Today’s Japanese kids and young adults are no longer as thrilled to work at huge companies where they have to wear boring black suits and be trained how to bow. Yet most of them still do it. Actually, it seems most startups are being founded by people who worked two, three, five, ten years in major corporations and for big clients but then realised such machineries are inhibiting their development and definitely not exploiting their full potential. Dating, finance, translation, retail, media, gaming and many other sorts of startups are sprouting in Japan as I am writing this (25 new ones have joined Angel List only since March 2014 while there are thousands registered on similar Japanese services). Signs of an eruption? We seem to be going in the right direction but with a lot of work in front of us.
But as I hinted, let’s put things into perspective: Japan has not produced a Facebook, a Google or a Twitter; Japan has not produced a Skype (Estonia) or Prezi (Hungary). The so-far success of a few startups on the domestic market or overseas is to be viewed with slight skepticism as it seems to be a product of great, individual self-starting ideas and not of a flourishing system. But maybe, just maybe, Japan is only trailing behind bound to catch-up, and once again, overtake. LINE, the Japanese-Korean messaging app, started in the aftermath of the terrible 2011 Tohoku earthquake, reported 400 million users in April 2014, with triple the pace of growth of Facebook in a rather saturated market. Its user base is still mainly in Asia but the numbers are nevertheless impressive. Spoiler alert: LINE Corporation started as a subsidiary of the large Korean Naver Corporation counting a few thousand employees — not a startup per definition.
But does a conflict of cultures between the big, old-school corporations and the ideology of creating from scratch even exist? Corporations and entrepreneurs can, as the Western entrepreneurial set-up shows, easily coexist to the benefit of all the players alike: big companies, startups and, above all, users. General Electric is a good example of it.
Back to the real pioneers. Of the top ten Japanese startups on Angel List, sorted by signal strength (an approximate measure of the company’s quality), eight are investment incubators and venture companies, which says that the reach of actual startups is not that far. By comparison, of the top 10 startups by signal in California, only two are investment incubators. The presence of a healthy investment and venture structure in Japan like anywhere else is a precondition for a flourishing startup culture but it cannot be a goal in itself.
The incubators seem to be sprouting on the Japanese landscape, there are a lot of high-skilled engineers, designers and entrepreneurs coming out of schools or in the early stage of their careers. If those things were just combined properly together, if all the pieces fit, it could be a trigger for a major eruption. If the supply of venture capital is growing steadily, the supply of innovation in terms of impact must follow by overcoming the obstacles, whether they stem from the predominant corporate culture, lack of exposure or the overall infrastructure, the language barrier, or any other source.
According to Casey Wahl, CEO of the recruiting company Wahl & Case, who has over 15 years of recruiting experience in Japan, sometimes it feels that failing in Silicon Valley is almost a precondition to succeed, but Japan hardly tolerates failure; it is socially unacceptable and the thought of it might stop many potential entrepreneurs in chasing their dreams. In addition to that, until recently the legal deterrents were quite onerous — board members could be completely liable with their personal assets for all the company loans and liabilities if a company went under. Quite a deterrent, even for the risk inclined.
Another interesting indicator can be the amount of Japanese startups that expanded elsewhere, particularly within Silicon Valley. We can probably count them on the fingers of one hand: Gengo is a great example. This web-based human translation platform launched in 2008 by two foreigners who worked in Japan is now hosting a community of over 10,000 translators worldwide. They later opened an office in San Mateo, California mainly because Gengo ‘had reached a stage where our business strategy is turning towards enterprise customers with longer sales cycles and relationship management requirements, and many customers are in the US’ said Matthew Romaine, one of the cofounders. Still, Matthew thinks the situation on the startup ecosystem in Japan is much better now than 5 years ago when Gengo started — back then a significant challenge was raising capital locally. They had more success in the United States (in fact, only after the initial input from the other side of the Pacific, did some Japanese investors become interested). The second issue was in terms of infrastructure and human capital — the freelancing community was available and sufficient in the beginning but when the business started to grow, it was harder to find more experienced people capable of supporting its growth who at the same time were not risk averse to join a startup.
Talking about a daily life of a startup, Paul McMahon and Michael Reinsch, co-founders of the the Tokyo-based DoorKeeper, which helps its users run events and organise their community, point out it is hard to find someone with marketing and entrepreneurial experience who would be available as a freelancer, yet invested in the vision of DoorKeeper. As a startup they would have additional needs on a regular but not full-time basis including translation, customer support and copywriting. They are confident startups like theirs would make more use of such service that provide quality short-term return. However, in the terms of startups in Japan, they feel that when starting 4 years ago they were almost building the startup community from scratch and things have much improved since. Michael is also a facilitator for Startup Weekend Tokyo and says the scene would definitely use a bit of unification and sponsor support as opposed of clustering around separate silos of venture capital pools.
Similarly, Shinichi Takatori, organiser of an NPO ThinkAct which aimed to organise conferences and pitch events explained their mission was to create a spark, a tipping point which would mobilise the startup culture in Japan. In his experience, when there is a positive impulse towards individuals, people tend to join in large numbers, participate and interact which strengthens the cohesive fabric of the overall community.
Some of the startups decided to use the opening of new offices to bridge the infrastructure gap. Una Softic, chief global manager for anydooR Inc., who transferred recently to the Bay Area to represent this Japan-based startup, said ‘it is a much better place to be in terms of networking, events, new startups, clients and finding ways how to link Japan to the US market. It is also much easier to get real feedback due to how international the community in San Francisco is; which facilitates tailoring a product for a worldwide audience as opposed to limiting yourself to the Japanese market’.
The startup scene in Japan is growing and we all have to support and sustain the growth; governments, universities, venture capital, corporations and startups themselves can join hands with individuals with ideas, skills, a hard-working attitude and a world-changing mindset; this will create an ecosystem capable of catapulting the startup mindset and impress Tokyo on the world startup map. In such an environment Japan will hardly run out of opportunities, which in return will push for innovation, industry growth and overall quality of life. It is an agile word out there and Japan must jump onboard. For the spark to occur and the potential to be unleashed we need more trail-blazers, more impact and perhaps just a few more success stories.
Let the games startup!
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