He’s built 17 startups in Japan in the last 30 years. Here are his insights

Terrie Lloyd, CEO and founder of Japan travel

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This article is part of Tech in Asia’s partnership with Disrupting Japan where we publish the revised transcripts from the show’s podcast interviews with Japanese entrepreneurs. This is heavily revised from the original transcripts. For the full interview, go here.

Terrie Lloyd has started 17 companies in Japan, hiring hundreds of people over the past 30 years. We’ve known each other for a long time now, and in this interview, we talked about his latest startup, Japan Travel, and how foreigners should run a business in Japan.

I will warn you in advance that our conversation lacks most of the startup hype and pep talk most founders exude. But you’re about to learn some fantastic real-world advice and insights.

nHow did you find the idea for Japan Travel?n

Originally, I created a piece of software called ACQ2, which is a community management platform. I tried to get funding for it, but nobody really understood what I was trying to do.

I realized I had to make something more solid that people could identify with. I then started a dog website called Doglovers.jp. Then, the earthquake happened in 2011. I had a dream so powerful that it woke me up. I furiously wrote down what I remembered and decided to do something to contribute to Japan.

So, Japan Travel started off as a portal. I’ve been interested in media for a long time, so I wanted to create a community-driven media brand. The impetus for making Japan Travel is to help with disaster, so I wasn’t really thinking too hard about turning it into a business per se. I’ve always been a firm believer that money follows quality, so if we did a good job, maybe we could turn it into a business.

nHow does the platform work?n

I’ve always been in the publishing business where we are very concerned about quality. But at the same time, we had all these constraints, one of which is having to hire people to create content. So, I decided I would try to do something more community-based by building an entire quality control method.

At the first stage, I ran around and emailed friends, my network, and foreigners living in Japan. I must have contacted about 500 people. I received great response, so we started building this community. We ran it on the platform and today, the community comprises of about 30,000 people.

There were some people, mostly travel journalists, who initially signed up to create original content for the platform. Then, we had people above that who were editors, fact-checkers, translators, etc. looking into each article before they get published.

nWhat brings these people onto the platform?n

We have this points and rewards system. And as people become skilled and their reputation on the platform goes up, we ask them to do commercial work requested by regional governments, large corporations, advertising companies, travel agencies, etc.

nHave you thought about making the points and rewards system crypto-based?n

Yes, I actually have. The thing about tokens and cryptocurrencies is that you need to make it liquid. If it’s not liquid, then people won’t buy it. Well, they may buy it if I do an ICO in the next six weeks, but I’m not going in that direction.

Frankly speaking, it needs to be a fairly broad and liquid market before people can really justify jumping in. And I don’t see 30,000 people as a liquid market.

It’s extremely similar with the point system. But the difference is that the point system is very easy to manage and not technically complicated at all. With tokens, we are talking about spending up to nearly half a million dollars (or JPY 30 million to JPY 50 million) on software development to implement the system. For us, it’s probably only one of the six systems we run in the company.

So, I’ve decided to ignore it for now. It is interesting but it’s hard to understand how you could apply an ICO to a real business vs one that is more platform-ish and/or revolves around coins themselves. I didn’t build a company to just gamble it away. I want it to be successful and self-sustaining.

nThe travel industry is one of the few growth industries in Japan. But why do you think there seems to be little investments into the space?n

I have firsthand experience of this. When I managed to secure the domain for Japan Travel, I went out and saw 25 VCs. However, 20 of them told me that the sector was too small. This was around late 2014, and it made me realize two things:

nnThat there was little sectoral expertise in the spacenAnd that the companies that were interested had all kinds of concerns (e.g. being a foreigner, the Olympics might be the end of the travel boom, etc.)nn

I certainly didn’t fit the mold of what Japanese VCs were looking for. I’m foreign, old, experienced, and I won’t roll over at the sniff of money. Generally speaking, when Japanese VCs anoint somebody, they expect that person to roll over and do what they say.

There was actually one VC who did offer me money, but the valuation was low enough that I decided to forego that.

What I did instead was I approached friends and family. So now, I have 25 independent investors and a much better valuation. I don’t have to deal with VC issues yet. But at some point, we will still do a series A and have a VC in there.

nSo, did you feel like your experience and knowledge actually worked against you?n

I think that it’s threatening for a VC when they sit opposite somebody who probably knows a lot more about doing business than they do. And I noticed toward the middle of 2015 that people started talking about unicorns all the time. Of course, Japan Travel is not a unicorn but a vertical play; it’s all about Japan, where we have a portal, a travel agency, and a Japan travel data integration team. Would we ever be worth a billion dollars? Maybe in the next 20 to 30 years.

But that’s certainly not my intention because I wanted to do an IPO. I wanted to look like a normal public company, but that’s not enough anymore. So, I find that these guys are hyping themselves up.

I think that in the travel space, if you are tailoring a company to fit a VC’s perspective, you have to have a platform that can go global. You shouldn’t have a vertical play. You certainly shouldn’t call it Japan Travel.

nWhy does it seem like a lot of Japanese travel agencies aren’t anxious to engage with foreign companies?n

First of all, it’s because of the way the market operates. The Japanese government said last year that tourists spend roughly US$30 billion in Japan. But actually, I think it’s really just about half of the actual spend because a lot of people spend money before they come to Japan. They book through Booking.com and various other agencies. So, that money doesn’t come to Japan directly. The commissions that go to Booking.com, Expedia, and the like are like foreign company tax in a way. It’s a huge business.

When you have an economy or a sector that is worth maybe US$50 billion or US$60 billion, it is a pretty interesting business. The Japanese travel agencies are not on the surface because they don’t seem to be capable of accommodating foreign tourists. They don’t seem to be out there doing the same sort of high-grade job that Expedia and Booking.com are doing.

nWhy haven’t we seen disruption in the travel industry?n

Doing business here in Japan for 30 years and building startups 17 times, I have found that you have to own your ecosystem, clients, method of delivery, and, most certainly, your technology. There’s like a minimum investment that you need to make in order to develop an opportunity.

As a foreigner in particular, you don’t have the network and you just don’t fit. That’s okay; there’s still plenty of opportunities for foreigners to do business here. But almost all of the foreigners I know invented something. They found a niche and made something completely new. They didn’t go in and disrupt some existing sector.

nWhat has been your approach to recruiting staff as a foreign entrepreneur?n

Things haven’t really changed in terms of hiring staff. It’s still difficult. I have found that over the last 30 years, young Japanese people today tend to be more influenced by a company’s leadership quality rather than the branding.

When students come out of university here, their mother tells them what to do. Statistics say that on average, young Japanese people under 30 years old have switched jobs three times. People in their late 20s and early 30s are starting to think about what’s important for them. Now, those people who are on a financial track will, of course, just stay locked into that and focus on the money. But because Japanese companies are so parsimonious with paying salaries to young people, money isn’t the major motivator anymore for these young employees.

So, I try to find people who have already drawn their own conclusions about their lives and have some confidence about where they want to go and what they want to do. As a startup, we don’t have a lot of money to throw around, so people have to have a different value system.

nHow do you attract them when a lot of other startups are targeting the same demographic?n

As a leader of a company, you have to be noticeable. You have to be public and provide a very clear indication of what your value system is. When I create a website, I always have a message from the president, like every Japanese company does. But I try to make it come from the heart, not some flowery thing. I talk about overcoming hardship and how to be successful in Japan as a non-Japanese, and that really strikes a chord.

There are many Japanese bilinguals who have invested years of their lives to acquire language skills. They may have studied abroad or just gone to an English school here in Japan. And for them, making that investment is an emotional thing. They really feel that their destiny is somehow related to international companies. So, if you can be that international company for them, then you can have a very loyal and highly productive person.

nWhat would you change in Japan to make it a better place for startups?n

The education system. The Japanese have this kind of weird personality flip when they go to university.

Before they go to university, they’re in the socialist society. All my kids went to Japanese schools at some point. Whenever they had a sports day, they were never winners. They only got fighting spirit awards, which everyone got. And the kids who couldn’t keep up with the class still graduated at the end of the year. How is that possible? Because they look after each other.

As soon as they go to university and corporate life, their social value is still there but they are confronted with this beast called capitalism where they have to make money and get results. So, people go into protective mode, try to grow with it, or be mentally disturbed. There are all these pressures that are coming out of this sudden change of attitude.

If Japan wants to survive as a global entity, it has to recognize individualism. This situation where intelligent Japanese leave the country and go to America or somewhere else to fulfill their potential has to be stopped. That’s ridiculous. Why is the country giving up its best and brightest?

Converted from Japanese yen. US$1 = JPY 110.06.