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Tokyo-based podcaster explains Japan’s declining startup scene and its future

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Photo credit: Pixabay.

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

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Tim Romero is the host of the Disrupting Japan podcast. He has interviewed a lot of business owners to get a good insight into the state of entrepreneurship in Japan.

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Now, there’s been a lot of discussion about the decline of entrepreneurship in the nation, specifically compared to the bubble era in the 1980s and early 1990s. But Romero feels that Japan’s best days are still ahead of it and, in many ways, the country is even more innovative now than it was in the past.

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I asked him what his thoughts are on this issue, what happened to the go-go 80s of Japan to cause it to decline the way it did, and where it can go from here.

nWhat do you think has caused the decline?n

Basically, what happened is Japan became a victim of its own success. In the 70s and 80s, the domestic market became so big that the companies focused internally. They didn’t need to compete with the global giants. They focused more and more on the domestic market, and that kind of strangled the innovation.

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I think what we’re seeing right now is a return to both the economic climate and the attitude that existed in the 50s and 60s. Today’s millennials, for example, don’t have this guaranteed lifetime employment. They don’t have a guarantee of a cushy life. So, a lot of them are saying, “Wait, we’ve got to start something. I want to take control of my own future.”

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Similarly, on the macro scale, the Japanese economy has been flat for the last 15 years. Real growth needs to come from outside. We have both startups and Japanese mid-sized companies once again saying, “We need to go global. We need to innovate globally to achieve growth.”

nWhat is the difference between the culture now and in the 50s?n

In many ways, Japan was culturally much more restricted in the 50s than it is today. That’s probably true in most countries. But I like to say that culture is bullshit. It obviously exists, but people use it to explain away things that we don’t understand. And I think the rise in entrepreneurship and the growth of startups can be explained by simply looking at risks and rewards.

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Let’s go back to 30 years or so. We had a young student who just graduated from the University of Tokyo and he was thinking “Should I join a large corporation or start my own company?”

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On the startup side, back then, you really couldn’t get equity financing. It was all personal loans and if you failed, those loans would follow you around for the rest of your life. The bankruptcy laws at that point were really strict. And even if you did really well and managed to do an IPO, you’d live a comfortable life but make about the same amount of money that an executive makes in Mitsubishi or Panasonic. But if you went into a large company, you’d have a guaranteed job for life. If you worked hard, you’d get a steady stream of big promotions. If you didn’t work hard, you’d get a steady stream of small promotions.

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So, joining a company was all reward and no risk. Starting a company was all risk and no reward.

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But today, that has changed. There’s no more lifetime employment and guaranteed promotions, so joining a big company has become less rewarding and riskier. At the same time, starting your own company has become less risky because there’s equity financing now. Nobody has to take personal loans.

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The attitude toward failure is changing slightly in Japan, and the rewards are much bigger. There are mergers and acquisitions. There are a lot of people now who, after seven years of hard work, walk away with US$20 million in their pocket. That’s not crazy San Francisco money, but it’s motivating.

nIs there a mindset shift among young entrepreneurs?n

My Japanese friends frequently point out to me that I live in a bit of a bubble. I’m an entrepreneur while a lot of my friends are starting companies, so I see a lot of that.

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But I think 99 percent of the population wants to get a good stable job, and I think that’s fine. Only less than 1 percent has to be the ones to go out there, try crazy things, and face failure. That’s all that’s really needed to keep the economy going.

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For the most part, we need people to keep the society moving. So, I think things are pretty good here in terms of that balance.

nWe don’t see many startups coming out of Japan. Why do you think that is?n

I’m very optimistic about the future of Japan and startups in Japan in general. You have to look at it from where they started.

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I’ve been in Japan for about 25 years. I’ve started four companies here, and when you compare it to 10 or 20 years ago, it’s really unbelievable how fast things have changed in Japan. Japanese startups still have a lot of catching up to do, but the rate of growth in the country is just amazing.

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There have been more startups being founded. More money is being put into startups at earlier stages. And more importantly, perhaps, there’s a bigger social awareness and acceptance of startups now.

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Back in my first company, there was a young graduate I wanted to hire. He’s a really smart guy who just graduated from Waseda. He wanted to join the company. He was a great fit for the engineering team, but his mom said no. So, I went to meet his mom to do some explaining, as the whole concept of our company was new to her. She was saying, “Wait, you’re getting this money from these people here and, in a couple of years, you’re going to sell it to other people for more money?”

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The whole thing sounded like a scam to her, and I could understand that. I had two meetings with his mom. She eventually agreed and the guy came onboard.

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But I don’t have to have those conversations anymore. People understand what startups are. The prime minister on numerous occasions had talked about the importance of startups to the future of Japan, and that’s really changed the corporate attitude toward startups.

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In 1998, when I started my first company, if I wanted to sell to a large Japanese company, I would have been pushed down through four layers of subcontractors. But today, all the big companies want to work with startups. They’re new at startups, but they’re trying. So, there’s really more of an ecosystem developing here.

nHow do women contribute to the revival of Japan’s economy?n

On Disrupting Japan, I haven’t actually counted the episodes but about 20 percent of all the interviews are with female founders.

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I teach at an organization called Startup Weekend which teaches entrepreneurship. And the programs, especially those that are focused on university students, have classes where up to one-third are women who want to start companies. So, there’s a tremendous growth of women entrepreneurs here in Japan.

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I think there are two perspectives on it. One is the top-down macro perspective, which makes the news, and the other sees that, traditionally, women in Japan are entirely shut out not of the workforce but of the career track workforce.

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It’s really tough to get by the glass ceiling here in Japan. So, on the top-down level, a lot of people are looking at this, saying, “Wait, Japan is wasting half of its intellectual capital. It’s not taking advantage of half of the ideas and the creativity that exists in the country just by leaving women out of the workforce.”

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I agree with that, but that’s too difficult for top-down to change. Japan tends to rank close to last in the number of women in the National Diet and in the global rankings of women executives. But risks and rewards make entrepreneurship so appealing to women in Japan. They don’t have to put up with those nonsense. They’re in control of their own success and failure.

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I’ve had two different women on the show who explained to me that, socially, in some ways, it is much easier for a woman than for a man to start a company simply because if you’re a firstborn son and go to the University of Tokyo or Keio, there are a lot family expectations on your shoulders. You’re expected to carry on the family name. But for women, those social pressures aren’t really there. Their families would more likely say, “Sure, if you want to do a startup for a few years and see how it goes, go do that.”

nAre there challenges that women face in Japan?n

The discrimination in raising funds and doing business, both in Japan and the US, is very real. But what women founders have told me was that they don’t really worry about it too much. It’s a part of doing business, and they’ll use it to their advantage. I think it’s a healthy attitude.

nDo you think Japanese entrepreneurs need English skills to scale their companies globally?n

I do. Global markets are very important now. Senior people in an organization need to be able to communicate in English. But I think there’s something more important than that.

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If you look back to the 60s and 70s, during the big expansion of the Japanese companies, the problem wasn’t English skills or cultural sensitivity. They were famously bad for just doing horribly stupid things that pissed people off.

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But what Japan had before was this awareness of everything going on in the world. They knew what their competition was doing and the potential threats and alliances they could make. So, it’s more of a global awareness that I think Japanese startups need to develop. English skills are necessary but not sufficient.

nDoes Japan lag behind many Asian countries in software development?n

There are not a lot of good innovative software coming out of Japan, and there are a lot of reasons for that. It’s only been 10 or 15 years that we’ve had independent software companies emerge. And by independent I mean they’re engineers that are driven by an engineering vision, making products that they want to make and sell to the mass market.

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So, Japan is getting better at it, but the software industry in the country is years behind Europe, North America, or China. I think it’s a real problem now.

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For example, in robotics and the internet of things, there’s this hardware area where Japan has traditionally been very strong for many years. But there’s been a shift so that the importance is not so much on hardware alone but software as well. And so you see companies like Boston Dynamics in robotics that have just leapfrogged a couple of generations ahead of where the Japanese firms are because there’s been so much focus on AI integrating with robotics.

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So, I think that is something that Japan is struggling with right now. There is a lot of effort being put into it, but there’s a lot of catching up to do as well.

nDoes Japan need to import talent or develop local talent to lead again?n

Right now, in terms of integration, Japan is buying. But again, the world is getting smaller, and if you look at artificial intelligence engines, for example, a lot of these are being open sourced by US companies and Chinese companies. So, I think Japan probably for at least the next 10 years will be looking overseas for software engines, partnering with companies, and using local talent to integrate and improve.

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But I don’t see Japan coming up to be a real contender in software itself.

nWhat sectors have a unique advantage for Japanese entrepreneurs?n

Elder care. The rest of the world is facing the same demographic trends as Japan. It’s just that they’ll be hitting them 10 or 15 years later. So, Japan has a great opportunity to figure out what works in the market, develop real solutions, test them, and deploy them to the rest of the world.

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Another area I think is internet of things. In San Francisco, a new startup making hardware is usually run by three really smart guys in their 20s, and that’s great. But in Japan, a lot of these hardware startups are run by two really smart guys in their 20s and one guy in his 50s who worked at Nissan or Sharp for 30 years and understands QA processes, outsourcing, and the hardware production business. And that’s a really interesting combination.

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Read more from this series here.