Investing In Japan II

Six Tips for Startups to Invest in Japan

Japan perplexes foreigners. Stepping out of Tokyo Station for the first time can feel like landing on the moon. Even those who have lived in Tokyo for years can be overwhelmed by its linguistic and cultural nuances. This kind of culture shock is unavoidable. But these tips will help foreign technology companies ease into the Japanese business culture without too much trouble.

Start small

Japanese business deals take a long time to close, so the sales process should start well in advance of an investment on the ground. Contacting the major Japanese players in US is easy and lets prospective partners explore the business case with their Japanese headquarters. It’s a way to open the door before even buying a plane ticket to Japan. Hiring smaller consultants that specialize in market entry can help too. A few good ones are Libertad/www.xbventure.com, BlueField Strategies, and Sunbridge. Hiring one of these firms before a General Manager allows a startup to create a loose business plan first then find the right person to execute it.

Consumer startups should make a small, initial investment to test consumer demand. The product may need to be adapted to Japanese consumer tastes and behaviors. Simply translating a product from English to Japanese and expecting success is a common error. Successful consumer companies often change the user interface, adjust privacy tools, and create a more mobile-focused experience.

When Twitter entered Japan in 2008 they partnered with a leading Japanese incubation firm, Digital Garage. Twitter was flexible in allowing Digital Garage to uniquely adapt and market the product. Digital Garage created a custom site, “Twinavi”, to help first time users and bloggers understand the experience. To attract users, they also launched Twitter’s first banner ad campaign anywhere in the world. But, the largest uptake in users came from pre-installing the Twinavi API and client on SoftBank Mobile devices, said Kazusuke Obi and Junichi Fujimoto who lead this initiative – they now run Libertad and XBVenture.

Hire the right people

Hiring in Japan is challenging. Typically, foreign firms begin by looking for a country manager with native bilingual speaking skills, relevant domestic experience, and an international perspective with an overseas degree. Aiko Katoh, MD of Houzz, is one of few who checks all these boxes. She says when hiring locally, companies may have to make tradeoffs in skills to find the right people. But this is hard to find so companies may side for local talent without the overseas experience and MBA – which often misleads firms to hire the wrong person.

Finding good candidates is another challenge. Historically, headhunting firms have been the only option to recruit good talent and are still a good resource for companies that already have a good understanding of the market for talent. These firms charge success fees of 35 percent of a year’s salary. That’s expensive, but several have a good track record including Wahl & Case and Robert Walters.

Before engaging a headhunter, it is now also possible to meet people through online resume services, such as Bizreach. It is considered by many to be Japan’s LinkedIn. LinkedIn has had moderate success because Japanese people are not comfortable publicly displaying their resumes and professional history online. In a closed repository, Bizreach hosts several hundred thousand Japanese resumes and lets companies access them for a small fee. Foreign companies entering Japan should interview as many candidates as possible early in the process to get good sense of what the market offers, Swimmy Minami, CEO of Bizreach said.

Integrate the team

Foreign companies often underestimate the need to integrate the team in Japan. The companies that do it best have dedicated individuals at headquarters to work with the Japan team or even spend a year in Japan to help them. Creating cross-functional reporting lines between similar functions in the remote office and headquarters can help too. Remote employees feel more like they’re a part of the bigger team when they are involved in day-to-day activities of the home office and not just reporting to the country manager.

Follow the rules

Japan is a land of rules, processes, and systems. These may seem daunting, but they cannot be ignored. Companies operating in highly regulated industries such as telecom, financial services, and industries owned by government institutions like taxis must pay attention the regulatory framework. Operating in a grey area is not acceptable and it will ultimately cost companies much more time and money to fix.

“My experience is that the regulators are reasonable and helpful people and the faster you start the process with them, the faster you can launch your business,” said Natalie Fleming, consultant for Fintech startups.

Consider accepting strategic investments

Japanese technology firms often require an investment before agreeing to a business-development partnership. Before accepting this kind of strategic investment, it is important for startups to explore multiple channels and relationships. An investment might preclude Japanese competitors from working together so it is important to take money from the right partner.

One of the three largest trading firms, Mitsui Bussan, has broad and deep enterprise software distribution capabilities. They have invested in several firms in this sector, including Box. Box established offices in Japan and identified Mitsui Bussan as a key strategic partner before taking the investment. In another example, a Taiwanese music startup called KKBox took an early equity investment from KDDI. KDDI now installs KKBox on most devices at the point of sale, but other carriers will not work with KKBox as a result of this partnership.

Be patient and don’t give up

Many Japanese people study the principles of ‘Bushido’, i.e. the Samurai Way. The dogma of Bushido preaches serenity, patience, and wisdom during the journey and loyalty, bravery, and fighting to the death during the war. US companies can easily misinterpret the Japanese’s courtesy and patience as a lack of interest. Before working together, Japanese companies usually like to see a similar commitment and desire from their western partners. Ganbaro! — meaning “to fight or to preserve” — is a word the Japanese use when confronting any daily challenges.

When Salesforce opened in Japan in 2000, B2B vertical software applications barely existed. It took seven years of selling and evangelizing the product before Salesforce landed its largest accounts –Japan Post and EcoPoint. Today, Salesforce derives significant revenues from Japan and even opened a dedicated venture fund to invest in Japanese enterprise-software startups.

Nearly three years after hiring a consultant, Sayaka Sugiura, for market entry, Boku has a small office of three people and partnerships with Sony and all three major wireless carriers. Japanese partners were patient and provided advice along the way. Embracing the cultural differences made the journey fun with lots of good meals and the making of new friends.

Co-Author: Josh Wein

Special Thanks: Junichi Fujimoto, Rick Dyck, Swimmy Minami, Aiko Katoh, and Natalie Fleming and friends 🙂