This is how the Japanese startup ecosystem works

Huge market but very closed ecosystem and riskavers society: Japan is a tough place for startups. We asked Taisuke Alex Odajima of startup and innovation hub EDGEof in Tokyo about the characteristics of Japans very young startup scene.

Gepostet von TrendingTopics.at am Mittwoch, 6. Februar 2019
Ecosystem

If You Want to Understand Japan’s Startup Ecosystem, You Have to Get Japanese Culture.

The crossing of Shibuya in Tokyo is probably one of the most famous spots in the world. It is a symbol of the hustle and bustle of the city – up to 15,000 people cross it at peak times. Shibuya is a young, hip district that has been known far beyond Japan’s borders – since the movie „Lost In Translation“ at the latest.

But the district does not only attract hipsters and tourists with shopping miles and karaoke bars. Japan’s very young startup scene also has its epicentre here. Japan is not an easy place for innovative young companies. And there is hardly anyone who knows the ecosystem better than Alex Odajima, one of the founders of the startup and innovation hub EdgeOf.

EdgeOf sees itself as a gamechanger’s studio. The eight floors and the chic roof terrace are intended to create an environment in which new ideas are born and creative projects are implemented. The hub, which opened about a year ago, is backed by six experienced startup experts and serial entrepreneurs. On board is Daniel Goldman, for example, who studied at the well-known UC Berkeley in California and then founded several startups and companies internationally. Odajima himself is one of the founders of a consulting firm Shift.

Trending Topics: I was told that Shibuya is kind of the Silicon Valley of Tokyo.

Alex Odajima: We are based in Tokyo Shibuya, which is one of the hotspots for startups here. This is where Google and all the big IT companies, the VCs and CVCs are based. We are having a lot of new buildings getting built. Old buildings are getting empty, which is giving space for early startups to be there because a lot of coworking spaces are getting created. Shibuya is becoming the hotspot of innovation and startups. The mayor of Shibuya city is a very innovative person who is really putting the focus on diversity, innovation and startups. We are very well supported by the local government.

How is the Japanese startup ecosystem shaped?

According to the Ministry of economy there are 10.000 startups in Japan which I’m not very sure about. This is what they announced officially. Maybe it depends on the definition of startups. When you talk with startup people in Japan and ask to give some names of interesting startups you probably hear 100 or 200 companies. We only have one unicorn in Japan. This is Mercari. They are providing a C2C vending platform on mobile. It’s a huge success in Japan. They are trying very hard to go outside Japan but are not succeeding much.

Why is it so hard for Japanese startups to be successful in other countries?

This is one of the characteristics of the Japanese startup ecosystem. The Japanese culture, the expectation of customers are so unique that if you try to optimize your product for Japan it won’t work outside. For example one of the big issues is that the Japanese people don’t really have credit cards.

Mericari provides a special payment service: Someone who buys a product can go to the convenience store with their phone showing a barcode so that they can pay cash. Japanese people love to pay with cash. Even in this time of mobile payment they still want to pay cash. In stores you find a lot of cards with iTunes credits because people don’t have credit cards. They pay by cash and then use the 20 digit code.

It’s a very unique and special culture here. The customer service is super tough. You have to train users, they don’t want to try to figure things out by themselves. Those specifics make the services optimized for Japan while having so many useless features outside of Japan. Some companies are making two different application codes – one for the Japanese market, another for the outside market. But then the cost doubles, maintenance doubles. This is a very difficult challenge.

The other thing is the language barrier. For Japanese people English is extremely difficult to learn. They tend to survive by only using Japanese. We have about 120 Mio. people in this country and we are still the third biggest economy in the world, which makes those startups survivable. So very few companies will try to go outside.

How can startups get funding in Japan?

The other thing which is quite unique in Japan is the mindset of the investors. The amount of VC money invested is very small compared to the US. When VCs put money into early stage startups, some of them would make them sign a contract that as soon as the companies valuation reaches maybe 50 million US dollars, they will have to exit.

Japan is probably one of the easiest countries in the world to make an IPO. All investors who are looking for cash income are really pushing startups hard to exit as soon as they can which makes it very difficult for a company to become an unicorn. This system is making a lot of small rich people who then become an angel investor and do the same thing. This is keeping the whole thing small.

Where are the strengths of the Japanese startup ecosystem?

Depending on the point of view startups could be considered as happy because they can stay in the country without getting too much risk. The competition is nothing compared to the US. All the VCs and startups are very good friends. But on a global scale it’s very difficult to compete with other countries. China was nothing ten years ago and now Japan is nothing compared to them. More and more countries won’t try to come to Japan because the market is too small compared to the difficulty. It’s not worth the effort – this is how we are judged.

We are working with the ministry of economy who started a program named J Startup. It’s the governmental program to support Japanese startups to grow in the country but also to help them to go outside. EdgeOf is one of the official partners. We are heavily pushing startups to think global and try to go outside from a very early stage.

What else is the government doing to support the startup ecosystem?

J Startup program has started in the third quarter last year. The background ist that they have been trying to support the startup ecosystem for years. What happened was that it has been giving a very small amount of money to hundreds of startups who could survive for six months but not enough to create anything new or to try big things. It was almost a waste of money. The new strategy is instead of trying to help everyone they will be very selective. They made a list of 92 startups who will be the only ones officially supported by the government. It’s an extremely selective program. The goal is to create two unicorns within five years.

What are some of the key contents of J Startup?

In Japan if you want to participate in a governmental project you need to be a company with ten years of history and a lot of other criteria which makes it virtually impossible for startups to be part of a public project. The startups on the list will be able to bid for those public projects. This is one big step for Japan. The other thing which is more for foreign companies: They announced J Startup Visa program. Before, foreign entrepreneurs who were wishing to create a company in Japan only had six months to proof themselves and to renew the visa. It’s almost impossible in this timeframe to make sales, find an office, business partners and employees – so it was almost impossible for startups to start a company in Japan. With this new Startup Visa Program they have one year now which is at least much more than they had before. This are the two concrete things they have done so far.

Local governments are also providing different supports to startups, providing very cheap working spaces or different subvention programs like a young female entrepreneur could get a certain amount of money to start new companies. But it’s very difficult to get this support, you have to write up hundreds of pages of forms to get the payments.

Has Japan established a startup culture or a culture of failure, which is probably Silicon Valley’s most striking mantra?

Compared to other countries Japanese culturewise don’t like people who challenge new things. A very important thing in the Japanese culture is to be serious. They try to keep the old style in politeness and seriousness. Creating a new company, trying crazy things is like: what are you doing? When you fail people will point at you and will say: you see, you tried a new thing, you fail, this is your fault, you will have to find your way on your own. It’s a very difficult country to try new things. The government is designed based on this culture mindset. It will probably take time to support startups.

Is it hard to find talent for startups then?

Oh yes. This comes to this cultural background. The vision of young people has been that you should be hired in a big company and stay there for their life. Then buy your own house with 30 years of mortgage. Stability is probably the biggest value for Japanese people. It’s completely against the cultural mindset of startups. Until five or six years ago it was extremely difficult to find talent in startups. A good and a bad thing is that there are so many huge corporations who were failing lately. Maybe you’ve heard some tragic histories like Toshiba, Sharp – big corporations where everyone thought that they would never fail in a hundred years. The myth of being hired in a large corporation is not really true anymore. The young generation is facing this reality now.

Let’s talk about EdgeOf. What is the role of EdgeOf in the start-up ecosystem in Tokyo?

The EdgeOf Tokyo building is a place of gathering, meetup where we are organizing events, providing space for people working on our projects. It’s not like WeWork where we are getting rent to outside people. We also have a creative studio, a kitchen, a rooftop bar and a tearoom in the basement. All those things are meant to be used by those innovators to generate new ideas, meeting other people, starting new projects. It’s all about interaction.

What is your mission at EdgeOf?

My main mission here is to connect the start-ups and foreign governments. I’m French and Japanese mixed and was in good contact with the French embassy before starting this job. And we did the same with other countries. We also had many events with the Austrian embassy, esp. with Advantage Austria. We had an event with Austrian Startups here to meet the Japanese startup ecosystem. We are also trying to connect Japanese start-ups to other markets. What is the benefit that they can get from the Austrian government for example. I try to be the translator. It’s very difficult for young startups to go to the embassy. We are trying to become a more friendly place to create interaction with different countries.

What were some of your latest projects?

For example we supported an American company to create their branch in Japan. We are supporting a Japanese game creator to publish their game in Sweden. Or we are working with the Columbian government – we had a visit of the Colombian minister of foreign affairs here to discuss about how Japan can support them to make creative the next core of their industry. We will probably send a delegation from Japan to learn about Colombia and see how we could collaborate with them and help this country to create a new basement of their industry.

Our projects are very different. We are also building a hotel in partnership with a real estate company. We are supporting them to create content to attract innovative people to come to the hotel.

There are actually Japanese start-ups going to Austria?

Not yet but we hope so. At least we are trying the other side round. Advantage Austria arranged a tour, a couple of weeks ago, for AI specialized startups. Three startups from Austria came here supported by GIN. They tried to learn about the Japanese market, what would be their potential to success in Japan and they contributed to a pitch contest here. We explained about Japanese business culture, what would be their challenge to fit into the Japanese market, what kind of company could potentially become their business partner.

What kind of challenges are there?

Japan is a very weird, very unique culture country. We try to explain what would be the legal challenges, how investments are done here for foreign countries. Japanese people tend to create fake expectations. They are very polite. They make you feel like your product is great. But nothing will actually happen after the meeting. This is something which happens quite a lot with startups. We organize workshops to explain those things.

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