Tim Romero is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 25 years ago. Tim hosts the Disrupting Japan podcast, teaches corporate innovation and entrepreneurship at the NYU Tokyo campus and is CTO of TEPCO Ventures. Tim is deeply involved in Japan’s startup community as an investor, founder and mentor.
What’s covered in this episode:
- The history, myths and truths of Japan unique startup culture and how Japan’s startup scene is rapidly changing to address a global market.
- Forget failing or pivoting “faster” – a few examples and practical tips on when and how you should get out of your failing startup.
- Why Japan’s best startup days are ahead of it and why you should consider entering the Japanese market now if you’re a B2B business or startup.
- The hottest startup industries in Japan right now.
(This transcription has been redacted for readability.)
Alexander: Hello everybody, welcome to the Fullstack Marketing Ninja Podcast. I’m here in Tokyo, Japan with someone that I’ve been looking forward to meeting for a long time, Tim Romero, who is the host and founder of the podcast Disrupting Japan.
Tim: Thanks for having me on. I really appreciate it.
A: I’m really glad we can chat. I’ll tell you how I discovered your podcast. I was looking around for resources where you know people were talking about… in business, people are always saying APAC, [but] ex-Japan. So it’s really difficult to find info on Japanese startups because Japan kind of does its own thing and I think that your podcast actually dives deep into how that’s changing and what are the hot startups are [in Japan]. Most of the podcasts I found were in the Japanese language and then I happened to come across your podcast. I don’t know why it took so long because apparently, you’ve got five years worth of material. I don’t want to steal the show and tell your story. Maybe you can give us a little bit about how you got started with this podcast and what your background is in the startup and tech scene in Japan.
T: Sure, I’d be happy to do it. I mean, those two facts are really closely related. I’ve started four companies here in Japan over the last 25 years. I’ve sold two and bankrupted two. So, you know, 50-50 is not too bad as far as startups go! I started this show five years ago and I thought it would just be me interviewing my founder friends and the audience would be this tiny startup community of founder friends here in Tokyo. And the show just blew up into something much bigger than I ever imagined. We’ll get into the marketing in a minute, I’m sure, but it happened very much organically. It’s been a marathon rather than a sprint. What the show is about – there’s an awful lot of startup interview shows and there ARE some good ones out there, but I mean, I despise the ones that are sort of like, “well tell me about your passion!” It’s like, “Good god…”
I try to find interesting stories. I always try to make it about looking at Japan through the lens of startups. Looking at startups tells you a lot about what kind of problems a society thinks are worth fixing.
A: So you’ve stated before in a podcast that Japan’s best startup days are ahead of it. There are a lot of people that are kind of you know, bearish on Japan in terms of startups, tech, maybe even just the economy in general. What are some indicators – why do you think this is? Are there any things that you can point to that signal the fact that Japan is in its renaissance for tech and startups?
T: Okay, before listing like the specific triggers, let give you an overall frame to look at this in. Because innovation and I mean… things work differently in Japan. I think one of the most pervasive myths about Japan and the Japanese themselves will believe this far more than they should, is that Japan changes slowly. If you’ve been to Japan for more than 24 hours someone has told you this, but it’s not true.
If you look at the incredible transformation that happened during the Meiji Restoration in the late 1800s over a period of three decades, Japan completely reinvented itself. It went from a country that was literally hundreds of years behind the times economically, socially, politically and certainly industrially, into a world power within 30 years. No one else had done that.
A: That’s pretty special.
T: It really is. After the defeat of World War 2, if you read the opinion of some of the economists that were working with occupation forces, a lot of people thought Japan would never recover, that they’d always remain this kind of vassal state of the United States. Because they had no experience of representative democracy, the idea of Japan is like a consumer-focused economy – it was just too foreign, and the infrastructure was gone. Fifteen years later, Japan is the second largest economy on the planet. So, Japan can take an awfully long time deciding to change and getting ready to change. But when change comes, it happens unbelievably fast. No country in the world can change as fast and as often as Japan. And so, if you look at how change has happened in the past, there is this phase of Japan looking outside, imitating and trying to figure out what works and bringing in best practices. Then, there’s this phase of internalization and customization for Japan. Afterwards, the change happens incredibly fast. And then, for some reason everyone thinks, “well it’s always been this way!” That’s what’s happening now. So the triggers I’m seeing is, five years ago, I used to play this game. I would count the number of times people talked about San Francisco or Silicon Valley and count the times people talked about Japan or Tokyo. Five years ago it was usually three to one, with more people talking about San Francisco. And these were events in Tokyo, in Japanese. That’s changed. It’s now about even or even a little bit more talking about Japan and Tokyo than about Silicon Valley or the United States.
And what’s more interesting is that the more informed and more plugged in they are to the startup scene in Japan, the less likely they are to talk about what’s going on in San Francisco and the more likely they are to talk about what’s going on in Japan. So Japan as a country is doing that inward-facing tuning that prefaces all major change.
Now, specific traits on Japanese innovation and on things that are happening. There are models developing here that aren’t really developing in the United States. They are developing differently. So there’s a long term collaboration between startups and larger corporations, whereas in the US, for a lot of reasons, it’s not really possible, because acquisition has to happen pretty fast or the startup grows quickly and becomes a competitor of the large company. There are university funds and venture funds here that are filling in some of the big gaps that have existed with Japanese venture financing. Japan was kind of late to the startup game. I’ve been starting companies here for 20 years and this is really the first time Japan has had a modern startup ecosystem where there are Angels who have actually been through it and have run their own companies that can mentor the next generation. Japanese companies are slowly but increasingly embracing strategic M&A. So now there are more exits than there were before. So I think things are incredibly positive. Whatever comes out of this it’s going to look very different than what we see in San Francisco.
A: For Japanese startups, you talked about, this, “inward facing tuning.” Do you think startups in Japan are thinking about building just for the Japanese market or are they thinking more with a global perspective?
I’m not saying it matters one way or the other but that’s you know that’s something I’d be curious to hear your thoughts on.
T: Oh, it definitely matters. I mean you can’t build a multi-million dollar corporation just by focusing on the Japanese market. Well, actually you can and people have, but you really want to be a global company. So I think there’s there’s a handful of startups that are offering a product or service that is unique to the Japanese market and can’t really be exported.
A: Are there any examples you can give just because I’m interested in hearing about some.
T: Oh sure, there are some interesting startups that are focused on inbound tourism, that are focused on job matching and job training and things that are kind of inherently local that just you know, a startup in Indonesia might be in the same space, but the know how for each market would be so different. That knowledge wouldn’t carry. So that’s fine, they’ll focus on Japan, they’re doing fine. After that, most startup founders – and this has been a big shift over the last five to 10 years – most startup founders are thinking about international markets. Now, international usually doesn’t mean the United States for Japanese startups, because the United States is the best funded market. So, why go into a market that’s considered the most expensive market? A lot of Japanese startups are looking in Southeast Asia, Europe – Australia is good because it’s a relatively small market, so it’s less expensive and it’s very Western. It’s often seen as a training ground before moving into the US market. One thing that is holding Japanese startups back in terms of going global, however, is a lot of the VCs here want a safer path to IPO and going global, doing a market entry somewhere else, that takes a lot of capital, it’s really risky, it might lose money and it might push back the IPO. So sometimes, founders get a lot of pressure to stay on the straight and narrow and hit an IPO, but the awareness of the importance of global markets is very high in Japan.
A: Do you have any examples of how you’ve seen a transition to that kind of a high awareness for global markets?
T: You know, it’s hard to say if there was a specific trigger. I don’t think there has been. I think it’s just been a growing awareness within the startup community itself that going global is important. I think it’s just been kind of this understanding that’s spread organically through the community.
A: Yeah. Obviously you’re in the community and some of these things aren’t data points, more from the startups that you’re talking to on a day-to-day basis.
So we talk a lot about grit in startups. It’s one of those things I actually hate, because it’s like “fail faster.” All that. I guess your podcast also tries to steer away from that kind of high-level speak, but I definitely know that you’ve had your own trials. You said that 50% of your previous companies made it, the other half didn’t. You’ve been through some of these, what we would call “failures” and tough periods in your life and you’re not ashamed of it at all. Since you’ve done so much work in startups, have you decided when is the best time to pivot or move away from a venture? Have you had those trigger moments where you’re like, “Okay, this really isn’t work going to work or do you think it comes from a gut feel or is it just when you’re kind of you know redlining or how do you look at failure in startups?”
T: Well, every case is different. But I think in general you know you always have a plan. You always know what your sales expectations are and what your customer adoption should be. If it’s significantly lower than that, if the results aren’t what they should be, it’s time to not just talk to customers, but watch how the product is being used, watch what people are doing. Sometimes the fix is easy, it’s not a pivot, but it’s a feature, it’s something simple that can be done. If that adoption is not hitting a target, if it’s significantly below it, you’ve got to leave yourself open to say, “okay, we did not have the right hypothesis going into this, let’s make an intelligent decision to try something different.” Now, I mean, there have been some really successful pivots that are almost like re-births. You know, Twitter was one of those and Slack was one that was just like, it’s a completely new product. Those are few and far between and that’s not really what I consider a pivot. So pivots, your customer base remains the same. You’re still addressing a similar value proposition, a similar relationship with your customer – having a target in mind and being honest with yourself.
When to quit is generally when you run out of money. I’ve had one startup that I actually pulled the plug on the day before investors were about to start wiring the money because in the beta period, clients weren’t using it the way we expected. I understood why and we spent a month trying to figure out how to fix this problem and we had nothing. We had no way to address it. So in that case, I kind of quit before I got started. But once you take the money, it’s best to go to the end. I did wrap one company up while I still had money in the bank. Don’t do that. All of your investors are prepared to go to zero. But if you have a little bit of money left over and it’s still sitting there on the table, everyone starts fighting over it again. Unless it’s something like a whole lot of money, spend it, keep trying and go to zero. All your investors will be happier in the long run rather than trying to to fight over a couple hundred thousand dollars that are left over.
A: That’s an interesting take. Most people aren’t as candid about that but I’ve seen and I’m sure you’ve invested in some startups where you have to make that decision as well.
What is a major hurdle for most startups in Japan in terms of addressing maybe a failure rate if you were to optimize for that? I was just wondering if there were any Japan specific [reasons], sometimes in other countries that might be a government issue or there might be reasons why?
T: Well I think before – this is like 30 years ago and this is one of the reasons we’re seeing so many startups now – is that they’ve changed the bankruptcy laws. It used to be that one, risk capital was really rare. It was hard to get funding, so you’d have to take out personal loans and it was almost impossible to discharge that debt. So starting a company was an unbelievably risky endeavour. Now, equity financing is freely available. The bankruptcy laws are much more forgiving. And so of course, we’re seeing many more people jump into entrepreneurship in areas that are sort of uniquely Japanese. I think that Japanese teams have a harder time pivoting than do Western teams simply because there is still this dynamic of, “well, you know we’ve all agreed to this, we’re all on the same team, we’re all working really hard,” and it’s difficult for one person to stand up and say, “no, we’re going to change this. That’s culturally difficult in Japan. But, I mean teams do it, it’s just a little harder. But on the flip side, I think one thing that is harmful in the US attitude towards startups is the the whole you know, “fail fast, fail forward,” which I consider kind of macho bullshit. Failure hurts a lot, and that’s okay. If it doesn’t hurt, it doesn’t suck, then your heart wasn’t really in it, you weren’t really trying and you kind of come out the other side and it’s okay, you can start again but it hurts, it sucks and it’s supposed to. And that’s okay.
A: Yeah I’ve definitely been through that journey before and I can’t say it was enjoyable at the time but you’re stronger for it, and that itself sounds like some conference kind of bullshit, but it is true. At least from what I’ve experienced.
You kind of touched on it earlier, but maybe you can dive a little bit deeper – what kind of industries or startups tend to do well in Japan?
T: I hesitate to mention startups because I have a different one at the top of my head like every week. So it gets really inconsistent or random. In terms of industries the ones the investors are most excited about now are robotics, particularly as results to healthcare A.I. and fintech are the biggest. In terms of where I think we’re going to see a lot of genuine innovation coming out of Japan, I would put it in long term elder care. That might have a little bit of robotics and a little bit of A.I. in there, but it’s just because Japan is looking at demographics that Europe is going to be facing in 10 years in the U.S. maybe in 20 and they’ve got a 10-year window to fix this and make it work. So I think we’re gonna see some really interesting innovations come out of that. There’s a lot of really cool, strange, interesting stuff going on in the Internet of Thing (IOT) projects here in Japan. A lot of it is random, but creative and cool, so I’m excited about the IOT space here, with connected devices.
A: Are there any particular traits of successful Japanese startups that you’ve kind of noticed?
T: I think the most successful ones I’ve noticed recently are ones that have been started with a team, which again as is, culture wise, kind of new in Japan. Japanese companies, even when they were started by teams kind of have this, “great man” story behind it, where there is like one incredibly smart person who pulled it all together and bravely ruled the company like a king. The ones that are formed by teams tend to be a lot more flexible and they tend to listen to input from the staff more and there’s they’re much more likely to pivot when you’ve got you know, three founding voices bouncing ideas off each other. So I think that, in general, the Japanese companies founded by teams tend to be stronger.
A: So you’re saying the co-founder kind of relationship isn’t as common in Japan?
T: It’s getting much more common. Really, over the last five years, it’s been a shift to where I think that – I would say five or six years ago the number of Japanese startups founded by teams was a minority. Now, I’m pretty sure now it’s in the majority.
A: I’m sure a question that you get a lot and we were kind of chatting about how Japan is sometimes perceived as its own market because there are so many kinds of challenges and barriers to coming to Japan. If you are a startup that kind of existed outside and was looking to expand in Japan. Maybe like a very straightforward response – is it worth it? And also, what are some ways that they can make it easier for themselves to kind of get into this market?
T: Okay. Yeah, I mean I’ve brought companies into Japan, US startups, and I think that the answer to, “is it worth it?” is yes. But the real question is when is it worth it? Japan is a huge market, but it’s hard. It’s a difficult market to crack. It takes a little bit longer, but it’s worth it.
I’d say a very short answer is if you’re selling a product that is B2B, it makes sense to come into Japan as soon as possible, because right now, open innovation is really catching on in Japan. It’s very easy to have access to extremely senior people in large companies. The market here is phenomenally large and Japanese businesses pay top dollar for quality solutions. So if you’re running a B2B startup that you think you remotely have a product-market fit in Japan, you should be looking into that immediately. Now if you’re a B2C company something that’s more consumer facing, it’s harder. Japan is still a huge market, but the distribution channels are more complicated, the language barrier is higher and it’s a higher barrier for consumer products because Japanese consumers are so demanding. Even as a consumer product it makes sense eventually, but in general, you’re going to want to have a really strong base in your in your present market. You’re probably going to want to be either cash-flow positive or be very secure financially before you commit to Japan as a consumer company. But yes, it definitely makes sense. It’s just a question of when.
A: People that listen to this podcast, they’re usually from Southeast Asia or Silicon Valley. Is there one thing, if we could just get one takeaway from you from this podcast that you would like people to know about Japanese startups and what’s going on here? Maybe you could just give something it doesn’t have to be one thing.
T: I’ll give you a high level answer and a low level answer. I’d like people to be more aware of what’s going on in Japan. There’s not as much money generated as especially compared to China. Whereas in the West, kind of Japan and China seems to occupy that same mental space but they’re not remotely similar. They’re totally different. The high level thing is there is a lot more interesting stuff and innovation going here than people think. The low level answer is you know, listen to Disrupting Japan and that’s where you’ll hear all the low level innovation in the specific companies and there are things being done here that aren’t being done elsewhere. The most successful commercial deployments of chatbots are found in Japanese companies. There’s just some amazing stuff going on here.
A: Yeah. Speaking of Disrupting Japan, I want to end this with understanding what’s next for Disrupting Japan. What’s next for you? What are you looking forward to in the future of the podcast and just things that you’re working on?
T: The show was commercial for about one year. it was my full-time job, I had sponsors and that was a fascinating journey. It’s back to being non-commercial, which is the way I like it. It lets me do the kind of shows that I really want to do. So the show itself is going to continue to tell the story of innovation in Japan and what it’s like to be an innovator in a culture that really prizes conformity. As for myself, you know I’ve stopped answering the question of, “what are you gonna be doing in five years?” Five years ago I had absolutely no idea that I’d be doing what I’m doing today. So I think it’s silly to pretend that I know what I’m going to be doing in five years but I guarantee it will have something to do with startups and innovation in Japan.
A: Got it. Thanks for coming on the show today Tim. We really appreciate your time, thank you very much.
T: Thanks for having me. I really enjoyed it.
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Podcast music by Ikson Music.