Reaching for the stars

Features - June 20th, 2003
tokyoweekender_Enterp. Japan

by James Mulligan & John Domokos

Tokyo Weekender brought together successful entrepreneurs for a discussion doing business in Japan. The location? The Star Bar at Roppongi Hills Club.

Traditionally, the aim for new graduates in Japan was to join one of the big companies, where they would work for life, climbing the ranks and slowly gaining more responsibility. The term ‘entrepreneur’ had negative connotations, implying that a person could not get a “real job.” Although this mentality has started to change, the plight of entrepreneurs and startup companies has been fur­ther damaged by Japan’s continu­ing economic woes. As banks move to cut bad debts, smaller companies are the first to suffer.

In a recent survey, the Global Entrepreneurship Monitor (GEM) found that less than 2% of Japanese workers are new entrepreneurs, compared to 10.5% in America and 14.5% South Korea. GEM also showed that venture capital accounted for 0.04 % of GDP in 2001,a tenth of the US level, where investors are more willing to take a risk.

The problem has been recog­nized by Prime Minister Koizumi, who is trying to push an econom­ic-stimulus package through the Diet. This will provide $12.7 bil­lion for small and mid-size com­panies in trouble. There are also moves to reduce the amount of capital required to start a new company, and to cut back on the swathes of red tape.

For a foreigner thinking of starting a business here, the situa­tion can seem bleak. But they also find themselves in a unique posi­tion, with many niche opportuni­ties open to them. Read on to find out more about going it alone in Japan.

Weekender: What are the advantages and disadvantages of being a foreign entrepreneur?

Mike Alfant(MA): It lets you off the hook for some standard Japanese practices. A disadvan­tage is you are functionally illiter­ate. Also Japan has a hard busi­ness networking culture to crack.

Mike Anop(MAP): That’s right. When you approach a company in Japan you have to wait a long time for the door to open. Once you get inside the door in Japan they’ll continue to work with you. But knocking at the door takes a lot longer in Japan.

Tim Williams(TW): Once you have built the trust, you can do great things with Japanese companies. In general, being a foreigner lets you get to the point very quickly because of the lan­guage differences.

Phillip Gsell(PG): Sometimes though, doing good business for too long can sometimes spoil you. One company we worked with wanted to change because we worked too long with them.

MAP: Another disadvantage is in Western companies you can advance your career by taking risks – in Japan, maybe not.

TW: If a Japanese person thinks “I have to make a decision,” is it worth their career to risk pushing their idea through? “Jobs for life” doesn’t exist in Japan any­more.

MA: Being an entrepreneur is to take risks – there’s a default level of risk in being an entrepre­neur. If you are not in the mindset of taking risks constantly, entre­preneurship is not a good direc­tion for you, certainly not as a for­eigner in Jараn.

Here, there’s a high cost of taking a risk, maybe not a higher risk of failing. But in your home­town if you want to stay there and do it, your mother can cook for you, do your washing, let you stay at the house; the level of risk is lower. You need to be good at risk management and risk assess­ment.

You also need to take a risk first, then other people will pile in and take risks on you.

MAP: Don’t go to a Japanese company with just an idea on paper. You need to get it running, even if it’s losing money.

With Z-CARD I find there is concern over a product that’s new, even though it’s something that’s used by big companies all over the world. Japanese compa­nies are not sure about it. The problem is in convincing some­one to take the risk. It makes sense to use Z-CARD. It’s still difficult to get a Japanese company to take a risk.

Weekender: What obstacles have you faced?

TW: Banks are a problem. We had promissory notes, we had tons of sales, but a cash-flow cri­sis. The bank wouldn’t give a bridging loan. If you are in a pinch, don’t rely on your bank.

MAP: I think there’s a lot of support from banks for small companies at the moment though. Banks give us 1 % interest rates on loan. Tokyo government pays the other 1%.

Weekender: What about age. Can you be too young?

MA: Age is not a big obstacle nowadays. It’s much less impor­tant than experience. When peo­ple talk to me on their first go I’m looking at people who need me to finance their first failure.

TW: I normally don’t factor age either. I look at experience and achievements. It’s more about quality and results nowa­days.

MA: But, age will always have some bearing. If you get sick, you’re at hospital and you went to the doctor and one doctor looks like your kid brother and the other one looks like a doctor…white hair etc., you’ll think.. .”I’ll go with this doctor.”

TW: Japan has been forced to make some changes. One of them is the seniority system. There’s a movement – a slow movement – a foot to push that aside. Now it’s a merit- and value-based system.

Weekender: Japan came last out of 37 countries in regards to the number of entrepreneurs. What do these low rates mean for you?

MAP: Low entrepreneur rates kept me here. There are so many business opportunities.

MA: It’s a macroeconomic problem. The market is huge, but it’s stagnant. If I want to start a travel business I need to take business away from Phillip (Gsell). There’s no more business. If someone wants to start a soft­ware company they have to steal my business. That’s the big differ­ence between Japan and some other places. The other thing is to do with cultural issues. Entrepreneurs are not well regarded here, even if they suc­ceed.

So, there are difficulties, but that diminishes competition. People look at the problems and think: “Wow, that’s hard. I’ll do it in London or New York.”

MAP: I agree. There are a lot of cool Japanese going to foreign countries to set up business.

Weekender: What do you think of Japanese Gover­nment plans for helping entrepreneurs?

TW: They announced a loan facility that is sponsored by pre­fectures. That is coming into effect in 2004. It will help some of the talented youth of Japan suc­ceed. They’ve changed laws regarding taxation.

MA: The less the Government are involved in entrepreneurs, the better off the entire com­munity is.

To me, having the Govern­ment implementing tactical measures is doomed. It won’t work. The markets move too fast. No Government initiative can react as quickly as you need. If they focus on the structural things – taxation etc., it’s a good thing; they can help… if they tar­get-shoot as in, “Oh, we’ve iden­tified a problem – let’s fix that problem,” by the time they’ve identified the problem it’s too late and they are just creating more and more paperwork which increases costs of starting a busi­ness here.

There’s also the e-Japan Government project that pro­motes entrepreneurship. It’s a daunting task the Japanese Government has given itself.

It’s a good idea – e-Japan—the heart’s in the right place, but as far as the results, it’s hard to determine. We won’t see them for three, five or seven years.

Weekender Regarding staff in your companies, are there any differences between Japanese and foreign staff?

MAP: There are stereotypes of Japanese staff being better or worse, or less creative.

TW: In our company we’ve got 13 nationalities. 75% of our staff is Japanese. I find that you learn from working with clever people. Having a mixed staff is great. But it’s down to the indi­vidual regards creativity.

MA: Japanese not being cre­ative is one of the oldest, silliest myths. There’s no correlation to nationality.

PG: Japanese are more reserved though.

MA: There is a greater cul­tural level of politeness than the west – but that’s on the surface. You get through it very quickly. As a businessman I’ve never hired someone on the basis of whether they are Japanese or not. It’s whether you can talk the talk and walk the walk.

MAP: I have a hard time finding Japanese who really know how to sell though. I hired a French woman once who spoke hardly any Japanese, but she was very aggressive at sales and wouldn’t take “no” for an answer.

MA: Go out and hire the guys who sell Yahoo in front of Shibuya Station. They’re aggressive, young Japanese sales peo­ple.

I don’t think it’s a cultural thing at all. It’s training thing. If you want aggressive young sales people, you train them to be that way.

If you have that culture in the company, that’s the culture the sales guys will pick up.

TW: I look for passion when I interview people. Skills and experience, but also passion.

Weekender: So how impor­tant is personality to success?

MA: The culture of the organization emanates from the personality of its leaders.

The character, integrity and level of honor permeates the organization.

When I evaluate business plans, I look at the person, not a Microsoft business plan they downloaded off the net.

TW: I’m an entrepreneur and I’m going 100 miles an hour…I want to empower peo­ple to make their own decisions. I expect them to be able to take that responsibility.

We developed a list of things that staff could decide on their own, and we said if you come to us with this problem, we’ll tell you to go away – you are able to make that decision.

Weekender: What do you think are your weaknesses?

PG: I have a foreign face and have lived in Japan my whole life. I had to work twice as hard to gain the trust and confidence of others, particularly from my Japanese counterparts. For the most part I have succeeded, and for that I am grateful.

Weekender: Are there differ­ences between doing business with Japanese or foreign busi­ness people?

MA: I don’t distinguish between doing business with foreign and Japanese customers. If you are not Japanese, you are not Japanese. Don’t try to be something you can’t be.

PG: That’s right. Many times, Japanese have worried about foreigners who are too good at Japanese or if they try too hard to be Japanese. They may have some tricks. You may feel as though you can’t trust them.

Weekender: Does anyone use corporate entertainment nowadays?

MA: I wouldn’t allow it. It’s an expensive way to allocate the company resources. Many non-Japanese companies have poli­cies that disallow executives to accept gratuities. It’s up to a cer­tain price, then you have to report it to the ethics office.

More important is to find a way to engage customers inter­estingly during business hours.

Weekender: What else is important, especially when you’re starting out?

MAP: Take the risks to get the thing off the ground.

TW: I agree. A lot of people have divorced in the process of starting their own business. Communication is needed.

Also diversify your revenue. If you get a big client, don’t rely on them. In Japan people get shifted around. If you have too much reliance on one source of revenue it’s dangerous.

Get the small clients – pay the workers, pay yourself with what’s left, and then if one of your clients leaves you, it doesn’t mean you have to fire one of your workers who’s got a kid.

Once you’ve got the cush­ion, move on to the next, bigger, clients.

MA: You can’t contemplate failure. Every action you take in life must be consistent with your vision of success.

People who say, “I’ve put my whole life savings into this, except ¥3 million that I’ve got as a safety net,” no, it doesn’t work that way. There’s no such thing as a safety net. It’s a one-way door – you go through it and you don’t go back.

TW: You need to be careful. A default is that you think peo­ple are nice. You think that everyone will pay on time. When you’re naive, young and new, you assume things. A little bit of paranoia and care taking is essential.

MA: A technique I teach young entrepreneurs is to align the interests of the people who are around them. It’s one of things I’ve learned from Japan. It’s not a very common western technique.

TW: That’s why you get a huge loyalty factor in a Japanese company. It’s their management style.

MA: If you are smart you steal from everyone you can learn from.

TW: Another piece of advice is your actions speak louder than words. Making the coffee, taking the cups away at the end of the meeting…I used to do all of that. Your employee will think, “if this person can do it, so can I.” If you employ someone from a great university and they see you doing this because you can’t afford a secretary, they will do it as well. You have it in you to breed efficiency or inefficiency.

Weekender: What other advice would you give?

TW: Before you start, be sure you know how basic finan­cial work. It’s okay if you stuff up yourself, but when you hire people who have a wife and kids and you have to fire them because of your incompetence, your responsibility level is high, so before you start saying you want to be an entrepreneur, you need to sit down and think about what happens if the com­pany gets to 20 people, 50 people, 100, 200, 1,000 people.

Do you always want to be the CEO? Do you have the skills, do you have a clue about how you’re going to raise finance or contract someone?

Some people get caught up in the business. They think because they started it, they should be the one who is chief forever. I hired a COO and he became the CEO because I know I’m an entrepreneur. I knew that when I wanted to make the company larger and international, I’d be good at cer­tain things, but if you’ve suc­ceeded in making the company good, then you might not be able to take it all the way,

In the early days you hire people who become friends, but when you get to the next level you know they’re not good enough, maybe you’re not good enough. You have to keep learning.The day you think you know it all is the day you’ll fall flat on your face.

You need to hire consistent­ly better people than you. People need to be big enough to hire better people than themselves.” If you do get bigger and bigger you shouldn’t feel threatened by these people. You should learn from them. Just because you started the company, you can’t just jump in on certain projects and stuff up all the processes that have been two years in the making.

If your company gets bigger you can’t say, “You’re my friend, I’ll keep you here.” If you need someone with a better set of skills, try to separate friendship and work as much as you can, although it’s very hard.

Weekender: What drives people to be an entrepreneur?

MA: You don’t walk out of university and you’re suddenly an entrepreneur. Normally you are working for someone, and then you take a cognitive leap and say, “I don’t want to do that anymore, I want to do some­thing else.”

There’s something that makes someone discontinue their career, and take what is ini­tially a huge step back in their career.

I needed a challenge. I was working in a bank on Wall Street. It wasn’t occupying me fully. I was looking for some­thing that would be the absolute ultimate challenge. The first couple of ventures just flopped. So I kept bouncing in and out. It took me three or four tries to get it right.

I don’t like to hear, “I want to be an entrepreneur because I want to be my own boss, I want to earn lots of money, I want to make a difference.”

Weekender: What kind of person does it take?

PG: Someone who is moti­vated. It takes lots of hard work and dedication to achieve your goals. You must set a good example and live up to the expectations of others.

Weekender: Tell as about the highlights in your career?

MA: You look back and say, “I can’t believe I made that business decision – but it worked.” You make them work with force of will when you’re younger.

The beginning was tough too. I remember there was a bus station in Shibuya. Behind it was a movie theater. There was a cash machine that was the only one in Tokyo that would give cash advances in yen on a for­eign credit card. It was in the movie theater, so I had to actual­ly buy a ticket to go in and use the machine. That’s how I was financing my business.”

TW: Working on the floor, sleeping on the newspapers. The fun part of being an entrepreneur is looking back at the fond memories.

PHILLIP GSELL

– Toppan Travel

Age: 63

Came to Japan: Born and raised in Japan. My name came from Germany. My grandfather came to Japan in Meiji time.

Languages spoken: Japanese and English.

Education: St. Joseph International and Sophia University. Business.

What did you do before starting your own business? I am a minor shareholder of the present company. I Worked with Civil Air Transport, and Everett Steamship Corp before that.

What does your company do? We are a travel agency and are also involved in many travel-related businesses.

Company website: www.toppantravel.com

MICHAEL ANOP

– Z-Card

Came to Japan: 1991

What did you do before starting your own business?I didn’t come here with any objective. I traveled around Asia for the first three years. My first client in business was Volvic mineral water. I went to Harajuku and took cases of Volvic and passed it out free to the bands. After a while it looked like a Volvic-sponsored event. I also organized parties and ran a nightclub.

What does your company do? We are specialists in targeted, below-the line print media, producing a range of compact information sheets.

Company website: www.zcard.co.jp

TIM WILLIAMS

– ValueCommerce

Age: 32

Came to Japan: October 1993

Education: University of Canterbury, Molecular Genetics. Masters Degree: Human Cancer Research at Auckland Hospital in New Zealand.

What did you do before starting your own business? Molecular biologist. Six years ago I started Transpacific – begging, borrowing and stealing equipment!”

What does your company do? ValueCommerce is a total e-commerce solutions provider. Our three core areas of business are to provide revenue generating solutions for major web sites, e-marketing (advertising & sales) solutions for corporations marketing online, and systems solution for the back end of e-commerce sites. ValueCommerce runs the largest Internet advertising and sales market place in Japan, delivering over 300 million ads per day and selling millions of dollars of product per month on line.

Company website: www.valuecommerce.ne.jp/en/

MIKE ALFANT

– Building2

Age: 42

What did you do before starting your own business? Worked in various technology roles on Wall Street. Started an IT solutions company in Japan in 1992, led it to a successful $58m acquisition in 1999. Founded Building2 in 2000.

What does your company do? Building2 is a technology investment company working with a growing portfolio of private companies, integrating a collaborative network of firms focused on broadband, wireless and 3G telephony infrastructure initiatives.

Other info: Chairman of the ACCJ technology committee.

Special thanks to Roppongi Hills Club. For more information on the Club call 6406-6001 or go to www.roppongihillsclub.com