Japan 🇯🇵 vs Y-Combinator's Rules for Startup Success
Hosts Paul Chapman and Jason Ball, are joined by guests to discuss the video, 'How to Succeed with a Startup', by Sam Altman of Y Combinator, and we consider how to apply his wisdom to starting up in Japan.
Sam's video: youtu.be/0lJKucu6HJc
📝 Episode transcript available here
💌 Contact hosts Jason and Paul on the Business In Japan group on LinkedIn
🫵 Follow us on Clubhouse to join our next live recording
Transcript
Welcome to Founded In Japan, where we share uncommon knowledge about starting up.
Shiba Inu:Hosts Paul Chapman and Jason Ball, are joined by guests to discuss the video, 'How to Succeed with a Startup', by Sam Altman of Y Combinator, and we consider how to apply his wisdom to starting up in Japan.
Shiba Inu:See the episode notes for a link to Sam's video on YouTube.
Shiba Inu:Founded In Japan is recorded live on Clubhouse, and thanks to the magic of technology, it sounds for the most part like a studio recording, though audio for some speakers may be degraded at times.
Shiba Inu:Nonetheless, we hope you find the content to be valuable throughout.
Shiba Inu:Feel free to reach out to us on the Business In Japan LinkedIn group.
Shiba Inu:Thanks for joining us, and here we go...
Jason:Tonight we'll be talking about succeeding with a startup, based on a video from Y Combinator startup school, where Sam Altman talks about how to succeed with a startup, based on his and his co-founder's experience with Y Combinator.
Jason:We're going to look at it from a Founded In Japan perspective.
Jason:Sam starts off this talk with perhaps what remains the most important point, that the degree to which you'll be successful in your startup approximates the degree to which you build a product that's so good people spontaneously tell their friends about it.
Jason:He goes on to talk about the iPhone, although it only sold 2 million copies when it first started, he expands on just how obsessive the early adopters used the product.
Jason:It was incredibly important just how committed your early adopters are going to be to your product, as an indicator how successful you'll be.
Jason:He also says that a lot of founders are looking for a secret of success in startups from Y Combinator or from any mentor, but there's no way around it.
Jason:If you've built a product that is so good people are starting to tell their friends about it, and obsessively using it, you've done 80% of the work you'll need to be successful.
Jason:Paul, is this a universal concept?
Paul:Good evening, everyone.
Paul:My name is Paul.
Paul:I'm the founder and chief executive of a Japanese fintech called Moneytree.
Paul:We just turned 10, so we've had some pretty interesting experiences these many years seeing the Japanese fintech and startup ecosystem evolve to what it is today.
Paul:The iPhone came out in 2007, and then I think by 2008 they had released the 3G, which was the iPhone that worked.
Paul:The 2G iPhone was awesome only if you had Wifi.
Paul:I think the lesson there is, 30 years after launching a world famous PC company, you too can change the world with one great product.
Paul:It's a very hard and high bar to to get over.
Paul:It's good because everyone knows the iPhone, and so everyone can imagine, wow, my product could be this good.
Paul:Having 30 years of intensive effort for a multi-billion dollar, historic company, it's hard to create that from scratch.
Paul:I think we have to have much more humble and realistic objectives.
Paul:I think there's another way to look at this that I've heard, which is ' make something that a thousand people will love'.
Paul:This concept of your first thousand fans.
Paul:This applies to creators, it also applies to product.
Paul:Perhaps we can't quite get to the lofty heights of the iPhone.
Paul:Speaking from experience, as the founder of a company that you could say we were a close partner for Apple in the early days of the Japan App Store.
Paul:We got promoted a lot!
Paul:We helped launch the Apple Watch in Japan as well, meaning that we prepared some software for it pre-launch.
Paul:We really had the inside scoop on what that's like.
Paul:If you're starting a startup, what if it's B2B?
Paul:You're not necessarily gonna have companies loving it.
Paul:I think there's a different heuristic for any B2B service; it's one that I've experienced as the the customer of some really great SaaS software.
Here's my heuristic:you make something that seems expensive, but it's worth it.
Here's my heuristic:So You're like, wow, I gotta pay this much, but I don't want to turn it off once I start using it.
Here's my heuristic:I wanna keep using this.
Here's my heuristic:That's the heuristic you wanna achieve in terms of visceral product market fit.
Here's my heuristic:A product like that over time will become cheap for the customer.
Here's my heuristic:I've had this experience as well where we were paying about a million yen, so it's about US $10,000 give or take.
Here's my heuristic:For many years I'm like, wow, that's expensive.
Here's my heuristic:Now I feel like that's super cheap, they should be charging me more and I'm not gonna say who it is because I don't want them to say, 'hey Paul, we're gonna charge you more'.
Here's my heuristic:That's that's my 2 cents on the iPhone comparison and making something that people love.
Here's my heuristic:Francisco, what were your thoughts?
Francisco:Hi everyone, my name is Francisco.
Francisco:I've been living in Japan for 15 years and a half.
Francisco:I've worked in a lot of different Japanese companies, and since this April I am also a full-time founder myself.
Francisco:I definitely agree with you, bringing it a little bit more maybe to the Japan context, I think a lot of these approaches work really well outside of Japan.
Francisco:For example, one of the things that I heard, and if I'm wrong, correct me, is that, for example, Slack grew a lot bottom up.
Francisco:Especially on the B2B side of things it's a lot easier to grow bottom up inside of companies if you're outside of Japan.
Francisco:But the feeling that I have, and probably you Paul can elaborate a lot more on that, is that when you're dealing B2B inside of Japan, in the end, it's not so much how good your product is, it's how good your connections and introductions you can get are.
Francisco:When you look at the Japan context, it's still lagging behind in terms of looking the actual product, looking at how good things are instead of looking, who is introducing it to you.
Paul:You raised a good point there, Francisco.
Paul:The bottom-up, B2B approach is really uncommon, I would say.
Paul:There's a variant to that, which is the B2B2C business, which Moneytree, my company that I founded along with my lovely co-founders, and we've been building with some fantastic people over the last 10 years.
Paul:Let's look at bottom up B2B so this means you give something to an individual in an organization and then they adopt it more broadly across the organization.
Paul:I think that probably only happened with startups in Japan and most of the early adopters of Slack in Japan, including Moneytree when we were startups and I remember that Slack was a adopted by a subset of people who wanted to chat, and then we all went in very quickly.
Paul:That doesn't really happen in a lot of organizations, especially Japanese ones.
Paul:Japanese systems departments have software usage on lockdown.
Paul:That stuff is not that stuff that bottom up doesn't really work.
Paul:What you could do is appeal to a particular department and use them as your champion.
Paul:But that's enterprise sales, that's B2B sales, that's not that's not, someone just starts using it organically and then the whole organization converts.
Paul:I think the bottom up B2B path to success is rare outside Japan and pretty much unheard of in Japan.
Paul:Now that second example I talked about was the b2 B2C approach, which is you are selling something to a company that wants to give it to their customers who are pr, probably consumers, maybe they're small businesses.
Paul:And the way you make that work is you give it direct.
Paul:To that constituent yourself.
Paul:You might provide, for example, and there are more examples than the one I'll give you, but the one that I can give you is Money Tree.
Paul:We have a personal finance app, it's been in market for 9 years, and people really liked it.
Paul:We won a bunch of awards.
Paul:We had a million plus installs with almost no marketing.
Paul:We had a very modest marketing budget and a very hardworking marketing team.
Paul:We we got a lot of growth organically, but that didn't turn into a business by itself.
Paul:What it did do is it validated the technology with banks and financial institutions, and they said that we want this kind of capability ourselves.
Paul:And we eventually said we're more than happy to give that to you.
Paul:So validating by going direct, let's call it DTC direct to consumer, or direct to business, DTB, and then taking it to the enterprise so that they can give it to their customers in some form.
Paul:That's another approach.
Paul:But the Slack approach of bottom up sales, I don't think there's been a lot of that in Japan, and that's really hard to make succeed, even in countries where the IT department don't have everything on lockdown.
Jason:Alright, that fantastic statement, I thought, 'a product so good people people obsess over it and tell their friends to go out and get one too' is relevant, but not the only way a company can be successful in Japan.
Jason:Next, is your product easy to understand?
Jason:Sam Altman goes on to discuss, if you can't say it clearly and have at least a few people say, 'oh, that sounds interesting', then perhaps that's a warning sign that that it's not an idea you've thought through.
Jason:In Japan, is it any different, having a clear understanding, and a way to articulate your product and the problem?
Paul:Your concept needs to be easy to understand and I think a lot of Japanese startups tick this one off pretty well, because there's not a lot of business model innovation or product innovation completely unique to Japan.
Paul:There is some, and if you're a founder who has decided that you're gonna make something that no one's ever seen before, it's gonna be a standing toilet or something, I don't know, lying down a lying down toilet.
Paul:I don't know why I'm saying toilets, but just something that everyone knows that you're gonna make it different.
Paul:Then you're gonna spend a lot of time getting people to understand, why would I want that?
Paul:Why is that better?
Paul:What's superior about that?
Paul:The faster race horse or different kind of race horse is one thing, but if you're doing something that's really not well understood, you'll be explaining it a lot.
Paul:I think one of the things that, that works well in Japan is analogy, especially analogies that relate to success cases overseas.
Paul:So think a lot of people think about these sort of, Uber for dogs or Facebook for cat type of business models where it's an, it's a something for something.
Paul:An existing successful startup, but for this constituent or, but for Japan, that is a pretty easy one.
Paul:What if your great idea is more complicated?
Paul:If you can say, we have the speed of a cheetah and the strength of a bear and we can fly high like an eagle.
Paul:That's something anyone can imagine.
Paul:No one knows what that creature would look like, but at least you know those characteristics.
Paul:So if you could say, look, we're a direct to consumer in the same way that Uber is, but on the other hand, we're a platform like Twilio, and then lastly we work with financial institutions like Plaid.
Paul:These are well known startups that investors would understand.
Paul:I'm focusing on investors because most of the time you're spending will be convincing investors how great your business is.
Paul:They probably won't try your product unless it's B2C.
Paul:It's funny how people who will give you 10 or 20 million dollars won't actually try your product, because that's not what they're testing.
Paul:They're testing your business.
Paul:So making it easy to understand really comes down to how great a storyteller you are, how difficult you are setting the challenge for yourself.
Paul:Is it a faster horse or are you taking the characteristics of many different businesses that exist and explaining them via analogy, one by one, to create a picture of something, that at least they understand those key characteristics.
Paul:I wouldn't dumb down your startup just to make it easy to understand, but if it is easy and it is great, you're onto a winner.
Paul:If it's not so easy, and you think it could be, then spend time developing that story.
Jason:So Exponential growth in market.
Jason:Sam Altman brought this point up when talking about total addressable market.
Jason:Like you were just saying, how investors think of startups versus how founders think about their total addressable market.
Jason:I think his big point here was investors will forgive smallish revenue, if it's growing quickly.
Jason:Make sure you, as a founder, think about your market in this way as well.
Jason:Think about the future addressable market as well in your positioning.
Jason:Your stories and the ways that you're gonna explain how you're gonna make money.
Jason:An exponential growth market is a market that's started to, or is about to get a spurt of growth.
Jason:Again he's taking the iPhone example through much of his discussions here, but it could be something else.
Jason:He goes on further to discuss, and we can bring it in real trends versus fake trends.
Jason:A real trend he describes as something that's definitely going to happen.
Jason:And again, talked about the obsessive use of the iPhone and the very it was very clear, very early that this was a new breakout platform, and it was a real trend.
Jason:He gave the example of a fake trend as being at least at this point in time, and I think it's the same four years later, VR & AR, where the early adopters are there, they're talking about it, they're buying it, but generally speaking, they're not using it every day.
Jason:It's not something they obsess over.
Jason:Just generally, there's no intense usage by early users, and so that, I don't know whether fakes the right word, but perhaps a trend that's a little early or, as yet undefined.
Jason:Is that something you've seen either of you in the Japan market?
Jason:It's quite common to see startups pop-up in clumps of very similar types.
Jason:I think that's an example of jumping on a growing market.
Jason:How applicable to the Japan market is keeping an eye out for your future total addressable market?
Jason:Francisco, what are your thoughts on this one?
Francisco:I think in the case of Japan, not only Japan, I think it's, it's all over the place, but one very easy to see example, digital transformation slash cloud services.
Francisco:You have Amazon, Google, you have all these companies competing with each other.
Francisco:The thing is, it doesn't really matter right now who has top marketshare because the market pie is just growing right now.
Francisco:So you still, not cannibalizing each other, you just have more and more pie to eat.
Francisco:I think that's one of the reasons why you have this explosion right now here in Japan, every company wants to have a word related with DX.
Francisco:Every company right now just wants to get a piece of the pie of digital transformation.
Francisco:I think when he mentions VR for me it was I just laughed a little bit because I just have my Oculus Quest behind me when I bought it, I think I tried to play it almost every day, one week later, I couldn't even remember I had it!
Paul:This is an interesting one for Japan.
Paul:The market itself is very big.
Paul:However, the number of active participants in the market is always small at the outset, and a perhaps even a much smaller percentage of the total, then you'd get in say, America.
Paul:So if you think about the crossing the chasm concept and you've got your innovators and your early adopters, there are a significant number.
Paul:I feel like maybe the early majority is smaller or slower, the adoption, I think is a lot flatter, it takes a lot longer for that to happen in Japan.
Paul:But eventually everyone gets on board, the question is, will it be through your product, or will it be through some commoditization of the innovation that you've brought to market and some existing company will it actually take most of the the, most of the share in the market.
Paul:I'm thinking of say Ubiregi versus Air Regi.
Paul:Air Regi is Recruit, and Recruit is quite the interesting company.
Paul:They're 50 or 60 years old, they started off in publishing, making guides for universities, hence the name Recruit.
Paul:They're also a bit of a startup factory, and they saw Ubiregi doing a SaaS, a Square for Japan, but focusing on the cash register component, the POS system, and they went after that.
Paul:They're one of the big systems now.
Paul:Can a big company do what you're doing?
Paul:I guess it depends on how complicated and difficult it is.
Paul:Does that mean that the market isn't big?
Paul:It means that in the early days when the market isn't so big, they will capture a lot of it.
Paul:It could also mean that they open up the market for you, so it really depends on the structural nature of that market.
Paul:If the nature of it is such that one company, perhaps for structural reasons, can't go after all of the customers in the market, they could very well be creating a path for you to reach your own customers.
Paul:Worry less about the size of the market.
Paul:Sure, you need to be able to say this many people or this many companies have this problem and we're gonna help them solve it, we're gonna help them, do so much better.
Paul:Be more concerned about speed of adoption.
Paul:So how quickly will potential customers in your market adopt your solution?
Paul:That's a much harder thing to figure out.
Jason:Thanks Paul, and thanks Francisco too.
Jason:Welcoming Adrian to the stage.
Jason:Adrian, I can see from his LinkedIn profile.
Jason:We are connected on LinkedIn is in Tokyo, and is the founder of businesses.
Jason:Did you want to introduce yourself briefly Adrian, and let us know your connection to Japan and startups and any experience, thoughts on what we've been discussing or questions?
Adrian (Guest):Nice to meet you here.
Adrian (Guest):Hi everyone.
Adrian (Guest):So I'm French.
Adrian (Guest):I've come to Japan about a year ago.
Adrian (Guest):So I'm just starting my second year.
Adrian (Guest):I've been in China for the last 20 years, and the last 3 years in China, I prepared the project that I started here.
Adrian (Guest):I've been in business for the last 30 years, I've started a small business Chamber of Commerce.
Adrian (Guest):I wrote books.
Adrian (Guest):You can find my books on Amazon.
Adrian (Guest):It's in French, most of it.
Adrian (Guest):One maybe one or two year are in English.
Adrian (Guest):The way I think is like a hacker, let's say a ethical hacker.
Adrian (Guest):I'm in Japan, this country doesn't need me, they don't care about me, they don't care even about my business.
Adrian (Guest):So I was thinking about how could I approach this business, this market, in such a way that I can hack it gently.
Adrian (Guest):In the startup world, we talk very often about early adopters, and where are the early adopters, not only students or customers, but as partners, as stakeholders, as even maybe banks, because at the level of the bank loan rate here in Japan, who needs VC.
Adrian (Guest):In order to hack the system first, I understood that trying to be in business relation with Japanese traditional companies or even Japanese companies would be wrong because they are suspicious of me.
Adrian (Guest):They are suspicious of foreigners.
Adrian (Guest):They don't trust me.
Adrian (Guest):I will need a lot of time to make them trust me.
Adrian (Guest):I'm not in the business of trust, but I know that there is, there, there was a strong diaspora from China.
Adrian (Guest):I speak Chinese.
Adrian (Guest):I've met countless CEO, and business owners, and top executive that are Chinese.
Adrian (Guest):They done N1 in Japanese, that opened the door to me.
Adrian (Guest):Plus my relationship as a former co-head of a chamber of commerce in Beijing.
Adrian (Guest):I thought at every aspect of, let's say the business model canvas, a specific way to hack the system over and over.
Adrian (Guest):People told me, the government will never accept and the tax will never accept investment in kind.
Adrian (Guest):They accepted it.
Adrian (Guest):You will never get a loan.
Adrian (Guest):I got a loan.
Adrian (Guest):You will never have a guarantee.
Adrian (Guest):I got a guarantee you will never have less than 3% loan rate, which is already wonderful when you compare to China, for example, or France.
Adrian (Guest):I got not only I got 1.6, but after a couple of days I received a letter from the bank who said discount.
Adrian (Guest):So now it's 1.06, but it's like free money, so to speak.
Adrian (Guest):But you still have of course, to reimburse everything that's normal.
Adrian (Guest):At least we found people who trusted us and the way we trusted that.
Adrian (Guest):I have a lot of things to say, but I don't wanna bother you with the details.
Jason:Thanks, Adrian.
Jason:I appreciate your thoughts there, and if you've got any thoughts on some of the other points about succeeding with a startup in Japan.
Jason:I'll just let Joe introduce himself and ask the question he might have.
Joe (Guest):Thank you for the brief introduction.
Joe (Guest):I was born and raised overseas and I speak Japanese fluently, and I've worked for PeopleSoft in Japan, Oracle Japan, did a startup in Japan, and also moved over to Silicon Valley to start off the global engineering team for Workday which is an HR HCM company slash financials company.
Joe (Guest):Led the globalization efforts for all Workday products, and then moved over to Viva Systems, which is a life sciences company to take over the Asia product management team.
Joe (Guest):Recently what I've, so just a brief background.
Joe (Guest):I apologize for being a bit long-winded, but one thing that I've noticed when I moved over to the US and I've been in.
Joe (Guest):, I've been overseas for God, 25 years or so and moved back to the US when I took the workday job.
Joe (Guest):And one thing that I really noticed was everybody is very intelligent very tech savvy.
Joe (Guest):They know what to do, how to fix things, how to make things very innovative.
Joe (Guest):But the biggest issue that I saw from the US side was that they had no concept of how to globalize software.
Joe (Guest):in terms of they don't learn globalization in school.
Joe (Guest):Regardless of whether you go to Stanford or not, they learn basic concepts of maybe Unicode.
Joe (Guest):But in terms of how products need to work in terms of UI and customer experience overseas was foreign.
Joe (Guest):And it's, I always equate it to gull's travels.
Joe (Guest):If you go from US to Japan, you're a giant.
Joe (Guest):If you go from Japan to us, you're a completely different, person.
Joe (Guest):And it's it's really apparent that there's no bridge of communication between the Pacific and everybody.
Joe (Guest):Pretty much a lot of folks in engineering on the West coast, unless you have experience, has a tendency to think, okay, if you globalize a product, all you need to do is translate the product.
Joe (Guest):And it's ready for Japan, China, Korea, and we should be fine.
Joe (Guest):And that, that's of course going by you guys and from experience that's not true.
Joe (Guest):But the question I did have and we could delve into that anytime.
Joe (Guest):I have a blog and a website that's coming up, I founded a company called Deep Key Data because I've seen issues like that.
Joe (Guest):So my job and my, the company basically helps startup companies in the US break into the Japan market and Korea market.
Joe (Guest):And also we evaluate the technology to make sure that it can be at least sold as a minimum viable product and things can be worked on once you sell the product.
Joe (Guest):But one thing that I've found while being in the US as well, is when Japan startups or Japanese companies, even large ones and I won't name any, but when they come to the US there's a blockage in terms of.
Joe (Guest):Whether they're trying to expand their business.
Joe (Guest):I've seen companies where the US counterparts of the exact same position for the Japanese who are in the us, they don't communicate with each other and they seem to be doing completely different things, although they're on the same team.
Joe (Guest):The other piece is the agile methodologies in terms of development in TER in the West Coast is very different in terms of management practice from how the Japanese seem to run their companies, except for some of the smaller startups in Japan.
Joe (Guest):So when they transfer over the management methodologies that have been the status quo in Japan doesn't work in the US and it, it has a tendency to have a negative effect on innovation and development.
Joe (Guest):And my question is, how do you guys see startups grow out of Japan to break into US or western markets and excluding mergers and acquisitions, have you seen successful examples of startups expanding out of Japan to the US
Paul:Not yet.
Paul:Unless you include Sony and Honda as successful startups.
Paul:Which they were at one point.
Paul:I don't think product development methodology is the key constraining factor there.
Paul:I think the key constraining factor is access to capital access to customers, early customers, Japan being a smaller, more conservative market it's hard to get them.
Paul:You're right, that is part of the mix.
Paul:It's one of the factors.
Joe (Guest):I've seen large companies like, yeah, I won't name, but huge.
Joe (Guest):One of the 'F&H' data, one of those.
Joe (Guest):Also large other telecom companies going to the US, and just completely fail when it comes to product development, not when it comes to mergers.
Joe (Guest):Some companies are great with that, but when it comes to product development, I find that they have trouble.
Joe (Guest):And I found that Hitachi's doing something new, which is they're doing partnerships.
Joe (Guest):They're not trying to develop their own.
Paul:Is that new?
Paul:Is that new?
Paul:I don't think that's new.
Joe (Guest):I don't think it's new, but I think they're pushing a lot more with the venture side and trying to accommodate for startup.
Joe (Guest):Alliances.
Joe (Guest):And they're probably doing it through equity.
Paul:Maybe, but it doesn't sound very interesting, although I commend them for doing it because they understand their . Limitations.
Paul:But the SI model is not conducive to any kind of, and this is not to say there aren't intelligent people working together, there are.
Paul:But the business model does not provide the incentive.
Joe (Guest):Oh no, they're basically
... Paul:to do any innovation.
... Paul:Let's be honest.
... Paul:I agree.
... Paul:The SI model is a deployment model, and it's also a people model.
... Paul:So it's bill based on how many people you have, and there's a certain degree of strength there because you can have these global Japanese manufacturing companies, traditional companies that are global, and they can service them in different countries and build up local businesses and they can compete really well in commodity areas.
... Paul:There's a lot of commodity areas.
... Paul:But where it comes to innovation and delivering new value to customers, it's just not what they're set up to do.
Joe (Guest):try, so Hitachi's new branch, or it's an article from one of their executives, is they're not doing the SI model, they're basically stating the SI model doesn't work, and it seems like they're trying to partner with startups.
Paul:There are a lot of companies doing this and I don't think it's fair to just talk about Hitachi, unless there's something really like new there.
Paul:It doesn't sound like it so far.
Paul:Getting back to the original question, Joe, the thing about can Japanese companies go overseas?
Paul:Before that, so you talked about the product management methodology.
Paul:One of the key constraints of software in Japan is customer expectations.
Paul:And I know this because we work not against customer expectations, but we work to change customer expectations and it's slow and painful.
Paul:Emphasis on painful.
Paul:Did I mention it's painful?
Paul:But it's worthwhile as well in the long term.
Paul:So customers have been conditioned to pay for the number of people working on something to pay a small amount of, per a small amount per person.
Paul:Typically, like you'd have a squad of five people working on custom software that could be perhaps built on a platform.
Paul:But no, we want to pay for it, and we get four juniors who cost almost nothing and one senior guy who knows everything and does most of the work.
Paul:That model gives you a cheap per headcount cost.
Paul:The company can explain it, we're getting, this many people working on this many thing for this many hours.
Paul:So ko-su (工数), I think you know the word.
Paul:That's the, I guess, the number of man months is probably the closest English to that.
Paul:That model is pervasive in Japan.
Paul:And so when you start to bring agile into that context, first of all, procurement processes don't like agile.
Paul:If you manage to get, and I know this from direct recent experience, if you can manage to get around that, everyone in the organization, like every white blood cell in a company that exists to stamp out aberrant behavior, will try and stamp out any kind of agile project, unless you have really strong a really strong champion.
Paul:Even if you do, you're still gonna get this kind of this immune system response that will make it very difficult.
Paul:The ultimate value, though, of course, as we all know, is that you build software that is gonna be more successful in the long term, but it's t meaning which is Joe, I know you know what this means, but just for those who are listening who don't speak Japanese like you do it means like not good enough, subpar.
Paul:It's gonna be subpar until it's really great.
Paul:And that's what Japanese customers and their users and stakeholders internally need to understand.
Paul:It requires a lot of work, especially from the sales process onwards.
Paul:You may even get all the way to the making the sale.
Paul:Then they still don't, they decide, actually, you know what?
Paul:'Yappari', we're gonna go with waterfall.
Paul:Despite the fact he's put in a lot of effort to say, hey no, this is what you want.
Paul:But the long and the short of it is, if you want to build something that is really adapted to need, spend a lot more time in UX research, spend a lot more time doing minimum viable testing, not building minimum viable products.
Paul:Because once you've built a product, expectations tend to cement around that.
Paul:And it's much harder to change it.
Paul:And people don't want things to break randomly, especially if you're working with a big company or a company in a a str, a tightly regulated space.
Paul:So I think you can do that, but you have to do that at the requirement gathering and the validation stage, not so much at the v MVP stage.
Paul:So less emphasis on MVP, more emphasis on MVT, 'minimum viable testing'.
Paul:I think that's the path for Japan.
Paul:Is that gonna result in, an amazing startup going to the US?
Paul:It could, but who knows?
Joe (Guest):I really appreciate your feedback, it opens my mind up to the various difficulties.
Jason:So talking about some of the other points from Sam Altman on being a successful startup and how that might be applicable in Japan.
Jason:Just one little area, it's within the discussion he had about teams and non-obvious insights into the sorts of team ideas and team types of team members that helps startups become successful.
Jason:Rather than common statements like smart people who work hard and communicate well, he talks about have some optimists, some idea generators and look for people who who say, we're gonna figure this out.
Jason:Build a team that says, we're gonna figure this out.
Jason:And individuals, look for them that are able to take quick ownership and say, I've got it.
Jason:I've got this.
Jason:The final one is look for an action bias, and that can translate to the whole startup, but he's talking about individuals there, someone that's willing to act.
Jason:Moving quickly is one of startup's strengths and reasons they succeed.
Jason:But there's never enough data, there's never enough time to deliberate, so you want people and you want to be a startup that can act without much data and without certainty, or with much less certainty.
Jason:And then people who, that if that, then that doesn't work out they can adapt quickly and try something else, or startup can pivot.
Jason:I'm just wondering Japan is not one for acting fast when they don't have certainty.
Jason:How does this action bias translate into a success trait of a Japan startup, even a foreign-owned one, full of Japanese staff.
Jason:You have a lot of experience with that Paul?
Jason:Do you agree with the action bias as a success marker for startups?
Jason:And is it something harder to find in Japan
Paul:If you are bigger than most of your customers, if you're a company and your customers are people, you can move pretty quickly, right?
Paul:You might get a bunch of them pushing back on you on social media and whatnot, but they don't have much price setting power.
Paul:On the other hand, if you have a smaller number of customers who pay you a lot of money, they can push you around.
Paul:And so they can be quite, annoyed with, hey, change this thing and this isn't good enough and you've gotta change it, do it more like this.
Paul:And so you can spend a lot of time, managing expectations and getting aligned and so on.
Paul:But the action bias, I think there are areas where you can move very quickly.
Paul:And in the early stages of any startup, you can move quickly because you don't have much legacy, you don't have much many clients, and there's a lot less gravity pulling you down.
Paul:Your competitors move as quickly as the environment lets them move as well.
Paul:If they're not innovators but fast followers, fast followers just execute quickly and then put most of their effort into the sales and marketing.
Paul:It depends on the type of company you are as well.
Paul:I would say that there is not a great deal of reward in the short term for building a very high quality product in software in Japan.
Paul:That's not to say it shouldn't work or it shouldn't be secure, or it shouldn't be fast.
Paul:But if you're making a silk glove, Swiss watch type of product experience you could be wasting all of your time because a lot of that will be ignored.
Paul:Not because it's not appreciated, but the fitness function for a lot of customers is a bit different.
Paul:Whereas the fitness function for customers outside Japan may really focus on the user experience, and people will appreciate a great user experience in Japan too, but there's all these additional expectations that you have to spend time.
Paul:And a lot of that comes down to communication, customer support.
Paul:If you're doing any kind of B2B sales, it'll take a lot more time for you to start up.
Jason:All right.
Jason:And another one that I wanted to bring up, three of them were under the same banner, competitive advantage.
Jason:What's your competitive advantage?
Jason:What makes your startup stand out from the crowd?
Jason:Where is the network effect in the business?
Jason:When Y Combinator ask a founder, and they look as if it's the first time they've ever heard that question it's a bad sign.
Jason:So defining the network effect in this sense, which is particularly applicable to many SaaS products, is that the value to users goes up with the more users that use the system.
Jason:When, I guess he's saying in this, it's a bad sign when a startup founder can't explain where that network effect will come from, what's the competitive advantage that will drive that?
Jason:Is this different in Japan to outside of Japan?
Francisco:So if you take a look at the video that is the base of the conversation.
Francisco:So pretty much what he's saying is when he gets a pitch from a certain company and he asks, so what is a business model?
Francisco:What is a business model?
Francisco:What do you have that's gonna make you like, not, lose right after someone copies your product?
Francisco:People look at him like, is that something I should be able to answer?
Francisco:They don't really understand what is.
Francisco:The point is, that's, he's saying is that, so as someone who's listening to pitches, like everyday hundreds of pitches, this is definitely a red flag.
Jason:Is this completely universal?
Jason:Doesn't matter whether you're talking about going into Japan or going into Germany.
Joe (Guest):In the US I find it a little more harsh because a lot of money's riding on it, and there's startups are dime a dozen, right?
Joe (Guest):If I go to a venture guy and I go, hey, I have this great software, blah, blah, blah, and he looks at me and goes, okay, what's your, what's the minimum value you'll bring to the customer?
Joe (Guest):Why are you charging this much?
Joe (Guest):And I can't answer those basic financial questions, and I also can't answer what sort of value is it gonna bring to the customer, and how easy is it gonna make it for the customer implementing this?
Joe (Guest):Then they're just gonna laugh me out the door because there's a hundred startups waiting behind me to try and make it through.
Joe (Guest):I think it's a little more harsher in the US.
Joe (Guest):In Japan I feel that you would find a base customer, you would discuss this with them, and you go through iterations.
Joe (Guest):You may not be able to expand larger and you may not be able to grow absurdly large, like some of the startups in the US.
Joe (Guest):You could probably create a very steady base, at least as a small company in Japan, because it's beyond the technology, it's inclusive of customer service, it's inclusive of communication, relationship building.
Joe (Guest):You have to become their close sibling, the customer's close sibling.
Paul:You make a great point, which is the US, there's a hundred companies lining up and in Japan, not so much.
Paul:I've boiled this down to a particular way of looking at it, which is do you have price setting power?
Paul:If you have price setting power for example, one of the vendors that we use for something or other is gonna increase 30%, and I looked at the terms of service, anything I can do?
Paul:Is it such a big amount of money?
Paul:Eh, not really.
Paul:I'm wasting more of my time complaining to them.
Paul:Okay, they have price setting power!
Paul:With Japanese customers, it comes down to can you capture enough of the value you're creating for them.
Paul:And so one of the things is attitudes or expectations around how much things cost.
Paul:Oh, we don't pay for that.
Paul:Oh no, this should be really cheap because, when Hitachi does it or Fujitsu does it, it's very cheap.
Paul:On the other hand we're doing something really different.
Paul:If you can't convince them of that, then you don't, you're not really capturing the value that you're creating.
Paul:I'll just wrap up this thought by mentioning Hamilton Helmer's Seven Powers.
Paul:So he talks about this stuff quite a lot, and I think it really applies to Japanese, more B2B customers and enterprise customers.
Paul:You could provide something really valuable to them, but will they pay you what it's worth?
Paul:And will they pay you enough so that you're going to have enough income to build your business.
Jason:The other points are all along the same themes.
Jason:Do you have a sensible business model?
Jason:How are you ever gonna make money?
Jason:And the other of course is distribution strategy.
Jason:How are you gonna grow?
Jason:How are you gonna get your users?
Jason:All three things, how are you gonna do it over time as you grow.
Jason:So it sounds like there are some differences then in Japan, if for no other reason, scale.
Jason:But also the market and the way you serve it.
Paul:There are just far fewer competitors.
Paul:It's a hard to enter market.
Paul:It's hard to succeed here.
Paul:Companies that enter may not try for long enough.
Paul:They may not invest the three to five years of effort to make it because it takes that long.
Paul:But on the other hand even though it's less contested, can you figure out a way to capture the values enough of the value that you're creating for your customers?
Paul:If you can't, you're gonna have a similar problem to the competitive advantage question of, how do you maintain your competitive advantage?
Paul:So it's not so much against competing against other companies.
Paul:You're competing against the customer in a way.
Paul:You provide them value, but they don't want to share more of it with you.
Paul:If you increase the price, they're not gonna buy it.
Paul:It could come down to how you sell rather than changing your product entirely.
Paul:Positioning of your product as a solution instead of a tool is a common un commonly understood way to increase prices.
Paul:But that, of course, would include a lot more services and services are messy and services don't have high margin typically, although that can be, they can be higher margin than you think.
Paul:I think things are muddier, messier, more hands on.
Paul:But, you gotta do what you need to do to make your company successful.
Paul:Those success factors may not be readily applicable overseas.
Jason:Bringing it back to the to the theme as we get to the bottom of the hour then.
Jason:We're talking about a lot of cultural and company, bureaucratic challenges to, to what amounts to speed and efficiency.
Jason:Agility and speed are some of the best ways that startups can compete with larger companies.
Jason:In that sense, is Japan already fighting with one hand behind its back, or are we talking about larger companies here and the startups, the earlier stage startups don't have these problems?
Jason:How does that work?
Paul:It depends on the founders.
Paul:I think founders will import their best practices from wherever they were into their company most of the time.
Paul:But no, I think typically, if they're, even if they've come from an old, a bigger, older company, they're hiring engineers who are making decisions about what the architecture will be for their, their new.
Paul:I think compared to startups that were started 10 years ago, you're gonna see all sorts of cloud and interesting tools and new ways of collaborating.
Paul:So I think that's, you don't have to worry too much.
Paul:But yeah, if the culture is just ship and never fix anything, never get rid of technical debt.
Paul:I heard on our Japanese Clubhouse yesterday with Nalin, he was talking about a company that died under the weight of it's technical debt.
Paul:It wasn't able to, it wasn't able to survive because it couldn't fix things.
Paul:That comes from a really negative product culture.
Paul:We have a partner who was amazed that we could ship four times in a quarter.
Paul:And we're like, four times in a quarter is super slow for us, we do four times a month.
Paul:Famously, companies like Facebook do a hundred times a day or something.
Paul:They do a lot of deployments.
Paul:But for a financial institution to ship four times a quarter, which would be, 16 times a year, that's unheard of.
Paul:So that kind of like visual, visceral benefit, you'll convert people to the true religion of a more adaptive and agile product org.
Paul:I just gotta check it out there.
Paul:Agile's not good for all the things.
Paul:I just wanna say that.
Paul:I'm not a purist, but yeah, you should adapt to your customers and learn.
Paul:The number one customer should not be the CEO or the sales team, it should be the customer.
Jason:Perhaps one reason that we don't see many Japanese startups and larger SaaS companies succeeding in the US market, could it be because of an inability to be agile?
Jason:An inability to take advantage of platform shifts, and fast changing markets, and being able to compete with big companies by being nimble and able to pivot?
Jason:They don't have that, they're locked down with the way that they methodically do things through to the bureaucracy of a larger organization?
Jason:Could that be one of the major differences, and one of the major reasons for the lack of US market entry in the startup and SaaS software worlds?
Jason:Food for thought.
... Shiba Inu:aaaand that's a wrap.
... Shiba Inu:Thank you for listening to Founded In Japan!
... Shiba Inu:This episode was recorded live on Clubhouse on July 7, 2022.
... Shiba Inu:Founded In Japan is part of the Business In Japan Clubhouse and Linked In group.
... Shiba Inu:Follow us on Clubhouse or Linked In to join our live audio events, or subscribe to us on Apple Podcasts or Spotify.
