Entrepreneur and venture capitalist William H. Saito discusses the challenges and opportunities facing Japan

Thought leader William H. SaitoLooking for a quiet area to conduct an interview at Tokyo’s premier workspace for entrepreneurs located within Shibuya’s trendy Hikarie, William H. Saito suggests that we use one of the private conference rooms. I hesitate, not wanting to burden him with the added expenditure. But there was no need for concern: Creative Lounge MOV is just one of 14 companies the 42-year old entrepreneur has helped start since returning to his ancestral home almost nine years ago with the aim of reinvigorating Japan.

Creative Lounge MOVIn searching for a solution to Japan’s 20-year decline, the entrepreneur and venture capitalist now sits on the boards of multiple public, private and nonprofit companies. He advises the government on national strategy issues from cyber security, innovation, entrepreneurship and education. He also lectures at universities and travels the globe, giving speeches on Abenomics. On invitation, he’s spoken at the Organization for Economic Co-operation and Development (OECD) and at Davos for the World Economic Forum. Beacon Reports met with Saito to better understand his views about the challenges and opportunities Japan faces.

Saito was born in America, the son of Japanese immigrants. His early years were spent mostly in Japan. He went to the elementary school his grandmother started, situated above a cooking school that she also owned. Widely known as the Julia Childs of Japan, his grandmother started the elementary school so food cooked at the school below would not go to waste.

Back in America, Saito had trouble learning English as a second language. But he excelled at math. Some considered him a child prodigy. While attending junior high school in California, Saito worked for Merrill Lynch writing computer programs that calculated the price of stock options based on the Black-Scholes equation. When still a teenager, Saito worked for Japanese electronics manufacturers like NEC, Toshiba and Sony, for whom he adapted US software to meet the needs of the Japanese market.

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Later he tried his hand at product development. After many failures, Saito finally found success in biometric security. The products he made became the international standard for fingerprint, facial and iris recognition technology. He first licensed the technology to Microsoft in 1998 (and 159 other companies worldwide) and then sold the company to Microsoft in December 2004. He was only 33 years old at the time.

Well off, Saito then asked himself, “What am I now going to do with my life?”

He was aware there existed a generation of people in their 20s in Japan that have little hope or ambition. He felt badly about the predicament of this younger generation, especially because his own success was the result of Japanese companies that had bet on him when he was a teenager. “They cut me a break,” says Saito, adding, “I thought that it was important for me to give back to society and to help create the next generation of entrepreneurs.”

Saito moved back to Japan shortly after that and founded an international technology advisory firm. The income earned from consulting and speeches is used by the firm to send half a dozen students overseas each year. Saito created the scholarship scheme so students can look at Japan from outside the country. “If you look at Japan from the outside, you can see its weaknesses and strengths,” says Saito. Once they return home, the students are arguably better able to lead Japan into the 21st century.

According to Saito, Japan is wrestling with an 800 pound gorilla caused by its aging and shrinking population. During the 1980s the Japanese believed in themselves when Japan was on top of the world. Now the Japanese don’t realize that it’s getting worse (a condition he refers to as “frog in woolly water”). They think it’s an aberration. As conditions get progressively worse, the older generation benefits. They’re in the majority over the younger generation. The older generation benefits from deflation. It makes their money go further. Young people are outvoted because there are fewer of them. “That means the younger people feel disenfranchised and give up,” says Saito.

Saito believes Japan is the first country to have these aging and shrinking population dynamics which he says is unique in human history. He feels it throws many macroeconomic and business assumptions − everything from Keynesian to Adam Smith, even democracy − on its head. “It’s an inverted pyramid,” says Saito. “Everything is affected, from venture capital to entrepreneurship, innovation, business, and society as a whole.”

To highlight the problem, Saito cites the Manhattan project and the Apollo mission to the moon that each employed many people. He asked those at the Keidanren (Japan’s voice of big business) what average age they thought people working on those programs were. They answered, “We don’t know, 41?” Saito responded, “It was 27 years old.” They said, “Wow. They would not even make sub-sub-manager in our companies.” That, according to Saito, is the point: In Japan, the 20s are spent in kenshu (training). It’s a long period where people are not given much responsibility. He therefore believes the youth of Japan, at the height of their creativity and productive ability, are underutilized.

Saito also thinks women are underutilized in Japanese society. He points to Japan’s “M” curve, where women drop out of the labor force at 25, only to return at the age of 40. “There is a huge lost opportunity cost for those who have been out of the labor force for 15 years,” notes Saito. “From a youth perspective and from a female perspective, we are throwing all that opportunity out the window.”

According to Saito, Japan has been trying to resolve these issues, knowingly or unknowing, for the last 20 years. Most people know what the problems are, and a majority know what the solutions are too. But he says, companies still employ an outdated management technique called PDCA (Plan, Do, Check, Act). “In Japan today, many companies rarely get past the “P” part in a timely manner,” says Saito. Therefore, he argues that Japan lacks teamwork. “It’s turning things into a reality that we have a problem with. Whether you are in government, academia, a large company, or just a startup venture – the ability to execute is the most important skill that Japan needs right now.” To push through that point, he’s written a book titled, “The Team.” The book, first published in October 2012, has become a best-seller and is now in its fourth printing.

Saito is optimistic that companies will change − willingly or unwillingly. He says either companies will learn to empower women and younger employees or they will eventually go out of business. He is also optimistic about the younger generation, who he says are resilient and smart. He believes they are coming to realize that “Okami” (the government) can’t solve all their problems and that eventually individuals need to fend for themselves. “Soon, you’ll have to be mindful of your own responsibilities,” says Saito.

Indeed, Saito encourages young people to take responsibility for themselves by gaining global exposure and by choosing not to work for the most popular company after they return to Japan. Popular legacy companies, he suggests, may be bankrupt in 10 years. “Pick companies that can build great teams and allow you to use your diversity, background and experience. If not, quit and go to work for another company, because sooner or later that company is not going to exist.”

To help run his venture capital business, Saito surrounds himself with globally minded, innovative, resourceful and creative people. They do the due diligence and legwork on new potential ventures. Some get promoted into management positions within portfolio companies − often as part owners. His job, as he sees it, is to empower them.

They are, he says, a mobile group prepared to work in Singapore, Vietnam, Myanmar, the Middle East, even Silicon Valley if the situation demands. That’s important, because in an increasingly global economy where Japan’s share of global GDP is 8% (and shrinking), it makes sense to market globally. “Only 1.7% of the world’s population speaks Japanese,” notes Saito.

From Japan, Saito invests in global markets. Saito is betting Japan will become home to the world’s leading manufacturers of “grey” products and services − firms he plans to invest in. Not being one to lose sight of the bottom line, Saito comments, “Selfishly speaking, I’m here to learn to solve Japan’s problems relating to aging societies that are needed both here and soon in other parts of the world.”

William H. Saito

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