It’s “Easy Fishing” for Japan’s Internet startups

"Easy Fishing"Launching an Internet startup in Japan today has never been easier. There are a host of reasons: Rapid technological change, declining startup costs, fewer good career opportunities for Japan’s graduates and lumbering competition are to name but a few. Beacon Reports explores why Internet entrepreneurs are finding it easier than ever before to achieve success in Japan.

An August 2011 Wall Street Journal article written by Silicon Valley venture capitalist (and Netscape founder) Marc Andreessen argues that over the next ten years new software entrants will wipe out incumbents across a broad range of industries. His article entitled, “How Software is Eating the World,” highlights how Amazon usurped Borders, how Netflix defeated Blockbuster, how digital photography replaced film photography and how 1e-books are now replacing paper books. These are examples of how software based technologies are increasingly replacing hardware solutions. Even toymakers are not immune as children turn away from traditional toys in favor of computer tablets (see FT article.)

In the face of technological change, big, bureaucratic and slow Japanese companies are losing ground to their more nimble competitors. Ray Grieselhuber, CEO of Ginzamarkets Inc., an Internet entrepreneur who started his venture in Japan in 2008 before moving the business to Silicon Valley a year or two later, says, “Sharp, Sony and Panasonic are being gutted in the market because their entire business lines, which formerly were DVD players, cameras, and the like, are becoming iPhone apps.”

That’s good news for Internet entrepreneurs, who think that competing against lumbering incumbents is a bit like fishing from a barrel.

2Take 31-year old Kiyo Kobayahsi. In April 2009 he launched Internet startup Nobot Inc. after compiling a short list of one hundred business ideas. He whittled down the list to the best single idea he had and then raised about $ 74,000 (Yen 7,000,000) from Samurai Incubate Inc. and other seed investors with little more than a PowerPoint presentation. Two and one-half years later, KDDI Corp. bought Nobot for $ 19 million.

Now Kobayashi is counting the days until his key man contract expires so he can dip back into the barrel to catch his next big fish. “I want to start a new business as soon as possible,” says Kobayashi. “It’s easy to raise money from investors because there are many incubators and angel investors in Tokyo. Existing competitors are not strong. Big Japanese companies are too slow and there are not many startups here compared to China, the United States, and Europe. Also, Japan’s technology industry is protected by a language barrier from overseas competitors.” Not surprisingly, Kobayashi thinks that the environment for Japanese startups is the easiest in the world.

While the opportunities for Internet startups are increasing, opportunity costs are falling. Today’s university graduates have little to lose by becoming entrepreneurs as traditional 3career paths wither. Taku Harada, CEO and founder of the Internet startup venture, PeaTiX Inc., says, “Today, if you are a Todai graduate, it doesn’t make sense to become a bureaucrat. Does it make sense to go work for a big manufacturer like Sony or Panasonic? Probably not. Back in my day it was sexy to go to work for Goldman Sachs or a Lehman Brothers. Becoming an investment banker today is no longer an option. So what are graduates going to do? Where is all the sexy excitement these young intelligent kids can pursue? As you see more success stories out there, and GREE Inc. is a great example, I have to believe Internet entrepreneurship is amongst the most attractive options. I think that will only increase over time.”

Good entrepreneurs that fail are also increasingly being given second chances. “Only yesterday I was talking to an entrepreneur who had lost his startup, a very small one,” says Harada. “The investment that went into the company was about $300,000. The business didn’t go anywhere, so he’s restarting. He’s getting plenty of investors on-board for his second company. The guy is very talented and very smart. That is proof that, in Japan, good entrepreneurs get second and third chances.”

Internet startup costs too have declined with the introduction of cloud computing and new development tools. That means the cost of a business failure is much less today than it used to be. Notes Harada, “Maybe an idea won’t fly and the investment loss will be well below $1 million. It’s not much of a failure from a professional investor’s perspective.”

The reduced cost of business failure is drawing more seed investors and seed investment into the Japanese market. All of which is making for increasingly “easy fishing” for today’s Internet entrepreneurs.

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