Casey has been on the founding team of several Japanese startups in markets ranging from from retailing, to recruiting, to information sharing, to private social networks for pachinko parlors. Add to that the fact that he’s just published a book on Japanese startup founders and their stories, and you won’t be surprised to find that this turns out to be a pretty interesting discussion.
We talk about changing attitudes among both Japanese investors and entrepreneurs, and explore the desire to maintain corporate control in depth. In Casey’s research, he discovered that many Japanese founders are still reluctant to give employees stock options, and many investors still seem to prefer to deal with a man who sees himself as President for Life.
Of course this is changing as more companies are founded by teams, but is it changing fast enough?
Show Notes for Startups
- How the Rocket Internet model can work in Japan
- The challenges that “wantraprenuers” face in the real startup world
- Private social networks for pachinko parlors
- Is “CEO for Life” and outdated goal for Japanese founders?
- How Japanese bankruptcy law affects risk taking in Japan
- Why many Japanese founders don’t give employees options
- The importance of corporate control in Japan and the need to let go
Links from the Founder
- Red Brick Ventures
- Wahl & Case
- Justa Startup Jobs
- GQ on Casey’s new book
- Follow Casey on twitter at @RedBrickVenture
- Casey’s New Book 未来をつくる起業家 ～日本発スタートアップの失敗と成功
Transcript from Japan
Tim: Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.
Today, we sit down and talk with Casey Wahl of Red Brick Ventures and several other companies. Now, Casey has just written a book on Japanese startups and Japanese startup founders. And, last year when he told me about it he wondered if he and I were somehow competitors. But, we are not. Right now there is so little understanding of the Japanese startup ecosystem, and so little overseas exposure of truly innovative businesses in Japan that the more people talking, writing and podcasting about it the better.
In the immortal words of Arlo Guthrie, “If three people do it then it’s a movement”.
Now, in the interview we talk about 2 things that may require a bit of clarification for our overseas and particularly our U.S. audience. First and simplest, we mention Hiachisan a number of times. Now, Hayashi-san is the founder of Digital Garage, which is one of the most successful internet companies here in Japan.
And, the second is Rocket Internet; which is very well-known in Asia, but not so much in the U.S. So, Rocket is a German company that clones successful U.S. startup models and deploys them in Europe, Latin America and Asia. It’s an interesting model. And, Casey and I talk about the practicality of hiring a CEO to implement your or somebody else’s business vision.
Now, Casey has got some interesting experiences and a few important insights on this matter. There is a lot of other good ideas in here as well, but I think those need no introduction. So, let’s get right to the interview.
[Start of Interview]
Tim: Okay, I’m sitting here with Casey Wahl, founder of Red Brick Ventures, and quite a few other companies. Thanks for sitting down with me.
Casey: Thanks a lot for making time and choosing to do this.
Tim: Now, you have had kind of an interesting path in that you have been on the founding team of half a dozen startups, or more maybe now. Right? Through Red Brick.
Casey: Probably not that many.
Casey: Quite honestly. So, I think in terms of being on the founding team there is the first company which is Wahl & Case which is a Recruitment Company. My initial background comes through Recruiting and I have been doing that for 14-15 years in Japan. Red Brick Ventures, we set up 2 and a half years ago. And, really kind of the first idea was I felt like there was a change going on and there was kind of a momentum building and wanted to give back, right.
Casey: So, the first idea was you know we had a cool space. And all right let’s do a co-working space, but that is really kind of low value.
Tim: Well, yeah the Japan, Tokyo particularly is littered with co-working spaces and accelerators. But, I though Red Brick, you guys had a very interesting model at first. You actually, you and your team actually came up with the ideas. You did the research to see that it was viable. And then you recruited the team to run it. In Japan, you guys are the only ones I know that are doing that successfully.
Casey: Well, now that Rocket Internet no longer exists in Japan yeah.
Casey: I don’t know if it quite successfully, but we’ve done it. So, just kind of continue with the origination story. I was thinking okay, here is a co-working space, low value right. So, as I thought about what can we do? How can we get involved in the startup market? And, we were feeling all of the energy of companies coming in. We were working with a lot of Japanese startups that wanted to go global at the time.
So, I really wanted to do something in the space. And you know, okay as a recruitment firm we have got this network we can basically get an introduction to almost everybody. And, I was starting to meet a lot of kind of 30-35-year-old Japanese, like with top class credentials whether it is University of Tokyo, University of Kyoto. Not so much; maybe more Keio and University of Tokyo and a little bit of Waseda in there. Mckenzie, BCG, they all wanted to be on entrepreneurs, but they weren’t taking that last step. And, whether it was a legal risk, a social risk type of thing like that.
So, I was like okay we can fill in this gap here. So, it goes to the idea that they kind of mention right there. And, actually through recruitment one of my clients at the time was Rocket Internet. So…
Tim: All right.
Casey: I got to understand the inner workings of their business model very, very deeply, right. And, what they would do is they will take somebody very young, who is very smart whether they are coming from Gorman-Sachs or McKenzie type of thing. Maybe they are 26-27-28 kind of associate level.
Casey: And, then they will give them a CEO title, a very small kind of founding share, call them the founder, and then just go at speed and really scale the startup very leanly, right. So, are they really the founder type of thing, like that? You know, how much is their share percentage. So, there is questions in it. But, the model tended to work.
Tim: So, are you trying to replicate that exactly at first, or were you kind of adapt that to Japan?
Casey: And, that’s where the fun came in, right.
Casey: Because basically thinking okay here is Rocket Internet. They want to come in Japan. They want to come in Asia. Japan’s a very, very special market, right. And, I think we can do it more successful. We know how Japan works. We are on the other side of the mote. I think very early on we didn’t want to have as sharp elbows.
Tim: What do you mean by that?
Casey: I think Rocket’s a cynical company. I think they do a lot to add value in many ways, right.
Casey: But, it’s the look analytically, where is an opportunity. Let’s grow with scale. We don’t necessarily pay people very well.
Casey: We are going to work people extremely, extremely hard to our vendors or companies that we are dealing with we don’t really treat you with respect. You see what I am saying? So–
Casey: I think that is a much more articulate way to say it. [Laugh]
Casey: So, very quickly we wanted to be Rocket with a heart.
Casey: It became the tagline that we wanted to–
Tim: What was I mean specifically, what were the big things you had to change to have a heart?
Casey: I think the biggest part is just how you treat people is the first step of it, right. You really care. So, we were doing that. I think the biggest thing was we wanted these people to be successful. We didn’t want a stream of, okay we are going to close it down after 3 months or 6 months type of thing. We really wanted to help people become entrepreneurs. I think it’s just kind of being nice and being accepting and thoughtful and working within the Japanese framework.
Going back to the earlier question about what we had to change, was the shareholding structure. You know at least what I had seen about Rocket, it is usually 0.5 percent, 1 percent, 2 percent is what they will give the CEOs or the Founders.
Tim: For the nominal CEO gets .5 percent?
Casey: In the local market.
Casey: So, maybe the global one I would hope gets more than that.
Tim: I see.
Casey: So, they are relatively small shareholdings. So, we started out with 15 percent is what we were doing. And, it was kind of the same model. It’s a little bit of idea arbitrage. So, the thought process was okay, in the west and Silicon Valley, mostly it’s Silicon Valley Usually, it takes a great startup idea 6 or 7 years to get to Japan. Okay, we can see what is going in the market and we can do this in 6 months. So, that is the idea, arbitrage point of it. Then we had our own Development Team. At the time, it was outsourced developers that we were using in India. And then we had the network to draft in the CEOs or the Founders. So, we just had a roster of people that we were interested in. And we test the concepts with them to bring in the right person. Then we put in the initial kind of seed capital which is between about $5 and $10 million Yen.
Tim: Okay. And, so how many projects did you run through this?
Casey: So, initially we did 3. If I wrap it up at the moment, so Sharebu Kids still exists. The original idea was we were looking at Zulily.
Tim: And this is infants and children’s clothing mostly foreign brands, right? E-commerce.
Casey: The original idea wasn’t just foreign brands.
Casey: The original idea was okay, it’s going to be an E-commerce site really focusing on pregnant mothers, kids, kind of toddlers. What Hiroshi found, who is the CEO and the Founder and really did become the entrepreneur Sharebu Kids. Hiroshi was kind of under the original agreement. Okay, here is 15 percent and then there is you know achievements, more percentages come in, type of thing like that.
But we just flipped it all around, so he was going to a bunch of VCs, going out into the market and so were some of the other Founders. And they were like, “no we are not, absolutely not interested unless the Founder and the CEO has the majority share.” And we were in that first rung of it. We had to switch the shareholding agreement. Had to switch kind of who was the majority shareholder of this.
So, that was kind of a kaisin process, right. Trial and error. By the time they got to the pitch events that was all changed around and the model was a little bit more viable.
Tim: All right, so at that time he really was the controlling interest in that company.
Casey: Absolutely. The real question is within this model, if you are bringing in those CEOs and Founders are they really entrepreneurs? Are they taking the risks type of thing? And it goes back to the definition of the entrepreneur.
Tim: Yeah, this is the thing that jumped out at me from your earlier description. Is that you are looking at a well-credentialed early mid-career executives or people in consulting who want to dip their toe into entrepreneurship. And, it would seem to me that you would get a lot of people that get buyer’s remorse when they understand how incredibly difficult growing a startup company is. Did you run into much of that?
Casey: We did. We had a Founder of one of the companies that we kind of initially went through all of the agreements and pretty quickly decided “no this isn’t for me.”
Tim: Just got cold feet at the last minute.
Casey: Kind of, right. You know whether it was dealing with us, being we are foreigners’ type of thing like that. Another Founder wasn’t full-time. Was kind of hedging the bets and it’s more okay, “I will work nights and weekends”. And, if the entrepreneur has to take the risk maybe that person didn’t take it kind of fully right.
Casey: That became the semi-success that one that was.
Tim: That’s the, which one?
Casey: So, we were trying to do a Path Clone. You know the Private Social Network, right.
Casey: We pivoted, and it became a Private Social Network for Pachinko Parlors.
Tim: That’s a pivot. [Laugh]
Casey: [Laugh] Not so much.
Tim: A Private Social Network for Pachinko Parlors. No, we’ve got to talk about this. What?
Casey: [Laugh] I think it’s not that much of a pivot. So, the original concept is really there it’s just the target market, right.
Casey: So, Pachinko have a lot of restrictions about how they can communicate and how they can market to customers, right, there is a lot of legal restrictions to it. So, they were very interested.
Okay, here is a Social Network that is just closed to members that come to our particular Pachinko Parlors or whatever it might be, and we can communicate with them. They are not allowed to do advertising in there because that is illegal. But they can, “here is our new kind of machine that has just come in. It’s really loose. Why don’t you guys come on down.”
Tim: Oh, I see and since they are already registered and part of the family it is not really advertising.
Casey: It’s not really advertising, but that is when we decide to spin it off, right. So, after it started to get picked up and we are having more and more kind of Pachinko Parlors being interested in us. Basically, I am still a Board Member of this company, and I am still involved in this project. It’s too far away from me. I don’t want to touch it. So, we spun it off. We just gave it to one of the Pachinko Parlors and exited it that way.
Tim: Oh, okay. Huh, that’s an interesting one. I hadn’t heard about that before.
Casey: Yeah. It’s just a quiet one.
Casey: Can I talk about it just a little bit.
Casey: So, I guess one of the services that we have going right now is Justa right. And, this is along the evolution of Red Brick Ventures where initially we were trying to create entrepreneurs.
Tim: And, just so everyone understands, it’s a startup jobs focused portal. What’s the right way of describing it?
Casey: Justa is really focused on startups. It is for startups, hiring and filling that niche.
Casey: I think the easiest way to describe it in current terms is a startup job board, right.
Casey: They hate it when I say that.
Tim: Okay, so what you should we say? [Laugh]
Casey: [Laugh] It’s really focusing on that. It’s building, hiring for startups is incredibly hard, right.
Casey: The personal network is usually where the hiring comes from, but runs out pretty quickly after the third, fourth person buys in.
Casey: Unless somebody has a lot of energy and they are out meeting everybody that they possibly can. But, what we found is it’s a lot bigger than we expected it to be. So, I think at this moment there is like 95 startups on there and some 270 jobs and it hasn’t even come out of Beta yet.
Tim: Justa is one of the first places I tell people to look when I’ve got inquiries from overseas about you know I want to join a startup in Japan. I’m like go here. Look around. [Laugh]
Casey: [Laugh] I think it is great. It’s fully bilingual, right. It’s really seamless. And, we have our first hires going on. We need a better tracking system on the backside. Well, we know of 3 or 4 success cases where it has actually happened. And people got these hires for free. So, we are into thousands of candidates already over there and new startups that we have never heard of sign-up.
Tim: Given your background and expertise that is a real natural fit for you. It’s that intersection, right between startups and recruiting. And from my experience the people who really hit the ball out of the park are the ones that find that unique overlap of like three particular skills they are good at. And, this really looks like one of those because it really is well done.
Casey: Well, thank you very much. You know what? When I was just first starting out becoming an entrepreneur it was in like a fast company. It was like a BCG Matrix. You know one of those squares that you have type of thing.
Tim: Oh, yes.
Casey: And, the most successful square you have is if you are in a growing market and you know that market then your chance of success is like 85 percent. I’m throwing numbers in there. But, much more higher. It’s like the dark green or type of thing. And, if the market is not growing and you don’t know anything about the market your worst chance of success, right. So, I think the startup market here is growing. We know recruitment. So, positioned ourselves in the right square.
Casey: And, then from now on is we will be doing 2 things. We will be creating more of our own internal Red Brick Services that are human capital related. Then the other side is still once a year we want to help create those entrepreneurs and really go back to do that.
Tim: Well listen, one of the things that we absolutely have to talk about now. You have just finished writing a book about entrepreneurship in Japan. You have gone around doing something very similar to what I am doing.
Casey: Yeah, in just a different medium.
Tim: Yeah. Talking to a lot of successful startup founders about their story, their journey, their advice. I know you have published in Japanese. When is the book coming out in English, and do you have a working title for it yet?
Casey: It should be published in February 21st in both Japanese and English. It will be on Amazon Japan. If you are in Japan you can buy it in major bookstores like Maruzen and Kinukuniya. The working title in English is… we are still working on it.
Tim: That’s not a bad title. [Laugh]
Casey: [Laugh] It could be a startup title right? But it’s really 20 founding stories of Japanese entrepreneurs and how they are going to kind of lead the entrepreneurial future of Japan.
Tim: All right, and we will have links to the book and everything on the website.
Casey: I hope so! Please.
Tim: So, because I am far too lazy to actually read a book. What are the common traits among successful Japanese founders?
Casey: It’s a tough question. I think the biggest one is just passion, right.
Casey: It’s a real passion for doing it. Being an entrepreneur and doing startup is really tough. You get a lot of no’s. You get a lot of people that don’t believe in you. Things fall apart. Key people leave. How do you exist? How do you go on? Maybe funding doesn’t work out. And you have got to have something deep to drive you through that.
Tim: Well, passion is one of those things that I always been skeptical of. I mean it’s true. You need passion but it is easy to be passionate about something you are succeeding at. Or you have already succeeded at. Is there anything you can look at that struck you either uniquely Japanese or surprisingly common among all these successful Founders in Japan?
Casey: I think they fell into 2 patterns.
Casey: Is you have your product-centered entrepreneurs where it was a personal product or a personal problem that they were solving and you are creating a product from it. And that’s where the passion derives, right. And, keeping the team small and there was a large group that were about the product and service. And they are willing to separate themselves from their product and service when they can no longer grow it or if they have a better home in a different company type of thing.
Then I think that uniquely Japanese part of it is the Kayasha. There is a certain set within the 20 kind of founding companies or Founders that I spoke with that wanted to be Kayasha.
Casey: And, it is about leading a company and being –
Tim: Well, you are going to have to explain Kayasha. Most of our listeners don’t speak Japanese.
Casey: Let’s see if I can do it justice. I will probably need your help, but it’s a business owner and a business executive is a simple one.
Casey: But, the real wording of it is weight and a responsibility. Your incentives are not to maximize profits in Japan. Your incentive is to create an organization. And the larger of the organization you have the better. And, there is a lot social status equated with that.
Casey: And kayasha means, I have responsibility for all of these people under my watch, under my wing type of thing.
Tim: Well, and another thing is, which I think ties directly with that, is in Japan people are sort of CEO for life.
Tim: People start a company expecting to die as the Founder of that company. Which is kind of unhealthy in an entrepreneurial context. But, did you find like a large percentage of these successful Founders still had that desire to keep ownership of their company forever?
Casey: I think there is a certain group, right that fall into the kayasha side of it. I think they are still young and they are still on the upward projectory, so it’s not like the dying grips, “I’m just holding on because this is my baby”, or “this is my self-identity”. [Laugh]
Tim: That’s what it turns into. [Laugh]
Casey: [Laugh] Or my family identity. But, there is a determination to grow it.
Tim: Did you see any differences between the generations? The young successful entrepreneurs versus the guys in their 50s?
Casey: Actually there was only one group that I interviewed that was in their 50s. I think there is a couple in their early 40s. Then most are in their early 30s and then there is a few 20-year-olds type of things. Mostly the younger generation that will be future entrepreneurs that want to change Japan.
Casey: So, if I look at just the Digital Garage. They built up that company and took a risk when I guess it wasn’t as cool to be an entrepreneur. There wasn’t the infrastructure. It was really when the internet was starting.
Tim: Yeah, they were founded back in 1997, 1996 something like that. Pretty early on.
Casey: I think it might. You use to work there right? [Laugh]
Tim: They bought all of my old companies.
Casey: [Laugh] Okay.
Tim: That was much later though. [Laugh]
Casey: But, yeah so they were pioneering the internet in Japan at that time. I think there is a story that really stands out from Hayashi-san is about I was asking him about taking Venture Capital. He was like “Venture Capital didn’t exist back then.”
Casey: It was more if you want Venture Capital okay I can have like a big Japanese it’s Venture Capital. But they still want all the guarantees of a load. So, he’s like “I got a Venture Capital offer. They wanted to sign up my house as being liability for this Venture Capital.” And basically he said “fuck you” type thing.
Casey: And, that became his motivation in some part to grow things.
Tim: Well, that’s something that is only changed fairly recently. I still talk to young Founders and young entrepreneurs who will occasionally have a VC ask them to sign for the loan, or to guarantee their investment. It’s rare, but it still happens.
Casey: So, I think still on that spectrum of becoming more sophisticated about the Venture Capital funding Japan still has quite a long way to go about that.
Tim: It is interesting how it has changed because for example when Hayashi-san was out trying to raise capital. I mean there were groups like Jaffco, have been around forever. But, they were really more mezzanine financing. And, now there is a ridiculous amount of seed financing available.
Casey: I think there is more seed than there is venture.
Casey: It kind of feels like that.
Tim: There is a real series A crunch here in Japan now. Both of us spend an inordinate amount of our time talking to Japanese entrepreneurs. [Laugh] So, in your opinion what do you think Japanese Founders are good at? What are they weak at? We are painting with broad brushes here.
Casey: This is a very broad brush.
Tim: Yeah. And we will drill down later. So –
Casey: I think Japanese entrepreneurs don’t care. They just really don’t care about the consequences, right. Because there is no you know celebration of failure here for the most part society wise it doesn’t exist.
Casey: Bankruptcy laws are still ridiculous that recover 96 percent of whatever is owned to the creditors when a company goes bankrupt. So, it is the highest in the world. So, for Japanese society being so homogenous and kind of move as a group very broadly. So, for these people to become entrepreneurs they are already breaking every kind of social rule that exists, right.
Casey: And, it has changed recently, but you know if you went bankrupt in Japan they could take everything from you.
Tim: Yeah. Well, even the corporate shield in Japan is much looser even if you are a CEO. I mean they can still theoretically come after the president’s assets.
Casey: They have changed the law. I think it was last year. It is kind of vaguely worded where “we can only take enough. But we have to leave you with a livable lifestyle”. Or something like that. [Laugh]
Tim: Oh wonderful. How reassuring.
Casey: So, I think Japanese entrepreneurs, they are willing to be themselves. Like they are very much themselves for the people that I interviewed, right. And, they are comfortable in their skin.
Tim: That’s interesting because I see something that is kind of a contradiction here. Because, the people you would normally think that would fit that mold would be kind of the outsiders; the artists, the people who didn’t have another option, right. But, a lot of the entrepreneurs, a lot of the Founders I meet are from top schools. They are from Kao in particular.
Casey: A few from Todai.
Tim: A few from Todai. A lot from Waseda.
Tim: So, these are people with great career options. And, they are still deciding to start up a company. So, when you say “they don’t care.” What do you think is making them take that gamble?
Casey: And, that is part of what covered in the book. And, really for me kind of as a recruiter my personal passion is the psychology of it, right. And, what is the motivation and why did you do this? And, kind of exploring the past and the backgrounds.
And actually Kiminosan Gonosi who started up an ad tech company called Atlantis. He sold it to GREE for $26 million, and was kind of one of the biggest exits at that time. He did it in a year after getting what 3.5 million Yen in funding.
Casey: He is from Todai. So, he is from the University of Tokyo. One of his comments was that there are still not enough of the most top class in Japan coming to startups. All his classmates at Todai, many of them don’t come. People still go into big companies. People still choose that pathway.
So, why did this kind of subset decide to do it? I think it is really interesting. And, it really goes back to that idea of: do I want to be a kayasha? Some of them have an entrepreneurial influence in their life. Or, there was a grandfather, an uncle or a father and they grew up in a household.
Tim: So, they had a role model.
Casey: Exactly. And, the other ones became more product-based. But, again they probably did a startup in college type of thing. Like, one their friends usually they weren’t the original ones to say here is my startup idea, let’s do it. But, one of their friends invited them in college or right after. Why don’t you get involved in this? And, then they found their own personal kind of project that they wanted on that they made successful.
Tim: Hmm. Okay, let’s talk about the overall state of startups in Japan. I mean we have both been in this gave for quite a while. And, things have been getting so much better. But, if you had to put your finger on one or two things that had to change to really accelerate the growth of startups. What do you think really needs to change? What do you think really needs to improve here in Japan?
Casey: I think the biggest thing is you just need sheer numbers, right. You just need a lot more numbers of startups. So, how do you get more people to influence it? So, you want more people to be exposed to startups. You know, doing internship at a startup in college or they join one early in their career.
Casey: And, more likely to become Founders later on. And, it is interesting through the book is people took two sides of employees owning shares of their companies. And, most of the startup Founders said that employers should not own shares, right.
Tim: So, much employees should not own shares.
Casey: The majority said it. And, many said it very strongly.
Tim: Huh. Now, that’s a very different model than you see in the U.S. and Europe. So, these firms were tightly held by the Founder or by the Founder and his investors? Who owned the shares?
Casey: Primarily the Founder. And I think Venture Capital in Japan wants a single Founder to own the overwhelming majority of the share, not a group of co-founders for the most part.
Tim: Just one guy.
Casey: They want one guy they can see and be tangible and be responsible for everything. But, beyond that there are a lot of cases where co-founders might own relatively equal shares type of situation.
Tim: So, what was the logic behind not giving employees options or shares?
Casey: Because you can never get those back. And, it is so hard to get it back and it goes back to control.
Casey: But, then on the converse side and this goes back to I think the original question is if you give more employees and startup shares and they take those shares and they move away and they still get the return from it, they are probably going to use it to Angel and VCs or startup their own company and that money has to flow more, right.
Casey: So, there is getting to be more exits now and some of the people that have exits, most of them are becoming Angel investors to a certain degree, right.
Tim: Well, I think that is one of the most positive trends we have seen. Is that I think right now I think is the first generation of successful startup founders that are turning around and investing in the next generation. That really seems to be new now.
Casey: I think that the scale is it is really kind of almost a pyramid. It’s numbers that are coming. Through doing these stories there was like mid-age back in the day.
Casey: There was 1 or 2 or 3 companies where they founder who had an exit usually an IPO at that time was going back and you know and investing Angels to startups. And, this becomes a second generation that is becoming more successful. Now, they are turning back into it. So, the base of the pyramid is steadily getting a little bit wider in terms of the scope of it.
I think probably the biggest thing that I would love to see change is more Venture Capital. Actually the people running it and the investors. Having been an ex-entrepreneurs themselves. There is Corporate VCs.
Tim: Yeah. There are very few other than the Angels you mentioned, most VCs are dominated by finance guys.
Tim: Very smart guys.
Tim: Guys from you know top school MBAs. But, actually getting back to the control idea was the desire for control, I mean this is something that runs deep in Japanese society. So, from the founders you spoke to, how much of that desire for control was sort of an instinctive cultural desire and how much do you think really played out strategically?
Casey: I think most of it is cultural.
Casey: I think it’s probably 90 percent cultural. And, if I guess the meaning of how did it play out strategically is did somebody kind of lose control and they felt the personal pain by it? So, they never experience that again.
Tim: Or, did they lose good employees because they felt like they weren’t part of the team?
Casey: I don’t think that really happens in Japanese startups. Then they are going back to that VC one man in control. There is still an idea in kind of Japanese business generally and startups especially in particular is you have the charisma president, the charisma shock show.
Casey: And, this is one guy and this is our visionary leader that leads us all to greatness. And, there is a lot of people helping that person go along. And, in many startups they are underpaid.
Casey: Certainly, that is the nature of the startup in some ways. But, even as the venture grows maybe they could add some of those profits or some of that back into the pay as well.
Tim: Is that something that has changed with the age of the entrepreneurs? Or, some of the younger guys also very much wanting to stay in control and not give their shares up?
Casey: I think it is certainly changing, right. I think there is generational change. And, as you have more exits, and the market itself becomes liquid and money in and money out type of thing like that. The idea of control is not necessarily as strong, right.
Casey: Especially for the product of the engineer for entrepreneurs. For the entrepreneurs that are still about the kayasha or being that responsible kind of president type of thing. Then obviously controls a different aspect.
Tim: Right. All right. I really appreciate you sitting down with me. Let’s end this on a high note.
Tim: We talked about –
Casey: I thought it was all high. [Laugh]
Tim: Yeah. It should be. But, we have talked about like what the Japanese market needs to do and that needs to be improved. What do you think is the single most positive trend that you see in the market today for startups?
Casey: I think there are so many things going right.
Tim: You can give me a couple.
Casey: There is more exits, right. There is a lot more exits and the exits are getting you know $20-$30 million is kind of not becoming unusual, and that’s happening. The funding is getting bigger. There is a lot more Angel investment out there.
Tim: There is a lot more M&A exits than there used to be.
Casey: And, like three years ago, it was unheard of.
Tim: I think it is a lot of the new companies. Newly IPO companies are very inquisitive. So, the Fujitsus and the NECs.
Casey: The DNAs and GREEs and Rockets it’s all thanks to a certain degree.
Tim: Exactly, and so that might be, I think that is going to be a continuing trend.
Casey: Absolutely. And, then you have the knowhow so people that have built it from zero to 1 and I want them to have a successful exit. And can turn around and either be a mentor or do the next one. All the people that were employed there, even from the intern they had a great opportunity.
Tim: And hopefully, more and more of those guys have stock options and they can all go out and startup new companies.
Casey: Hopefully, hopefully. [Laugh]
Tim: Well, it’s a lot to look forward to in the next couple of years.
Casey: Yeah, I think it will be good.
Tim: Well, Casey this has been great. Thanks a lot sitting here with me.
Casey: Appreciate it.
Tim: And, we are back. Now, Casey’s on the cult of the Founder that exist in Japan were interesting. And, it was particularly fascinating to learn how many Founders did not want to give their employees equity, even today.
Now, in my experience this is changing as more and more companies are founded by teams rather than individuals. But, the need for control or perhaps more accurately the need for the illusion of control runs very deep in Japanese society and business culture.
And also, the question of whether entrepreneurship and building a startup can be systematized is an interesting one. I think it is clear to some degree it can.
On one side we have people like Steve Blank who are finding repeatable patters, abstractions, and blueprints and on the other side there are companies like Rocket Internet who are trying to develop genuine startup factories. And, there are many, many companies like Rocket that clone American startups. Rocket is just far and away the most successful and metrics driven of them.
But, Casey’s point was an interesting one. That in Japan outside investors and employees themselves were highly skeptical of the disposable company and employee model of Rocket. But, time will tell if those VCs are simply behind the times or if their views are based on the reality of the commitment required to succeed in the Japanese market.
If you want to see the links and resources that Casey and I talked about during the interview. Or, to get in touch, go to DisruptingJapan/show013 and you will find all of that and more in the resources section of the post.
And, if you have something to say about startup clones, startup jobs or Japanese startups in general, leave a comment and let us know what you think.
If you have some ideas on how to improve the show or know someone we should be talking to send us an e-mail at [email protected]
But most of all thanks for listening and thanks for supporting the show and letting people interested in Japanese startups know about Disrupting Japan.
This is Tim Romero, and thanks for listening.