A key component to making a startup a success is knowing who your true customers are. Today, Antti Sonninen, the Japan CEO for Slush, one of the largest startup events in the world lays out the business model for us, and the facts will probably surprise you.

Many of our American listeners will not have heard of Slush since they have not yet expanded to North America, but they are a startup event powerhouse in Europe and, increasingly, in Asia. Their recent event in Tokyo had over 4,000 attendees.

This week, we take a no-hype look at the business model that supports all the hype. These events do a lot of good for the startup community, but even when everyone has the best of intentions, someone has to pay the bills. Nobody will work for free for long, so it’s fascinating to see who are the real stakeholders are and what they get out it.

It’s an interesting discussion, and I think you’ll learn a lot. I know I did.

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Show Notes for Startups

  • The flaw in the social entrepreneurship model
  • Why Japanese startup events aren’t helping the startup community
  • Why so many successful startups are coming out of Finland these days
  • How to open up Japan’s closed startup scene
  • The danger posed by Japan’s young VC’s
  • What sponsors really expect out of startup events
  • Who really buys tickets to these events
  • The biggest misconception non_Japanese have about Japan

Links from the Founder

Transcript from Japan

Disrupting Japan. Episode 49.

Welcome to disrupting Japan. Straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.

At Disrupting Japan, we usually try to bring you the startup news and insights without the hype but today we’re going to dive deep inside the hype. Antti Sonninen is a Japan CEO for Slush, one of the largest start-up events in the world. Now some of our American listeners are scratching their heads right now. Slush doesn’t run events in North America but they’re powerhouse in Europe and increasingly in Asia as well.

Long time listeners will know that I’m rather cynical about a lot of the cheerleading and rah rah innovation optimism that goes on at these start up events but they’re unquestionably do a lot more good than harm and today Antti’s going to explain the business with startup events. With no cheerleading, well OK, with only a little bit of cheerleading, Antti walks us through the business model. Who are the real customers? How do these events actually make money and is this kind of business sustainable when the coming downturn eventually comes?

It’s a fascinating discussion and I think you’ll learn a lot. I know that I did.

Tim: So I’m sitting here with Antti Sonninen, CEO of Slush Asia, advisor to BeatRobo and startup founder in your right. Thanks for sitting down with me.

Antti: Yeah, thanks very much Tim.

Tim: Want to congratulate you just last week you had a second anniversary Slush events. There were 4,000 people showed up.

Antti: Exactly. We had our second event last weekend. It was a pleasure having you also involved in the stage program so thanks for that.

Tima: Delighted to be a part of it.

Antti: The event grew from one-day event to two days. The attendee counts grew from 3,000 to 4,000. I’m especially proud of the 400 student volunteers that helped to make it together.

Tim: You did have a whole army of volunteers out there keeping everyone in line and shepherding the crowd’s to where they needed to be. Later on I’m going to get back to talking about Slush and the business model behind these events but for now, I want to talk about you a little bit. You actually started your own company back in Finland which was Abrella?

Antti: Yes.

Tim: You’ll have to fill me in. It was something having to do with improving the allocation of foreign aid to Madagascar.

Antti: Together with the other co-founder Ellean we started a Abreallaa social networking platform for development aid. The original idea for the product was it actually came from Ellena the other co-founders. She had received a grant to build a stove to a village in Kenya and she was really excited that she could help. She Googled everything about that village and to see if there is anyone doing anything similar but I couldn’t find anything and then once she flew there, she found out that there are actually many other people building stoves there and there’s actually a lot of overlap in those projects. She was kind of disappointed with that. She spent all that effort and then not all of it was needed and then she actually made that in her Master’s thesis and found out that actually in development aid in general there is actually a lot of overlap. For example…

Tim: You’ve got communities from all over the world who are acting independently and some are digging wells and putting in stoves or building houses and there is no central point of coordination for it.

Antti: Yeah. We found out during our project that there’s actually two NGOs from different continents who know nothing about each other. They ended up building two elementary schools in the village that only needed one and then there was like vaccinations for some really severe diseases. The same vaccination was distributed two weeks back-to-back because the two NGOs have no clue what about each other. Basically we were building this, kind of like Twitter on a map of like of what each NGO is doing so you can see and collaborates with other projects…

Tim: Such a horrible misallocation of resources.

Antti: Yeah, so we wanted it to kick start and it started in a Hackathon in 2011, we were the runner-up and we got free office space on that grant to build that and that was basically my first touch in real entrepreneurship.

Tim: Let me ask you this; I’m always curious about projects and companies like this because this is a tremendous social good, it’s helping a lot of people by allocating these resources better but is there a business model to this or does it survive on grants and donations?

Antti: Pretty much all of the team we were pretty much first timers in doing start-ups basically what happened is that we failed to raise more money and we were unable to monetize the products, we were trying to build this global generic platform for all development aid and I guess the speed bumps that we ran into were like our own inexperience. What we noticed for example that since most of the NGOs rely on donations attracting investors in the space is a bit tricky because you cannot aggressively monetize because is a very, very sensitive topic. I wouldn’t make a lot of money out of people who are trying to fix hunger or

Tim: Right. You got to keep your margins really, really small.

Antti: I think it’s still a problem that is worth solving and…

Tim: There are  needs there but monetizing it and getting their cash flows was the real problem. I think that is something that a lot of social entrepreneur face. They brilliantly idea and identify a real problem but cash flows like blood. If you don’t have it.

Antti: I would say that if I would try it now, I might figure out how they to make it sustain itself.

Tim: Might take another crack at it someday?

Antti: Who knows?

Alright. After you left the company, you’ve joined Rovio of Angry Birds fame and that brought you to Japan but relatively quickly you left Rovio and you joined the local Japanese start-up, what is going through your brain? Why did you make that shift?

Antti: I joined Rovio because I was very inspired by the growth. Germany was people are I left it was almost 900. I felt like the company was getting a bit more stable and I wanted to try my wings at the new kind of a challenge. To build my network I went to a lot of events and I felt like they were very formal, they were not exciting and they usually had only the same guys speaking at every event. I was saying in Finland was that the young generation building Slush they were inspiring legions of other young people and there’s company called Rovio company called Supercell Angry Birds were using it in their marketing. It’s three guys in the middle of nowhere can make the number one App on App store like what you excuse do you have?

Tim: This is the something interesting because in Finland in particular has then such a relatively small country both in terms of economy and population has then putting out a significant number of very successful start-ups, particularly in the gaming and mobile space. Why is that? Is it some secret we don’t know?

Antti: I’d say that it combination of excellent education system that leads to a higher level of IT literacy and then the rise of Nokia helped build immense mobile ecosystem in Finland on where a lot of know-how in other carriers on the mobile handset and the application of everything around. In the ecosystem it was very strong so and there is also very vibrant them all seem people had been making the most out of different processors competed like you can use this very week is the best graphics and when games met the mobile device that was the perfect timing for the games industry to flourish because like those of you in general it can get a little bit the cold and dark in the winter.

Tim: A stay indoor program?

Antti: There’s no distractions actually rich warm from Excel Partners he comes to Helsinki Slush pretty much every year when he was asked about Santa Monica, silicon beach sort of ecosystem. He said that when I compare Santa Monica and Helsinki in November I just feel like it’s a lot lot easier to focus in building a great product in Helsinki.

Tim: Then again maybe the events you’re talking about there, do you think that played a role in inspiring community in galvanizing these people around mobile games?

Antti: In Finnish language there is this word that is called the it’s basically a community effort where everybody works towards a common goal. In Finland is usually used when someone moves, when you move, you are allowed to invite all of your friends to help you move and the only thing you need to provide us with is beer and pizza. Also for the start-up ecosystem in Finland has been built in the same way. There hasn’t been that much interest in trying to make money with events it’s more like we have all these startups but very little VC funds. the best we can do is try to attract them from other countries. So all companies all-startup and also successful entrepreneurs they all felt like responsible that if we don’t workers as a team to give investors from other places here it’s never going to happen. That’s actually how Slush in Helsinki started. When I came to Japan and I saw these events these communities there are invitation only, not so many young people on stage.

Tim: Japanese startup scene it is not as open as it should be for sure.

Antti: It’s actually changing now. We’re leaving the charge there.

Tim: Let’s talk about these events because things are getting better but there’s a long way to go. I think most of our listeners are familiar with if not Slush specifically, the Western style of doing start-up events, they’re very high energy, there’s a lot going on, it’s kind of a three-ring circus at times, it’s it a production, it’s a show and the content is in there like it’s entertaining. Japanese startup events aren’t like that.

Antti: I was first very flattered to be asked to speak in this event. The thing that I kind of started noticing is that on most panels we always save the world and we always like fix damn problem or the ecosystem from the panel and when the panel was done, nothing happened.

Tim: What should happen? I enjoy events myself. The most of them, I’ll go, I’ll meet some really interesting people, make a few contacts, steal a couple of presentations that I find interesting but not much really happens afterwards. What should happen?

Antti: I feel like first of all for bilingual people; foreigners and Japanese, they’re all very well compensated especially if you’re a manage to what the Japanese start-up ecosystem is mostly likely slightest connection with the rest of the world. The people who actually have the ability to start those companies that break the boundaries of this country, they’re all locked up in this country manager roles of these companies because they get paid so well. I think felt like what this ecosystem needs more is role models.

Tim: OK. That make sense but with the events again, the best way to improve them. Do you think would be to make them more to have more actual entrepreneurs on the panels? Do you think be better and have more action oriented?

Antti: There’s a few things personally if we look at invitation only events…

Tim: Yeah, I don’t get that.

Antti: Invitation only events are very good for a limited number of people. What Japan now needs is more like a revolution in the mindset regarding entrepreneurship and that’s not going to happen if you invite you and your buddies into basically a class reunion in a hotel somewhere outside Tokyo. We have this policy that we try to keep the VIP and the speaker areas pretty compact and encourage speakers to get out and talk with people.

Tim: But that is one thing that is still, it’s better than it used to be but is still a problem here is the Japanese there’s no single Tokyo start-up community. There’s a lot of individual clicks in it and a lot of them don’t really seem to work with each other.

Antti: And it’s not even like Tokyo it’s like in Japan, some of these hotel events outside Tokyo what group X is banned from entering group Y like that, that is I feel like our I am in our policy that were never going do that at Slush Asia that works if you’re trying to build as much merit as possible for a small group of people but if you want to create an inspiring community where people feel that they’re treated fairly, you shouldn’t have that.

Tim: I think you make one really good point and that I think a lot of the start-up groups here by no means to Japan but a lot of the start-up groups startup events are focused on building value for the people who are creating it. Sometimes even at the expense of these start-ups themselves. In fact last year I went to a demo date from one of the better-known community which shall remain nameless for this podcast, it lasted three hours, of those three hours, probably 20 minutes were the start-ups talking about themselves and demoing. The other two hours and 40 minutes was the incubator talking itself and its mission and introducing the mentors and it wasn’t about the start-ups at all. It was about the organization that was sponsoring them. I think that is a problem here.

Antti: One thing I felt really strongly about we are going be a doer community and we’re going to be giving the spotlight to the actual the people making it happen. this brings me to another point that we are fixing. Anything like recently a lot of talk about the amount of venture capital in Japan being long has raised.

Tim: It’s very small for the size of the Japanese economy.

Antti: Yeah. What actually happened during my BeetRobo time was that I was approached by other Japanese venture capitalists saying that they would really like to invest but they only got an into venture capital recently and they don’t know how to do due diligence so they were asking if someone else could lead the round they could invest in us.

Tim: That happens a lot here.

Antti: There’s a lot of like this very established institutions who have a lot of money and many of them are kind of seeing like, “Oh there is this Silicon Valley and this start-up thing happening maybe we should set up a venture capital fund”.

Tim: You’re right. Most of those funds are companies employing excess capital. The number of VC funds in Japan that can actually read around is very small.

Antti: People running the funds are ex-bankers not entrepreneurs.

Tim: Exactly.

Antti: That’s a problem. There is some capital I think the bigger problem is that people are don’t want to be an entrepreneur in Japan in the first place. One thing that the Japanese start-up press seems to like a lot is they spend a lot of time uncovering these twenty something VCs, not all of them are 20 anymore but there’s like one more than like they get a lot of press…

Tim: Well, it’s a good story, right? Especially in Japan where finance is always run by men in their 60s than to have a 27 year old running a fund…

Antti: That’s of course good. Many of these guys are very good. They go to universities and talk a lot. One time last year I met this guy who was 18-year-old I asked him like what are you doing here? What brings you here? And he said that I want to become a venture capitalist. I’m like how old are you? 18. OK, why? He said that he saw one of these twenty something VCs speaking at his University no, high school and saying you can become a venture capitalist as well and like these young VCs they’re are especially glorified by people who are in high school that has just started University and they have no other role models. Many of them actually aspire to become investors whereas like

Tim: Well, I can’t really blame them. It’s a whole lot easier than actually running your own company.

Antti: Exactly but if I look at the ecosystem level it’s actually not good for the ecosystem because if you want Japan needs the most is more entrepreneurs and more big thinking entrepreneurs. Right now frankly I believe there is no one else besides Slush Asia trying to encourage into doing that.

Tim: OK. Do you think the Japanese start-up events, do you thing they’re getting better now?

Antti: They’re changing quite a lot. There are a lot of events going on. We decided it’s going to be all in English. The president Dr Claude over the crazy and nobody’s going to come to our event. We scored 3,000 attendees…

Tim: That’s right. There was no interpretation or translation at Slush at all, was there?

Antti: Out of our 4,000 attendees, 60%-65% are Japanese. For me is like the ideal mix. It still feels like a Japanese event but it’s welcoming enough for foreigners.

Tim: OK. Actually let’s talk about the business behind Slush. The business behind events because I guess as you discovered in your first start-up, having great intentions of providing a great value for the community doesn’t mean that you’re going to continue. So let’s break down an audio version of the business model canvas for what Slush and what start-up events really are? Who’s your real customer? What are you really selling? How does it break down?

Antti: To run an event like Slush Asia, in dollars we’re talking about the 7 figure budget. Roughly the breakdown of our event currently is something over half of the revenue comes from our corporate partnerships something like less than half comes from ticket sales.

Tim: OK so if your customers are split, we’ll just say 50-50 between your corporate sponsors and the ticketholders, what is the product you’re providing each of them? The ticket holders I assume you’re just providing a networking experience and the chance to participate.

Antti: So basically actually for both, our product is Serendipity Platform or the partner companies some companies are looking for they want to get recruit some of the smartest people that might be interested in hiring some of our volunteers.

Tim: I can’t imagine their primary interest is recruiting.

Antti: It depends. Actually it depends a lot on company. Some companies want to join purely because of branding, they want to be associated by our event and our community, some are there because they really want to recruit, some are really struggling at especially hiring good filing sales but also engineering talent.

Tim: So your sponsors, just so the listeners know, so your sponsors include like…

Antti: Actually, we don’t call them sponsors. We call them partnership or partners. The level of engagement that the word partner requires is so much higher than a sponsor. Many more companies like we build event together. The biggest partner that we have this year was Recruit.

Tim: What do you think they’re really hoping you get out of it? You’re using them as a typical example.

Antti: They participate as the Recruit group. They have several different companies under them for example the investment partner participating the pitching contest and there are our normal acceleration program that they had a booth. It’s basically we customized it based on the needs of each company.

Tim: OK. I see.

Antti: We also one week before the event, we hosted a to 200-300 person Hackathon. That was also done all in English. Some good partners there like a SoftBank, Japan Airlines.

Tim: So, the Hackathon also organize towards the partner’s needs as well?

Antti: We of course protect the attendees and make sure that there are as interesting as possible…

Tim: It’s a difficult balance to strike.

Antii: We have a track for each of the supporting partners. For example Softbank has their own track. We asked the participants what track they want to join, so ones that join the during the track they with the help of some technology mentors from SoftBank and other places they build Pepper Apps and then for example in Japan Airlines track they were building application for future travel needs. We try to make them as interesting as possible and then we give the choice.

Tim: For the partners, it really is you are developing a very customized way to plug them into the startup communities here.

Antti: Pretty much all the other events have platinum and gold silver sponsor. We have none of that. We actually build a care company by company.

Tim: Excellent. OK. Let’s jump to the other 50%. The ticket sales, who is buying tickets?

Antti: So we have a few different ticket categories. We have startup tickets which is basically young companies that want to get funding or to hire people and then there’s the investors who want to scan through the latest trends very quickly and they want to also use it for their deal floor.

Tim: What’s the breakdown for the percentage wise? How many are start-ups? How many are investors, how many are other interested parties?

Antti: The biggest single group is mid to large sized companies. The biggest group is not start-ups, the biggest group was either people that were from a completely unrelated big company who are then were one of our partner companies…

Tim: It’s just large and mid-size companies just kind of wanting to check out the start-up scene?

Antti: It’s that but it’s also like recently many of the large companies have realize that a start-up often will build something new must faster than their own internal land companies are getting more and more interested in open innovation and survivability every company is currently

Tim: It’s a huge trend in Japan. It’s a huge trend that people are talking about. You haven’t seen them doing it that much yet.

Antti: Yeah. We had I think something like four 400 or 500 ticket holders were the start-up side.

Tim: OK. That’s a solid number in Japan.

Antti: In Japan, we had over a hundred investors as well. We also had from 200 media representatives. The biggest group is mid to large sized companies and then start-ups.

Tim: And you said that there was 60/40 Japanese versus foreign attendees?

Antti: 60 to 65% Japanese and rest are foreigners. The foreigners I’d say half of them are people living in Japan and half of them fly in specifically especially in our pitch contest actually. The number of companies that fly in is pretty high, 30%-40% of only those flying in and actually our pitch contest winner this year, they came from Taiwan and I don’t think it’s a wonder at all because those guys have been interested in Japan for a long time but there hasn’t been an English-speaking community that includes Japanese as well able to kind of receive them.

Tim: services from a business point of view, startups are cyclical, they boom, they bust, they bubble, they crash, is this something that concerns Slush? The cyclical nature of the business?

Antti: I always say that everyone would start their own company, everyone, we would be in trouble because everyone would be a CEO and nobody would have any staff.

Tim: Oh yeah but someone’s got to keep the lights on

Antti: Just like you said the cycle sometimes there is not enough entrepreneur sometimes there’s too much. Japan right now, it’s getting better but it’s still too much big company driven. It is kind of holding back the economy. Japan has the lowest percentage of people who think that we can learn to be an entrepreneur.

Tim: You think that even with the boom and the bust cycle, you could always be enough interest to keep it going, to keep having events, to keep the fulfilling the mission?

Antti: Even when there is a bubble like for instance things get overheated like the best entrepreneurs probably start their own companies and because there is no competition like when everything has crashed. Entrepreneurs are not going to go away at any point. It’s just like keeping your finger on the pulse and every year delivering what the ecosystem needs. My long-term goal is to get this working without me and then becomes what this ecosystem needs is role model so not people who are just accelerating or investing or lacks. It needs successful entrepreneurs…

Tim: So you’re going to jump back and do a start-up?

Antti: Ideally that’s what I’m going to do.

Tim: Excellent. Then I’ll have you on the show again once you start that up.

Antti: That’s the plan.

Tim: Let’s change gears for a minute. I want to ask some kind of general questions about start-ups in Japan. You worked a lot with full start-ups here in Japan and those overseas, what do you think are some of the most common misconceptions that Westerners have about Japanese start-ups?

Antti: It’s not as hard as people think. I think like the foreigners overly mystify Japan as a too hard of a market to enter and then also the Japanese are not helping because there also like I think Japanese are overly mystifying the rest of the world as well.

Tim: You think it works both ways?

Antti: From both Japanese and foreigners I’d say their life on the other side of the border isn’t as hard as you think.

Tim: I’ve got to agree with you there. Until you do it the first time, people visit anything is much more are different and much more difficult and much more exotic than it really is.

Antti: The physical borders have already come down but we’re bringing down the mental borders also you could say that we’re working on Meiji Restoration 2.0.

Tim: Listen, before we wrap-up, I want to ask you my magic wand question. If I gave you a magic wand and I said you could change anything about Japan, the culture, the educational system, the attitude towards risk-taking, to make things better for start-ups here, what would you change?

Antti: I think the Japanese currently many of them are very good at glorifying someone and taking all credit out of themselves like discrediting themselves.

Tim: That runs deep in Japanese culture.

Antti: I believe that looking at all of these Japanese people, I think that they should be a lot more proud of what it have. Not in a weird extreme right-wing but…

Tim: I know what you mean. Not like arrogant but just acknowledging that they’ve done something amazing.

Antti: There’s a tendency to discredit everything that they’ve achieved and then no it was me and then you don’t succeed every time but like if you don’t reply you’re not going to succeed. If I take a step back and analyze why that is, I think it’s a historical necessity, Japanese economy grew really fast in the 50’s to the 90’s a lot of this time paradigm of like improving and making some things better that were in the Western countries. Problems started in the 90’s when you need to stop following and start leading. When you start leading you need to start questioning things you need to as a society Japan like figures of that then we’re going to see what wonders happen.

Tim: Excellent. I have no idea how am I going to edit this down to 30 minutes but thanks so much for sitting down with me. Really appreciate it.

Antti: Thanks so much.

And we’re back.

Now one of the things I found most interesting about Slush’s business model was that the overwhelming number of both the sponsorships and the ticket sales were being made not to start-ups or the VCs but to large corporations who were just interested in start-ups. Economically speaking the startups are the product that has been sold to the larger companies.

Perhaps we are rather exotic creatures to people who’ve spent their whole careers working for large corporations. Maybe the exhibit booths could even have labels saying entrepreneur in natural habitat. Actually, I don’t mean that as criticism at all. Start-ups and VCs get tremendous amount of value out of events like

Slush but if you are running a business, you better be damn sure who are your paying customers really are and Slush clearly has done that as evidenced by the extent to which they customize their sponsorship packages to meet the specific objectives of their sponsor’s, and hey there’s nothing wrong with being a product.

I was a product on Antti’s Slush event the other month and he is my product today on Disrupting Japan. Hopefully you found some real value in it.

If you’ve ever had a good, bad or utterly bizarre experience of start-up event, Antti and I would love to hear about it. So come by disrupting Japan.com/show049 and let us know what you think and when you drop by, you’ll find all the links and sites that Antti and I talked about and much, much more in the resources section of the post and most of all thanks for listening and thank you for letting people interested in Japanese start-ups know about the show.

I’m Tim Romero and thanks for listening to disrupting Japan