Once the disruptors become the incumbents they are ripe for disruption.

Uber, Grab and rest of the ride-sharing startups have clearly disrupted the global taxi industry, but that doesn’t mean they got it right. That doesn’t mean their market position, or even their business model, is secure.

Today we sit down with Sota Kimura, founder of SmartRyde, a Japanese startup focused on getting airport ground transfers right.

We talk about building a business based on quality and brand in a traditionally price-sensitive, low-margin market, what Japanese universities are doing to support startups, and how getting ripped off at the airport inspired Sota to start a startup.

It’s a great conversation, and I think you’ll enjoy it.

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Show Notes

  • Why airport transfers are ripe for disruption & what Uber is missing
  • Pivoting from B2C to B2B during the pandemic
  • How getting ripped off at the airport inspired a startup
  • Japan’s University startup support outside the majors
  • Entrepreneurship share-houses
  • How to compete on quality in a low-margin business
  • Can ridesharing work in Japan
  • Why Hiroshima was an ideal launch market
  • How to create more university startups in Japan

Links from the Founder

Transcript

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Today, we’re going to talk about how to disrupt a fragmented market. I mean, that’s a startup founder’s dream, right? You find a market with low quality, confusing products, and no global coverage, and then disrupt it with an innovative business model and establish a trusted global brand. 

That’s the dream. But as you’ll see today, sometimes markets are fragmented for a reason. 

Today we sit down with Sota Kimura, founder of SmartRyde, who’s trying to solve the problem of airport transfers and of foreign travelers being ripped off at local airports, and Sota’s up against some strong competition, not only from business challengers but from human nature itself. 

Let’s face it, ripping off travelers has been a popular custom for a long time. Herodotus was complaining about it 2,500 years ago. 

We talk about why Uber is not a threat, the new entrepreneurship share houses popping up in Japan, and how Japanese universities can better support founders. But most of all, we look into the question of whether quality can win if quality can act as a differentiator in a market traditionally focused on price competition. 

But you know, Sota tells that story much better than I can so let’s get right to the interview. 

Interview

Tim: So I’m sitting here with Sota Kimura, who is the founder of SmartRyde, who is changing the nature of airport transfer and ground transport service. So thanks for sitting down with us. I really appreciate it.

Sota: Yeah, I appreciate too.

Tim: So that’s a really brief explanation of your company. But can you tell us a bit more about what SmartRyde does?

Sota: We are operating airport transfer service around the world, mainly business-to-business sectors. For example, we integrated with online travel agency OTA, such as booking.com, and Expedia. And also, we are connected directly local transportation company like taxi and limousine and buses.

Tim: So fundamentally, this is the airport transfer when you get off a plane and you need to get into a cab.

Sota: Yes. So we focus on the airport transfer. So from airport to hotel, or hotel to airport.

Tim: I agree, like, airport transfers, the ground transport, it’s a messy process right now. But is your main competition rideshare companies like Uber and Grab?

Sota: Similar business model. Transfers are a very fragment of business. And also, our company, all professional drivers, and also various model is business-to-business. So very different from ride-sharing companies.

Tim: So what’s the biggest difference there? Because I think a lot of people, when they hear this business model, they might think, yeah, getting off an airplane in a new city is just a pain. You don’t know who to trust, you don’t know the local vendors. It’s all a bunch of, I don’t know, SEO competition. And a lot of people say, oh, well, like Uber’s a strong brand or grabs a strong brand. So what’s your real value proposition to the customer?

Sota: Yeah. When someone book through the travel, so airline sched and accommodation and activity, so something like that, at that time, customer can book airport transfer service.

Tim: Okay. So they can just get everything done beforehand, have everything arranged. 

Sota: Correct.

Tim: All right. And tell me about your customers. You mentioned it was mainly b2b, but who’s using SmartRyde?

Sota: Now it’s mostly family, small groups, three or four, five people. First is leisure. So leisure travel is 90% user is leisure travel. And also, our service is used in resort areas like Bari and Phuket. Yeah.

Tim: All right. COVID must have really changed everything, it must have been a very difficult two years.

Sota: Yes. Very, very serious situation for us and our industry.

Tim: So during the time, have you tried to pivot to a new direction, or has your strategy been more focused on the core value and get through this rough time?

Sota: So before COVID-19 situation, so we focused on APAC areas, so Southeast Asia and Japan. But APAC area is biggest damage for travel industry. So in 2020 we decrease more than 90% revenue.

Tim: Yeah. APAC countries, especially seem to have, on average, much stricter travel restrictions than European or American countries.

Sota: Yes, yes, that’s great. So after that, we move the focus areas from APAC to Caribbean and Latin America from 2021. 

Tim: Okay. I want to dive really deep into the business model, and I think there’s some interesting questions I want to get into there. But before that, I want to back up a little bit and talk about you. So you started SmartRyde in 2017 after being inspired in a very interesting way.

Sota: Yes, yes. So when I was travel abroad, I often travel with transportation from airport to hotel. At that time, I realized this point is a very big pain for everyone. So I established SmartRyde on March 2017 when I was college student,

Tim: Before you’re talking about you were ripped off by a cab driver from was a Bangkok airport?

Sota: That’s correct. Bangkok and Taiwan.

Tim: We’ve all been there. I’ve been ripped off by taxi drivers at Bangkok airport myself a couple of times.

Sota: So almost people, yes. There is one time for less travel and land transportation abroad.

Tim: Yeah. I definitely think there’s a need, no doubt about that. And you are still a university student when you were starting this. So at Ritsumeikan University, did you get much support in starting your startup from the school?

Sota: No. So sort of very unique story, I studied Business Administration in the Ritsumeikan University. And after, I lived in entrepreneurs sharehouse for a year in total.

Tim: An entrepreneurship sharehouse. 

Sota: Yeah, correct. 

Tim: Oh, cool. What is that? How did that work?

Sota: Almost people is entrepreneur or freelance, so maybe 25 people stay in sharehouse together.

Tim: So how many people from the sharehouse, from your cohort, from your team went on to start companies?

Sota: Each other is different business established in the sharehouse. Every night, pitch each other in same room, so very good experience for me.

Tim: Excellent. I’ll have to look into that. That sounds like a super interesting project.

Sota: Yes. I recommend all students. 

Tim: It’s really interesting. So the difference in experience for college founders between the really big universities and the smaller universities is so different. So when I talk to founders from Todai or Keio, they’re saying, oh, yeah, we had these VCs came in, and we had these mentors come in, and they had this great support from the universities. When I talked to a lot of student founders from other schools, it was like, well, I went onto the internet and figured this out and talked to customers. 

Sota: Yes. I really recommend you, all students stay in entrepreneurs sharehouse.

Tim: That sounds interesting. We’ll put some links to that on the website. I want to know more about that. But that’s going to be a topic for a different podcast. Let’s talk a little more about the business model here. So, it’s interesting that I think everyone can look at this and agree like okay, airport transfers, this is user unfriendly, highly fragmented, lots of low quality companies in the business, lot of scammers. But once you’ve identified that market, how do you compete? How do you make SmartRyde different from the hundreds of other companies that claim to be trustworthy and reliable?

Sota: Yes. I think it is the most important part for our company to build. Service control and service quality is very important for us, so we manage directory, local suppliers. And then we built our operation each airport. For example, in Bangkok before COVID situation, we have more than 2000 trip commerce. In Bangkok, arrival hall is many passengers, so sometime traveler cannot find the driver. So we put our assistant in airports so passenger can find assistant, after that connect to our driver. 

Tim: That’s an important commitment to quality. And I can see how that would be a much better experience for the user. But building the business, there’s two sides to it, you have to build the quality product, which sounds like you’ve done, and then you have to tell the world that you’ve built this high quality product. And you have to convince your customers that no, no, no, you’re different. So how have you reached your customers? Have you relied on online SEO? Is it channels? Has it been the partnerships with the main travel sites? What’s been your main strategy for go-to market?

Sota: So our main strategy is partnership. We focus on partnership with online travel agency like booking.com and trip.com and Expedia, something like that. So now, about 25 travel agency already integrates with our company, global player, big company,

Tim: It definitely makes sense to focus on business travelers, not only because they’re paying more but they’re repeat travelers, so they’ll appreciate the higher quality and understand it. You mentioned before most of your customers today are leisure. Is that just because COVID has shut down all the business travel in Asia?

Sota: There is nothing for business traveler right now.

Tim: That makes sense. And so like as we come out of COVID, you’re going to move back towards the more business?

Sota: Yeah. So maybe after COVID situation, different.

Tim: So the partnerships with the travel sites, I mean, these online sites have thousands or tens of thousands of listings and ability to booking. So what kind of partnerships do you have with them?

Sota: We partnership by API integration, basically.

Tim: So for example, on a site like Expedia, there must be many other airport transfer companies. So how do you compete against all those others even on that platform?

Sota: Yeah, it’s two way. First, it’s the price, competitive price is the more important for this business. And second is service quality. So customer will check the price and other person’s review.

Tim: But see, this is what I see as what is probably one of the most challenging aspects of your business is that, as you say, the market is extremely price-sensitive, but you’re trying to build a business based on service quality.

Sota: Now price is very important, but in the near future service quality is the most important first.

Tim: Yeah, I guess it’s really difficult that the market is so different right now.

Sota: Yeah, correct. After COVID situation is more niche private traveler. 

Tim: All right. Well, let’s take COVID just out of the picture now, and we’ll compare the world back from 2019, and hopefully the world in, well, God, hopefully it’ll be 2022, but let’s say 2023 just to be safe, how big is the airport transfer market?

Sota: Now is bottom. It increased demand from 2021 to 2024. I think so 2024, same level of 2019. 

Tim: One thing I think is probably going through the head of a lot of our listeners now is that Uber, for example, started out in a very similar way. They started out as a on-call black car service and then expanded into other markets. Does SmartRyde have plans to expand beyond the airport transfer market?

Sota: In short time, our strategy is focused on airport transfer service. Right now, airport transfer market is about 1 billion USD market size. Our company 0.1% market share, very big potential for growing our company. But we grow with a long term aim, we expand service goals, demand side and supply side. 

Tim: Okay. Let’s talk a bit about Japan in general. And still thinking about the Uber model, so actually, one of my most popular episodes of Disrupting Japan ever was about why Uber failed in its Japan market entry and why that approach to ride sharing just won’t work in Japan. But other companies like Halo have also come in and didn’t do well here either. Do you think that the ridesharing market is just something that will not develop in Japan, that is not needed in Japan? Or do you think there is a different approach that might work in Japan?

Sota: I think Japanese government will be very strict for taxi industry. So, if similar to US with its model of ridesharing in Japan, the chance so low in the future, I think it is very difficult for the Japanese government to change. But last years that share rides, share shuttle, so it could be a change in the future, I think. I hope it can be changed.

Tim: You know, I also know SmartRyde has an office in Hiroshima.

Sota: Yes, headquarter in Tokyo and office in Hiroshima. Hiroshima is very famous sightseeing spot but not good access and not comfortable to the local transportation.

Tim: It would seem to me that if you’re focusing on like domestic travel, Kyoto would be the natural choice, everyone goes to Kyoto. Was the Hiroshima choice just Kyoto has much better airport transportation already?

Sota: Actually, last year Hiroshima airport we privatized. I think so, maybe chance for us because Hiroshima airport to Hiroshima central city is very far. 

Tim: That makes sense. Domestic travel in Japan is still fairly active. So after Hiroshima, are you looking at Kobe or Fukuoka or these secondary tourist destinations? 

Sota: Yes. Now we are looking for next area in Japan like Okinawa, Hokkaido, and Kyoto, so something like that.

Tim: Let’s go back to our little talk about university startups. So what should Japan do to generate more University startups? All of the attention and the money tends to get focused on Todai and Keio and the big universities, but there’s so many good ideas and so many innovative people in other universities around Japan. And you mentioned you didn’t care much for support from the university. So what should these universities be doing?

Sota: Currently, University of Tokyo and Kyoto, Tohoku University already have a university fund. I think they were built a fund for each university in Japan. And also, they should held pitch and presentation opportunity. When I was a current student, there is almost nothing to this opportunity.

Tim: That seems like something relatively easy that universities, even small universities could provide. Is the opportunity for pitch contests and — well, raising a fund isn’t easy, but with the success of Keio and Todai, hopefully other universities will be able to follow. But was there like a founders club, a founders circle of students at the university?

Sota: If I return to the universities, we wanted to join a community.

Tim: Honestly, in my opinion the community is like the most important thing. 

Sota: Yeah.

Tim: You can pour lots of venture capital money into something, you can have great deep technology, but the community of founders exchanging ideas and brainstorming and helping and criticizing each other, that’s where the real innovation comes from.

Sota: Yeah, I definitely think so.

Tim: Well, listen Sota, before I let you go, I want to ask you what I call my magic wand question. If I gave you a magic wand, and I told you that you could change one thing about Japan, anything at all — the education system, the way university support startups, the way people think about risk, anything at all, to make it better for startups and innovation in Japan, what would you change?

Sota: I think culture.

Tim: In what way? 

Sota: In Japan, almost people move to the traditional company, not major to move entrepreneurs. That’s so in the US, major in entrepreneur, so now is not culture in entrepreneur in Japan.

Tim: Let’s dig into that. Because I think you’re right, we definitely want more people starting startups in Japan or going to startups in Japan. But why do you think people don’t do that? What’s stopping people from starting more startups?

Sota: There is nothing opportunity to join the community in the young generation. 

Tim: So it goes back to community. 

Sota: Yeah, go back to our community. It is very important.

Tim: Before, I was talking about the community was so important for exchanging ideas and innovating and critiquing each other. And I think that’s true everywhere in the world. But uniquely in Japan, do you think the community is important so that the founder doesn’t feel like he’s alone, that he doesn’t feel like he’s like the only one doing this strange activity?

Sota: Yes, yes. I think founders should go outside Japan,

Tim: Yeah. A lot of guests on the show give that same advice but sometimes they have different reasons. So what would you hope people would learn traveling outside of Japan?

Sota: Of course, language is very important. Because if founder expand to global, definitely the English, and also shoot run outside Japan commercial cultures. Very big different from Japan and outside Japan.

Tim: Like what part? What’s the most important difference? 

Sota: Teams, cultures, and also equities and salary. All things are big difference from Japan and outside Japan.

Tim: Oh, just kind of abandoning the traditional corporate structure and doing a more Western, lightweight, flat hierarchy?

Sota: Yeah, flat hierarchy is very important for diversity.

Tim: Do you see that changing in Japan? Because it looks like we’re seeing more and more of those kinds of companies these days.

Sota: I think startup company and venture company already changed for culture, but traditional company continue old culture in Japan. 

Tim: Yeah. The big companies are always the last to change like everywhere in the world. 

Sota: Yes. 

Tim: Well, listen Sota, thank you so much for sitting down with me. I really appreciate it.

Sota: Thank you for taking the time.

Outtro

And we’re back. 

Let’s explore the idea of what defines a market and what really defines competition in that market. 

Now, I admit, the first time I heard about SmartRyde, my initial thought was, okay, ride sharing has already solved this problem, but has it? Before Uber, Grab and Didi, you could just have easily have declared that taxis have already solved this problem. 

When Uber and other ridesharing companies disrupted the taxi market, they became the incumbents. They reset consumer expectations. So let’s look at this market with fresh eyes. With Uber and Grab as the legacy companies rather than the innovators, let’s take a look at how their innovation playbook can be used against them. 

Uber was a clear improvement over untrusted cabs and local taxis, which could be hard to find and who are able to price gouge out-of-towners with little fear of consequence. Okay, good, good. But we’re not done here. Let’s reset the expectations, not to the old taxi system but to the current taxi plus rideshare system. So, is Uber really safe enough? Their drivers are not pros and we’ve all heard the stories of drivers committing crimes, and maybe landing at an unfamiliar airport trying to connect to local Wi-Fi with your arms full of luggage, and then figuring out where the correct pickup points are isn’t the best user experience. 

If you travel internationally, you’d better have active Uber, Grab and Didi accounts, and check ahead to know which one you should be using. Maybe it would be a better experience to know that there would be someone waiting for you with a sign with your name on it. Would you pay an extra $10 for that, an extra $20? Of course, identifying the opportunity is the easy part. 

Trying to build a global brand based on quality in a price-sensitive, low-margin, low-barrier industry is a hell of a challenge. But you know, that’s the same challenge Uber and Grab faced. So it’s obviously doable. 

SmartRyde’s big challenge, at least as I see it, will be defending that brand and their market from competitors once they create it. But we’ll have to wait and see. Sota and the team seem well on their way to achieving that in Japan. 

With the pandemic hopefully coming to an end in 2022 and the world getting back to something like normal, soon SmartRyde will have the chance to really go global. 

 

 

 

If you want to talk more about travel and getting ripped off at the airport, Sota and I would love to hear from you. So come by DisruptingJapan.com/show189 and let’s talk about it. If you leave a comment, I guarantee Sota or I or maybe both will respond. And hey, if you enjoy the show, tell people about it. In this age of omni channel ads and reviews as a service, you’d be amazed how much power your honest recommendation has. 

But most of all, thanks for listening and thank you for letting people interested in Japanese startups know about the show. 

I’m Tim Romero, and thanks for listening to Disrupting Japan.