How to Create a Micro-Startup in Japan – Patrick McKenzie

Links from the Founder

• Patrick runs the Kalzumeus blog
• Check out some of Patrick’s (aka patio11) prolific writing at Hacker News
• Stripe’s Atlas Program
• Check out the Kalzumeus podcast, and tell Patrick to make more of them

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Transcript from Japan

Disrupting Japan, episode 74.

Welcome to Disrupting Japan, straight talk Japan’s most successful entrepreneurs. I’m Tim Romero, and thanks for joining me.

One of the things I enjoyed most about making Disrupting Japan, is not only do I get a chance to sit down and talk with some of the most innovative people in Japan, but I hear from people all over the world who are thinking about bringing their company to Japan, or who are deeply involved in the startup scene in their own country, or who just have a love of Japan and enjoy hearing about startups and how things are changing here.

I also get a pretty steady stream of inquiries from listeners with a very specific Japan-focused dream. There are a lot of developers all over the world who want to move to Japan, maybe move to a Japanese company, study the language, and then start some kind of internet business that would give them the financial independence and the freedom to just live your life in Japan. Well, if that sounds appealing, I’ve got a treat for you today.

Today, we’re going to sit down and talk with my friend, Patrick McKenzie, and we’re basically going to give you a blueprint for doing exactly that. I’ll warn you in advance, it might not be as easy as you think it is, or as rewarding as you imagine it might be, and in fact, in the end, Patrick left that life behind. Before he did that, however, he created not just one, but two successful online businesses, that he ran from the comfort of the Japanese countryside. Now, you’ve probably never heard of either of Patrick’s companies, but he’s a more important part of the Tokyo startup ecosystem than he likes to let on. He’s an advisor, a connector, and someone whose name just keeps popping up in Tokyo’s startup scene, and he has a really amazing story to tell.

So let’s hear from our sponsors and get right to the interview.

Tim: I’m sitting here with Patrick McKenzie of Stripe and of Kalzumeus software, and the illustrious Kalzumeus podcast, as a matter of fact. You’re really a unique figure in the startup ecosystem in Japan and you’ve done something that I think a lot of our listeners dream about doing, which is running two companies on your own here. Your ideas, your marketing, your coding, and bringing them to fruition, and so thanks for sitting down and talking with us today.

Patrick: Thanks so much for having me, Tim. Hidey-ho, everybody, I’m Patrick McKenzie, better known as Patio11 on the internets. Micro tip for everybody: memorize a self-intro that is one sentence long and then you can just play it on every podcast, from now to eternity. I don’t know if I’m a very important person, but I have a less than common life story, so people apparently like hearing it.

Tim: Well something that I think should be more common. You did what a lot of people want to do. You became a micro-startup. You went from idea, to code, to product, not once, but twice, in Japan. In fact, you were living in the countryside while doing it, so literally, doing your own business from anywhere. Before we really dig into the mechanics of those companies, let’s back up and talk about you for a bit. Why Japan?

Patrick: I have an odd answer to this question. I grew up with my father and every day, as our father-son bonding activity, we would read the Wall Street Journal together. And when I was studying engineering in school, the Wall Street Journal was very insistent—this was back in the early 2000s. All of the engineering jobs were going to India and China, so I was getting a lot of parental pressure, “Go get a W-2 job at a nice, big megacorp, something which is safe and stable, with healthcare,” and my inaccurate assessment of the world, from my perch in St. Louis at the time, was that basically only existed in the United States at Microsoft, so I wanted to get a job at Microsoft, but I didn’t think I was the sharpest knife in the coding drawer, so I thought, “If I could combine a language that was commercially reasonable for software development, with the actual skill of doing software development, then Microsoft would have to give me a job, as like the product manager of X country Excel. And if I did that, I would be only competing against not 100,000 people who were graduating in India and China every year, but only the small subsection who had mastered the same language and were also fluent in English. So I asked my university, “Can you give me a list of every language the university teaches?” I went down the list on how many billions of dollars of software does this country make and how many billions of dollars of software do they buy? And Japan was number one on this by a longshot. So I immediately signed up for Japanese 101 and I think about one hour into learning the Japanese language, I was like, “Yep, this is clicking with me. I’m totally going to major in this.” So I majored in that and in engineering and then when I graduated, I was like, “Can I, in good conscience, go to Microsoft right now, and say, ‘You should make me the product manager of MS Excel Japanese version.’” I thought, “Well, I know nothing about anything and my Japanese is good enough to have a conversation, but probably not good enough to lead a project management meeting.”

Tim: Actually, the idea of combining engineering with another skill is a really good one for anyone, whatever that other skill or other passion happens to be. Did you try to market yourself? Did you try to get a job combining those two skills straight out of college? Or were you really kind of headed for Japan at this point.

Patrick: I was terrible at this. I was actually—randomly met someone who it would be professionally advantageous to know if that was the career past plan, and when he heard engineering degree plus some level of Japanese conversational fluency, he asked me to apply to his company on the understanding that he would immediately be able to say yes to the application. And I heard that and did not take action on it because I was worried about it being too much. Meanwhile, I could just send him an e-mail saying, “Hey, I graduated now. Can I have that job you promised me?” When I graduated, I thought my Japanese not sufficient to run an engineering meeting in Japan right now, so I will go over to Japan after graduation, work as a translator for a few years to firm up my business Japanese, and them come back and get a job with Microsoft, was the plan.

Tim: Okay, it seems like being in St. Louis, it would actually be harder to get a job as a translator in Japan than it would be to get a job as a product manager at a software company in America.

Patrick: Yeah, you would think that, right? I think this is one of the many times in life where people don’t have a great idea for what is easy and what is hard. They just have an idea for what is like the well-trodden path and what is not the well-trodden path, at Washington University, which was where I was going to school. One well-trodden path was applying to the JET program. There is an A4 sheet of paper that you just put your name on and boom, that takes off—

Tim: A clear path from A to B.

Patrick: Yeah, a clear path from A to B. I’m like, “Oh, I will apply to the clear path from A to B,” and applied to the JET program. They assigned me as a coordinator for international relations, prefecturally sponsored technology incubator and Gifu prefecture. If you’re not too familiar with the JET program, they do 3 things: the big one is they send people without much Japan experience or knowledge of the Japanese language to be ALTs, Assistant Language Teachers at Japanese schools, to have a foreigner with native pronunciation of English teaching there. And then their much smaller thing is they place translators and interpreters at a variety of governmental and quasi-governmental organizations.

Tim: But at this point, your Japanese wasn’t good enough to be a translator, right? So you were going in to be an English teacher?

Patrick: No, I actually went in as a technical translator. Whether my ability was sufficient translator was perhaps up for debate at the time I landed in Japan. Dove in head first and started doing things.

Tim: Learned on the job.

Patrick: Yeah, and that was jumping off the deep end and hitting every diving board on the way down, but—

Tim: So, after coming over with the JET program, you decided to stay, you got a job, you were a salaryman basically for a while, right?

Patrick: Yeah, I worked for 3 years on the JET program and really loved living in Ogaki at the time. I was living Gifu, but didn’t really see much of a career path along translation/interpretation for me, so the grand tradition of Japanese business deals, I was taken by someone who owed me a favor, to one of his clients, for what was messaged to me as a job interview. And I had no clue, after an hour of talking, how I had done at the job interview, and they said, “Oh, of course, you had the job before you walked in the door. We just wanted to meet you.” How does one get the job before one has the interview? Because Japan, right?

Tim: Right, right. You were there in an engineering role.

Patrick: I was an engineer first class for 3 years.

Tim: This is something I think, particularly for foreign engineers interested in Japan, the engineering culture in Japan and in the US is really different. Engineers don’t have either the level of respect or the career path in Japan that they do in the US. And you must have run head first into that.

Patrick: Oh goodness. So about a year into my work with the Japanese company, I was feeling a little at the amount of impact I had, which, as you might imagine, was very little, given that I was fairly good at what I do, and the company agreed that I was fairly good at what I did, I thought that I was going to be allowed to make decisions that were broader in scope than, “Here is a JIRA ticket. Implement the task in the JIRA ticket.” It wasn’t actually JIRA—whatever our ticketing system was at the time. And my boss sent me down and said, “I understand your situation is a little unique, but you will be able to make any decision that you want after you are a CEO of the American subsidiary, at age 54. Let’s work backwards. You’re 24 right now; here’s your 30-year career plan,” and he mapped out, in 3-year increments, what would happen over the course of the next 30 years. And to this day, I think he was absolutely sincere and probably accurate in month by month and the precision of that career path, but it just doesn’t make sense, relative to the expectation that one could do a startup and be able to make the consequential decisions immediately, rather than putting in 10 years of time first.

Tim: Even if you don’t have the bug to make a startup, I think there’s something somewhat terrifying about having the next 25 years of your life mapped out for you like that.

Patrick: Yeah. It’s also weird to have it be invariant among people, regardless of what their personal goals are, or what their lovely capability is, or after it’s been announced that you have a 30-year career plan at one company, your optionality in terms of walking less travelled paths, then your life goes much slower. I think there is a lot of folks who benefit from trying a few things out in say, their early 20s, before settling on a path that makes a little more sense to them.

Tim: Well, I think the bulk of humanity would benefit from that.

Patrick: Yeah. Natural progression is not something that the mainline Japanese companies really encourage.

Tim: How did your Japanese co-workers do in this environment? Were most of the Japanese engineers you worked with happy to have this 20-year career path mapped out for them or were a lot of your co-workers quietly feeling the same things you were?

Patrick: I think that was different for different people. Some folks very much responded to the salaryman culture. Two of the most talented engineers I’ve ever met in my life worked at that company. I often get asked on the general level of engineering talent level in Japan, and much like in the United States, it’s all over the map. So these two gentlemen, I would stake against literally anyone in the Googleplex, and then of the 80 remaining engineers in the company, I do not have wonderful things to say in regards to web application development. One of those two engineers wanted to create a business on the side, much like I was doing it, at roughly the same time, mostly to get technical challenge that he wasn’t allowed to undertake at a systems integrator. He coded up basically the GitHub of Subversion, and got it to the point where it was ready to deploy the next day, and then had a frank conversation with his wife on what the consequences would be of deploying that as an employee of the Japanese organization. And he came into work the next day and told me that he had made the decision to not move forward with the project, and deleted all evidence of it ever existing.

Tim: Oh my God. So his wife just basically said, “Look, you’ve got a good thing going. Don’t mess it up with your crazy dreams,” type of a talk?

Patrick: Basically that kind of talk, with a little bit of, “What if someone at work discovers this? How will they feel about it?”

Tim: So you were in a job you felt wasn’t particularly challenging for you technically or creatively? Well, you started both Bingo Card Creator and Appointments Reminder during your time in Gifu. Why did you pick these two particular niches? It seemed sort of random, but I know there’s some method to this madness.

Patrick: More madness in the method than most people give me credit for. I’d always been scheming and dreaming ever since I was growing up and had a lot of side projects that never saw the light of day. You get into a new project, everything is new and fun, and working out designs is very easy, drawing up wire frames, etc. Then you actually get into the nitty-gritty of actually having to build something and get it out to the market and one’s desire tends to flag in the harsh light of actually having to do the real work. Having experienced the fit and start thing for many, many years in my life, I thought, “Okay, this is going to be the year that I actually ship something and the only thing that will let me successfully ship something,” as opposed to having another project going to the dustbin, is to have such a radically confined scope that it would be easier to ship it than to not ship it. So I picked Bingo Card Creator, which one of my friends describes as Hello World attached to a random number generator. And the reason why I picked bingo cards out of all the problems in the world was as simple as, someone asked on the prefectural self-help group for foreigners living in the prefecture, how to make bingo cards for class, “I want to be able to play elementary school English bingo on Friday.”

Tim: There’s something to be said for solving the problems in front of you.

Patrick: And I thought, “My engineering estimate is that would take approximately one day of work,” and I put it up, and started taking money via PayPal and whatever.

Tim: Okay. You delivered it to your first customer. That’s the easy one. Over time, though, most of your customers were not in Japan. They were overseas. And that’s true for both of your companies. So did you try to market to the Japanese and just there was more interest overseas?

Patrick: There’s a two-parter version for this. I was still employed at the day job. Folks working overseas may not realize this, but in Japan, if one works for a company, one’s tax return is done for you by the company. So I asked my company what the consequences were, for the tax return, of me running a side business. And they asked me, “We don’t know what the consequences are and looping in our accounting seems to be a whole lot of pain. So if you can agree never to sell anything in Japan, we won’t have any tax consequences, or so we believe, and you deal with the IRS like you do every year.” So I intentionally did not market Bingo Card Creator in Japan until after I had left. And then after I’d left the day job, I had pretty rapidly came to the conclusion that more work put into SEO or in AdWords, or in blogging, etc., had a very clear path to high ROI versus the speculative work of localizing Bingo Card Creator into Japanese and then having to sell it in the Japanese market.

Tim: With Appointment Reminder, was it the same process? Did one person ask you for it and you decided you could sell it many times?

Patrick: I definitely went about getting the idea for Appointment Reminder the wrong way. Twilio came out and Twilio is an API that allows one to make phone calls and SMS messages. And I played around with it after it showed up on Hacker News. I thought, “This is the most amazing technology I’ve touched in my career. There must be businesses that can be built on top of this. I want to make one.” And I had a notebook full of ideas for—I listened to every kind of repetitive phone call that I could conceive of a business making. I was trying to think, “Okay, which is the one I’m actually going to build a product around?”

Tim: So you really had a solution, looking for a problem, quite literally.

Patrick: Yeah. And the one which got the nod was Appointment Reminders because I went into a local massage therapist in Ogaki one day. Went out to the massage therapist and just walked in without an appointment and asked if I could have one. They said it would be an hour and a half wait. I said, “I’ve got a Kindle; that’s no problem,” and sat down for an hour and a half, and not 10 minutes later, she came back and said actually she could see me, but it would have to be right now, and she said she had a no-show for the 1:00 appointment. And I said, “That’s interesting. Appointment reminders are one of those things in my notebook. I might as well ask.” I said, “Do you call people before they come into their appointment?” and she said a very consequential line, “I’m a massage therapist. If my hands are on a telephone, they’re not on someone’s back, and if they’re not on someone’s back, I’m not getting paid. I don’t make phone calls.” I thought, “Ooh, that is a very interesting thing to hear.”

Tim: That sounds promising.

Patrick: A few weeks later, when I went back to Chicago to see my family, I went to a Bank of America ATM, took out $400, walked out of the Gold Coast in Chicago, which is one of the nicer sections of town that has lots of high end salons and massage therapy places, etc. I would just walk into all of them, ask to see the proprietor, ask to pay for the 30-minute whatever it was, and then say, “Okay, switcharoo. I’ll still pay you for 30 minutes, but I actually just want to talk about the business aspects of running a massage therapy practice. Tell me about your appointment practices, yada, yada, yada.” And after doing that for a couple hours, I felt pretty confident that Appointment Reminder was something I could sell. So I actually went around and built it. I had a little one-page mock up demo that I could access on my iPad to show them, which would fake everything, except the phone call, basically.

Tim: Okay. So you went back to Japan, you built it, you supported it. Most of the selling, for both products, was online SEO. So the idealized version of this, you’re working 4 hours a week or something and the money is just coming in. How far from reality is that? How much time were you spending supporting customers and dealing with the business?

Patrick: So, Bingo Card Creator was basically built to be a business that I could run in 5 hours a week because I was a Japanese salaryman and didn’t have more than 5 hours a week to spare. That was largely accurate. I considered coasting on the success of that one for virtually indefinitely after I quit. I was kind of burnt out from being a salaryman, and I kind of felt like I would never want to work another day in my life if I could avoid it. I’ll give Joel Spolsky full credit for talking me into my senses. Basically, we had a conversation one day and he said, “People who are given certain abilities owe it to the world to make the best use of those abilities on behalf of the rest of the folks,” and I buckled down to a point where I shipped it about 2 months later after that conversation. How much actually worked over the next couple years fluctuated with how interested I was in Appointment Reminder. One of the great problems to that business was that after I had grown one business to several thousand customers and hundreds of thousands of uniques, etc., that wasn’t a new challenge for me anymore, and every time I looked at doing it for Appointment Reminder, I found other important things that needed to be done, like tax filing, or literally anything other than network.

Tim: At some point, did it hit the stage where you knew you could grow the business large enough that you wanted to bring on other people to handle these taxes and administration, or did you think about turning it into a scalable company, instead of a one-man show?

Patrick: I planned very early in the life of my reminder app, I’m just going to do this for a little while, figure out what the dynamics of the business look like, and then make a case for getting investment. More than a few folks in my extended social circle were saying, “Look at these idiots out in Silicon Valley, getting money for Uber for dogs. Clearly you can do better than that.”

Tim: If you spend too much time reading Hacker News or Tech Crunch, you get a little distorted idea of how the world and how finance works.

Patrick: I’m glad I didn’t actually end up pulling the trigger on racing a seed round for Appointment Reminder. It would have worked. The business fundamentally worked. It made profits for about 5 years before I sold it.

Tim: Why are you glad you didn’t go down that route? It seems like a good, solid business.

Patrick: It is definitely a solid business, which I didn’t enjoy running that much. And I think partly out of a professional concern for my investors, I would have thrown myself into it much, much more than I did over the course of the 5 years where I was running it, which would have been possibly a successful outcome to investors, but definitely wouldn’t have been a happy outcome for me, even though it would have probably made more money.

Tim: Were you just concerned about going back to the almost salaryman life again, being kind of confined in what you do?

Patrick: Being confined in what I could do, losing optionality to try other things that appealed to me, but I have very few regrets over how it shook out.

Tim: So it sounds like you were in a really good place. You had two successful products that was providing you the kind of lifestyle you wanted, you had the option if you wanted to increase your income, either producing new products, or, as you mentioned, getting investment and growing one of the existing ones.

Patrick: Just to give folks a little bit of perspective, if you’re not familiar with the story, sales back in the day, 2011 to 2015ish timeframe, were in the low 6-digits every year, so for sustainable for a one-person show, we could have done that indefinitely. And then the question is why did I not do the indefinitely, right? So sheer boredom, one big reason. The other being that overpowering sense that I was not put on Earth to optimize the schedules for dentist offices. Not to knock it at all, but there’s a lot of little businesses in the world that do their one thing and then you go home at 5, and then that’s it. And that is fine, those are wonderful things to have in the world; I won’t look down at anybody’s local bookkeeping firm. But I felt the need for new challenges and the ability to make a more positive impact than literally just managing the schedule for 200 dentist offices.

Tim: Well, did you think about bringing in other people to manage the business and do the parts you didn’t enjoy?

Patrick: So I want to say late 2014, I brought in an employee to—well, contractor technically—to Appointment Reminder, with the goal, first outsourcing customer support, and also developing a scalable sales process for it and having her do most of the execution on that. And that worked reasonably well. She worked for me for I want to say a year and a half before finding a better offer, and then a person did essentially the same duties for approximately 6 months before I sold the business.

Tim: At this point, you had Appointment Reminder running—I don’t want to say on autopilot, but without a lot of your hand-on anymore, right? So it was something that was wrapped up and relatively easy to sell.

Patrick: Yeah, it turns out that people who want to buy software businesses often aren’t buying because they want to execute on them full-time or full-time-plus-plus that a lot of software entrepreneurs execute at. Many of them are buying them for reasons similar to reasons why someone might buy an apartment building or buy a Subway franchise. So if you happen to have an existing business where the tech is done, there is an existing sales process, there is a team in place to execute on the existing sales process, and they can just pay for cash flow. They want to pay for cash flow, and maybe pay for some potential for upside. I want to say the day after my broker listed it, we had 4 bids come in, 3 of them at the asking price. Many of the folks that I know in the software industry are surprised that there’s so much liquidity for acquisitions on a smaller scale like this.

Tim: Is this something you think you might do it again? Are you sort of done with that life?

Patrick: I think I’m certainly going to run a business again. I don’t exactly know at this point in my life whether I will do a business on the smaller scale that would support myself and my family, and not much more, or go for the full startup rigmarole again and try to get on the VC-funded rocket ship. I ran two business that were no great shakes, but the thing that I’ve enjoyed most, professionally, over the last couple of years, is blogging, speaking to other entrepreneurs in the community, etc. And people seem to think that I actually know what I’m talking about, which is a little terrifying, but I know that my biggest impact on the industry was not actually the things that I shipped for money, but was advice that I gave to other people, and that they employed in their careers or in their startups. And there’s a couple of unanswered problems in the software industry—like how we hire is done terribly or how we support companies in their very early stages is something that the industry doesn’t really have an answer for right now. And I thought, “I would like to work on those big systemic problems and be able to look back on my career and say, “Hey, I moved the needle on that,” rather than, “Yep, I created the minimum viable software vending machine to spit out $250,000 a year,” and then coast off into the sunset.

Tim: Well, I think a lot of people are very interested in having a lifestyle business. For a lot of people, the ideal is having a couple of small projects that they’ve coded, and are running, and are financing their lifestyle—perhaps because they haven’t done it yet. As someone who has done it, what advice would you give people who are starting down that path or who are thinking of starting down that path?

Patrick: Folks who are still in the scheming and dreaming phase, the number one failure mode is just not shipping anything. You can read every blog post about market validation; if you don’t actually get out there and talk to customers, you will never sell a single dollar worth of product, so spend less time consuming, and more time producing, whether that’s producing product for sale, or producing a list of external demands, which you quickly transform into an actual product that you ship to customers.

Tim: Like you mentioned, in both cases, even if they weren’t a world-changing product, in both cases, you had an existing user before you started coding, so you were solving a real problem.

Patrick: Yep. I think people tell a great lip-service about that whole customer validation thing, but it’s very easy to say you’re doing it and not actually do it. And I say this as an introverted engineer myself. It’s seductive to just fall into the code cave for 6 months, and then build something wonderful, and feel like if the world doesn’t beat a path to your door, then that’s the world’s problem.

Tim: Well, there is tremendous joy in just creating something that is beautiful and has some kind of intrinsic value, some intrinsic function. That in itself is rewarding, although perhaps not financially.

Patrick: Yeah. I think there is absolutely nothing wrong with creating just for the sense of creating, but if you want to have a business and charge people money, and be afforded the luxury that charging money gets you, which is the ability to do it full-time, then you’re ultimately going to have to make some nard-nose business decisions like, “Is there a market for this thing? Can I charge that market appropriately?” I absolutely don’t want to discourage anyone for hacking on something just because they get the itch, but for the things where you’re going to be gambling your family’s ability to make rent, do the customer validation, have a customer before you write one line of code, and ideally have commitment in principle from someone that will pay you the full amount of money before you write one line of code. That’s something that I wouldn’t have agreed with when I started, by the way. I thought it was borderline fraudulent to ask someone for money before you had written something. And I was worried about even suggesting the availability in the future of something when I was doing customer—

Tim: You get very different responses when you ask if something would pay for something than when you ask if they will pay for something.

Patrick: Exactly. A lot of engineers say it’s the word vaporware and we’re so overly conditioned to avoid it, that you would not want to sell any product that’s less than perfect. And then the “business guy” is totally willing to sell something on the basis of a one-hour long conversation over coffee and then the one-page ROI. And I think engineers who aspire to be entrepreneurs should get comfortable with the notion of drawing up what someone’s pain points are and what about their business is dissatisfactory to them and saying, “Okay, if we can imagine a world where I solve that, is that worth a certain amount of money?” And if, and only if, it is, then we’re on the path of fixing that. If you can’t convince a customer to say, “Okay, in the hypothetical world where I solve this, is that worth $1,000 to you?” then what is actually solving the thing going to get you that you don’t already have?

Tim: Well, I think you’ve hit on something really important, and that is if someone wants to be a one-man show—and that’s fantastic if they do—they have to wear a lot of hats. They have to get out of the comfort zone and they have to be able to push prospects a little bit to get them to commit, they have to be able to back off and be empathetic when you’re wearing your support hat. For the rest of the time, most of the people that want to do this, they know how to code already. You have to push yourself to do the things you don’t want to do.

Patrick: Right. If you feel most self-actualized when coding and building things, and you think, “I want to get paid just for building,” then what you really want is to be an employee. That sounds a little harsh, but that’s true. If you want to run a software business, coding becomes somewhere between 10 and 20% of the job. Then the remainder is marketing, sales, going down to the tax office and finding out what a is and how to actually file one of those things without getting jailed, it’s dealing with things like compliance—

Tim: I think that’s an incredibly important insight. If you’re only spending 10 to 20% doing the coding, which is what most people with this dream love doing, yeah, that’s something you maybe want to take a second look whether this is the right lifestyle.

Patrick: I’d say there’s a spectrum among my friends who run product businesses over the internet and how much they engage with the business side of the business, versus just on the producing things. But just being 100% focused on producing things is probably not viable.

Tim: Yeah. If you really love producing things, you either need to be an employee, or find co-founders who love doing the selling or love doing the support. Recently—I don’t know if it’s recently—but I’ve noticed over the last 10 years or so, there seems to be an increasing level of interest in Japan among engineers in the US and Europe. Is this something you’ve noticed as well?

Patrick: If you look at US engineers of, say my generation and 10 years younger, there is more of a cultural affinity for things made in Japan than there is for things made in France or in Italy, largely through things that are geeky in nature, so anime, manga, Japanese video games, etc.

Tim: What advice do you have for western engineers who are thinking of coming to Japan, either with the same dream of having a lifestyle with a running side project here or just coming to be in Japan and work at startups here?

Patrick: I have a bit of advice, which I need to say, because it’s useful, which will be received by many people who hear it as a bit of a bummer but I feel like I need to say it anyhow.

Tim: That’s often the best type of advice.

Patrick: If you want to work in Japan, in a professionally focused role, you owe it to yourself and everyone who deals with you professionally to learn the Japanese language very well. Learning the Japanese language very well is a long commitment. I probably studied full-time for 4 to 6 years before I would have been capable of having a conversation like this one. There is a lot of folks who—I don’t want to stereotype here, but to stereotype—love Japan because they watched the entire Arc of Kenshon and think that, “Oh, I’ll just go and work at a Japanese company to live in the land of Kenshon while doing my day job and you’ll find that the vast majority of Japanese companies aren’t really set up to metabolize someone who is not capable of working in the Japanese environment.

Tim: You just think a lot of people have kind of unrealistic expectations?

Patrick: Yeah. Also, just operationally speaking, living in Japan, if you don’t speak the language, must be difficult. A lot of folks who come to Tokyo on the expectation that they can make that work kind of get side-tracked into the ex-patriot community and end up having—

Tim: It is a difficult language to learn, even if you are committed to it. And maybe it’s different if you can afford to study full-time, but if you’re committed to it and studying in your off hours, you’re looking at a few years before you can get around and have normal conversations.

Patrick: That isn’t even the bar if you’re running a business. If you aspire to live in the Japanese countryside, there will be a day when you have to go to the local tax office and ask them about, “How does one account for appreciation on an intellectual property asset?” And those are not fun conversations to have if you don’t feel very—

Tim: I still have problems with those kinds of conversations.

Patrick: Yeah, Japan is getting better about accommodating people who don’t speak Japanese, but slowly and not at a pace that is professionally relevant for folks who want to, say, found a business here.

Tim: So make sure they understand—

Patrick: Know what you’re getting into.

Tim: Yeah. What they’re really getting into. And make a commitment. That is something that seems to keep coming up, being committed to the country, either as an individual learning the language, or as a foreign company coming into Japan, hiring local staff and setting up and office. Japanese, both citizens and corporations, are extremely sensitive to and supportive of, the level of commitment you’re willing to make to the country.

Patrick: I think that is true in Japan. This is one of the actual advantages of being a foreigner in Japan: if you have Japanese that is at a certain level, just the fact of being Japanese, then that level is kind of a costly demonstration of commitment. It’s also a costly demonstration of competence, where much of what startups deal with in hiring is trying to figure out, of 100 applicants who applied for a job, who will actually be good at doing the work? And who will be able to do arbitrary hard things when we throw arbitrary hard things at them? If in your first conversation it comes up, “Oh yeah, I’ve achieved a decent level of proficiency in the Japanese language,” you already have a gold star next to your name in terms of the “Can deal with arbitrary hard things” department. I would not have accredited this as being true when I was younger, but I accredit it as being true now. There’s not enough people in the world who are able to go after a goal over a multi-year time horizon and get through little silly things that get in the way of getting a goal. That is a useful skill to develop in life, whether studying Japanese, or building businesses, or any other worthwhile thing you want to do.

Tim: Yeah, absolutely. What do you see as the biggest weakness for Japanese startups right now and what do you think is really going right here?

Patrick: I think this is inevitably going to be a comparative answer. The Japanese startup scene is quantitatively and qualitatively much, much weaker than, say, the Silicon Valley startup scene. What’s different about them? One of the salient differences is that there’s generations of startups and then each generation begets the next generating. The folks who were involved in PayPal, for example, are now running venture capital firms. They developed operational experience, they developed their own personal networks and they were able to leverage those for the next few things that they did. Because the Japanese startup ecosystem is far less than mature, it’s been through a lower absolute number of generations. And because the impacts of each startup that succeeds in Japan are generally concentrated into fewer hands, and in less widespread networks, the ambient level of every useful thing in the Japanese ecosystem is, unfortunately, far lower than it is in Silicon Valley for a while. If you are looking for a CTO who has been there, done that, and scaled the company from their first server, which he wasn’t afraid to get his hands dirty on through having a fleet of 1,000, and an engineering team of 120 people—

Tim: You could count those people on 1 or 2 hands, yeah.

Patrick: And there’s a million things like that.

Tim: At the moment, it’s a very shallow well here in Japan.

Patrick: Right, a very shallow well. Also, what startups really need to do is to take a chance on some people who aren’t proven yet that seem to be high ability, and throw them arbitrary challenges, and see how that works out. And that goes very against the grain of Japanese hiring practices and management cultures.

Tim: Oh yeah.

Patrick: And that is, unfortunately, a little bit of an impedance mismatch.

Tim: One thing I have noticed among Japanese startups, Japanese startups that are a founding team are much more often friends from university, or even high school, and maybe it’s just that’s how the Japanese are mapping a change from the current structure, which is entirely credential and experience-based to, “We have to figure this out; who can I trust to throw against this problem and know they’ll try their best?”

Patrick: Yeah. I think in Japan, if you get into a big name company, you hold onto that job for dear life, and then in the United States, it’s perfectly acceptable in the tech industry to put in 3 years at Google, make a little bit of money, and then decide.

Tim: Well, I think the big difference is in the US, you can decide it’s time for a change, and then you can go back into the big corporate world. In Japan, it’s very much a one-way trip.

Patrick: Right. You get your one shot at the brass ring of salarymandom and if you ever give it up, you may get hired as a subcontractor on a short-term project again by the big guys, but you’re probably never going to get back on the equivalent path of a lifer.

Tim: Right. You’ll never get back on a career path.

Patrick: The flipside of that is one of the advantages that Japanese startups have—and if you look for folks who are excluded out of the salaryman lifer—you can find folks who are very, very competent. Very good at what they do and itching for somebody to give them the ability to do something meaningful, and find them at prices which in the United States would be absolutely scandalous.

Tim: Absolutely. I think that’s true across the board in Japan, whether you’re looking at sales staff, or they’re looking at engineers or support staff. Yeah, very much true.

Patrick: Yeah, I think that’s one of the reasons why I’m bullish on the Japanese startup ecosystem long-term.

Tim: I think so too. There’s far more raw talent than has been absorbed by the existing startups. With that in mind, and before we wrap up, I want to ask you my magic wand questions. And that’s if I gave you a magic wand and I said you could change one thing about Japan, anything at all, to make it better for startups here, what would you change?

Patrick: If I wave my magic wand, then we change our definition of success or high-functioning individuals, such that one can have some small number of professional failures in one life, and still stay within the circle of successful high-functioning individuals.

Tim: So you would just change the attitude towards failure, or something broader than that?

Patrick: Right. It’s often described as risk tolerance. And I don’t think that’s quite the right diagnosis. I think that it’s just that people have irrationally calibrated risk tolerance, given that the consequences of being personally identified with failure here are absolutely catastrophic. You are not allowed any screw-ups basically. So the easier thing than saying, well to allow screw-ups, is to just decrease the cost of screwing up, to make it less than totally ruined for the rest of your life.

Tim: Okay. So it’s okay to keep the same risk aversion, it’s just people shouldn’t have to wear it like an albatross around their necks for the rest of their lives. It’s just part of life.

Patrick: Right. And I think if that were widely accepted as being true in Japan, the degree to which we see pathological levels of risk aversion would go down by a lot. If folks could just say, “A startup is just a phase that I’m going through for a year or two, to see if it works, and if not, then I want to experiment with something, then I’ll move onto get a job at Mitsubishi, or I could go get a job at Google, or I could go try another one.” Then there would be far more people willing to take a go of it and far more startups that would try to do bigger, more ambitious things than Japanese startups typically tend to do.

Tim: Do you see any motion in that direction?

Patrick: Measured on the scale of like the decade-plus I’ve been here? Yes, but measured over a very long time, there hasn’t. We’re making sustained progress slowly. My accountant had the brass ring, was working as an accountant at a large firm, and quit at age 25, and 3 months later, he had his own accountancy and now a couple years after that, he runs an accountancy with 80 people working for him that has household name Japanese companies as clients. If you had asked me in 2004, “In 2014, do you think any reject of a big firm will be able to start his own firm and get top 10 accounts to work with him?” I would say, “No, you’re crazy dreaming.” But he actually put that together. It works and he’s made a wonderful business for himself and his 80 employees.

Tim: So it is happening. We’ve got some real-world case studies.

Patrick: There are people who are making it work everyday in Tokyo and every day, across the country, and I hope that they will continue deploying the knowledge of what works and the narratives of what works for the benefit of the wider society here.

Tim: I hope so too. Hey, well listen, Patrick, thanks so much for sitting down with me. I really appreciate it.

Patrick: Thanks so much, Tim. I appreciate the opportunity.

 

And we’re back.

You know, one of the things that had the biggest impact on me during our talk was how Patrick explained his career path during his salary man days. I have never experienced it personally, but it’s not at all unusual for companies to plan out the entire 40-year careers of their new hires in a quarter by quarter detail. The whole idea of having my life mapped out like that would horrify me, but that’s just me—well, and Patrick, and well, actually a lot of other people too, I suppose. My point here is that this kind of thinking is one of the things that’s holding Japan back. You can’t plan 20 years ahead or make plans that you begin executing on in 10 years. It’s crazy. The world is simply changing too fast, and companies that are not able to think more flexibly, and change course when needed, not only won’t innovate, but won’t survive. And I think we’re going to see a lot of midsize enterprises go out of business as less and less government is available to prop them up here in Japan.

And you know, we didn’t get a chance to talk about it much on the show, but Patrick runs the Kalzumeus Podcast and it’s really worth a listen, when he bothers to put it out. The link is up on the site, and you should really check it out, and also harass Patrick into producing more than just 2 or 3 episodes a year.

Anyway, I found it particularly interesting that even though his base of operations, his inspiration, and his initial users were all in Japan, Patrick marketed in English to a global audience, rather than selling to the Japanese. Overall though, Patrick gave so much practical advice on building and running your own micro-startup. And even though he eventually left that life behind, I know that lifestyle is a dream for many, and hopefully you’ve got a better idea of what it’s really like now. Okay, let’s take a quick break and we’ll be right back with listener mail.

Okay, let’s see what we have here. TJ from New Zealand writes, “I love the website and the podcast. Keep up the good work. I was wondering if there was much demand in the Japanese startup scene for engineers with more of a hardware focus than software. From the look of the job sites like JUSTA, it’s almost exclusively software-based. I’m an engineer with a few years of experience working development of embedded systems and sensor design. I’m currently working on a master’s degree and I’ve been toying with the idea of moving to Japan once I’m done. Any insight into the hardware development scene in Japan would be greatly appreciated. TJ.”

Well, TJ, I’ve got some good and some bad news for you. The good news there are a lot of hardware jobs here in Japan. There’s tremendous innovation going on in the IOT space here, however—and I think this is what you’re running up against—the competition is much harder for hardware jobs than it is for software spots. Japan has a long history of world-leading hardware development, and there’s a lot of guys with decades of experiences, so those spots tend to be a bit more competitive than the software development spots. If you speak Japanese and you’re a talented hardware engineer, you’ll find a lot of companies to be very welcoming. If you don’t speak the language, it’s going to be a bit harder. Many companies are willing to hire software developers that don’t speak Japanese, but it’s much rarer to see this on the hardware side. Anyway, TJ, don’t lose hope; there’s plenty of startups that are hiring and the best way to land one of those jobs, other than sites like JUSTA, is to come here and network. So I hope to see you in Tokyo sometime soon.

Now, if you’ve ever wanted to start your own one-man business, Patrick and I would love to hear from you. So come by DisruptingJapan.com/show074 and when you come by, you’ll find all the links and sites that Patrick and I talked about and much, much more in the resources section of the post.

But most of all, thanks for listening, and thanks for letting people interested in Japanese startups know about the show. I’m Tim Romero and thanks for listening to Disrupting Japan.