Subscription boxes can be a tough business.

Most of these startups shine brightly as they burn through investor capital and flame out well before becoming profitable.

But there are exceptions. So today we sit down with Danny Taing, the founder of Bokksu, to learn what he and the team did differently, how they obtained substantial VC funding, and where they are going from here.

We also talk about Japan’s unique snack culture and the surprising insight is has to offer about Japanese culture in general.

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

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Show Notes

  • Why the world needed one more subscription box startup
  • What Japanese snacks (and food in general) are different
  • Strategic storytelling: aka “When you are talking about snacks, you are not really talking about snacks.”
  • Meet the world’s happiest QA team
  • Why Bokkusu could succeed when so many subscription-box startups ad failed
  • Growing from zero to 1,000 and then 1,000 to 10,000
  • What really goes into the box
  • Which Japanese snacks are most loved overseas
  • The strategic expansion to Bokksu Market and Bokksu Grocery
  • How a food startup can raise real money in a world of software-focused VCs
  • Why “Japanese culture” startups almost always fail

 

Links from the Founder

Transcript

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

I’m Tim Romero and thanks for listening.

Now, I’m going to warn you in advance. This episode is going to make you hungry. Danny Taing founded Bokksu to sell unique Japanese snacks to the world. And we spent a lot of time talking about sweet and savory snacks and all of the unique cakes and the baked goods so be ready for it.

Now, both subscription boxes and e-commerce from regional foods are both very hard business models for startups. They’re popular but almost all of them fail and fail fast.

Danny explains that when he started, almost everyone was highly skeptical. And by the way, that includes your humble narrator as well. I knew Danny when he was just starting. Well today, Danny explains what he did differently. How he evolved from skirting the law as a snack smuggler to growing a trusted consumer base to receiving $22 million in investment to building $100 million dollar company.

This episode is a masterclass on how you need to change not only your strategy, but also change who you are at every step of your journey. But you know, Danny tells that story a lot better than I can so let’s get right to the interview.

Interview 

Tim: So we’re sitting here with Danny Taing Bokksu, who is delivering tasty Japanese snacks to the entire world. So thanks for sitting down with us, Danny. 

Danny: Thanks for having me, Tim. It’s a pleasure to be here. 

Tim: That was a really simple introduction of Bokksu. I’m sure you can explain it much better than I can. So what exactly is it that Bokksu does? 

Danny: Yeah. So our mission is to kind of bridge cultures through authentic Japanese food and snacks and products. We do this by, as you just mentioned, delivering these delicious Japanese snacks worldwide in our monthly curated snack subscription box. We have a whole lot of products from there but I’m happy to get into that later. 

Tim: Yeah, and I do want to dive into it. You guys have come a long way. It expanded a lot since you started, and you’ve delivered over a million boxes of snacks, which is awesome. So what exactly is a subscription box? 

Danny: Many people already know about subscription boxes out there. But what makes box really special is that we directly partner with the centuries old family snack bigger businesses throughout Japan, everything from Hokkaido red bean buns to Kyoto matcha cakes and Okinawa chinsukos. These are products that are all Japan-exclusive, and a lot of times they’re even region-specific. We sourced them all there, curate them into monthly themes, and then ship them directly from Japan to about 100 countries around the world to our customers. And what really gets customers excited besides the delicious snacks is the fact that we always include what we call a culture guide magazine that explains that month’s cultural background, why these snacks are important, where in Japan they’re from, interviews of the makers, there’s just like a little discovery travel in a box that people love. 

Tim: This is something I wanted to get in later but we might as well get into it now. How long did it take you to realize the importance of that storytelling and that cultural explanation? 

Danny: So it was always something I actually sawed off to do from the beginning. For example, I founded the company in late 2015 and I solo bootstrap launched it in like early 2016. Actually, it was April, so it’s our six-year anniversary right now. And at that time, it was just me so there wasn’t a whole lot of storytelling I could do. And the first culture guide was like a two-sided postcard, because I did the copy myself and everything. So there was only so much I could really write and fit on there. But like from the beginning, I really wanted to tell their stories because all the snacks in Japan are so special. I lived in Japan for over four years, and every time I would receive one of these omiyage snacks, I would hear like, “Oh, this is like this famous Kagoshima, it’s like 200-year-ld family business or something.” And I was like, Holy God, we don’t have that in America. That’s very rare in the West to have something like that. 

Tim: It is. I mean, both in terms of the cuisine and in terms of like a small family that has been making the same type of snacks for four generations. It just doesn’t seem to exist in the US. 

Danny: Yeah. First of all, US is not even that old a country. Some of our makers are over 300 years old, they’re like older than America. And secondly, it’s just not that same kind of direct lineage that we have in America. It’s a little bit more, you know, Transia in some ways in that more modern and recent, but a lot of people love that. I love that. You see that even on Netflix documentary shows, where about food or people talk about Jiro, right, and his obsession with how long he has been practicing sushi and teaching it, and people get really into that craftsmanship. So from the beginning that was the goal, but I couldn’t actually execute on it until probably like a year or two into the business. 

Tim: You know, there’s almost a cliché that, well, we’re not selling x, we’re selling the experience. It’s horribly overused but I think you guys really nailed that. 

Danny: Thank you. Yeah, we pride ourselves quit on that. It’s actually advice I give other founders quite often when they ask me for help is that you have to sell an experience, a lifestyle, a brand. If you sell commodities, then Amazon will beat you every time and so you got to do something different. 

Tim: When we’re talking about snacks, we’re not really talking about snacks. 

Danny: Right. It’s not just a box of random snacks, yeah, yeah.

Tim: That’s awesome. And you guys have worked really hard to kind of maintain all of your marketing, your photography, your storytelling, it’s all in-house, right? Yeah, correct. Actually, the creative team is our largest team inside the company. We have two full-time photographers, we have graphic designers, art directors, and all of it is copywriting is all done ourselves. It’s very important to us because it’s not just, once again, the brand, it’s also about the community and the kind of loyal following that our customers have for us and we don’t want to disappoint them. We don’t want to all of a sudden give them something that is subpar. And so a great example is I actually still final taste test everything that goes in the box six plus years later.

Tim: I’d be looking forward to going to work for that. Today is taste test day.

Danny: It is, exactly, we have a monthly snack tasting day and we’d like ship everything over to our New York office. Our Japan team curates the samples, we get about 30 samples and they get shipped over. And then a whole team gathers and we taste test it, and we curate it down to 16-ish unique products. And I kind of still final curate the thing to make sure it’s on par with what would it should be.

Tim: Awesome. Well, let’s back up a bit. Because the subscription box model, it’s a tough one. Most startups don’t make it but you guys did. So let’s back up and I want to walk through how you got your first 100 customers, and then how you move to the first 1,000, and then to the 10,000. And then we’ll talk about where you’re going next with box marketing brochure. 

Danny: Sure. So as I mentioned before, when I kind of bootstrap launched April 2016, it was just me and I had no funding or external capital, really. I put some of my own savings in and so I couldn’t do paid ads. I worked at Google before in kind of digital marketing so I knew that you need a certain amount of budget in order to make paid ads work. And so I didn’t want to just waste money for no reason. Plus, I had no brands at that point so nobody would even trust what I was doing. So for the first 100, it was very much like scrappy guerilla marketing. The first 40 were pretty much all friends and family, and then them telling their kind of loved ones, etc. 

Tim: So I mean, word of mouth can get you to 100 but how are you sourcing product? Were you had friends shipping it over from Japan or bringing back suitcases full of sembe or what?

Danny: The early days were scrappy/kind of even maybe legally ambiguous. There were certainly some snacks smuggling. I mean, it’s snack so I think it’s totally okay, where I did actually bring back snacks in my suitcase from Japan to America. I remember there was one time I had like three full check-in suitcases just filled with snacks, and then they of course routed me to the customs area to put the bags to the X-rays because that’s a lot of luggage for one person. And I was like, okay, come up with a reason, “This is for a wedding. These are like kind of gifts for a wedding.” Fortunately, it wasn’t really a problem because they just saw snacks and there was just like whatever. So it went through okay, but yeah, in the beginning it was kind of that, trying to really scrappily get these over from Japan to America, especially because I was packing it myself in my living room in New York City. I didn’t have the direct relationships yet with the makers I wanted to but my order volume was so small and they didn’t know who I was, even though I was writing imperfect Japanese to them in emails. And so at the beginning, I used to buy from the Takashimaya depachika in Shinjuku in the department store food court area. That’s where a lot of the premium snacks are. So it was pretty scrappy getting them in. And of course, that’s not a scalable method. So to what you said, after that was having my friends in Japan, I would buy it online, ship it to their home, and they would repack it in larger boxes, and then kind of ship it to me via like Japan Post EMS or something. 

Tim: Wow. So if word of mouth and snack-smuggling got you to your first 100, how’d you take it to 1,000? You’ve got to be doing some kind of advertising. You need a basic supply chain at that point, right? 

Danny: Yeah. So to get from 100 to 1,000, I only have so many friends so for sure that ran out pretty quickly, but still a lot of scrappy kind of low-cost marketing. So things like affiliate marketing, where you would be listed on a subscription box review site. If their click got you a conversion, you pay them like cost per acquisition. So that is a lot more kind of scalable for a young company without a lot of budget because you pay only when you get conversion. From that to in-kind smaller influencers on YouTube or Instagram, I would just send them free product and then they would post about it, and that was that essentially. Sometimes it converted, sometimes it didn’t, but at least it only cost me the product, not like a sponsorship per se.

Tim: I can see that unboxing videos on YouTube in general, there’s this whole niche fascination with it. So I imagine you did pretty well on YouTube. 

Danny: Yeah. I mean, early on it was one of the big ways we got from 100 to 1,000, actually, because it was like, once again, didn’t have enough money to do any Facebook ads. I kind of wish I did, because Facebook ads were much cheaper back then. But we were targeting smaller YouTubers, so like maybe they would only have 1,000s of followers or maybe 10,000s, anything more than that you generally have to pay. And so we kind of get them early, where they just want free snacks and they can create content out of it. That worked pretty well for us early on. 

Tim: It’s almost like extended word of mouth, right? 

Danny: Yeah.

Tim: We’re still a little bit of the product.

Danny: For sure, for sure. I mean, some of them was also on like a CPA basis, like they had an affiliate link. But for the most part, it was not like an upfront payment. I didn’t start that until years later. 

Tim: How did you scale it then from direct word of mouth to in-kind YouTubers and Instagramers? How did you scale up from there? We got from zero to 100 in that first half year. So by end of 2016, we surpassed 100. We surpassed 1,000, after 2017. And 2018 was kind of our even bigger inflection point here. And a big part of it was that because we already had grown and I finally had a small team, I had like three or four employees at that point, I had a lot more confidence, like kind of designer, had a marketing person to start trying and we had enough budget because our revenue was large, we’re already on track to do maybe to 2 million in revenue and 2018. We’re like, “Okay, let’s try the Facebook ad thing.” And that’s when we started launching Facebook and Google ads. And we had a couple of campaigns that did well, like you’ll get free Japanese KitKats if you subscribed to the subscribed to the box or something like that. And that allowed us to actually 10x again that year, we got to over almost 10,000 subscribers by the end of 2018. 

Tim: So was it like a conscious change in marketing strategy? Were you just more focused on Facebook and online and less on YouTube, Instagram? Or was it just scaling up across all platforms? 

Danny: It was a refocusing. What ended up happening was a lot of the kind of in-kind YouTube stuff, it’s hard to scale with a small team, because there’s a lot of one-to-one relationship you have with these influencers or affiliates. Whereas on Facebook, if something’s doing well, you can just add more budget to it. I mean, this was the old days, it’s hard now. But in the old days, if something’s doing well, you just keep having more budget and–

Tim: Well, you can still do it, you just need a whole lot more budget than you used to. 

Danny: You just need more budget, yeah. And so it was this kind of refocusing on a different strategy, seeing what’s working, testing different creatives, kind of testing different boxes of themes and things like that. And so there was just a lot of expansion that year. And I think what also really helped besides that, there are probably two other elements, one really quickly was finally in early 2018, we had fully outsourced the packing and fulfillment of the boxes to a partner, like warehouse partner in Japan. Before that we were still packing the boxes ourselves, and so that limited how much time we could actually work on .

Tim: Yeah, packing thousands of boxes a month in your living room is, yeah, that doesn’t scale. 

Danny: No, it really didn’t. And it was terrifying. The more subscribers we got, I was like, oh my God, there was more boxes to pack. But after we got a partner that was able to then take this on full-time, it allowed us to free up our time to focus on the important things for our brand, which is like I said, the marketing, the copy the creative, the curation, etc., the product. So then our product just started hitting this product market fit at the same time that we started scaling the ads. Before that, the box wasn’t as pretty, the curation wasn’t as good. We went from like six unique products in the box. We still had around like 15 to 20 items, I just put like four of each thing. So now we have 16 unique products in the box so like one or two of each, which makes the curation look a lot fuller, people get to discover more, and that just adds to the whole fun of the experience. And so things like that was only possible as we kept reiterating and getting more teammates that could help with this. 

Tim: For all the work and planning that goes into sending out these boxes, what is your lead time? How far in advance do you have to start planning these boxes? 

Danny: Yeah. So that’s one of the things that makes box, I think, pretty special as well. There are a lot of boxes out there, and a lot of them I think do a pretty last minute, from what I’ve heard. It’s like a pretty hastily slapped together theme, and they curate it maybe like a month or two in advance. In our case, we actually start planning our boxes about six months in advance. I mean, just with the fact that volume has grown and we work directly with these family businesses, they need a lot of lead time, because they need to plan out their lines and their kind of assembly, like manufacturing and such. And so yeah, we start doing the curation about six months in advance, and then maybe four or five months in advance, we’ll get the samples to taste. And then we placed the orders like two to three months in advance, and then everything gets put together like a month before. 

Tim: But if you’re experienced like that rapid growth, you’ve got to be able to be pretty good at forecasting as well, because you don’t know exactly how many boxes you’ll be sending out in six months. 

Danny: It’s true. So forecasting has become something we’ve gotten better at. Having said that, forecasting is always hard. It’s hard in any company, we still miss sometimes. We either over forecast or under forecast. And in our case, I think it’s probably true of a lot of others too, underforecasting is a much worse situation to be in and so we actually try to aim for over forecasting. Because if we have access, we have other ways we can deal with it.

Tim: Is that why all new customers get the Seasons of Japan box first? 

Danny: Good question. Obviously, I’ve done a lot of great research for the first three, four years, Everybody would get whatever that month’s monthly theme was. But then I came up with the idea of doing this kind of like welcome box, we kind of call internally or like your first box, for all new customers. And the big reason for that, one of the big ones is forecasting. Because when you do monthly themes, once that month is over, you can’t really use that box anymore because that March box is now off the wrong month. But if you have the same first box, even if you have a forecast, you can then just underforecast the next month, and then it kind of balances out the inventory. But two is that it allows us to really give new customers the best experience possible and so it’s made up of our best hits. We have taste preference data. We have sales data. We have interviews with customers. We know what they like and don’t like. Heck I have direct tastings, where I feed snacks to friends and family and I see how they react. And so that first box is made up of kind of all the best hits and so we know and guarantee that people have a great first experience. 

Tim: What are the best hits? Do people like the sweeter snacks or the more savory sembe-type stuff or the baked stuff? What are the most popular snacks from Japan?

Danny: It’s actually a very complicated question that you asked. I mean, it sounds like there should be simple answers. But if we look at snacks in a silo, most people like the sweet ones more. I think that’s just natural, people are really into sugar and it tastes good and has a lot of complexity to its flavor, right. However, what we have found just from a lot of our, once again, kind of serving and just curations and having a whole balance of it in the box is really great as well. But having a mix of sweet and savory, it allows people to not get overwhelmed with one type of flavor. And that’s what a lot of at least our customers are looking for is this kind of well-balanced and curated experience that isn’t just one sitting but over other a few days or maybe a week or two, and that allows them to explore something different not just like chocolate every single day or something. But having said that, yeah, a lot of our sweet more like premium filling cakes or mochis or things like that are generally doing quite well. 

Tim: That’s really interesting. I mean, the Japanese palate for snacks is much broader than what we see in the US. The US leans heavily on sweet and salty. 

Danny: Yeah. The sweet and salty ones definitely do well.

Tim: There’s nothing wrong with that.

Danny: Yeah. 

Tim: No, Japan has plenty of sweet and salty snacks as well. But I mean, there’s this whole other savory or spicy or baked goods and just different kinds of stuff available that you don’t see as much in the US. 

Danny: Oh, for sure. And that is what has made it so fun but also so possible to keep doing new curations every month. And so we have a brand new curation every single month, which I’ve had investors ask in the past, “Wait, won’t you run out of snacks eventually?” But as you and maybe lots of listeners know — never. Japan is always going to release new snacks. There’s always more makers to find. It’s fantastic. And so it actually lends itself very well to a monthly curated snack subscription box. 

Tim: So all these are being shipped out of Japan, how did COVID impact you? Because there was this time where just shipments were not being done. 

Danny: It was a really hard time, not going to lie. I even remember the exact day, it was April 22, 2020, COVID had already been raging for about a month or more in the rest of the world. But that was the day Japan Post announced their shipping suspension to 200 countries around the world, including the US. And at that time, we shipped 100% of our parcels through Japan Post. I was like, oh, my God, my business is over. Blood, sweat and tears in this company for like, four or five years, what do I do? And if I couldn’t solve the shipping issue, I would probably have to close down shop or at least layoff everybody. So what we did was we kept delaying our customers’ orders and renewals and kept pushing them out so that it gave me time to find another solution. So for two weeks, I was talking to everybody, in logistics, shipping freight forwarders, carriers, I reached out to my whole network. Nobody could find me the solution I needed because that was a hard time. As you imagine, there were no planes in the sky, essentially. But fortunately, I found one partner that saved my butt, so to speak. They were able to come up with this one really creative alternative solution that was supposed to be a temporary three-month thing until COVID went away but we ended up using it for several years. But using this new method, it allowed us to keep shipping and we became one of the only players in the space that kept offering free shipping to our customers. And so I made sure to keep our customers up-to-date on all the stuff going on, apologize for the delays, found this other solution, kept offering free shipping despite the higher shipping costs, and our customers appreciated it so much, especially because everybody was going through a hard time and that kind of actually skyrocketed us again and we ended up tripling our growth in that one year. 

Tim: Oh, that’s fantastic. And so let’s talk about your expansion from the subscription box model. So in 2018, you opened up box market. What was the motivation for moving in that direction as a regular e-commerce-type site?

Danny: Similar to what I said before about even the kind of content and the storytelling piece, I always also knew from the beginning that if I can make the box work, I also wanted to expand to have more of an e-commerce/marketplace. And it’s because there are all these amazing products in Japan that nobody has a way to access them. I mean, I used to work at Rakuten when I was in Tokyo, and they have like kind of cross border shipping. But no American can use Rakuten’s website, it is a very difficult website to use. 

Tim: It is not, yeah. It’s not what you would call streamlined. 

Danny: And I mean, there’s a lot of great merits of Rakuten and there’s a lot of great products to find. But I wanted to create this more minimal clean website, where people are used to kind of having a more of a curated type of e-commerce store once again. And so from them beginning I wanted to do that, we just didn’t have the resources. And as we kept growing the box, we would have some excess snacks in the box and so we would then instead of wasting them we would just sell them individually on this kind of little store, we didn’t even really have a name at that point, just to make sure we have zero waste and be more sustainable that way. 

Tim: So make it much easier to manage the overages manager, your supply chain better, got it. Yeah.

Danny: We essentially never held inventory, which makes all of that a lot easier, especially once again for a bootstrap company. But then as it grew and then our subscriber base grew, customers kept asking, “I want to buy more of this. How do I get more of this?” Even months later after that box had finished, we had no way, so then that really helped fuel the validation for eventually launching box-to-market in early 2018, where we first launched which is 120 SKUs which was just snacks that were in the box. But then as time has grown, we now have hundreds of SKUs on there, and now there are things out there that don’t even go in the box, so premium instant ramens, kitchen, like kind of really nice Japanese knives, and it’s all been really great, people are really kind of relying on us as this curated place of getting Japan exclusive items.

Tim: Are most of the customers in the market existing box subscribers or are they coming in from different channels?

Danny: A good amount are existing box subscribers, but I would say roughly speaking half of the customers inbox the market are not box subscribers. They are people that found us, that come in and just place one-time orders and then a few months later place another one. We also have X box subscribers, the ones that subscribe for a bunch of months and then decided they already found some things they liked and they just put in restock when they need to on the market etc. So we get all types. 

Tim: So I can certainly see how the market was a natural extension of the box business. But last year 2021, you open box grocery for Asian groceries in general, you raised a lot of VC money. This seems to be like a really new direction, at least to me.

Danny: Well, I mean, it is certainly a new product line, because it’s like a totally different supply chain fulfillment and even customer base. But having said that, it is still in line with the kind of purpose of Bokksu I mentioned earlier, which is to kind of bridge cultures, their authentic food. Even early on, when I would talk to a lot of people they’re like, oh, well, since Japanese snack box is doing so well, maybe you should expand to having like a Korean snack box or like a Chinese snack box or something like that. And I always have to push back because I’m like, no, that doesn’t work. The way that the box and snack box works is we deep dive in Japan, we have an office there, we have a team there. I have direct relationships, I’ve gone drinking with these makers, we’re like friends, some of us. And it’s not easy to replicate that type of deep experience, but I still wanted to be able to help kind of introduce pan-Asian food culture to Americans. And that’s where kind of the box of grocery idea came, where we can do it in this way that’s more like everyday items, more affordable products that they might be able to find in their Asian grocery stores, but serving like a much wider audience. So that going after non-coastal people at New York SFLA, that their closest Asian grocery store is like two hours away. And there is a rising boom and desire and demand for Asian products all across America and the world. 

Tim: That’s interesting. So there are other Asian grocers online. Is your differentiation that you’re not targeting the Asian community, you’re targeting the broader community? How are you differentiating?

Danny: So there’s several ways, that’s actually one of them, as you mentioned, our kind of box subscriber base. And we also just did this kind of survey and analysis of our grocery customer base, they’re pretty similar, it’s actually over 80% White. And that is very intentional from the beginning, where we’re once again trying to get non-Asians to try these Asian food products. And in my own kind of hidden agenda, so to speak, but not so hidden because I talked about it a lot recently, it’s my thesis that if you get people to try different foods, cultures and like it, they will feel closer to that culture and hopefully be a little bit less prejudiced in some way. Because then they get interested and they want to learn more and it’s not that different or weird. 

Tim: I like that. Yeah, because I mean, groceries are almost by definition it’s a low margin commodity-focused business, and you’re trying to bring storytelling and this almost novelty-seeking experience to it. So yeah, that’s an interesting approach. 

Danny: Yeah. There are other, you’re right, online Asian grocery deliveries that exists, but a lot of them primarily sell to their own communities. That’s actually their targeting and strategy, which is really great, because that’s necessary too, but what we’re trying to do is have a kind of comfortable, clean, safe type of online experience where everybody can come. It’s kind of the online Asian grocery store for all Americans. And on top of that, the big difference is we don’t do fresh, so we don’t sell fresh vegetables or fresh fruit. We’re doing shelf stable. And what that allows us to do is ship nationwide from the beginning, which is also something a lot of these others don’t do, a lot of the others only target cities.

Tim: Okay. Was it hard raising VC money for an online grocery startup? I mean, a lot of VCs, they want to invest in anything physical at all, let alone something that has to hold inventory.

Danny: It really depends on the VCs. It was actually my first time doing an institutional fundraising round last year with the Series A. And I learned very quickly that you can’t talk to all the VCs, you’re going to waste your time, you got to really pick and choose the ones that are into what you’re doing. So to your point, if I was trying to talk to like a Silicon Valley VC that was more focused on software, they would have no interest, even though I had very strong numbers when I went out and pitched last year. Because this is not their bread and butter, the numbers aren’t what they’re used to. But as soon as I started talking to more consumer-focused VCs that did invest in physical product companies were even food and beverage, which those VCs also existing food tech investors, they loved it. They were like, oh my god, this is amazing. The attraction you’ve gotten by being bootstrap is unbelievable. They’ve never seen this in a DTC company. And they can tell that there was such a strong brand, passion and loyalty amongst customers, that they were like, “We believe you’re the right player to also now take online Asian grocery to the next level.”

Tim: Okay. VCs usually advocate a very aggressive growth strategy. So you’ve been bootstrapped so far, how does the VC money change your strategy and your focus moving forward?

Danny: It changes it in a bunch of ways. So one of the biggest reason I fundraised was because I needed to de-risk the whole thing, right? When it was bootstrapped, pretty much all the risk was on me and whatever money I put into the company, but also the growth was linear and organic. I could only hire so many people because we only had so much budget to be able to do so. But raising the money was so that I can frontload more people maybe not work 14 to 16 hours a day, every single day of the week, and regain a little mental sanity. But at the same time it was so that it allowed us to take chances, to start experimenting, to long-term plan, which were things it was really difficult for me to do when I was bootstrap, because I could only see two or three months ahead, there was just no reason to be able to plan that far. So that was one of the big reasons I did it. 

There is a component where a lot of people believe, and it’s actually true for most VC is that as soon as VCs put money in, they’re going to want you to hyper grow, they’re going to want you to hit these crazy numbers, burn through all your capital. And then once you hit these milestones, you just go fundraise again 18 months from the fundraise, which is a pretty typical VC-backed startup growth model. Fortunately in my case, my lead investor, Valor Siren Ventures, they have a very different take on it. I’ve nothing but good things to say about working with them. I actually at first had our first board meeting to be transparent, even proposed like, oh, here’s how we’re going to grow, we’re going to do it like this and we’re going to use up this capital. And they’re like, “Whoa, whoa, whoa, why are you doing this? We invest in you because you have a strong core, economic strong business. Would you spend your own money this way?” And I was like, probably not. They’re like, “Then don’t spend our money this way.” Get all your economic down, then you pour fuel on the fire.

Tim: Wow, that’s actually refreshing to hear.

Danny: Yeah. So there are investors that can align with what you’re looking for. I mean, granted, some startup founders also just want to grow like crazy, right? But for me, I’m actually trying to build a long-lasting 50-plus year old brand, at least. I’m looking to really make this become a thing people know all over the world. Slow and steady sometimes is better. If you overextend, there are a lot of chances of things imploding.

Tim: Well, I think maybe that’s probably the value of having VCs who are experts in the domain. So when you’re dealing with software, yeah, nothing keeps you from doubling, tripling every year. But when you’re dealing with real customers and food and beverage, I guess the equation is really, really different.

Danny: Yeah, it’s really different for sure. And they understand that given their track record of who they’ve backed and how they’ve seen growth, and it’s a lot healthier to grow when you have a positive contribution margin, right? For example, that’s kind of just is the way it should be and that’s the practice we’re trying to follow as well.

Tim: So, five years from now, looking into the future, pulling out our crystal ball, what do you see is sort of the revenue split between the subscription boxes and the market and the grocery?

Danny: So currently, the subscription box given that it’s our kind of core product and the one that started first is still the majority of the revenue. But the big plan as we keep scaling market and grocery is to have it be ideally evenly split amongst the three. It probably will take a while to get there given that grocery is a very new product that just launched late last year. But I strongly believe that there’s a lot of potential there. And so this has allowed me to kind of diversify and kind of get many types of customers into our ecosystem to eventually that hopefully cross sell them on the other stuff as well. But yeah, ideally kind of equal amongst the three. 

Tim: All right. Let’s talk a bit about Japan. I love what you guys have done. Because even putting the subscription boxes aside, there have been so many Japanese startups whose business idea has been let’s take this unique product that’s built in this area of Japan and sell it to the rest of Japan, or let’s take this unique sake that’s made in this prefecture and either sell it to the rest of Japan or sell it internationally. And almost all of them have failed, almost universally, and you guys didn’t. So what did you do differently than all these others? What would you tell them like, hey, before you launch a startup with this thesis, do X?

Danny: I think what really stood us out from kind of a lot of other companies is our emphasis on, and once again it sounds cheesy, but on the kind of experience, the storytelling and the community. A good example is in 2019, and at that time we were still mostly bootstrapped, I kind of found a really scrappy documentary film crew in America to come out with me to Japan. We filmed for two weeks, went around visiting five of our snack makers, filming this like snack maker documentary that we called Snack Bites.

Tim: Yeah, those are awesome. Those are fantastic. 

Danny: Thank you.

Tim: I love those. They’re up on the site. We’ll put links up on the Disrupting Japan page. Those are awesome. I highly recommend them. They’re just heartwarming.

Danny: And that was kind of a total risk. That was totally like me doing a long-term play. I knew that wasn’t going to bring us conversions right away, because these were kind of very premium kind of edited beautiful, like almost Netflix quality food documentary shot things of me interviewing the makers and their stories in Japanese, showing how they make like anpan in Hokkaido or these other snacks. We tested those ads on Facebook and they didn’t convert that well, because I think it wasn’t the super kind of frenetic punchy ads that get people’s attention. 

Tim: It’s long form storytelling. 

Danny: It’s a long form storytelling. But what it has done for us is, one, it’s helped with hiring tremendously. People know we’re authentic and legit, both in Japan and America. Two, there’s a lot of customer once because they’re like, “Oh, this company is real.” Every company can say they’re authentic and have direct relationships with whatever, but the fact that they see me with them and they see the faces and the stories and humanizes them, I surely believe it had a lot of strong retention effects. But showing that we’re here to build a brand, we’re not just here to immediately have short-term kind of moneymaking, and these are things that I’m passionate about. I think that comes through for a lot of people. I am doing this because I love Japan and I love Japanese food. I’m not looking to get rich quick. If I was, I don’t think I would have chosen Japanese snack box as my idea to be perfectly honest. And I think that type of authenticity is what people resonate with.

Tim: Well, you know, I think another thing and just hearing you explain this, I think another big difference is that while most of these startups or ideas stage, it is people who are assuming that the product will tell its own story, that everyone knows that this famous local delicacy exists so they’ll order online. You and the team kind of took the opposite approach of like, no, no, no, we are going to tell the story, we are going to create the demand.

Danny: Yeah, exactly. I think that’s the part a lot of Japanese especially maybe founders don’t realize is that you can’t take it for granted. I have a lot of people that think like, oh, well, of course this is going to sell well overseas, it sells well in this in Japan or this prefecture. But things that do well outside of Japan are not exactly the same. A good example is like anything with red bean. We have tried multiple times, red bean snacks do not perform. 

Tim: It’s an acquired taste. I mean, yeah, I like it.

Danny: I enjoy it but it’s not — and so you got to find the right things that walk that fine line of being traditional or authentic but still can appeal to a modern flavor for a lot of our customers. In fact, that’s kind of one of our taglines is like modern snacks traditionally inspired. We’re not only selling the real traditional stuff but we’re trying to get people to enjoy all facets of Japanese snacks and food. We do it with the kind of content and the videos and the photography, because really elevating all of it to get people to kind of trust in what this is.

Tim: Awesome. Let me ask you, we talked a lot about your journey from the first hundred to tens of thousands of customers. So what was the hardest thing or at least the most important thing that you had to learn in growing the company, from bootstrap to scaling?

Danny: I think there are probably two. One is that hyper growth sounds really great, but if you don’t have the right infrastructure in place and the right team and the right support and the right fulfillment center and the operations, everything is going to break. The whole system is going to collapse because you can’t just acquire new customers and get in new orders. Even if you have enough inventory if the warehouse doesn’t know and they can’t pack the boxes fast enough because they don’t have enough staff allocated to you, or customer service doesn’t have enough people so then you’re like, every customer is mad why their boxes are taking so long to ship out. And so anytime you expect to grow, where you have a plan to do this campaign, every kind of stakeholder that’s involved needs to be aligned. And so that’s very important is what I’ve learned every step of the way. But number two, I think, and this is more of like a broad view of startups in general, a lot of times, you have to survive. 

Tim: What do you mean? 

Danny: Growth is important but sometimes what’s more important is surviving long enough to find those inflection points. If you’re just around long enough, opportunities might present themselves to you. But if you try and grow too quickly and hit that breakeven point and you overextend, your company might collapse or you might have a bad reputation, you might lay off half your staff before you can reach that point. One example is like in our case, yes, COVID was very hard. But as I mentioned, because I got this all through it, it actually changed everything for us since we tripled our customer base and our revenue in just one year. We hit profitability at the beginning of 2021 thanks to kind of this increase in customer demand. Yes, we were already on an upward trajectory but COVID really helped accelerate it. And so surviving long enough and surviving through that first wave of no planes in the sky is what allowed us to then kind of capitalize on the huge demand when people were stuck at home.

Tim: That makes sense. Yeah, everyone loves to talk about the big swings and the big bets. But a lot of times it is just survival instinct, making sure you can make payroll next month.

Danny: Make payroll, make your customers, keep them happy, retain them. It’s okay if you need to flatline for a little bit because it’s not always about growth. You still might present some new opportunity, where now like, we’re in talks with some really awesome names in Japan about doing some partnerships. And it’s because we kind of survived long enough to get to where we are and grow to where we are, that would not have been possible if we spent all of our capital just trying to reach this unrealistic goal two, three years ago.

Tim: Everyone always likes to talk about business learnings and business growth, which is great. But I’m curious, is there anything you had to change about yourself in that bootstrapping to scaling something like you had to change about who you are or how you relate to the world?

Danny: From the conclusion, I had to stop being so cheap. Kind of the one thing that had to change was during bootstrap time period, I had to be very capital-efficient, so they say, but I like to just jokingly say I was really cheap. 

Tim: Yeah, call it what it is.

Danny: Really hard negotiation with my vendors, with my technology partners, especially the technology vendors, I’m like, “You guys are software companies, you’ve raised money. Help me out here, I’m a small business trying to just survive and grow.” And so trying to really do whatever I can to keep all costs down. I worked all the time, my time was not valuable because I was just trying to make this thing happen. But one of the big shifts I have to do now that we have fundraise is time is incredibly valuable. With everything going on, I can’t be working on a lot of the small detail things I used to, like, what can I do to be a lot more effective and impactful in a larger organizational way? How do I train and motivate and systemize a lot of my knowledge so that the new people we hire can ramp up quicker so then we waste less time with inefficiencies? Things like that were things that I never had to think about before, because I didn’t have this kind of funding and thinking about the runway as much and so. 

Tim: So sounds like a lot of learning to kind of let go of things?

Danny: Yes.

Tim: Not worrying about every penny and trusting people to like, okay, just don’t tell me the details, just get it done.

Danny: Exactly. Because early on, a lot of my early hires were a lot of juniors, because that’s all I could afford. And so it was a lot of me training them and a lot of me kind of really hand-holding them. But now it’s more about bringing on people that have experienced that and can hit the ground running, but then giving them the tools and letting go, kind of letting them do their thing. And that has been a really big shift for me, just even in the last few months I’m doing this more and more to try and value my time and where I can be most useful as a founder-CEO of this company. It’s not getting in and checking on my Shopify orders every day, which I used to do obsessively back in the day.

Tim: Looking forward for those next five years, we talked about the business challenges. What do you see as the personal challenge is? What are you going to have to learn or become?

Danny: That’s a great question. I think one of the biggest ones I’m working on right now that is really challenging but really fun, what I’ve really enjoyed being a founder-CEO about is that every step of the way, there’s a new challenge. In the beginning, it was how do I get these snacks to America in a cost-efficient way and pack and ship them out? Then it was like how do I find a fulfillment partner? How do I scale? How do I do paid ads? And now it’s how do I run a 50-person organization? This time last year, we had like 12 employees, and it was a lot easier to keep everybody aligned when there’s only 12 people and I can have one-on-ones with all of them. I definitely cannot have one-on-ones with 50 people. How do we then set up a structure of reporting, teams, objectives and key results? How do I keep the team motivated, find the right fit, be a good mediator whenever any problems come up? It’s been very interesting to learn how to be a better manager, essentially.

Tim: As a company grows, there’s these inflection points, like you hit one at about six or seven people, where suddenly you need to put in some kind of formal processes because you can’t rely on everyone’s kind of knowing what everyone does. There’s another one that hits around 20 or 25, where you need to have kind of clear management layers and yeah, it’s really different at every step.

Danny: And the ability to adapt and make the best of it or even in advance, see what’s coming and then set up your systems to handle that is I think what also will allow a startup to thrive. 

Tim: Yeah.

Danny: If you wait too long to implement the systems you’re talking about and you get to like 100 people, and you don’t have like a knowledge-sharing system either on some type of database or wiki or something, then you might be screwed. It’s really hard at that point.

Tim: Yeah. Well, I mean, being the CEO of a 30-person startup is a very, very different job than being the CEO of a six-person startup. 

Danny: For sure.

Tim: And when you scale up to 100 and beyond, it changes again.

Danny: And let’s see if I will continue enjoying that. I think I will. But I’ve heard founders say, they’re like, “Oh, really, it’s like building the product. Once there’s HR, they get less excited.” But for me, I see it as, once again, just even all needed learning opportunities.

Tim: Yeah. Well, just like you were saying, the great thing about running a startup is new challenges every day.

Danny: There’s definitely never a lack of that.

Tim: All right. Hey, Danny, thanks so much for coming on. I’m so glad we finally got a chance to sit down with a microphone on.

Danny: Thank you for having me. It’s been a pleasure, Tim.

Outtro

And we’re back.

We talked a lot about storytelling this episode. And as a bit of a storyteller myself, it’s clear that each step in box’s development takes them a bit further away from their storytelling roots. The basic box is ideal for storytelling. You don’t know what’s in it but it’s something fun. So it’s easy to say, let me tell you the story behind each of these sweets as you sit and enjoy them. It’s like podcasting with candy.

When you move to the Market, that sense of surprise is largely gone. Pre-sale storytelling is still important, but more and more customers know what they want and they’re there to find it. The move to Grocery pushes storytelling even further into the background, and brands and price tend to dominate.

So will it work?

Sure. I mean, maybe. Danny and the team certainly understand this dynamic and they’re responding accordingly.

But today, I want to end on a very important point that Danny made, and one that not enough founders really understand. Not all VCs want to push you into hyper growth. Many actually prefer still fast but safer growth. The important thing is finding a VC that understands your industry. And yes, those VCs exist in almost every industry. Now, Danny certainly didn’t choose an easy business model. Both subscription boxes and online grocery have reputations as being doomed to failure, but Danny’s making them work.

And we’ll have to get Danny back on the show in a couple of years and see if this trend continues, and hear how he’s made it work out over the long haul. 

 

If you want to talk more about scaling startups or Japanese snacks, and come on, I know you do, Danny and I would love to hear from you. So come by disruptingjapan.com/show192 and let’s talk about it. If you leave a comment, I guarantee you that Danny or I or maybe both will respond.

And hey, if you get the chance, please follow us on LinkedIn and leave a review on iTunes or your podcast platform of choice. Or if you liked the show, maybe just tell a friend about it. This age of over-the-top hype and fake it till you make it influencers, your honest recommendation means a lot more than you might think.

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.