How to build a startup in Japan

If you have ever wondered what it really takes to start and grow a startup as a foreigner in Japan. Well, I have a treat for you today.

Earlier this year, at the Japan FinTech Festival, I had the privilege of sitting down with four fantastic foreign FinTech founders and talking about what you need to succeed in Japan.

There are some great insights here from Jeff Wentworth of Curvegrid, Paul Chapman of Moneytree, Sam Pemberton-Ahmed of SmartPay, and Samantha Ghiotti of Habitto.

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

Podcast: Play in new window | Download | Embed

Subscribe: Apple Podcasts | RSS | More

Transcript

I think in every startup ecosystem, foreigners play an outsized role in promoting that ecosystem, whether it’s in San Francisco, whether it’s London. And the reasons for that might be a desire, a people who are willing to uproot themselves and move halfway across the world, maybe are just bigger risk takers. Maybe it’s new perspective.

But today, we’re gonna dig into what it takes to grow a startup, a Fintech startup in particular as a foreigner here in Japan. And to start out, we’re gonna do really brief, really brief introductions. So I’m Tim Romero. I’m a partner at Jira Ventures. We invest in green tech energy, sustainability, next generation energy.

Before that, I founded 4 startups here in Japan. I ran Google for startups Japan for a number of years. I helped Tapco spin out their CVC, and I run a podcast called Disrupting Japan, which is interviews with Japanese founders about what it’s like to be a founder in a culture that prizes conformity. Samantha? Hi, everyone.

My name is Sam, and I’m the cofounder of Habito. Habits is Japan’s first connected financial experience helping people save, invest, and protect what they love the most. As my surname suggests, I’m Italian and I’m a mother of 2. And, I’ve been living and working across 4 different continents, London, New York, Dubai, Singapore, and now Tokyo. I spent about 20 years at the intersection of tech and finance, about 10 years as an operator, both in large financial institutions.

And I ran the Singlife franchise in Singapore prior to its exit in 2021. And I spent 10 years as an investor sitting on the other side, predominantly in venture and also private equity, with a company called Anthemis Group, which is pioneer fintech investors in Europe and North America. And, that’s where I met a lot of people there today is in this room. So it’s great to see you all again. Excellent.

Sam? Hi. My name’s Sam. I’m from SmartPay. SmartPay is an embedded finance company.

What does that mean? We provide installment loans to consumers at the point of purchase to help merchants, to grow their revenue. And then as of today as well, we just announced insurance as well. So we’ve partnered with Chubb, and we’re providing product insurance and travel insurance with Chubb, at the point of purchase as well. We’ve signed over 20 banks and 201 credit unions.

What does that mean? It means that you can pay directly from your bank account digitally. So we’ve connected with the 20 banks and 201 Credit Unions through APIs. So through our app, you can access your bank account. Me, personally, I’ve been working in Japan since 2010.

Very lucky I was with Starbucks, where we rolled out in app payment, and loyalty card and obviously grew Japan to to be the 2nd largest market at Starbucks, moved to Mastercard, worked with Japan, as well with the banks, and then I was at Facebook, and WhatsApp, and Instagram in Japan and learned a lot from Zuck about success in Japan and decided to to go on my own. Good morning, everyone. My name is Paul Chapman. I’m the, the founder and and CEO at Moneytree. We’re a financial data platform, based in Tokyo.

We work with some of the largest banks such as SMBC, one of the sponsors, Mitsubishi OFJ, Japan Post Bank. We have some of the fastest growing, up and coming start ups in Japan using our data platform to get access to over 2,500 data sources. We we’ve been at this for a while, so I hope I can share some, longitudinal views on this not as long as Tim. But thanks for being here today, everyone. Hi, everyone.

My name is Jeff Wentworth. I’m the cofounder of Curve Grid. We’re a blockchain infrastructure company based here in Japan. We’ve been around for 7 years. We’ve been profitable for the last 3.

We make it fast, easy, and cost effective for companies of all sizes, both Japanese and international, to build on blockchain versus doing so from scratch. I’ve lived in Japan for 18 years now, previously at Goldman Sachs and EMC, and, looking forward to sharing, thoughts with you today. Thank you. Fantastic. So there’s a lot of talk and advice online about what it takes to grow a startup.

Some of it’s more meaningful and useful than others, but I think one of the really unique opportunities we have here is that we’ve all been through this. So what I’d like to drill down with to start out with is from your own personal experience. What’s been your biggest challenge as a foreign founder in Japan, and how did you manage to overcome that? Let’s go the other way. So, Jeff, why don’t you kick us off?

Yeah. Sure. So I had lived in Japan for 11 years when we started curve grid. And at that point, and even today, my Japanese is not, perfect. It’s not I wouldn’t even say fluent.

I do business meetings in Japanese sometimes. I think maybe, it’s more tolerated when we’re talking about technical things because of my technical background. So I think one of the key, ways to overcome, let’s say, not only a language barrier, but a business culture barrier, even though for someone like myself who had lived and worked in Japan for more than decade at that point, was finding the right partners. And by partners, I mean, you know, service companies, service partners, agents that can help us do things like start our company, deal with our accounting, accounting, deal with our our legal matters. And I think those service partners have also evolved over time as as we’ve, grown as well.

And I think, you know, some founders here successfully do everything on their own. But for us, like, having that network of partners was something that that really helped us overcome a lot of challenges, and and to this day as well. So were those partners mostly on the the administrative side, you know, outsourcing accounting and things, or did you rely on those kind of partners for sales and and execution as well? Yeah. It’s it’s a good question.

I think you have to always play to your strengths. Right? So we I come from an enterprise sales background in Japan, but also globally. And so I think we needed probably less support doing that and more support on legal, accounting, pension, payroll, HR, those those sorts of things. Excellent.

Paul, what’s been your experience? Okay. So this might be a bit controversial. I love that. Alright.

Well, first of all, I I, I’ve been studying Japanese a long time. So I came here as a student originally, then I was a local hire at a company here about 18 years ago. I haven’t been here the whole time, but this stint is pretty long, about the same amount of time total as you. And I always thought, well, Japan kinda sucks at software except for games. So I think I can contribute something there.

What I found despite speaking accentless Japanese, although my wife tells me it’s much better now than when we started Moneytree, I’m like, no. No. It was good then. But notwithstanding we could communicate at an equivalent level, our overseas experience and our overseas pedigree or achievements, anything that is sort of put on the scales of of how how, I guess, how how sparkly you are as as someone they could invest in. So fundraising was the big challenge for us.

I should have said that. Fundraising was the big challenge, and the and the the impediment was anything we did overseas was largely discounted because it wasn’t in Japan. So I sold my my first company, I started when I was 23. I was the CTO. We sold it to Thomson Reuters.

But for some reason, in the early days when we were fundraising, that was somehow less important than an Ivy League NBA. It’s like one guy’s got a swim certificate. I’ve swam the English Channel, and that wasn’t really put on the scales, and it didn’t weigh very much. So we we had to we had to build credibility. So getting to the how do we how do we overcome this challenge, I used to talk about this as, as manufacturing credibility.

Now I don’t mean like making things up and putting it on LinkedIn. Don’t do that. What I’m talking about is finding people who would trust us, and they themselves were very trustworthy, and that gave us the ability, because I I didn’t work in investment banking. I did study banking and finance and thought, I never wanna do that. I wanna start a start up.

In hindsight, working in investment banking is a really good way to, you know, to learn how to raise money. Working as a VC, Sam, that’s going to help you a lot, obviously. Not trying to teach anyone how to suck eggs. But in Japan, you need to find people here who trust you, and then step by step, like climbing a ladder, you will build your own credibility. So today, when Moneytree and thanks thank you to all the people who work with us and all the people who work for us and who still do today, when I go somewhere, that’s my pedigree.

Like, I’m from Moneytree. I’m one of the founders. We do these things. We’re doing our best. In the early stages, they’re like, who the heck are you guys?

And the first company to trust us in Japan was actually Apple. So we were a personal finance app. We were best of App Store 2013, best of App Store in 2014. We were a launch partner for the Apple Watch. That was the first rung on the ladder of credibility.

The second was our, our Jo Kyu Komond, our senior adviser, who worked for 30, 40 years at Sumitomo Bank and in the Mitsui Sumitomo Financial Group, and he vouched for us. And I’ll I’ll stop there. I’ve got more good stories. But mapping your overseas credibility to Japan, even if you’ve got fantastic brands like my co panelist today, you still have to show how that has gonna work in Japan. Excellent.

Sam? So I’m gonna talk execution. What what we often get asked is how did you sign 20 banks? How did you integrate with 20 banks? How did you sign 201 Credit Unions?

How did you integrate that? And how did you do that in 8 months? So, really, what we did was we focused on 3 fundamentals. One is in Japan, often, you’re told no. I remember with Howard Schultz, they said to him, Japanese don’t like coffee.

They’re not gonna pay $5 for the coffee. They don’t like experience. They’re not gonna pay for experience, and, you know, you’re not gonna succeed here. And now Starbucks is the 2nd biggest market in the world. I saw with Instagram, actually, as well.

We were told Instagram, Japanese are shy. They won’t take pictures of themselves and share it on social networks, and so you’re given the no. And so the question for us was how do we get over the no? And that really is about how do you sell the vision. But Japanese don’t want a vision PowerPoint.

They would like a document specifically on how you’re going to execute, the monetization of that execution, and a timeline. And if you miss one day, the trust is gone. So number 1 fundamental was setting up that vision in a very executional way, not a fluffy, what I call Australian or American way. The second was really our staff. Again, what I learned from Howard was you need to, first of all, focus on your staff and invest in them.

If you do that, when they turn up to meetings with these partners, they exude a confidence and a belief that, really, Japanese do pick up on. And if your staff don’t believe, if your staff think it’s a selling a product, that really does fail in Japan. I’ll give you an example. Our leadership team, 5 of them have all been promoted this year. Set very high goals, but everyone’s being promoted.

And the third fundamental to get over is actually sales. How sales culture in Japan, I always say, this is the hardest market to sell. Cold calling in Japan is really hard. So your sales team are going through a lot of stress every day. And you need to nurture your sales team very carefully.

Because I think in America and Australia and the west, selling’s a lot easier. Here, they’re getting so many noes and quite hard noes. As an ego, it’s very hard. So, really taking care of your sales team and nurturing that sales team was critical. I I wanna drill down on one thing you mentioned.

So your the the importance of meeting the milestones and and hitting those executions. So as a startup or even a business developing new business, there’s a lot of unknowns there. Milestones are missed pretty regularly. And and how did that play out? Or how have you seen that play out?

First of all, it gives your team massive heart attacks because you’re making promises to people, and in the meeting, your staff are looking at you going, what? So, but you can execute. You set that goal. I find our Japanese staff work hard. They will deliver, and they can do more than they know.

And that’s something that I find important. If we stuck to a timeline that we all agreed to, it would be too long. So it is this about how do we push that level, and then how do we what I call what I learned from Zuckerberg was our our even our company goals are 3 months. Like, set 3 month goals, not 2 years, 5 years. And that helped the timeline a lot.

Excellent. Samantha? Do you want me do you want me to answer the first question or second question or both? The the the first question. What’s, from your own experience?

I think it’s been quite different from ours here. Yeah. So first of all, just a little bit of context. I think we are, part of sort of new generation of Fintechs here. We’re 2 years old.

And, frankly, I wouldn’t be here. The team wouldn’t be here if it weren’t for the advice that I actually got from some of the earlier founders, and some of us are here. So one of the first port of call when we looked at Japan for me was to actually talk to as many founders as possible, particularly foreign founders. And, the the challenge that we had and frankly, we’re a foreign founder. I’ve never lived in Japan.

I don’t speak a word of Japanese. So it was an altogether different order of magnitude. We have no context here other than a firm belief that Japan is probably the next destination market for Fintech. And I have seen many Fintech markets in the world. Japan really has all the hallmarks of an emerging ecosystem and the 4th largest economy, and it has the Fintech density of Estonia.

So, you know, if you look at it through the eyes of an entrepreneur and even through the eyes of an investor, this really speaks as a very, very interesting market with great potential. So we were attracted by that. We’re also attracted by some specific customer, I would say, characteristics that we noticed in other markets, but here in Japan take a very particular sort of cultural connotation. And we were very encouraged by changes in the regulatory frameworks. Again, as a foreign entrepreneur, particularly in the Fintech space, you know, those are characteristic that make you think differently about a market.

And this is not just us as entrepreneurs, but actually, guess what, a lot of global investors are now starting to think about Japan as a real destination for a foreign capital. So my biggest challenge was getting into the country to begin with and be relevant. Be relevant because we really had exactly the same challenges, you know. They looked at me and I said, well, foreign girl. Do you speak Japanese?

No. Do you have any context? No. What are you doing? So creating that credibility was really critical, really, really important.

And, so one thing that I think we did differently, and I would certainly recommend this for anyone that is foreign to Japan coming into the country, is to think differently about how you approach building a business. Normally, you do product regulation team, typically in that order. Right? And you’re trying to sort of get to product market fit as soon as possible. In Japan, because of the particular context we were coming, we actually had to flip it.

And for us, it was like team regulation product, almost done in that order, which is why 2 years in, we actually have a team, 4 licenses, 3 partners, and about 10,000 customers were about to hit our a round, which, in 2 years for a foreign firm that didn’t exist and a foreign brand, I think is quite something. Excellent. And if I can add to that, I think this is from my own experience both with my early startups and running market entry for an American startup coming into Japan. I think this is very close to what Samantha and Paul were talking about. I find one of the biggest challenges is signaling your commitment to the Japanese market.

So in Japan, their Japanese, especially Japanese enterprise, have a let’s call it a well deserved mistrust of foreign companies coming into the market, promising to fix all their problems, promising to be here forever, and then pulling out 3 years later when the US market turns down. So one of the things that we faced, and I think most new companies face, is proving you’re gonna be here. You know, proving you’re gonna walk the walk when things get tough. And the way we solved it were were through partnerships with large institutions, so we were kind of borrowing their credibility, and by making sure we had, feet on the ground, people locally that they could call and talk to and occasionally yell at when things went wrong. And that really built our credibility in terms of our commitment to the market.

Let’s let’s talk about let’s let’s flip that. Let’s let’s be a little more positive instead of talking about problems. For foreigners that are coming to Japan to start a startup or have already started a company here or thinking of doing market entry, what would be the best piece of advice you could you could give them? And we’re gonna do it randomly here. So, Sam, what would you what would you tell aspiring founders or new founders here?

So number 1 is product quality, customer service, customer success, and it’s obviously called servant leadership. You you have to have a servant leadership to your staff, to your customers, and it really is very humbling. So there in my mind, what I see is different is you either have a 100% quality, say in America and Australia, or you have 75% quality customer success rates or 50. In Japan, you have a 100% or 0. There there is no sliding scale.

If you make a mistake, that is a very big deal in Japan. Less so in America where start ups can be funky and cool and, oh, sorry. That doesn’t exist here. So, really, building your product quality to a level that even you didn’t think you should do as a start up, we spent a year and a half just building our infrastructure because we knew that one mistake could mean the end. And I know that sounds really scary, but I’m telling you the truth.

One mistake can be the end because everyone’s talked about trust. And one mistake can kill that trust. So I’d say product quality and customer success. Customer success, what does that mean? It is lots of follow-up, lots of communication.

It’s going and meeting handshakes and talking about the timeline, the detail of execution. If you’re gonna miss one date or one feature, why, how, and how you apologize for that. And literally, humbly apologizing that we are very, very sorry. Not a, oh, by the way, we’re missing this date, but don’t worry. It’s next week.

Because that’s that’s our mindset. Next week’s just soon. But here it’s, well, can I trust you on a bigger project? So product quality and customer focus is, I would say, the big thing. That’s that’s really interesting because so much of US startups is viewing, support customer interaction as a cost center, and which I mean, technically, it it is, but Japan has a very different mindset for that.

It’s branding. Yeah. It’s branding. So if you lose that branding, I would say customer success is your first brand touch. I’m I’m trying to experience.

I was gonna ask you this because you’re customer you are consumer facing. And I’m wondering if the it’s the same as the the same is true on the consumer side as well as the enterprise sales side. I I can certainly you know, for me, one of the biggest surprises of being here in Japan and marketing products in Japan. I have marketing products in many, many different cultural context from American to Europeans. Southern European, Northern European, kinda different.

And, in, you know, Arabic countries as well as, you know, Singapore, mostly sort of Chinese context. And so I came here with some background, but open to be surprised, and surprised I did. I was definitely surprised. I I’ve noticed that the Japanese consumer tend to be much more open and tolerant to, process and to multiple steps even when the steps make absolutely no sense. And there’s this need for guidance and reassurance that really permeates how people make decisions.

And we spent a lot of time, really deep into what we call the psychology of money. How do people make decisions when when it comes to their own money? And it is different here than in many other cultural context that I’ve noticed. Not only the obvious sort of risk tolerance that is different, and this permeates the entire society. Incidentally, even how early stage investors think here is very different.

But, I find it that it’s quite, the the way actually, the the the consumer mindset works when they have to take decisions that involve risk or have to involve, say, take multiple configurable options on products, you know, guidance, reassurance, and to the point to sort of where advice is really is really valued. That is surprising because the process of DIY here is far less common than in other cultures that I’ve seen, which actually pose interesting tensions when you’re building essentially a digital product. And, you know, we’re still going through that process. I don’t think we’ve really cracked that, you know, psychological framework yet. But we have, I think, discovered a very powerful insight, that will lead us to build the product and the service infrastructure and the customer communication in ways that would have been done differently in other in other contexts.

I I can add to that. So one of the I I had a very similar experience. The US startup that we brought into Japan. There was a part of the the onboarding process was a server configuration. And I won’t go into the details, but the American team had made this wonderful configuration wizard.

It was like a 5 step process. It would ask 1 or 2 simple questions and guide the user to the the right configuration. And our Japanese clients hated it. They just hated it, and they couldn’t explain why. And we had a debugging tool that was this this really ugly screen with about 50 or 60 different options all grouped together.

And purely by chance, one of our customers saw that and was like, wait. That that’s what we want. Like, really? And we showed it to a few other customers, and it was unanimous. Yes.

That’s what we want. So we we cleaned it up. We made it pretty, And after a couple months, we noticed, like, everyone was migrating to that screen, and we we went around and asked people. And most of them didn’t know. They just said it’s it’s nicer.

But from those that gave an answer that made sense, it was that they felt safer knowing what all the steps and the questions were going to be before they started. So they could get all the information. They had everything they needed to know. Then they felt confident they could get it done. And and I we used to talk about this as, Japan being a society with no undo button.

So, the the example of this that everyone who moves to Japan will experience is if you fill in a an application form for like the gas or electricity, mobile phone. If you make a mistake on the form, you have to start again with a new form. You can’t just correct it. In Australia, they’d be like, no. Don’t worry, mate.

Just change this one thing. In Japan, they’d be like, ah, here’s a new one. Please start again. And when you do that enough times, you’re like, okay. I don’t wanna keep doing this.

So the the incentives reinforce the same behavior that every Japanese person has learned because the incentives are powerful. And Sam and, and Habito’s mental models are very similar to ours in the early days because we were pure b to c to begin with, and now we’re both b to c and b to b to c, and we do enterprise sales, so it’s confusing. But it’s been an interesting journey. But our mental model was, in Japan, talking about money is kinda dirty, historically. It’s changed quite a lot in the last 10 years, in 20, maybe 20 years, but traditionally, you don’t money is considered a dirty concept, very different to China.

And so as a result, people who have wealth don’t don’t, you know, they don’t brag about it. They don’t show it. They kind of hide it a bit, which is also very different to America and China. So as a result, people have a lot of, I guess, neuroses, hang ups, a lot of feelings and values. Sorry?

Anxiety. Sorry? Anxiety. Oh, anxiety. Yeah.

So when when we made our money the MoneyTree app, we said, let’s make expenses green. That’s also our corporate color. Because most of your transactions in your app are are gonna be expenses. You know, you you might get one salary payment from most people will get one salary payment a month and have a 100 expenses. And if they’re all red, how are you gonna feel?

So we we approach it from this perspective, very similar to Habito, and what we also came up with, another mental model that might be helpful, was, no scary buttons because we were asking you, hey. We know we’re at the top of the Apple App Store, but, you know, you’ve never heard of us. People said we were hackers because we were asking you to type in your bank password. Now we have open banking, and so we don’t take the password directly for banks. But we, you know, we we launched, and we had, like, me and a few foreign founders on the website, and they’re like, who the heck are these guys?

So we had to make it as as safe as possible. So we had no scary buttons. We made it very simple. We were the first to squish it down into the, you know, the little iPhones. They were they were tiny.

They were like the size of a postcard, smaller. So these mental models will help you. But to answer Tim’s original question briefly, Warren Buffett talks about, you know, it’s not timing the market, it’s timing the market. And I would say the mental model for coming to Japan to deciding is is both. It’s both timing the market, when’s the market ready for you, and also time in the market as to Sam’s point.

You know, we also spent a year preparing, and we only launched with, like, an iOS app and support for 40 institutions. We do 2,500 today. We have iOS, Android. We’re integrated with an API platform. Takes time to build.

But like you, we were like, if we if we mess up, we’re gonna get either put in jail or kicked out of the country because we’re doing something that we weren’t even sure when we first decided to start Moneytree whether it was legal. We found out that it was, and then we said, okay. We can move ahead. It’s kind of a relief? I’m sure.

Well, I mean, because, you know, could we get in trouble for asking everyone for their bank passwords? What if we leak them? So we took extreme precautions to make sure that never happened, and thankfully, it’s never happened. Well, actually, let’s talk about timing because I I agree. And research backs this up.

The single most relevant determinant of startup success is timing. From especially from outside Japan, but even from inside, how can you tell that the timing is right? Because being right too early is the same as being wrong. Very true. Howard Marks, I think, said that right.

Yeah. That rang in my ears. I only read that 3 years ago, though. So we started Money Tree 12 years ago. Darn.

So what I said to founders who I met yesterday who raised a lot of money, they’re big, like 100 of 1,000,000 of dollars, I said, you need to give it 5 years. And what that does, it gives you a 5 year window to establish your relevancy, to adapt your product, for people to start taking notice of you, and it takes years. What Sam and happy to have Samantha, sorry, and happy to have done is is amazing in such a short time. So maybe that’s right. Maybe it’s gonna go down to 3 years.

But I I said give it 5 years, because if you don’t, you’re not ready. I wanna I find that, sorry. I just wanna No. No. Go ahead.

Go. Go. No. No. Please go ahead.

I’m I’m gonna come back to something else. So please go ahead. It was yeah. It’s a little bit, of a slightly different angle to timing, but, one of the, I guess, major lessons learned from having seen so many different Fintech ecosystems developing. By far, in my opinion, the biggest driver and the timing of those ecosystems developing is actually a regulatory opening.

I mean, let’s not forget that finance is a regulated industry, and regulation is absolutely at the cornerstone of the the basis of it. So when the regulator opens opportunity for, you know, banking API, you know, payment infrastructure, data exchanges, you know, intermediary, licenses. Then these are the kind of cues that especially entrepreneurs look to, to basically create a bit of what we call regulatory arbitrage. Some of the best startups in the world in the Fintech space actually were born and basically became category leaders purely based on regulatory arbitrage. I know it sounds a little bit boring, especially if you’re not in Fintech.

Kind of by the time people start talking about regulation, people start yawning. But it’s absolutely proven fact that this is how the the biggest catalyst for innovation happens in market. So staying close to the regulator is important, and also help the regulator to help us is very important. How does that play out? I’m I’m interested in getting everyone’s opinion on this, but how does that play out in Japan?

Because the regulatory regime in Japan is let’s say it’s run a little differently than it is in the US and Europe. A lot of it is informal guidance, and and, you know, you’re saying you weren’t even sure what you’re doing was legal really for sure until years later. So how do you navigate that, especially when you’re trying to do something new? So just to talk about arbitrage for a second. I think regulatory arbitrage and other sorts of arbitrage is a really fascinating context in the in, in the case of Japan, but also timing as well.

And actually red ink. So I wanted to tell one really fast anecdote around the color of expenses versus other things. It’s interesting because if for anyone here who’s corrected their children’s homework in Japan or seen corrected homework, there’s these big red circles all over it. And the first time I saw that, oh my gosh, my my son’s gotten everything wrong. Because in Canada, red ink that’s circled indicates an incorrect answer.

And you’ll notice in the emojis, right, emojis that we have on our iPhones or Android phones, the graph that shows, that’s going up, if you look graph going up is in red. Whereas in Canada or America, that might be going down. So I think the arbitrage piece here, the the the piece to think about is and it has to do with regulation also, tying it back, is that, you know, if you’re a founder coming into Japan, there’s a decision to make. And that first decision to make is, are you coming into Japan to sell into the domestic market? And I think the 3 or 4 fellow panelists here, at least 3 fellow panelists, are really, that’s your focus, I think, right, selling into the domestic market.

But there’s another option, which is basing your start up in Japan, but selling globally, maybe focusing globally to start. And I think especially if you’re coming in here not necessarily as a consumer app and not necessarily, set on selling into Japan at first, it can be a great place to locate your company without having to get into all of the regulatory complexities first. And so that’s more on the general arbitrage piece, which is Japan being a great place to, I think, to base a company with strong rule of law, very good regulations, a great banking system, you know, very clean, safe, from a founder’s perspective, relatively inexpensive in terms of salaries or in terms of office space, in terms of all the service providers we we spoke about before. So I think that’s another option. Right?

Come to Japan, set up shop here, and then look at selling globally and taking advantage of kind of that that arbitrage. And on the timing piece, that’s something that wasn’t so possible or easy even 5 or 10 years ago. It was difficult to cut like, I’m a Japanese company. Like, you know, how are we gonna raise funds from overseas investors, even from Japanese investors selling globally? But I think that is more and more possible today, and then that will give you, if you do want to sell to the domestic market, which is a huge market, world’s 4th biggest economy, nothing to sneeze at at all.

Like, you can have a startup that sells all day to Japanese, consumers or businesses, but I think that’s another arbitrage opportunity as a global founder. You know how to interact globally, and you can also then build that experience, selling locally as well. Let let me ask one thing. So as far as coming to Japan to start a start up, starting a start up in Japan with global ambitions, I think it’s great, obviously, because that’s what I’ve done. I think all of us do.

But for for people who might not agree, why? There’s far more money to be raised in San Francisco or New York. Singapore is also in Asia. That’s, clearer regulatory regime, perhaps easier app access to capital. So what why come to Japan to start a startup?

Yeah. It’s interesting, Ashok. I’ll just drill in on one point there, on the clear regulatory regime in Singapore, and no no disrespect at all to our everybody is here from Singapore today. I know that’s where the it was kinda the original of the origination of the, Fintech Festival, of course, and and, you know, but but I think there’s some areas where Japan actually has an edge, and that being our the business we’re in, which is blockchain and Web 3. I think the regulations are actually much clearer in Japan.

Blockchain, cryptocurrency, Web 3 is not a dirty word here. We can, as a software company, get a bank account, get access to capital, file our taxes, be audited, all of these things without having really any concern. I think based on what we’ve heard from some of our our our peers in, let’s say, Singapore, for example, there’s still some big challenges there, let me just say. So, actually, I think that, you know, that’s one piece. I think in terms of raising money, the the anecdote, which I think is still true to a point, is you spend the same amount of effort to raise, like, half the capital.

So I think, you know, again, playing these arbitrage sort of pieces or or looking at at kind of the advantages there, there is a much lower cost base. I don’t think you need to raise as much money as you do in San Francisco. Sam, you know? Yeah. I wanna build on the regulatory point because I think it it is probably all of us, is the one thing that really is the first success milestone for all of our companies.

And I wanna sort of talk about the difference of regulators in the rest of Asia and Japan. I’ve worked with India, Singapore, Australia, America. And the Japanese regulatory environment is very much if I the way I describe it is word document. It’s written in a word document. It’s a lot of pages, a lot of guidance, but it’s you need to interpret it.

The mistake I’ve seen Western companies make is send your lawyers and regulatory managers to meet the regulator to interpret those documents. And I know that sounds counterintuitive, but they’re the worst people to meet. Because actually, what the regulator wants is how do you interpret that into product? So what we did is we sent our product people to meet the regulators. And we work with the regulators, and I’m talking specifically around our direct to bank license.

So you can pay directly from your bank account to buy at merchants around Japan. And we’re the only ones to have that ability, through API banking. And the way we did that is we worked for 3 months with the regulator on the product, joint. And most companies don’t want to do that. You turn up.

You present what you want. You get feedback. You go away. And we kind of workshopped, and the example of that was in our app now, before you get access to your bank account, you have to do 2 biometrics. 1 before your bank account comes up, and one before you pay.

And it was the regulator that wanted that. And we were like, we don’t want these steps. This is too many steps. But, actually, what it did is increase the trust with the consumer. And that relationship we have with the regulator is about product design workshopping versus here’s our interpretation and your interpretation.

So the the regulator the input of the regulator actually ended up with you ended up with a better product. Yes. Absolutely. Absolutely. And it’s really I’ve I’ve learned my lessons.

I’ve worked with Western companies in Japan that have managed regulatory really badly. They walk in, and they say, here’s what we want. Tell us yes, or we’re gonna argue for 6 months. Well, I think there’s, particularly coming from the US, and the EU as well. There is sort of an adversarial Yes.

Relationship with the regulators, where in Japan, it it sounds like it needs to be much more collaborative. A lot more collaborative. And if they can be involved in that product design, and I’m talking real product design with the consumer UX, the relationship blossoms. And there’s a trust there. And, ultimately, consumer safety, safety of data and safety of money is what they’re worried about.

So that’s where you have your starting point has to be. It’s not consumer UX speed. It’s consumer UX safety first. Excellent. When you were unsure whether you were legal or not, how how did you handle this this uncertainty of the regulations?

Well, you gotta understand that we we did launch after we figured out we’d be legal. So that just wanted to make that clear to everyone. So we didn’t have much money. We were bootstrapped by 2 of the founders, including me because I had an exit before to Thomson Reuters, and, just waiting for that next, next exit. So this is what we did.

We went to 3 different law firms, and every law firm will give you a free consultation the first time. And so we took a a progressively more evolved view of what where we think we’re at, from the first to the second to the third, and the third law firm had an ex FSA secondee there. So by the time we got to the 3rd, it was like, you know what? This is definitely legal. As long as we we don’t lose anyone’s data, which was our plan to begin with because we we love privacy and security, engineering focused company to begin with, that would be okay.

And, and so that cost us nothing. But I I imagine if you’ve got funding and you’re coming in from overseas, you can probably afford a lawyer. Fantastic. We we pay our lawyers now. That’s good to know.

Samantha, you’re you’ve entered a little later. Has have have the have you found the the regulatory structure to be clear, or are you having to kind of, navigate the ambiguity as well? So I I don’t have a prior comparison because I never worked in Japan before. So I don’t really have a benchmark here. But I have other benchmarks, and I worked with the FCA and the MSA.

And I as I said, one of the reasons as to why we looked at Japan at this particular point in time, back to timing, was because of the introduction of this new regulatory regime called new intermediary license, which is how we’re currently licensed. And the the thought process, I think, that the regulator went through was to basically cut the intermediation of financial products horizontally as opposed to actually what happened historically, which is basically vertical. So banking for banking, securities for securities, insurance for insurance. That really caught our attention. And the the framework was, and in many ways, is still new.

So in fairness, this was a an attempt by the regulator and certainly our, intention to continue to work collaboratively to continuously refine this framework, which is conceptually a really great thing. Being new still requires some work, particularly around product definitions and some, you know, parameters, the constraints, if you like, the perimeter of the of the license. So I definitely expect further evolution of this license is still a lot less clear than, I would say, traditional banking or payment institutions, e money license, etcetera. So I don’t know how this is gonna evolve in the future, but, certainly, our intention is to continue to work, constructively. One key difference that I’ve seen here in in the regulatory framework is, compared to others, is and maybe it’s back to this idea of doing things first, you know, things right from the from the get go.

In other environments, it’s quite common to have sandbox, that, you know, start ups can actually work collaboratively, constructively with with the regulators, through POCs, or through, you know, versions of sort of, early versions of the product. And here, this was missing. For us, probably wasn’t such a, you know, such a such a large gap because, as I said before, it was brand new regulatory frame framework anyway. But I can imagine, particularly for those that are entering, you know, existing frameworks. And if you’re a foreign founders, there’s a lot that you don’t know.

The the the language barriers, the culture barriers are really, really large. And so if you’re a foreigner that never lived in Japan and has no construct or connection here, the support system that you would like to see from a more developed ecosystem is still growing. Right? So I I would certainly encourage, generally, the, you know, the institutions, the regulator, you know, the service providers to think about that because as a foreign founder coming into Japan and having to build on that, you know, you know, can’t be the lawyer, the payroll, the, the corp secretary, the, the legal firm, all of that, we had to go 1 by 1 and find them. Right?

So the the ideal sort of business in a box, of which the regulatory component is an element if you’re a fintech is still missing. So I just wanted to build on on Sam Mantha’s great point. So the regulatory, the sort of the macro readiness and support to be here is, I guess, the first constraint. But the larger constraint for, for your success here is customer adoption, whether it’s enterprise or consumer. And that’s what I meant by, this mental construct of it’s both time in the market and timing the market because you could be waiting many, many years.

So, you know, we often have investors or clients say to us, you know, Moneytree we have a product called Moneytree Link. It it’s it’s the financial data aggregation service. This is critical infrastructure for Fintech in Japan, but we’re not a $10,000,000,000 or even a $1,000,000,000 company at this stage because the amount of demand that’s in the market is still constrained. Now over the next 5 to 10 years, that could very well happen. But timing, we’ve been at at it with MoneytreeLink since, I think 2015 was our that’s when our first accounting software clients came online.

So that timing portion is really important, so give yourself a 5 year window. That’s in fact, that that, I think, leads into one of the things that I’ve found, many foreign founders and many people experienced with doing business overseas are surprised about Japan is the the speed of decision making, the length of the sales cycle, how long it can take to bring on new clients. And I’m wondering in something like Fintech, which is moving fast, which, particularly in the enterprise, there’s an appetite for new innovation. Have you found that to be the case? I think there’s a lot of companies like, one one thing you have to be careful of if there’s a, I don’t know, let’s say, a speed bump that you might run into as a foreign founder coming into Japan is a lot of large companies will want to do a proof of concept and sell it to you as, like, there’s definitely a next step.

There is an immediate next step. We’re gonna do something. But I think oftentimes that proof of concept, which you will or should get paid for, often, doesn’t go anywhere and or takes a lot longer to go somewhere than you think it will. And so I think, you know, when you’re thinking about, like, that as a speed bump and what are the next steps and the time that it takes to get into the market, you’ve heard this from all the other panelists. Like, budget more time than you think.

It is absolutely going to take that time, number 1. Number 2, I think the second piece is finding trusted partners. And, Tim, at the very beginning, you asked me about sales partners. I think having intermediaries, having whether it’s system integrators or accounting software partners or distribution partners, you know, community organizations or clubs that are going to, you know, try out your software and sort of share it with their, you know, you know, Papa Tomo or Mama Tomo or whoever’s a part of that. Like, those those groups that you’re working with, I think, are absolute absolutely key, And those organizations that you’re working with as intermediaries are absolutely key to helping you succeed in this market.

I think direct sales is a much tougher way to go here is what I would say. You you know my standing on POCs. Right? Like, no free POCs. Absolutely.

I think we did one free POC in the history of Moneytree, and it was, in the end, it wasn’t actually free. They paid us 10,000,000 yen, but, yeah, no free free POCs. You you you wanna get paid if it succeeds. I I will second that as well from my own experience. No free POCs.

I just wanna talk about the customer acquisition timeline that you raised, and, and I think if I I wanna talk execution. If you’re gonna have to go through the chain of command in any enterprise company in Japan, and everyone has to get alignment. But if you wanna nail down exactly what is that alignment, it’s risk. It’s actually not just value proposition. So Western mindset is what’s the value proposition, and we keep hammering that.

But, actually, what they’re asking is what is the risk to my job if this goes wrong? And so what you need to do is really clearly identify why this is riskless. Right? And that’s why I’m going back to that product quality is it comes down to this is riskless because this product works. This is riskless because we’ll take care of your customers.

And we will make sure every part of our being will execute for you. And so to me, about the speed, it is, showing the risk. Then the second thing is steps. I think you have to work in steps with the regulators and with merchants or enterprises. They don’t work in sort of, I would say, decisions.

So you’ve gotta work in here’s the first step, here’s the second step, 3rd step, and that could be a year. Yeah. And if you get frustrated, your staff get demotivated. And and that’s why I come back to the other point of taking care of your sales team is critical. Nurturing them.

Come on, guys. Keep going because it’s the hardest market for sales. And I think one thing that’s important to keep in mind is that I think it all It all averages out on the end that once you’ve got a customer, they’re going to be much more loyal. It is just as hard for a competitor to take a customer away from you as it was for you to take it away from them. So I think mathematically, it all works out.

Outtro

And we’re back.

Rather than the usual analysis and commentary, I think I’ll just let this episode speak for itself. Please tell people about the podcast and let them know about the amazing things going on in Japan.

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

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