Yuta Inoue and Quantum have developed a model to help large Japanese companies both work with innovative startups and to remember how to innovate internally. Many find it hard to believe today, but Japanese companies used to be some of the most innovative firms on the planet, and Yuta explains how a few of them are now starting to return to their creative roots.

His approach is a combination of chaotic startup innovation, agency intermediation and corporate training, and after only one year, he they are already seeing the seeds of change at some of Japan’s biggest companies.

These is as much creativity in Japan as there is anywhere in the world. The problem recently, however, has been in letting the innovation bubble up and commercializing it. This just might be the way forward.

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Show Notes for Startups

  • Introducing the agency model of innovation
  • Why brand assets are important in Japan
  • The problems large companies have connecting with startups
  • The changing corporate view towards risk in Japan
  • How large companies are learning (or remembering) how to innovate
  • Why Japan needs (and is starting to get) a flexible workforce of creatives
  • The innovation mindset inside large Japanese corporations

Links from the Founder

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Transcript from Japan

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

You know, for all the differences that fascinate us between Western and Asian cultures, there are far more similarities. In almost all cases, products and services that do well in the West, do well in Japan and vice versa. This is particularly true in the B2B and Enterprise space where the value propositions tend to be fairly clear and translate fairly directly. The packaging and positioning may have to be tweaked a bit. But at the end of the day, we all value similar things. We’re not really that different.

Now that said, when we find something that is truly different, something unique, it’s worth paying attention to and that’s what we have this week. Yuta Inoue runs Quantum. It’s kind of a combination start-up incubator open innovation training firm and creative agency. And well I’ll leave Yuta to explain it in detail in the interview.

While others, including me sometimes, have complained about Japan’s lacklustre M&A activities and the general risk aversion of corporate Japan, Yuta and Quantum has come up with a model that simply bypasses these concerns and has found a uniquely Japanese way to provide start ups with exits and large companies with a way to acquire new technologies in a way in which all parties seem comfortable.

Quantum was launched a little more than a year ago and its already having an impact. There is now strong interest in replication of the model overseas, but there is some concerns that it may not work outside of Asia. Now I don’t want to say any more and you’ll be able to draw your own conclusions during the interview, and I’d love to hear your thoughts afterwards. So without further ado, let’s get right to the interview

Tim:               I’m sitting here with Yuta Inoue of Quantum. Its, what I think is a very unique Japanese approach to incubation. And just so our listeners know, you helped to establish the Quantum Group inside Hakuhodo, which is the second largest ad agency in Japan. Your main focus is helping large companies work with creative innovative young people to help develop new products. That’s my understanding of it but I’ve got a feeling you can explain it much better. So, could you kind of explain what Quantum’s mission is and how you’re working with these companies.

Yuta:               Think that was pretty much, enough explanation. But I’ll start with the kind of background ok. Our parent company is TV Hakuhodo. Its its kind of a joint venture of Hakuhodo and TV TBWA which is a global ad agency. Hakuhodo in New York. Its not just a Japanese company, its kind of a combination of the Japanese traditional company and, you know, foreign company. So that’s the kind of our root

Tim:               But its kind of, its kind of unusual to have large ad agencies so invested in incubation and…

Yuta:              From Hakuhodo perspective. So they are going to change themselves. They created a new slogan for themselves. The company to invent future. So that’s the kind of new definition for Hakuhodo Group which is ambitious but still you know basically the message that’s creating ads, selling ads. So that’s kind of you know the stretched goal

Tim:               Well, and also from, it sounds like a slogan an advertising company would make up.

Yuta:              Yea, yea yea yea At least they are trying to realize that, even in a small size. So we come customize for them in one of the experiments. So we are the kind of the good size for experiment.

Tim:               What is it Hakuhodo wants from Quantum? So most incubators for people in the America or Europe, when they think of an incubator really is people applying to the incubator, pitching their ideas and then going out in the market and then sink or swim. But Quantum’s mission seems to be more matching up these creative people and new ideas with large Japanese companies.

Yuta:              Yeah, yeah. So from Hakuhodo perspective, its basically kind of a new service for existing clients. And Hakuhodo has more than several thousand clients in the back. So basically they cover all the big companies. They run a, create a new service line for them. Also, from different perspective, inside Hakuhodo group, also TBWA group, there are a lot of creative talents. So designers, US designers, product designers or concept creators. So a lot of creative talents. So we believe that we can leverage those talents to kind of revitalize Japanese corporations, new businesses. Also to help start-ups in Japan.

Tim:               Right, so its not simply, even though its coming in from sort of that marketing connection, the larger companies don’t just want the marketing exposure of, of, I don’t know, being associated with a fashionable start-up, they’re actually using Quantum for product development and innovation as well?

Yuta:              Well yes, yes. Actually that’s our focus, creating new services, creating new businesses.

Tim:               Yea, what’s very open-minded approach that the clients seem to be taking. So tell me a bit about your customers, whose most interested in using Quantum as a resource to develop new products?

Yuta:              Yea, one of our focus’ is IT, internal effects. So, naturally a lot of our biggest client area is hardware manufacturers. So, for example, we have Okamura, which is the biggest office furniture company in Japan.

Tim:               Right. So, would a company like Okamura come to you and say look, give us something cool, internet of thingsy that we can work into our product line?

Yuta:              Actually beginning is like that usually. So the projects always start with kind of vision creation. So we do much of the management by those workshops. We kind of formed visions and philosophies for the new businesses. So, for example, for Okamura case, we created the vision combination of cognitive furniture. So the furniture that understands you and the furniture kind of offer services based on your situation. That’s the kind of furniture we want.

Tim:               You’re gonna kind of have to give me an example, I can’t quite So what exactly is my furniture gonna do for me?

Yuta:              For example, one of the project is standing desk. So now based on some interviews there are some issues related to that. You need really the best height for you.

Tim:               So the desk somehow realizes how high its supposed to be for you. Interesting!

Yuta:              Yea, so it senses your body and kind of offers you the best height for you. Just one click and you get the best height for you. Now we also you deal with apps that can notify you when you should make it standing desk or lower one. So that’s also based on some science you got a notification from your app said sit down or you know stand

Tim:               Well sure and I’m sure once you’re when you’re involved in your work, you can just end up sitting down for, you know, 4 hours straight when you’re heads down in code or something.

Yuta:              Yea, and that would be harmful for your body. So that’s typically new thing for Okamura. So we invite, for example, the start-up that are good at sensoring, or start good at data mining, or start-ups good at creating apps.

Tim:               So do you go out to the start-up community and try to find start-ups that fit that mould for them?

Yuta:              Yea, yea. So its really different compared to start ups how it is in the market. But we do have really specific focus for each project.

Tim:               Well I’ll say its really interesting cuz this very much is a, I think its showing the Hakuhodo roots. This is very much an agency approach to entrepreneurship.

Yuta:              Yea, yea

Tim:               It’s a unique approach, you’re doing well with it, obviously. And at the office party last week, I got the chance to meet a lot of your new hires. And it is very much like most ad agencies in that a lot of very creative people, a lot of new grads with no business experience but great, interesting, crazy ideas they want to try out.

Yuta:              Yea, yea. So basically we help the corporations in times of providing those in a new energy or speed or new technology. We are helping those young talents in Japan to let them leverage those big corporation assets or resources. I use to help my friends who found their own start-ups. In Japan, the brand asset or social recognition for start up guys is really limited compared to the US and recent Silicon Valley.

Tim:               I think so too, its getting better but Japanese consumers, Japanese businesses, they are not early adopters in general. So it is harder for start-ups to get that initial traction.

Yuta:              Yes, yes. So its much, much easier for start-ups to kind of leverage those resources.

Tim:               Sure, easier to partner with a big company than to try to go it alone. So some of the work you do, you do outreach to the start-up community to try to find the right products and services. But you also have an in-house creative team. So what’s the balance there?

Yuta:              So basically we have I’ve said 2 pillars for our business. So 1 is the corporate accelerators or innovation concerning business. Its basically, you know, helping the corporation with connecting start-ups. But also we have another pillar which is we call a counter makers. So we make our own products making a prototype for that, trying to find partners to market those products. Also, we make marketing campaign for that. So we do everything for that. So by doing it, we are also experiencing the issues which our clients are facing. So by doing that, we are kind of learning everyday. Also, that will be a you know, new remedy cells for that.

Tim:               So your in-house teams, if those teams develop a successful new product, do you spin that out into a separate company so that’s a kind of…

Yuta:              We’re in discussion, but now we are trying to create a new brand for that. So because counter making is the name of the business so it’s not a brand. So because we have some international awards for our products, so we have Red Dots by Harvard ‘Best of the Best’ for one of our products. So now we are in discussion about which logo would be suitable for brand. And so we are kind of creating a new team, new logo, new brand for that. So that could be a new company in the future.

Tim:               What’s interesting to me is the whole agency model of entrepreneurship. Of the start-up founders I’ve known, both in Japan and in the West tend to be fiercely independent people . Very stubborn in a good way, usually . What was interesting about the group I was meeting last week, these were very passionate people who wanted to create things but had absolutely no desire to start their own company or have anything to do with business. Are there a lot of people like that in Japan? Do you think this is a model that will become successful throughout Japan?

Yuta:              Mmm, I think there are a lot of people like that in Japan. But I think the reason they say is they are not interested in creating a new company, you know my own company, is maybe they are humble. Because probably they have some interest in that but, you know, they are humble or so they to some extent they are risk averse. People who are creative, people who are smart, people who are you know not risk averse, there are not so many places kind of suitable for them in Japan now. The team like Quantum or maybe the teams we are helping could be you know the best place for them.

Tim:               Why I suppose for those people they are the best of both worlds. They get to create and make cool, new things and still have a salary coming in. Its sort of reminds me of the way the music industry works in Japan. Which is also rather unique in the world where record labels employ hundreds of artistes on salary and then depending on the trends or the evaluation of senior management, they will pick a few to promote and become stars. I don’t think anywhere else in the world works quite like that. So I’m wondering if this model is going to be similar, with the way of nurturing creative entrepreneurs.

Yuta:              Well I would say the way of leveraging internal resources, those creative talents, a lot of it is similar to that probably. But from a start-ups, so for them, its their own businesses and they run their businesses for them. So for them Quantum is kind of a resource where they can, you know, collaborate with big corporations for free. So we basically do everything, we call the meetings, we do the facilitation for the meeting,

Tim:                You’re being an agency.

Yuta:              Yea, yea we write a draft, you know, for their collaborative business alliance. With that, they can focus on their own business.

Tim:               Do you think this is a model that is, do you think it would work overseas too? Or do you think its better suited to Japan?

Yuta:              Yea, I think its better suited to Japan or similar market I guess. Actually we got a lot of encouragement from TBWA worldwide networks. So a lot of people think that this is kind of cool new mode for all agencies. So maybe we can kind of modify and expand it globally as a new business of agencies. But, from our incubator perspective, its probably only applicable for Asia or a other more conservative market with conservative big corporations.

Tim:               Ok, well actually last year, Quantum launched Firefly, right, your first global public product. But what don’t you kind of just tell us the story of that briefly? I mean what was the process? How was the commission? What is it?

Yuta:              Sure, sure. As I said we have a counter business initiative. So inside that we have some project so one of them is related artificial intelligence. One of them related to boats. Another one is related to bicycle culture. See Firefly is the first part of the last one.

Tim:               So the bicycle culture?

Yuta:              Yea so we call that cycling roller boats. All of the projects started with a single posture guy. In the beginning all of these were a small tiny project, kind of a side project

Tim:               So you had a bunch of different people working on different ideas differently? Ok.

Yuta:              When they get some credit from outside, for example, there’s an artificial intelligence small car project. I don’t know the English name, but Menioncle.

Tim:               Oh you mean like match box cars or hot wheels type of toy.

Yuta:              Yea so kind of putting the artificial intelligence on the cars.

Tim:               Oh for these little cars, that explains the little race track I saw outside

Yuta:              So for that we had an alliance with an artificial intelligence study group in Japan, Todai or other universities. So that’s the kind of the credit from the outside world. So after that, we made it kind of an official project. For the cycling roller boats, first that was the kind of more personal side project but she submit it to the Red Dot board and we got a ‘Best of the Best’ for that. So we kind of…

Tim:               Decided to focus on that one?

Yuta:              Yeah, yeah.

Tim:               Well good positive feedback. So more, let’s I think for the listeners we should explain what it is.

Yuta:              Yea, sure. So for the City Firefly is basically a peel off for bicycles.

Tim:               A bicycle lock?

Yuta:              Yes, a bicycle lock. At the same time, it could be your kind of safety gear for you with lights. So in the night, you will be visible from the car drivers.

Tim:               So it’s a bicycle lock that you can take the lock off and put it over your shoulder and it will glow and make you visible at night. So it’s a lock and safety device as well.

Yuta:              Yes, especially in Europe, a lot of people are commuting via bicycles. Because of that the number of injuries or deaths relating to bicycles is kind of skyrocketing. Also another friend that cycle shape so the cycling is the kind of single of new lifestyle or new perspective.

Tim:               It’s a chance to introduce something that’s genuinely new and different and stands out.

Yuta:              Yes.

Tim:               I got it.

Yuta:              So there’s a lot of new luggage brands or kind of opera brands full back culture.

Tim:               Right, right.

Yuta:              But you know because of that the risk of cycling a lot of people wear jackets like.

Tim:               Some very bright, reflective…

Yuta:              Yes, yes.

Tim:               So its probably not fashionable.

Yuta:              Not at all.

Tim:               Ok.

Yuta:              But they want a more fashionable culture for that. So there’s a gap between those 2. We are trying to kind of introduce products that can bridge those 2 issues.

Tim:               Interesting.

Yuta:              So that’s the kind of concept for the City Firefly.

Tim:               And I want to make sure to put a link to this on the website because its hard to describe it but when you see it, you’re like aahhh yes, I see exactly what’s happening here right . Let me ask you about your, your focus on the internet of things which ok, it seems to be the official trendy buzz word of 2015, yeah . But in a lot of ways I think Japan is much stronger in hardware than it is software.

Yuta:              A lot of Japanese hardware manufacturers are kind of struggling now. They use to be probably the market leader but now they are kind of losing that vision. On the other hand, they still have smarter lands, they still have really high quality manufacturing, they have R&D researches. But there are some missing links. They are not good at user experience design for the IT world, they are not good at just simply internal related things or apps. So what we are doing is basically to provide solutions for those missing links. So we have our own US designers so they know hardwares, they know softwares, so they can design basically from end to end. Also, we have strong relationships with starts up who are obviously good at internet or applications. By connecting our own user experience design capabilities also big corporations hardware capabilities and start-ups software capabilities. That will be the basic recipe for, you know, Japanese IT.

Tim:               Well that seems to make sense so a lot of filling in the gaps. But I have seen a tremendous amount of creativity on the hardware side all over Japan and I think the next few years are going to be interesting. I think Japan is going to really come into its own with the internet of things fill.

Yuta:              Yea, I believe so too. Also there is other approach we are taking too. There are also a lot of hardware start-ups in the past. But almost all of them have an issue of mass production or quality control.

Tim:               Oh yea

Yuta:              So after they you know did a successful campaign for kick-starters then they start to face the real problems.

Tim:               Well Japanese consumers especially our incredibly demanding of quality, its crazy here.

Yuta:              So for that, there are a lot of things big corporations can help them with.

Tim:               Ok.

Yuta:              So now we’re kind of building a new platform that matching new start-ups with the big hardware manufacturers with manufacturing resources.

Tim:               Who know how to scale.

Yuta:              Yes.

Tim:               And who know how to make things the quality that Japanese world consumers expect.

Yuta:              Yes, yes.

Tim:               I can see why this is something that really is maybe not unique to Japan but especially valuable in Japan. But the flip side of that is Japanese companies, I mean Panasonic, Sharp, Fujitsu, especially Fujitsu, there R&D product development is really strictly secret and internal and closed and…

Yuta:              That’s really true.

Tim:               I guess you guys kind of going it from the marketing side. But have you gotten any resistance or push back from these companies saying no we don’t want outsiders products and how do you get over that?

Yuta:              Yea, actually we are dealing with that almost everyday.

Tim:               Ok .

Yuta:              So from the beginning of the project, almost all the clients say we wanna make it closed project or we wanna make it small trial project or they just try to hide it first, at the beginning. But we try to convince them by opening up there are a lot of opportunities for them.

Tim:               Are they trying to hide the project because they are afraid it might damage the brand or are they’re trying to hide the project just to kind of protect their territory inside the company?

Yuta:              Ok there are 3 reasons. So one is as you said try not to kind of damage their branding. The second reason is try to hide it from their competitors.

Tim:               Oh, ok.

Yuta:              The last thing is, yea, more like a internal politics or they are to protect themselves. Kind of combination of all the 3.

Tim:               So this is what you spend most of your days dealing with?

Yuta:              Yea, I would say so. To convince management that opening up would be beneficial for them.

Tim:               But I suppose it just takes examples you have a few success cases, companies will begin to understand this is a new kind of resource for them to use.

Yuta:              Indeed. Almost always try to make small successes really fast by showing those results to the management. Why don’t we open up by doing that you can get a contact from the best start-ups in the market or also you can get a potential customer?

Tim:               Right, it would strengthen the brand I mean in every way.

Yuta:              Definitely. So that’s basically one of the hardest things we’re tackling.

Tim:               Well you started back almost exactly 1 year ago right. So ok, I mean that’s moving pretty fast for Japan for these large companies.

Yuta:              Yea Sometimes that kind of effort can become successful. One of the clients used to be one of the toughest clients for us. New business division leader say that the resources they can spend is 2 hours for the leader and just 1 staff, this new gadget.

Tim:               So really low level stuff.

Yuta:              Really, really low level. And with those resources we designed a workshop with management and we made it successful the workshop itself. And after that workshop, I think within one month or so, they created a new division for that, specific for that business, and hire 5 new staff for that.

Tim:               Holy cow, that’s a huge success.

Yuta:              Yea, all of that happened in just 3 months. That was kind of really surprising for me too.

Tim:               Well you must have done something right

Yuta:              When we, you know, leveraged copyrighters for that, designers for that. So all of the ideas kind of visualize, more kind of…

Tim:               So your clients could actually see the products taking shape, they could see this as an entire process, right.

Yuta:              Yea, and with that, those top management made a really quick decision.

Tim:               That’s really encouraging.

Yuta:              Yeah.

Tim:               Do you think this is a long term solution to help Japanese companies innovate Do you think this is a transitional approach or do you think this kind of matching service is something that’s here to stay, will become a common part of the Japanese technology landscape?

Yuta:              The matching business itself, it will be a more transitional one. Maybe the next 10 years or something. Probably a lot of big corporations can buy them out I think. But more kind of deeper side, so how to make decisions, how can they create a successful internal culture, all of those it can be easily copied or learned. All of those are kind of you know strong core asset I guess.

Tim:               So you think that, you think that large Japanese companies will learn to innovate, ok. There are 2 schools of thought in Japan or I should say 3. There’s the school of thought that says ok its just all over Japan so I can, you know, and neither one of us really buys into that. There’s another group of people that think ok, big Japanese companies are not gonna be able to innovate but we have these new small start-ups that are going to challenge the big companies and they’ll innovate so everything will be ok. But you’re actually saying no, the large companies will learn to change, they’ll learn to innovate, you think so?

Yuta:              Yea.

Tim:               I’d love to see that happen. It would be good for everybody.

Yuta:              Yea, actually there are people inside those corporations who are definitely trying to change their own companies to being innovative. Or must always we try to reach top management too but they are definitely the kind of partial guys inside those companies. And they sometimes do things outside their job definition.

Tim:               Yea, it would be amazing to see Japan, a large Japanese companies, return to their innovative history. And a lot of our listeners are probably too young to realize that companies like Sony and Honda and Toyota use to be incredibly innovative companies. And it was, you know, a generation ago, it wasn’t that long ago. And it would be amazing to see that come back.

Yuta:              Yea, yea. Obviously there are a lot of issues. At least we see some, you know, partial guys in those Japanese big corporations. Also by connecting those partial guys and those creative talents in Japan, we’ve already seen some successful cases. So I believe by expanding I think we can make some the role others for that and by showing that I think, a lot of Japanese companies will at least try to copy those. So that will be the kind of big challenge for us, yes

Tim:               I’m gonna ask you to pull out your crystal ball and look into the future and so 20 years from now in Japan, do we have innovative, large companies and a start up eco-system co-existing happily? Do we have innovative companies and a lot of sort of innovative agencies like Quantum, you know, filling the gap? What do you think the innovation landscape will look like in Japan in the next 10 or 20 years?

Yuta:              I see, I think the biggest change that will happen in the next coming 10 or 20 years will be more liquidity of creative talent. Those creative talents for a big corporations or start-ups or agencies like us will kind of you know move around.

Tim:               So you think the creatives will start changing jobs more frequently?

Yuta:              Yea I think so . And they will kind of the change makers inside start-ups, big corporations, even for agencies, I guess. So those talents would change the culture inside big corporations. For start-ups those talents will learn how to deal with those big corporations. That will kind of be the biggest change that will happen.

Tim:               Ok.

Yuta:              And that will be the kind of core of Japanese innovation.

Tim:               That sounds like a very, very Japanese, a much more orderly system that exists in the US or Europe. I could definitely see that. It is kind of the best of both worlds where you would have the innovative small start-ups, you would have the companies and the agencies in the middle helping them partner with larger companies. Not just investing and saying good luck, but staying involved long term. And you would have some of the bigger Japanese companies lets say remembering how to innovate again. I’d like to see that, I hope I will see that in the next 10 years or so.

Yuta:              Yea, we’ll try to realize that .

Tim:               I mean its an incredibly optimistic point to end on. But before we close up, do you have anything you want to say to our listeners about innovation in Japan or Japanese start-ups?

Yuta:              For big the corporations, one of the biggest walls before them to innovate is one their old attitude toward innovation.

Tim:               In what way? I mean everybody says they like innovation.

Yuta:              Yea so they need to change themselves to make innovation. So for some of them think that if they borrow some products from start-ups, they can create new businesses. Or if they find a new ideas, that would just lead them to innovation.

Tim:               So they think they can hire you to go out and find them some innovation?

Yuta:              Yea.

Tim:               And bring it back .

Yuta:             That never happens. They need to change themselves especially they need to change their evaluation systems for new ideas for their businesses. Their existing system like discounting cash flows or other evaluation system will never fit to new ideas for the new market. So they need to have their own system for that. They need to have their own decision-making process for that. They need to have their own team for that. They can’t just try to make a new innovation. That’s kind of a starting point. A lot of people don’t really think that they do that much.

Tim:               So you think that the big Japanese companies, they don’t quite realize how much they have to change?

Yuta:              They haven’t realized yet.

Tim:               But they will?

Yuta:              I think they will.

Tim:               I guess they’ll have to at one point.

Yuta:              At least my clients they are starting to notice it and they are changing. And all of them are in tradition, conservative big corporations. So that the kind of hope they change. So that means all big corporations can change.

Tim:               Ok, I hope that’s exactly what we’re gonna see in the next 10 years.

Yuta:              Yea .

Tim:               Let’s end on that optimistic note. Yuta, thanks so much for sitting down.

Yuta:              Thank you very much.

Tim:               Appreciated.

And we’re back. The agency model of start up innovation, its an interesting idea and it seems to be gaining some traction. Now maybe the Quantum model will be a transitional one and the Japanese market will move to a start-up and M&A model like we see in the US and Europe.

But maybe, as Yuta believes, this will be the blueprint for a model of repeatable, sustainable innovation that will be imitated and spread throughout Japan and perhaps the rest of Asia as well. And as Yuta points out, hes already beginning to see the changes or at least the beginnings of the changes at some of Japan’s biggest companies.

It will be a decade before we have a definitive answer, of course. But in the meantime, I’d love to know what you think. Please drop by disruptingjapan.com/show018 and leave a comment. I think we’ll get some interesting feedback on this one.

When you drop by this site, you’ll also see the links and resources that Yuta and I talked about and to get in touch with him if you have a great internet thing product that you think a large Japanese firm would be interested in. And most of all thanks for listening and thank you for letting people interested in Japanese start-ups know about this show.

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