This Low-Tech Japan Travel Startup is Going Global – Bed & Art

Links from the Founder

• Learn more about Bed and Art
• Follow Keigo on twitter @makeshiftjp
• Friend him on Facebook
• Checkout Keigo’s design firm Makeshift
• Honey Wedding
• The BnA prototype as Airbnb in Ikebukuro
• Their successful crowdfunding campaign

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Transcript from Japan

Disrupting Japan, episode 71.

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

You know, more than anything else, Disrupting Japan is about introducing you to the people who are changing business in Japan. I mean, really introducing you to them. Not the banal book tour interviews you hear everywhere else, but to let you get to know the real people starting things up in Japan. People you would love to sit down and have a beer with and with whom I’m lucky enough to do just that. It’s letting you know the people behind the startups. And although Disrupting Japan is a business podcast, business is personal.

Hiding behind every great startup with impressive numbers, there is an interesting story about how it got started. And hiding behind that interesting story is the story of what really happened and the real goals, and the real successes, and real disappointments. And what I love about podcasting is that it makes it so easy for you to hear when someone is telling a PR approved origin story and when someone is really speaking from the heart, when they are telling you about something that really matters to them.

Well, I’ve got a great story for you today and listeners have commented that I’ve been a bit tech heavy recently, so today, we’re going to meet someone who is decidedly low tech, as in paint brushes and hammers low tech. Keigo Fukugaki has started his own hotel brand, Bed & Art, in which he tries to merge travel with supporting the local artistic community. It’s an ambitious project to be sure and as the interview progressed, I went from thinking, “This won’t work,” to, “Nah, this is way too much of a long shot to really work,” to “You know, this is just crazy and quirky enough that is just might work.”

In this age of SAS, Airbnb, and middleware, sometimes it’s refreshing to find a startup that deals in concrete. But, you know, Keigo tell that story much better than I can. So let’s hear from our sponsors and get right to the interview.

Tim: So cheers. We’re sitting here with Keigo Fukugaki of Bed & Art, which is sort of a distributed hotel art space, but you’re going to be able to explain it much better than me, so what is Bed & Art?

Keigo: Basically, we’re a hotel startup and we’re trying to find a new way to start a hotel brand, not a real estate mogul. We’re just four guys with a little bit of cash. We also work with a lot of artists and we’re mixing the hotel business with art to create a new kind of travel experience.

Tim: Okay. Concretely, what are you doing?

Keigo: We’re creating one of a kind rooms with artists and every time someone stays in those rooms, part of the revenue goes back to the artist. It’s bringing together a lot of unique travellers and the local artists together.

Tim: Are these apartments that you own? Are they apartments that other people are letting you renovate? How does it work?

Keigo: We’re actually a hotel, registered as a hotel. So we’re taking over old buildings and we’re renovating those, creating lobby, bar, hotel rooms. And in Tokyo, there’s a lot of these office buildings that we’re able to convert into a hotel. And I think that’s new. Usually when you think about a hotel, it’s about where it is and how beautiful the exterior is.

Tim: Sure. The hotel industry has really become standardized. And that’s good and bad. You know what to expect. But every room is completely different and some of them are really crazy. We’ll put links to the site so everyone can see it. Always hard to describe art in an audio podcast. You’ve got a couple of hotels now, right? One in Koenji, one in Kyoto.

Keigo: And then we have a pilot room that started off as an Airbnb room in Ikebukuro.

Tim: So how many rooms are in each of these hotels?

Keigo: Very small. The one in Koenji has 2 rooms, and Ikebukuro has one room, and Kyoto has 3 rooms.

Tim: All right. Is your marketing primarily via Airbnb, or do you use Expedia, or word of mouth? How do you get your bookings?

Keigo: Most of our bookings come through Expedia and Booking.com.

Tim: Really? I would have figured it would have been Airbnb.

Keigo: We’re actually at a separate price range than what an Airbnb customer might be looking for. So we’re priced at the same level as a hotel, so you’re looking at $160-200 something per night. Usually, in Tokyo at least, Airbnb costs are much lower than that. So even though we have some of our rooms listed on Airbnb, most of our customers don’t come through there. Our target market is actually slightly separate from an Airbnb customer base. We believe we’re target towards young professionals who are looking for great service, but also a unique experience as well.

Tim: Interesting. I guess in some ways, you’re kind of the anti-Airbnb. Because when you rent an Airbnb pretty much anywhere in the world these days, you’re going to go into the same type of room with the same IKEA furniture, and that’s all fine, but it’s getting sort of standardized like the hotel experience.

Keigo: Exactly. It’s interesting that you say this because this is exactly why we started BnA. And I mentioned that we started the Ikebukuro project as a pilot because two of our partners, or co-founders, they used to run a lot of Airbnbs in Tokyo and they were actually Airbnb moguls. They had something like 40 Airbnbs in Tokyo, and they were one of the first ones to really start making that into a pseudo business. And they were killing it but I came in and I actually made fun of them, said, “Basically, you guys are actually making this cookie cutter room with IKEA furniture, and all you’re doing is making money.”

Tim: There’s nothing wrong with that.

Keigo: There’s definitely nothing wrong with that but these guys, at the time, they were like 27—brilliant guys. And that’s why I’m working with them. But I realized, at 27, I think if you have a higher goal, you can achieve much, much more interesting things. And that’s where I came in and kind of poked around, and they agreed. They wanted to do something more interesting.

Tim: Now, Airbnb rates in the last year or so have really been coming down in Japan. Are they still in that Airbnb business or did they sort of pare that back?

Keigo: They’re in it, but they have definitely pulled back. They realized the competition is really high, in terms of how many listing there are. So even if you are doing a great job, the price will come down.

Tim: It’s kind of a race to the bottom now, now that everyone expects the IKEA furniture. All right. So tell me about your customers. Who stays here and who goes to the bar?

Keigo: We call them like-minded people. To us, our focus is really to try and find who would be our best friends in the rest of the world. And these people are young, hip, they know what they want. When they travel, they’re well-travelled, so they expect a certain amount of an unknown. And they feel that they can handle certain amounts of differences.

Tim: Are your guests mostly foreign or Japanese?

Keigo: They’re mostly foreign and they’re actually all from Europe, or the US, or Australia. So western countries are our main customer base.

Tim: Are they people from, let’s call it an artist community, that are usually using it, or is it more of just regular travellers looking for something a little different?

Keigo: They’re definitely the creative types. They’re TV producers, they might be writers, they might be musicians, web designers. So they tend to be more in that creative field. But they’re all young professionals. They make a certain amount of income that they can actually stay in the hotel and kind of have a decent amount of spending. I’m not saying they’re luxurious in any way, but they have done the Airbnb and they’re over it because they know they can afford a little bit more service. But that middle ground is missing right now.

Tim: That middle ground between the standardized Airbnb experience and the standardized hotel experience. But from a business point of view, if you’re operating property that only has two rooms, that’s got to be hard to turn a profit. Do you have other sources of income here?

Keigo: Our hotel has a bar on the first floor and an art gallery on the basement. And we also have a community space on the rooftop. We generate some income through those, through events and art gallery showings. But definitely, we’re looking to scale and that’s one of our biggest hurdles right now. I think we’ve built everything so far as a pilot, really try to test out this concept and how much market there is for this.

Tim: Well, I’ve got to say, you’ve chosen to combine two very difficult businesses: the hospitality business and the art gallery business are both extremely hard to make money in. So more power to you on that. When you were talking about renovating these old buildings, your background is in architecture, isn’t it? And you and your partners got in there yourselves and you were tearing out walls, and renovating the buildings and such, right?

Keigo: Yeah. We called on our friends. We had some pizzas and beer, and asked our friends to come over and paint the walls with us, of course, under some supervision, but it was a great time and we built a community out of that. Everyone had a little part in it, and they brought their friends, and now they’re all supporters of the brand. And I think it was a great way to start something, where we had not just a handful of people talking about us, but a great deal of people helping and talking about us.

Tim: So did you buy the buildings or were you renting?

Keigo: We were renting and I think that’s how we’re going to keep expanding.

Tim: Right. It sounds like you guys are sort of midway between being a community and being a business. Maybe even right now is like a time of transition, I’m not sure. Actually, wait, come to think of it, you ran a crowdfunding campaign at one point. Tell me about that. What was the goal and how did it go?

Keigo: So, we ran a crowdfunding campaign right before we launched our hotel in Koenji. We raised $20,000, so it’s not a big campaign, but we raised money to create a community space on the rooftop. The reason why we did that is because we’re trying to keep our hotel as little as possible to do with outside money, so that the artists have the freedom, separated from any kind of attachment to outside influence.

Tim: Okay, so the crowdfunding was in the local community?

Keigo: Yeah. Our target was the local community and our Koenji project is truly about the community. And we chose Koenji, which is kind of outside of the main central side of Tokyo.

Tim: I wouldn’t call it the suburbs, but it’s outside of the main loop for sure.

Keigo: And we chose that location because it’s where a lot of artists live. And there is a deep culture of alternative lifestyle and alternative music, that kind of stuff.

Tim: Well, it sounds like the crowdfunding, more than raising the money, was about building that community, kind of bootstrapping up that community around you.

Keigo: And we believe our community is actually one of the biggest draws for guests when they arrive. As soon as they arrive at our hotel, you come into our bar where a lot of artists and locals hang out, and that was our goal. We wanted to create that experience and that’s something I truly believe other hotels won’t be able to replicate. It’s a very unique experience.

Tim: Now, Bed & Art is a really different kind of company than is usually on Disrupting Japan. And that’s great. I want to expose people to more of the interesting, quirky startups that are going on in Japan as well, but it also makes me really want to ask about your future growth plans. Bed & Art is the kind of company that VCs hate, if you know what I mean. You’re holding a lot of inventory, you’ve got long-term leases, kind of the quirky, unique is something that is difficult to replicate in other markets, you have a high fix cost. So far you’ve been bootstrapping. Are you planning to continue to bootstrap? Are you looking towards raising VC money? What’s the future growth of Bed & Art?

Keigo: We’re definitely looking to expand and raise money. But we haven’t considered going to VCs at this point. We’re looking at someone closer to an angel. And for our real estate, we already have a real estate scheme that works, where it’s not actually attached to our company. The real estate itself will be managed through another investment scheme. So it’s kind of a standalone and separate from what you would consider our asset. So we would be renting from a separate entity.

Tim: So are you profitable now, or at least, as they say, ramen profitable?

Keigo: Yeah. We’re just about even right now with the super minimal amount of rooms that we operate. From here up, I think scale will bring that number up. The overhead costs will come down as we create more rooms.

Tim: Rather than talking about short-term VC and fundraising, let me ask you, what is your long-term objective for Bed & Art? In 10 or 15 years, do you see this growing and IPO’ing it? Do you see selling this to a large hotel chain? Do you see this as just a great company you and your team want to run on your own forever? What is going to happen?

Keigo: This is probably not something most of our listeners on this show would want to hear, but right now, we’re really interested in running it for a long time and creating a great network through it. We want to expand internationally and 10 years’ time, we imagine a BnA brand hotel in several other cities around the world.

Tim: From our discussions before, I know you’re in talks with several entities overseas about expansion, and I don’t want to ask you to give away any names at this stage, but tell me, how do you think that would work? Because what you’ve got so far, it’s so tied to the current community, from the crowdfunding, to your friends who got together and helped you build it. How do you replicate that overseas?

Keigo: Our Koenji prototype is actually a prototype of that and we were testing out how do you actually create a community around a hotel. None of our teammates are actually from that area, but we found a main person that was a central figure in the community, and we brought him into the team and he was the one who was able to get everyone involved and create that community and just in 6 months of us being there. I think this model is replicable in other communities, creative communities around the world. The reason we’re focused on a creative community is because there is a certain need that each one has, and I think a hotel has actually a very unique, but viable, way to create a sustainable economic community that a lot of these creative communities desperately need.

Tim: I’ve got to say, from the travellers’ point of view, it’s a really unique experience, to stay in a place where you will automatically kind of be plugged into the local art community, is pretty attractive in and of itself. The only question is, again, scalability. So if you have 2 rooms with 2 guests that are mingling with a community of artists, that’s a wonderful experience. The community will kind of absorb them. But if you have a hotel with 120 rooms, the art community will be diluted and will sort of disappear with more than that. So obviously, you want to run some with more than 2 rooms, but what do you think the balance is for something like this?

Keigo: I think the balance would really be somewhere between 40 to a maximum 100 rooms per location. I think that’s the scale that we’ll probably be opening our future locations.

Tim: Okay. With a correspondingly bigger gallery space and event space. Excellent. Let’s talk about you for a bit. So you grew up in San Francisco?

Keigo: In Los Angeles.

Tim: Okay. I thought you lived in San Francisco. Did you live in San Francisco for a while?

Keigo: I did.

Tim: I thought that was just in the back of my head. So why leave San Francisco to come to Japan to start a startup?

Keigo: It was definitely a personal reason. I met my wife in a bar in San Francisco. She just so happened to live in Tokyo and I decided to move over here. But I was just a normal architect designer. I had nothing to do with the startup world, but as soon as I got here, being someone who speaks Japanese and understands the culture fully, but comes from a different background, I saw a lot of room for change. I think there is a lot of room for innovation and after 2 years of being here, I really felt this urge, this calling, to do something new and bring change.

Tim: That’s really interesting. So the urge to start a company, the startup bug kind of bit you in Tokyo rather than San Francisco. Huh. Well, it makes sense. In some ways, I think there is more opportunity in Tokyo, because there are fewer startups, whereas in San Francisco, it’s so competitive. You’ve got 10 companies in any micro-niche and any micro-niche you can look at. But actually, your first company, of one of your first companies you started was an online wedding planning type company.

Keigo: Yeah. And we’re still running it. I’ve been featured in a couple podcasts here and there. But I initially started a wedding planning app. It’s still running. We have a solid customer base.

Tim: In that case, you were just not happy with the arrangements and you thought you could do it better? What’s the story there?

Keigo: You know, being here, I attended a couple weddings here and noticed this gigantic cultural difference, the difference in how weddings are run. It’s very traditional here, very inefficient, and no fun for any of the guests that are attending. So I saw that as an opportunity to make a change.

Tim: That’s classic startup problem solving. You’re solving the problems that are right in front of you, whether it was the wedding, or the problems with the Airbnb experience here. Do you feel kind of stretched thin? Everyone talks about being a serial entrepreneur, but you’re kind of being a parallel entrepreneur.

Keigo: Right. I haven’t even started talking about some of the other projects that I am involved in. But I think they have a central theme in that I’m trying to create services that really allow people to create a lifestyle where they really are inspired and enjoy themselves.

Tim: Does it make you feel sort of stretched too thin sometimes? If Bed & Art really takes off, will you end up selling off your other businesses, or spinning them down, or are you going to try to juggle all of them moving forward? What’s the plan?

Keigo: The plan is hand them over and leave that to someone else. You’re right. At some point, some of these projects do start growing at the same time and you start getting stretched thin, which is where I stand right now.

Tim: Because, I mean, running one startup is like having two full-time jobs.

Keigo: Luckily, though, BnA, we’re a team of 3 co-founders, and a fourth team member who is just as involved. And we are able to really have a great working relationship where things are moving fast and working well.

Tim: Excellent. A couple of years back you sponsored a Tokyo-San Francisco hack-a-thon, where you brought a handful of San Francisco engineers to Tokyo. How did that work out? Those programs are always so interesting.

Keigo: That too was totally a self-sponsored, self-advertised, self-marketed, hack-a-thon conference that we organized. And we had about 12 entrepreneurs from San Francisco come over to Tokyo and spend the whole week with a set of another 12 entrepreneurs from Tokyo. It was more like a cultural exchange and what we were trying to achieve there was to really create a culture based on friendship and trust, rather than on business. I still believe that working with friends is the best way to work.

Tim: Oh, absolutely. Were they working together as a hack-a-thon on a single project or were they working on multiple projects together? What was the structure?

Keigo: So they were given an assignment to go research and come up with an idea, and hack something together in that week. But also, within that was an art program, a music program, where they all got to enjoy what Tokyo was about. And we curated that. We tried to create a conference based on inspiration through human interaction and through the city. I think that was different from any other conference that is being held.

Tim: I think so. It sounds a lot more hands-on, a lot more interaction. Let me ask you this, because you were obviously working closely with both the Japanese engineers and the San Francisco engineers. So what did the Japanese engineers think was most different about the engineers from San Francisco, and what did the teams from San Francisco think was most different about the Japanese teams?

Keigo: So the Japanese team really found the way the American team took in inspiration and immediately turned it into something that was tangible. And they were able to move from that inspiration to object very quickly. I think that was an eye-opener to the Japanese side. And from the American side, it was definitely about how much quality was baseline for almost anything that was created in Tokyo.

Tim: That is kind of two sides of the same coin, isn’t it? A team that is willing to throw something together and put together a prototype over a weekend is not going to be too concerned about the quality of that prototype. But those that really want to get the highest level of customer experience, they won’t be able to put together something on a weekend. Interesting.

Keigo: Right. They were so different, but the way they thought about experience, there was something that they all took home. Actually, what’s interesting is our secondary goal was that some of these members would fall in love with the way the other side works and they would actually make a career move. So far, it has been 2 members that actually—

Tim: Which direction?

Keigo: From the US side to Japan. We’re supporting them right now through a program that we’ve setup, kind of separate from that conference, but with the same goal.

Tim: All right. Let me ask you, there’s so many conferences and panel discussions I’m on, and the media in Japan often focuses on the problems with the Japanese startup ecosystem and what’s missing about the ecosystem. But it sounds like, both from your experience personally, of diving into startups here, and this sort of hacker exchange program, has found a lot that’s attractive in the startup ecosystem. So let me ask you, what do you find attractive about the Japanese startup ecosystem? What is going right here?

Keigo: I don’t be able to directly answer that question but I believe the reason why I think Japan is a great place is because the country itself, living here, is a fantastic place. I think it really is kind of a future model of what the lifestyle means and what it kind of means to live in the safe environment, a place where if you have the courage, you can make innovation happen. All the basic needs are here, it just hasn’t started yet.

Tim: I agree with you on that. Both, in a sense, of Japan being a very comfortable place to live, after the first year or so and you kind of get over the strangeness of everything, it’s a very comfortable place to live, and I’m optimistic about the innovation we’re starting to see happen here. Okay, well, listen, before we wrap up, let me ask you what I call my magic wand question. That is, if I gave you a magic wand and I said you could change one thing about Japan—the educational system, attitude towards risk, anything at all—to make it better for startups and startup founders, what would you change?

Keigo: I would change the way funding happens. Maybe not how it happens, but who is involved.

Tim: So how would you change it?

Keigo: I would ask a lot more people to be angels. I think Japan has a very big number of wealthy individuals, but they were never startup founders themselves, or if they were, it’s very common to hold onto what you’ve got.

Tim: I think that’s true. Right now, most Japanese angels, they’re a lot of doctors and lawyers, and finance guys, and relatively few successful entrepreneurs doing the angel thing.

Keigo: I think there’s still a lot of focus that needs to be made on reinvestment and giving back to the community.

Tim: So do you think the value of that is increasing the amount of funding available as angel investment? Or do you think of that as having the expertise, people who know what it is like to run businesses?

Keigo: I think the latter, giving back to the community, in terms of their expertise and the trust that they can provide for the young entrepreneurs. I think the biggest problem right now for startups here is that they don’t have trust, so they won’t be able to get their foot in the door. A lot of things in Japan is based on trust.

Tim: So get their foot in the door in terms of making their first sales, or raising additional funding, or in what respect?

Keigo: Both of those. Having the ability to talk to other medium-sized companies. I’m not talking about giant conglomerates. Those you just need to have the right connections anyway, but medium-sized businesses, it’s not about who you know. It really is about just how much trust you have under your belt. A lot of these companies who are trying to do B2B businesses, they just can’t even get their foot in the door, and I think that’s something maybe big companies can provide, but I think having certain expertise on their side—

Tim: That’s a good point. It is—there are very few angels playing that role in Japan now, but I think the future looks good in that regard. So when you look at San Francisco, for example, there are 7 or 8 generations of successful entrepreneurs who became angel investors or became venture capitalists and taught the next generation. At least 7 or 8, going back to the early 70s, late 60s. I think Japan, we’re only seeing the first generation right now that are doing this. So there’s not that many of them and I think they’re all trying to figure out how to do it as well, but I think the trends are all in the right direction.

Keigo: We’re also starting to see—you wouldn’t have called them entrepreneurs, because they were just businessmen from a couple years back, but those people are starting to look at investing into startups in Japan, and I think that’s a really interesting change that’s happening in the last year, I think. Even for BnA, people who aren’t really involved in that kind of startup world, is interested in us because we deal with, I guess real estate, which is a little bit different from—

Tim: Oh, right, so you will attract a different type of investor. That makes sense. Well, excellent. Listen, thanks so much for sitting down with me.

Keigo: Thank you.

And we’re back.

Bed & Art is doing something, or at least has the potential to do something, very special. I think the real core of the business model wasn’t really explained as clearly as it could have been during the interview.

As so often happens, a lot of the great insights came out after I put away all the microphones, and as Keigo and I were walking back to the station, talking about our lives and our past companies, and what we are trying to achieve, we stumbled across what is really unique here and what is the heart of their business model and why Keigo might actually be able to scale Bed & Art globally.

And the following phrasing and explanation is my own: Keigo wants nothing more than to help out artists and to support artistic communities. That’s really where his heart is and that’s wonderful, but put through the filter of the more cynical, and perhaps more pragmatic mind of Tim Romero, here’s how I see the opportunity:

On the demand side, it’s a cliché that people don’t want to travel. They want experiences. Marketers have convinced millennials that this is a new thing that only applies to them, but we gen-x’ers, and much older, know that the appeal is much broader than that.

Now, renting out out of the way rooms with funky designs, sure, there is some small novelty value in that, but being able to travel and to actually be plugged into a local artistic community, to meet real people with real stories, ah, now this, this has real value. As long as it’s honest and authentic, it’s priceless. So how do you get an artistic community to allow this to happen? By bringing them into the fold, by putting in the effort that gives the community the event space, exhibit space, to ensure that the guests are exposed to the output of the local artists, and people do buy art and go to galleries when they travel, and by sharing a fair amount of the profits with them. If they do it right, Bed & Art might just be able to remain at the core of a large artistic community, one big enough to absorb 40 to 100 rooms full of travelers.

Now, any smart MBA will point out that you could squeeze the artistic community to almost nothing. After all, the movie, music, and anime industries have shown that there is a lot of profit to be made by having struggling artists work for nothing. But of course, that would destroy the community and the long-term value, the authenticity of the experience. No, a startup like Bed & Art could only scale, or even survive, with people like Keigo at the helm, people who are willing to give up a lot of the profit, and who genuinely want to help the artistic community.

So what do you think of Bed & Art? Keigo and I would love to hear from you. So come by DisruptingJapan.com/show071 and let’s talk about it. When you drop by, you’ll find all the links and sites that Keigo and I talked about and much, much more in the resources section of the post.

And, you know, I’d like to say a quick word about—not from—but about our sponsors. These are all great firms that support both the show and the startup community in Japan. Please do check them out and let them know that you heard about them on Disrupting Japan. It really helps me keep the show going.

And 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.