Japan has a long history of small shopping streets and tiny markets. In fact, despite the population density, American-style mall culture never took off here. The back streets of even the most crowded downtown office districts are filled with little specialty stores and vegetable stands.
Akiko Nishiura, the CEO and founder of Nokisaki, wants to see that culture spread even further in Japan, and her company is helping small merchants find physical spaces for pop-up shops, vegetable stands and food trucks. Nokisaki is connecting these small merchants, who need just a little bit of space, with commercial landlords who have a little bit of free space and are looking for some additional foot-traffic.
It’s an interesting business model, and Akiko and I discuss how it will work outside of Japan or even outside of Japan’s big cities.
She also explains how Nokisaki survived a crisis that would have bankrupted almost any other startup — at least any other startup outside Japan.
It’s a great discussion, and I think you’ll enjoy it.
- Why parking is different (and difficult) in Japan
- How a new alliance is developing between big-brand stores and tiny retailers
- Why it’s so difficult for Japanese moms to return to work after having kids
- How the Japanese market reacts to new challenges
- How a security risk shut down her company
- How Japanese retail culture differs from the West
- How Nokisaki will out-maneuver her much better-funded competitors
Links from the Founder
Disrupting Japan, episode 94.
Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me.
Napoleon supposedly once called England a nation of shop keepers. And while the comment was undoubtedly meant as an insult in the context it was offered, there’s something to be said in favor of being a nation of shop keepers particularly in this age of e-commerce, Rakuten, Amazon stores, and drop shipping.
In fact, Japan, more so than the U.S. has a culture of tiny little neighborhood shops that have never been pushed out completely by big box stores, shopping malls, and chain stores even in the big cities. Well, today we’re going to sit down and talk with someone who’s accelerating that trend by making it easier for small shop keepers to pop up all over Tokyo.
Akiko Nishiura, CEO of Nokisaki, connects commercial landlords with just a little extra space to small merchants who are looking for, well, just a little space. And in their spare time, the company is also trying to solve Japan’s horrible parking problems. The discussion of the company in the market alone would make this episode worth listening to.
Akiko also shares a story of something that would have forced almost any Western startup into bankruptcy but due to the unique and frankly somewhat extreme notion of Japanese customer loyalty, it resulted in only a minor interruption of Nokisaki’s rapid growth. But you know, Akiko tells that story much better than I can. So let’s hear from our sponsor and get right to the interview.
Tim: I’m sitting here with Akiko Nishiura, the founder and CEO of Nokisaki.
Tim: Thanks for sitting down with us.
Akiko: Thank you, Tim.
Tim: Now, Nokisaki is a parking space sharing and space sharing startup but I think you can explain it much better than I can. So tell me a bit about what Nokisaki is.
Akiko: Okay. Tim, have you ever heard the word “nokisaki” and do you know the exact meaning of nokisaki?
Tim: I have to admit I didn’t know it until I looked it up.
Akiko: Right. But Nokisaki means tiny space under the roof like when you hide from the rain, for example, just a small space. We do business using that space. We are doing some special in-service but we are dealing with for example some unused space or space which are not being dealt in a traditional real estate market. We are offering a marketplace for a landlord of such spaces and those who want to use such spaces.
Tim: Okay. Spaces is a very general term. Specifically, Nokisaki focuses on parking on the one hand and on pop-up stores on the other hand?
Akiko: Right, pop-up stores. Yes.
Tim: Tell me about your customers. Let’s do parking first. About how many spaces do you have in the system? How many users every month?
Akiko: Currently, we have 4,000 parking lot listed in our website and the number of registered users is more than 130,000.
Tim: I guess we should explain for our foreign listeners that parking in Tokyo is really different than it is in the rest of the world. Before you buy a car in Tokyo, you have to prove that you have a place to park it.
Akiko: Exactly. Is it unique in Japan — I mean, worldwide?
Tim: I’ve never heard of it in the U.S.
Tim: Even in crowded places like New York or San Francisco. In Japan, that leads to this interesting situation where there is — I mean parking is hard to find in Tokyo but there is a lot of unused space here because everyone has to buy parking.
Akiko: In Japan, the most popular parking service is called Coined Operated Parking Lot.
Tim: Just parking meters, basically?
Akiko: Yes, parking meters. But the problem that the other drivers facing is that you don’t know whether you can park your car until you get there. You don’t know if it’s vacant or not. You have to spend 30 minutes or an hour to find a vacant parking lot. Our service is solving such problems that the drivers are facing. You can book a parking lot before you arrive.
Tim: Is the reservation for an entire day or can you pull out a phone when you get there and say, “Okay. What parking is available right now?”
Akiko: You can book parking lot via our website and you can use it per day.
Tim: On the other side, the pop-up store site, what kind of people are using Nokisaki to create pop-up stores?
Akiko: Our major uses are business users. I mean they are selling these or they are promoting some services.
Tim: in the U.S. for example, pop-up stores are usually major brands taking advantage of a space that’s going to be available for only a few months and using it as more of a marketing than a sales promotion. In Japan, is it the same?
Akiko: One of our users are such kind of major brands but most of our users are kind of individual merchants or small to mid-sized companies and they are for example, selling vegetables or selling clothes or shoes.
Tim: Okay. So it’s not big brands using it. It’s individual merchants or individual people out selling, farmers selling their own crops, people selling their own handmade goods and things like that?
Tim: Looking at the website, I notice that there is space available inside some very large retail stores here.
Tim: Tsutaya & BookOff, how does that work? Why are they leasing out little parts of their store?
Akiko: Yes. Very interesting because for example, Tsutaya or a drugstore chain, the customers visiting that stores are huge like more than 1,000 customers come in and so it’s very attractive space for those who want to showcase their products. So they list their unused space in our website. They can attract new customers, for example, one of our clients selling vegetables in the storefront of drugstore. Someone who see that they are selling vegetables on the street and they come in remind that, “Oh, I have to buy a shampoo,” then they get in the shop, buy some products. They can earn some extra money through renting their unused space but at the same time, they can attract new customers through our business, through our service.
Tim: In the example of say, Tsutaya, which is a large video rental chain, what kind of tenants are they using Nokisaki to attract?
Akiko: Food trucks mainly.
Tim: Food trucks?
Akiko: Yes, because many customers of Tsutaya are 20s or 30s, young people. So the food trucks will fit to the needs of those customers.
Tim: That’s really interesting and that does make a lot of sense for building up traffic and building up almost kind of a sense of community and a place to hang out. How did that deal come about? Did you approach Tsutaya with the idea of, “Hey, maybe we can get some new foot traffic in?” Did you approach them with the idea of food trucks or did they come to you? How did that happen?
Akiko: We are doing many ways. We knock the door of those major clients. We do presentation to convince them but at the same time they receive some request from those individual food truck owners but usually they reject those request because it’s really hard for them to deal with small retailers directly.
Tim: Well, I’d also imagine though that large retail chains in any country are very, very conscious and careful about their space. Not only internal shelf space, what goes where but the areas in front of their stores. How did you convince them to open it up like this?
Akiko: Well, for example, a national chain store that the legal issues were so complicated so it took more than one year to close the contract between us but nowadays, it takes less.
Tim: That makes sense. The first one was the difficult sale and after that you had a reference?
Akiko: Yes, yes. Exactly.
Tim: Now, I want to talk about the overall sharing economy here in Japan a bit later. But before we do that, I want to ask you a bit about you.
Akiko: Yes. Okay.
Tim: You had a very successful career going at Sony, what made you decide to leave and start a sharing economy startup?
Akiko: Yes. It was kind of very accidental. I retire from the company I used to work just to give birth to my child. I was 37 that time but I wanted to continue working in some way. So I just had planned to import some articles to the country of South America where I used to live and open up an online shop.
Tim: A lot of women in Japan tell me it’s very difficult to go back to work after having children. Was that something you were planning on doing or something you decided you didn’t want to go back to Sony after having kids?
Akiko: I just didn’t want to go back to a big organization. I just wanted to spend more time with my child.
Tim: So you’re saying the first idea you had was importing?
Akiko: Yes, some articles and doing some small business while raising my child at home. It was not a big deal. I just wanted to do something that I liked. But the products that I was going to import was not so popular in Japan and so I just came up with an idea to make a test marketing so I started to find a place to open a short period but no one was willing to lease a shop for such a period. I was just wanting to rent for a month or something. It’s so common in Japan that all the shops were basically rented for a longer lease.
Tim: Yes. In Japan, it’s not only a long-term lease but you have to put in seven months of deposits.
Akiko: Yes. It’s so expensive. I noticed that it’s so hard to have a real store while it’s getting very easy to open online shop. An idea struck my head that I didn’t have to have a well-made store, that all I needed was a small space that I can display my products. There are so many unused spot available in everywhere. That was kind of start the idea.
Tim: So you decided that solving that problem was a better business was better than the business you were doing.
Akiko: Yes, exactly.
Tim: That was back in 2008?
Tim: Okay. So you started Nokisaki at first with you husband, right?
Tim: That has to be difficult at times, running a company as husband and wife.
Akiko: Luckily, my husband was running a real estate company so I asked him for advices. It was very big advantage for me to have my husband as a partner. For the first three years, we’ve been doing together.
Tim: Was he just sort of helping you out part-time? What happened after the company got to a certain size?
Akiko: He just quit and he returned to his real estate business.
Tim: Starting a company with your spouse is something that you would recommend?
Akiko: Yes, I would think so because doing business alone is kind of you need some partners. In my case eventually was my spouse but it’s not necessary. It can be your friend or your ex-colleague.
Tim: You just need someone?
Akiko: Yes, you need someone you can trust.
Tim: That makes sense.
Tim: He was working on this part- time?
Akiko: Mainly he was visiting landlords to convince them to rent out their spaces and list them on the website.
Tim: Getting back to the parking lot side of the business, how have the existing parking lot operators responded to Nokisaki? Did they view you as competition? Do they want to be listed on it to get the business?
Akiko: We first started our Nokisaki parking business in 2012 and we were the first operator of this kind of business. Until a couple of years ago, we were alone in the market so the conventional parking operatives recognize us but they didn’t see us as a competitor. But currently, there are so many similar operators sharing parking lot service. In some part, they see us as the competitor but they don’t think their market can be replaced by the service like us in a short period.
Tim: Let’s talk a bit about the actual market here in Japan. Unlike a lot of big cities in the U.S. where there are no big parking garages in Central Tokyo, there’s parking under hotels and some office buildings but it’s mostly a lot of tiny little five or six car spaces scattered all over the city. Are most of those tiny lots independently operated or are there companies that operate a couple hundred of these lots?
Akiko: 50% of such parking spaces are operated by one big parking operator. They have more than 50% of market sharing in Japan. But the other 50% of the market are operated by small parking lot operators. It is very unique in Japan. I would say that parking is one of the most popular way of utilizing unused land.
Tim: Japanese tax law forces you to do something with the land.
Tim: So if you have unused land, your taxes go up.
Akiko: You have to pay more.
Tim: Right. So you have to put a building on it or a parking lot or something.
Akiko: You have to build something. Yes, exactly.
Tim: Okay. The parking lot owners, are they mostly these individual parking lot owners or are they individual people who have one spot they’re renting out on their own?
Akiko: In terms of the number of accounts, 40% of our accounts individual, the other 60% are parking operators.
Tim: Okay. It sounds like the platform’s been embraced by the small parking lot operators. It’s just Park24, the big operators the see you as a competition?
Tim: Last year, you guys ran into a problem. You actually had to shut down the service for two months or so.
Tim: What caused that?
Akiko: At the end of July, we had a notice from some security service company that there is a possibility that we are receiving some illegal attack to our web server. So we had to stop our service for detailed investigation.
Tim: Was it a denial of service attack? Did someone steal account information? What kind of —
Akiko: Actually, there were no complete deep worth of client data were stolen or something but we have a report that there wasn’t a possibility that someone were looking into our server, just it was a possibility.
Tim: That seems like a very extreme reaction, to shut down the whole company for two months when you’re not completely sure what’s happening. Why did you decide to do that?
Akiko: Because it was kind of demanding request from a credit card company. At that moment, we didn’t have credit card information on our web serve but we were offering payment service through our service. So as far as there was a possibility that someone could steal some account information, we have to shut down until concrete investigation.
Tim: So your payment processor effectively made you shut down?
Akiko: Yes, exactly.
Tim: What did the investigation conclude?
Akiko: The final investigation showed that there was vulnerability. We had patched to strengthen the security level. After doing such kind of implementation, we could restart our service and it took two months.
Tim: What happened to your customers when you turned the switch and turned everything back on after two months?
Akiko: Yes. It was very hard for us. In the first place, it was summer time. It should have been a peak season for drivers to book parking lot. So August, September, that two months, we didn’t have any sales but at the same time owed the property owners who expected to have a large income. They didn’t receive anything so we had to keep the relations with those landlords while our competitor’s approaching. But finally, I would say 98% of our property owners stayed with our service.
Tim: Wow. That’s pretty impressive.
Akiko: Yes. That was —
Tim: I mean if you only lose 2% of your supply when your service is down for two months, that’s incredible. I think most marketplaces like this would be happy if they lost 2% of their customers in a normal month.
Akiko: I think that we did build a good relationship with our clients and we promised that we will come back after everything has been done so they just wait.
Tim: That’s amazing. I think that’s a testament to the level of service you provide and also I think somewhat uniquely Japanese.
Akiko: Yes, I would say so. But actually, our sales team has visited from Hokkaido to Kyushu, some major measure clients.
Tim: So your sales team was just visiting clients apologizing for two months straight?
Akiko: Yes, because there was nothing to do so our sales team just visited our major clients.
Tim: What about the other side of the marketplace, the users? Were they waiting tom come back online or did you have to recruit more of them back?
Akiko: At that time, the number of registered users were about 100,000 and 300 clients wanted to leave but after we restarted, we just recovered the number of customers within the day.
Tim: Wow. So your growth just picked up right where it left off?
Akiko: Actually, yes.
Tim: Was there a particular reason for that? On the supply side, you had your salesmen out talking and apologizing and keeping everyone informed, were you doing the same thing on the customer side as well?
Akiko: No. Actually, we didn’t. We just apologized via emails and sending messages but nothing more than that. Actually, the main reason for that, I would say that most of our users, they use our service for the first time. Many people who wanted to book parking space and there’s no other option. So they had to use our service when they wanted to book.
Tim: But when this outage happened, there was competition?
Tim: They could have gone to one of the competing companies.
Akiko: Actually, yes.
Tim: I think it is amazing that you’ve managed to have that level of customer attention to an experience that would have ended most startups.
Akiko: Yes, yes. We just could survive.
Tim: Looking at the business model as a whole, Tokyo seems to be the perfect place for both parking lot rentals and this kind of pop-up store because it is so crowded, there are no big spaces available but there’s thousands and thousands of tiny little spaces available everywhere. Do you think this model will work outside of Tokyo or in smaller cities?
Akiko: Yes, I think so. For example, Osaka, Nagoya, Fukuoka and such bigger cities in Japan, yes. For example, in parking business, the people in the local cities use cars as major transportation while in Tokyo, people commute by subway or trains. They don’t use car on a daily basis.
Tim: By the way, is that law that requires you to prove you have a parking space before you buy a car, is that just Tokyo or is that all of Japan?
Akiko: All of Japan and I don’t know why.
Tim: Well, it makes sense in Tokyo. How big do you think the potential market for this is?
Akiko: The market size of the regular parking business in Japan is estimated as $3 billion. Some part of the regular parking business will be replaced by sharing parking, maybe up to 20%, 30%.
Tim: What about the pop-up shop, the space sharing, because that’s new. It’s hard to estimate.
Akiko: Yes, that’s new. It’s hard to estimate but I would say that the market size of pop-up is much bigger than parking sharing service because the regular retail market is kind of slowing down not only in Japan but also maybe anywhere. Big region markets closing their stores but the demands for pop-up stores is increasing.
Tim: I think the U.S. and Japan have very different retail cultures around us. America definitely has this mall culture to it but Japan doesn’t really have a mall culture. It’s more of little shopping streets and almost like a bazaar culture where people are used to having lots of tiny little shops all crowded together. It seems like this idea of a pop-up shop in the Japanese term meaning would you like a small individual selling vegetables or clothes or handicrafts. It seems to fit the shopping culture of Japan better than I would say the U.S.
Akiko: I would say so, yes. As we talked at the beginning, it’s so hard to rent a shop for a long term. You have to spend so much money or you have to pay deposit and key money. If you choose pop-up shops, you don’t have to pay such money. You can have your own shop for very low cost.
Tim: It’s the physical equivalent of having a web store.
Tim: Since your first funding round back in 2011, you guys have grown. It’s a small round and you guys grew pretty much organically and through word of mouth and social media. Last year, you raised $2.2 million round. So you’re obviously planning on accelerating things.
Tim: What’s changing?
Akiko: Well, the environment surrounded us has changes so much especially in parking share service, there are so many competitors around us. But what is remarkable is that the major company like Recruit or Rakuten also join in the market.
Tim: You guys were first in the market.
Tim: You’re still the largest individual player in the market.
Akiko: Yes, I would say so.
Tim: What are you doing to stay ahead of the much better-funded companies coming out of Rakuten and Recruit?
Akiko: Of course they have resource, they have people, they have staff, and they have money but I think that the key in this business will be how to get the heart of landlords.
Tim: That’s a really good point. A lot of startup founders and aspiring startup founders think too much about the technology and the business model, where what you’re saying is your real advantage is how close you are to your customers. I guess it’s really proven by the fact that so many of them stuck by you even when you had to shut down for two months.
Tim: Recruit or Rakuten coming into the market doesn’t have that closeness, doesn’t have that trust even though they have a whole lot more money.
Akiko: Right. Every day, we talk to landlords, some of them do not have smartphones, they don’t have PC, so we have to phone call them or we have to send text. So yes, our services are web service but at the same time our clients are real. They exist as a real —
Tim: I think when a company like Rakuten or Recruit encounters that reality, they will respond with a certain amount of frustration that these people are not using modern technology. It’s not even that modern anymore. It’s 20-year old technology, whereas, you’re using that as almost a competitive advantage.
Tim: Let’s talk a bit about Japan in general. Now, the sharing economy has had mixed results in Japan. Uber has had a horrible time here in Japan. Airbnb is staying better but it’s still kind of rough for them. What do you think is going to be a future of sharing economy in Japan?
Akiko: It’s so obvious that the number population is decreasing in Japan and we have to use the limited asset with less budget. There’s no way that we can survive without introducing sharing economy. In future the word sharing economy will disappear, the people will be using sharing economy platform unconsciousness with —
Tim: So it would just seem natural?
Akiko: Naturally, yes.
Tim: I think Nokisaki is sort of a small step towards sharing economy because most of your users are B2B, only a minority of your parking lot supply is individuals renting out. This is not really sharing, it’s just better utilization.
Tim: What do you think is the attitude of the average people towards the sharing economy from a person-to-person level?
Akiko: It’s not so popular right now. The culture difference especially real estate, we, Japanese, have so much attachment to your own property and they don’t want to rent your space for unaccredited tenants, right?
Tim: Right, right. The unknown.
Tim: The thing is I’ve come to believe less and less in the cultural differences idea. And the reason is I was in Japan back the ‘90s when all the department stores were saying, “No, no. Japanese will never buy online. It just won’t happen. It’s against Japanese culture. They want to hold things in their hands.” Now, Japanese are perfectly happy to buy online.
Tim: And the department stores are in big trouble. I remember when Yahoo Auctions first started up, everyone are saying, “No, no. Japanese are never going to buy used goods online. It’s against the culture. Everyone wants to buy new goods.” No, it was a huge success. It’s massive. I hear a lot of people today saying exactly the same thing. They’re saying, “No, no, no. Japanese will never share individual goods. It’s too much of like an invasion of their privacy.” So I’ve come to doubt those statements over the years. But from your experience, that’s what most people are still saying? They think they’ll be hesitant?
Akiko: Especially the property owners, yes.
Tim: Well, listen, before we wrap up, I want to ask you what I call my magic wand question, and that is, if I gave you a magic wand and I said you could change one thing about Japan, anything at all, the education system, the way people think about risk, the legal system, anything at all to make it better for startups here in Japan, what would you change?
Akiko: I would say education.
Tim: How would you change it?
Akiko: In my case, I didn’t have an idea that there is an occupation called entrepreneur until I was 35 or 36. I knew that there are but I actually didn’t know how to start my own business. For example, in primary schools, maybe teachers will introduce that there are many occupations. For example, grocery shop or doctors but entrepreneurs will not be in the list. Maybe my son know that there exist an entrepreneur in Japan but other kids don’t know.
Tim: It just never occurs to them. And the fact the way it’s presented is, the entrepreneurs like Morita or Son or Mikitani, the gap just seems too huge.
Tim: Students cannot imagine themselves being like that. Do you think it’s changing now? Do you think younger people are more aware that being an entrepreneur and starting a company is a possibility?
Akiko: Yes. The kids, there is internet available and they have smartphones and they can do everything. They are very lucky that they have all those tools.
Tim: Do you think that young people are learning about entrepreneurship from the schools or on their own through the internet or movies like Social Network? How are they finding out about it?
Akiko: In many ways I think what is important is they have a chance to know that there is possibility, they can do your own startup.
Tim: Do you think that we’ll see a day soon when in elementary schools, students are taught where you could be a policeman or a teacher or a doctor or an entrepreneur?
Akiko: Yes, that would be good.
Tim: I think that would be great.
Akiko: Yes, that would be great.
Tim: I don’t know, the way things are going, we might actually see that in a couple of years. Well, listen, Akiko, thank you so much for sitting down.
Akiko: Thank you, too. Thank you, Tim. It was so interesting talking to you.
And we’re back. Nokisaki’s pop-up and parking business are doing great in Tokyo and it’s going to be interesting to see how it does in less crowded markets. In Tokyo, retail space is incredibly expensive and in high demand so there’s a huge economic pressure to make sure that any unused spaces get used. As Nokisaki moves into smaller markets, that pressure will weaken. But on the other hand, renting commercial space is still a time-consuming and expensive endeavor for most small or micro businesses, and Nokisaki makes the whole process simple.
So perhaps that will be enough to drive adoption in less crowded markets. Also, despite the recent influx of very well-funded competition into the parking and pop-up spaces, Nokisaki remains the market leader in Japan and that really seems to be the result of high demands for customer service in Japan and the extreme nature of customer loyalty here. In fact, those two things are very closely related. They are both tied to the strength of the relationship and the need to build that relationship is one of the big reasons that sales cycles are so long in Japan. However, it’s very real and I experienced it first-hand at one of my earlier startups.
I was running an e-commerce company back in 2001 as the internet bubble was bursting around us. We have plenty of cash on hand but it was not a good time to be an e-commerce startup. The reaction from our Japanese and Western clients could not have been more stark. My foreign clients, mostly Japanese firms run by foreigners, began canceling contracts, even short-term contracts where I offered to open my books to show them that we were solvent. By and large, they told me that it just wasn’t worth the risk and they’d be switching vendors.
My Japanese customers on the other hand particularly the very large ones reacted quite differently. I went to them and I explained, “Look, times are hard. We could really use some additional work right now.” And they gave it to us. Now, I grant you, those companies got some pretty amazing deals on the work that we did for them.
But while the immediate reaction of Western companies to a struggling vendor is to cut ties as quickly as possible, the reaction by the Japanese clients was to see how they could help us weather the storm. Now, from an ecosystem perspective, I can’t say whether one method produces better results than the other but it’s a difference and it will produce different results. I think that in developing a startup ecosystem, all nations need to leverage their own national and cultural strengths to create both an ecosystem and innovative startups that are genuinely unique.
If you’ve got a story about those sharing economy, Akiko and I would love to hear from you. So come by disruptingjapan.com/show094 and tell us about it. And when you come to the site, you’ll see all the links and notes that Akiko and I talked about and much, much more in the resources section of the post.
And before we go, I want to tell you a bit about our sponsors. No, no, don’t worry. We’re done with the ads for today. Our sponsors enable me to introduce you to all these amazing founders. But more than that, they really do contribute to the community here. And yes, I really have turned down a couple that I didn’t feel were a good fit for one reason or another. So hey, check them out, drop by their sites, and let them know you heard about them on Disrupting Japan.
But most of all, thanks for listening and thank you for letting people interested in Japanese innovation know about the show.
I’m Tim Romero and thanks for listening to Disrupting Japan.