Welcome to our 100th show.

If you are new, welcome to Disrupting Japan. If you are a long-time follower, thank you for being part of the community and helping to make Disrupting Japan what it is today.

This is a special, and rather short, episode.

Today I’m going to tell you a very personal story of startup failure, and let you in on what’s coming next. Both for me, and for the show.

Thank you for listening, and I think you’ll enjoy this one.

 

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Transcript

Disrupting Japan episode 100.

Welcome to Disrupting Japan. Straight talk from Japan’s most sucessful entreprenuers. I’m Tim Romero and thanks for joining me. 

Wow. One hundred episodes! That’s right

Orson Wells only made 64 movies.  The Rolling Stones have only recorded 53 albums. Lord Byron only published 83 poems.

But Disrupting Japan has now released 100 episodes. And I’m pretty happy about that. When I started this show, almost exactly three years ago, I never imagined it would grow into the big international community it has become, and I want to thank you for being part of it. Wether you were one of our 14 original listeners or one of the thousands who have signed up more recently, thanks for joining the conversation about some of the truly amazing things going on in Japanese startups and innovation today.

I knew I had to do something special for our 100th show, and gave a lot of thought to exactly what that should be.

I thought about doing a clip show with many of Japan’s startup founders saying a word about startup in Japan and wishing us a happy 100, but that seems kind of, I don’t know vain and self-congratulatory.

I thought about getting a big name on the show. There are a couple of world-famous Japanese founders who I could have probably brought on for the big anniversary, but that didn’t feel quite right either. I mean, we’ll definitely get those guys on later,  but what you’ve been telling me  — pretty consistently — over the past three years, is that it’s the human stories of success .. and failure  and challenge that really meet to matter.

And that makes sense.

It’s not the dot.com billionaires that are diving innovation in Japan.  It’s the thousands of individual innovators and the millions of Japanese people newly willing to take chance and try out these new ideas that are really driving the change.  In a way, the billionaires are just as much a result of these historic changes as they are a cause of them.

The real change, the real engine for innovation in Japan is the creative people who are willing to take some very real social and economic risks to follow their dreams and try to create something new. I mean, they are not selfless. Very few of them are doing it for the betterment of Japan.  No they have their own reasons some financial, some personal, but they are willing to put themselves out there, both economically by starting a company, and socially by, among other things, coming onto this show and talking very frankly about what they feel, and what they fear … and what they really want.

This kind of public openness about true hopes and fears. This kind of sharing. It’s never really been a part of Japanese culture, but that’s changing. At least among startup founders. And that’s a great thing.

So, in that spirt of openness about failure and success and hopes and dreams, for this special 100th episode, I’ve decided to share a personal story of my own. I’m going to tell you about one of my startup failures, and then I’ll tell you about my new job. I can talk about it now, and if you haven’t heard yet, you are in for a surprise.  Ah, but before I tell you about dreams of future success, I owe you a story of past failure.

This is adapted from an article I wrote a little more than a year ago about why I decided to shut down my latest startup a few weeks before launch. The article was originally titled “Why I Turned Down $500k, Pissed off my investors, and shut down my startup.”  That article went viral. For a while it was the top story on Medium and Pulse. It was reprinted by Venture Beat and Quartz, and many others. It’s been read by over 3 million people and translated into four languages — that I know of.

And let me tell you, its strange spending two weeks as the worlds most famous failure. I got more than 4,000 emails and messages during that time. Most were supportive, but the experience was overwhelming and a bit surreal.

But I would like to tell the story to you, and as a member of the Disrupting Japan community, I think you will enjoy it, but you will actually —- understand it.

You know, a few weeks ago a close friend told me that between my articles and my blog and Facebook and Disrupting Japan and my general oversharing, that I was living my life as some kind of performance art.  Now, me being me, I came up with the perfect response to him about a week later, but at the time I just kind of laughed and said something stupid like “Yeah, maybe.”

Well, the truth is, we are all living our lives as a kind of performance art.  It’s just that most people have not realized it yet.

Ah, but I still owe you a story, so let’s her from our sponsor and then get right to it.  

    

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I just did what no startup founder is ever supposed to do.

I gave up.

It wasn’t even one of those glorious “fail fast and fail forward” learning experiences. After seven months of hard work and two weeks before we were to start fundraising, we had a good team, glowing praise from beta users, and over $250k in handshake commitments.

But I pulled the plug.

My team and most of my investors are pissed, but I’m sure I did the right thing. At least I think I’m sure.

The business had what I considered to be an unfixable flaw. My investors and my team wanted us to take the funding and figure out how to fix the problem before the money ran out. I’ve started four companies in the past with a mixture of exits and bankruptcies, so I understand that this is what startups are supposed to do, but I just couldn’t do it this time.

This is in part my explanation to the various stakeholders, in part self-therapy, and in part a call to other founders and investors to let me know what they would have done in my situation.

I began work on ContractBeast, a SaaS-based contract lifecycle management offering, last October. Unless you’ve worked in big IT, you’ve probably never heard of Contract Lifecycle Management or CLM. In brief, CLM covers the authoring, negotiation, execution, and storage of both physical and digital contracts with strict access control. It also does things like let you know what contracts are about to expire or automatically renew, and who is responsible for those deals.

CLM is a highly fractured, $7.6 billion global market with over 80 established companies fighting for market share— and that’s not counting the dozens of e-signature startups that have popped up in recent years. Almost all of these companies are clustered in the enterprise space, where sales-cycles are long and top-down, and where revenues are driven by consulting and customization.

It’s a big market begging for disruption. The mid-market of small and medium businesses is grossly underserved and the enterprise market is grossly overpriced. ContractBeast was going to deliver a low-cost SaaS product with no consulting required. We would focus on the mid-market first, and then work our way up to the enterprise.

    

Our target users responded positively to the mock-ups, and many excitedly asked when they could start using it. I was on the right track. I spent the next few months working evenings and weekends developing an MVP and getting feedback on features as they were implemented.

I left my job in January so I could work on ContractBeast 70+ hours a week. The rest of the team kept their day jobs. That was fine. It made my final decision easier.

We started private beta in early March, and things looked solid. About 35% of our users continued to use the system at least three times per week after completing registration. The UI needed work, but our users raved about how ContractBeast would save them time and worry in the future.

The team was excited. Our potential investors were excited.

But something was wrong. It seemed trivial at first, but it bothered me. Despite glowing praise, our users were only using ContractBeast to create a small percentage of their total new contracts.

I spent the next two weeks visiting our beta users, looking over their shoulders as they worked, and listening to them explain how they planned on using the product. Pressing them directly on why they were not using ContractBeast to create most their contracts resulted in a lot of feature requests.

Now, talking with customers about features is tricky. Often you receive solid and useful ideas. Occasionally a customer will provide an insight that will change the way you look at your product. But most of the time, customers don’t really want the features they are asking for. At least not very badly.

When users are unhappy but can’t explain exactly why, they often express that dissatisfaction as a series of tangential, trivial feature requests. We received a lot of ideas like integrating alerts with various messaging platforms, using AI to analyze contract content, and building more sophisticated search features. These aren’t necessarily bad ideas, but they had nothing to do with why they were not using ContractBeast more extensively.

I might write an article someday on how to tell these tangential feature requests from useful feature requests. Your customers mean well, but implementing these kinds of features will not make your users any happier in the short term.

In any event, I was overwhelmingly getting these kinds of tangential, trivial feature requests.

I couldn’t sleep. My users told me they loved the product, and that they planned to use it extensively. But they weren’t really using it much, and usage was actually dropping, and I had no idea why.

Sipping decaf coffee at 5:00 AM on a cool May morning, I was re-reading forty pages of notes, user feedback, and low-level profanity. The fatal flaw jumped out at me.

ContractBeast provided huge gains in accuracy and efficiency, but those gains came after months of use. It didn’t provide a significant immediate benefit.

I was fighting human nature and losing.

Everyone swears they will eat right and exercise, but most people don’t. Everyone agrees they need to spend less to be financially secure later, but most people won’t. Our users were telling us they would use ContractBeast to achieve the long-term benefits, but most of them weren’t.

When I looked at the contracts the users were creating, I found most of them were ones in which a particular feature provided a clear and immediate benefit. Usually involving contract review and approval.

Human nature sucks.

    

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There were two solutions to this dilemma, we could either change the go-to-market strategy or change the product.

Changing the go-to-market to a top-down, consultative sales approach rather than individual adoption and self-service was an obvious fix. While individuals will rarely make a short-term change to achieve a long-term goal, CIOs have no problem directing employees to do so. It’s a big part of their job.

Unfortunately, top-down sales is much more expensive than content marketing and SEO. Running the numbers convinced me that we would have to raise prices to a point that would push us out of the mid-market and into competition with more established, better-funded firms. Since we lacked an overwhelming advantage in this market segment, this was a non-starter.

That left us with the option of finding a way to delight our customers in the short term. We started searching for something that would provide that instant gratification. Almost no small or medium business views contract management as an urgent problem. Unless we found a way to get people actively using ContractBeast during the free trial, converting them to paying users would be very difficult.

We reviewed all of the feature requests we received from our users. Some of them were excellent ideas, but none addressed the problem of providing a significant, consistent and immediate benefit. It would have been pointless to implement them at this stage.

Weeks of brainstorming and dozens of hypotheses later, we had nothing. Not a single, plausible way of providing our users with the instant gratification their cerebella so desperately crave.

With no clear path forward, investors ready to wire funds, and the team ready to quit their day jobs, I decided to pull the plug.

The team and some of the investors insisted the smart move was to take the funding and pivot our way into solving these problems before the money ran out. That’s the way this game is supposed to be played, and I fully understand why other stakeholders are upset that I am simply taking my ball and going home.

Perhaps we would have figured it out before we ran out of funds, but weeks of brainstorming had not produced a single plausible approach. It would have been different if we had been debating which plan among several to implement or how to shore up specific weaknesses, but we had nothing.

I am not particularly risk-averse, but I pay attention to risk and reward. As an investor, I probably would have told me to take the money and try to make it work. But the risk-reward equation for investors is different than it is for founders.

I was deciding whether this venture was worth committing to another year of 70+ hour weeks. I need a higher level of certainty than investors do because my time is more valuable to me than their money is to them. Investors place bets in a portfolio of companies, but I only have one life.

   

Over the past few weeks the initial shock has worn off, and the other stakeholders have come around. While still a bit disappointed, everyone now agrees that shutting down was the right call.

I also feel a bit better about my decision now than I did when I started writing this. I’m not sure if you’ve ever been in this kind of situation, but if you have I’d love to hear how you handled it.

Cutting your losses is easy to understand intellectually, but gut-wrenchingly difficult to do in practice.

But sometimes it really is best to leave the money on the table.

… and we’re back

You know,  one of the most perplexing questions I get about Disrupting Japan is when people ask me if I worry that I will run out of startup founders to interview.  What? Are you kidding? No. Emphatically, no.

If I put out three shows I week I could not introduce you to everyone that I want to introduce you to.  It’s impossible to run out, because there are so many interesting startups being created in Japan all the time, and the pace is accelerating.

In fact, one of the most rewarding, and most moving things about creating Disrupting Japan is that on three separate occasions a young Japanese startup founder has come up to me and told me that listening to other founders tell their stories on this show is what gave them the courage to start their own company.

I can’t even explain how much that means to me. It’s one of the reasons I started this show.

Long-time listeners know that many founders have used their magic wands to wish for more role-models.  Perhaps without even realizing that they are those role models. 

Most aspiring founders can’t really model themselves as Mikitani-san or Son-san. The gap is just too large. They can’t imagine themselves doing what these giants have done. But when they meet the current generation of entrepreneurs, they realize that well they are not so different.  Maybe these founders took a few more risks, maybe they worked a little harder, maybe they got a little lucky,  but they are just regular people and others can do what they do.

I’m fact, as you listen to more and more founders honestly share their stories of success and failure and triumph and frustration, founding a startup in Japan starts to seem very, very possible — and maybe even a good idea.  

And soon, the floodgates are going to fully open, and we’ll be seeing a lot more of them.

    

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And as for me. The big reveal. I’ve accepted a position at Tokyo Denryoku, or TEPCO. Now, if you think Japan’s largest utility company is an odd place for a fiercely independent serial entrepreneur, you’re not alone. Both TEPCO and I originally thought the same thing.

But they’ve brought me in to be CTO of a group that will be changing the way people use energy in Japan. Electricity is something most people don’t really think about today, but over the next few years, both in Japan and around the world, we are going to be seeing community solar, and P2P energy trading, new demand response technologies, and a reworking and re-thinking of the grid itself. It’s a chance to make a huge impact and drive some truly transformative change, and I couldn’t pass it up.

If you catch me at a startup event, ask me more about it. I’ll talk your ear off. It’s really exciting.

And hey that reminds me. September 19th is our big 3rd Anniversary party at Super Deluxe in Roppongi. We’ve put together a panel of amazing Japanese startup CEOs and we’ll be talking about how startups can go global. That means both how Japanese startups can sell overseas and how overseas startups can sell in Japan.  Last year about 160 people were a part of it, and this year it looks even bigger.

So come out and have a beer with some of the most interesting people in Japan — that is the Tokyo startup community,

And most of all, thanks for listening, and I hope you’ll come along with me for the next 100 episodes.

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