How Startups Can Compete In The New Energy Markets

The global energy markets are transforming themselves right before our eyes. Very little fundamental change has occurred over the past 70 years, but 10 years from today the Japanese and global markets are going to look completely different. 

Today we sit down with Yohei Kiguchi CEO in Enechange, Japan’s largest retail energy switching platforms, and we dive into detail about how these markets are changing.

We talk about Enechange’s business model, of course, but we also discuss the most effective strategies for startups who need to compete against large incumbents, and that advice holds true for startups in Japan or anywhere else in the world.

Yohei also has some interesting observations on why Japan is a better place to start a company than the UK or Europe.

It’s a fascinating discussion, and I think you’ll enjoy it.

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Show Notes

• How to identify a promising startup opportunity in Japan
• What’s driving change in Japan’s energy markets
• How to appeal to Japanese investors from overseas
• The importance of TV advertising in Japan
• How to make money in a slow-growth industry
• When Japan’s nuclear plants will be turned back on
• How Japan’s IPO markets gibe Japan a strategic advantage
• Why enterprise upper management is leaving to join startups in Japan

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Transcript

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

I surprised a lot of my friends and fans last year when I joined TEPCO, Japan’s largest electric utility. I admit, at first glance, it seems a pretty radical departure from my history in startups and in most ways, it is. However, there’s a transformation going on right now in energy all over the world, and while there’s been very little disruption in the energy markets over the past 70 years, 10 years from now, the markets will look nothing like they do today.

Well, today, we sit down with Yohei Kiguchi, CEO of Enechange, one of the more innovative startups building a business in the new energy markets. Now, before you understand what Enechange does, I need to give you a little bit of background on how energy deregulation is working around the world and the story of the coming disruption is quite similar in all developed nations.

Since the days of, well, Thomas Edison, really, the power company was responsible for creating the electricity, building and maintaining the power grids to transmit that electricity across the country, and then billing the customers for the electricity they used. Because of the cost involved and the importance of universal and reliable electricity, it made sense for this to be done by a single, tightly-regulated monopoly and that’s how things stayed for about 100 years, but over the past decade, around the world, the cost of generating electricity have dropped and we’ve seen smaller, more affordable plants, and a proliferation of sore.

On the retail side, smart meters and the internet has made it easier to collect data and to be bill customers, and so markets around the world are being deregulated with power generation, power transmission, and retail billing all being handled by separate companies. While power regulation gets most of the press, most of the market disruption has focused on the retail side with hundreds of companies entering the market and many offering steep discounts. Around the world, electricity consumers have never had this much choice, and that’s where Enechange comes in.

Enechange is by far Japan’s largest energy-switching website. It provides tools that allow consumers and businesses to shop for the best or the cheapest energy supplier, but as Yohei explains, the cheapest is not usually the best and Yohei also has some interesting observations on why Japan is a better place to start a startup than Europe, but you know, Yohei tells that story much better than I can. So let’s get right to the interview.

Tim: So I’m sitting here with Yohei Kiguchi of Enechange, an energy price comparison site, so thanks for sitting down with me.

Yohei: Yeah, thanks for having the time with me, Tim.

Tim: What I find really interesting about Enechange is you started this business in 2015 and that was even before the retail markets were deregulated which happened in April 2016. What attracted you to the business?

Yohei: We set the company exactly one year before the market deregulation, just one year to prepare for the market deregulation, so that’s why we just intentionally set up the company in April ’15.

Tim: That makes sense but investors typically don’t like to make big bets on unknown companies and unknown founders, and markets that don’t exist yet, so what attracted you to the whole idea and how did you get the investors on board with this?

Yohei: Basically, two points, so one is, the energy deregulation is happening all over the world. The UK is doing it when I was living there. All the European countries, signed the EU treaty in 2008 or 2009, like all the EU nations need a deregulation in the market. Every country, when the market was deregulated, like similar company, like similar energy-switching company kind of imagine, this business model which was not happening in Japan yet, but it was basically set to happen anyway.

Tim: Yes, so you could point to the success in foreign markets and say, “This is how it happened overseas, so of course, it’s going to work the same way in Japan”?

Yohei: Yes.

Tim: Excellent. Tell me about your customers. So how many people visit your site every month? How many people are really interested in changing energy retailers?

Yohei: So let me give you the big picture first. So basically, like 70 million customers in Japan, which is basically the half of the total energy consumption in Japan. The other half is commercial customers.

Tim: So half residential, half commercial?

Yohei: Yes, the half residential, half commercial, yes. For the latest sale sectors, like 70 million, and then the industrial sector is roughly one million customers.

Tim: And of those 70 million, how many are coming to your website every month?

Yohei: Our site average monthly visitors is like, two million.

Tim: That’s really high. For a potential market of 70 million, if you have two million users visiting your site every month, that’s fantastic penetration.

Yohei: Yes, then like other country, like there’s over 10 million energy-switching has already happened since the market deregulation. We are the number one company in the switching market – the number makes sense.

Tim: What is your business model, exactly? Do you sell leads to companies? Do you get a commission when customers switch? How do you guys make money?

Yohei: Pretty much like in everything like in energy comparison website in the world is having like same business model, basically like, free for the customer, and then you get commissions from the new suppliers. If you acquired a customer.

Tim: Okay. So if 10 million people out of a potential market of 70 million have already switched in the last year and a half, that’s a pretty active market. Are people mostly switching based on price?

Yohei: Yes, like we were dreaming like people want to use a greener company or cleaner company, or like local regional company, but actually, at the end of the day, like 95% of customers say like, just cheaper.

Tim: Just price?

Yohei: Yes, and then another thing, like on the UK, like UK got the same starting sect, 90%, like just cheaper.

Tim: I think it’s an interesting market right now in that energy is a commodity and it’s been interesting watching how people have tried to differentiate, and so you see a lot of advertising that’s focused on, like you mentioned, green and community supply, but looking at how people switch, that’s not important to them?

Yohei: But actually, not that true. I’m saying like, the cheaper, but I’m not saying cheapest.

Tim: Oh, okay. So consumers need a lower price to switch but they’re not looking for the absolute lowest?

Yohei: Yes, true, yes.

Tim: Huh.

Yohei: So when the market became open like one and a half years ago, it is the 10 company who’s supplying electricity in Japan, but it’s not like 400 companies. They just started themselves to be energy retailers. So all of a sudden, it gets really crowded, but now, it’s kind of shrinking down as well, mergers and acquisitions is happening right now, so now, only 30 to 50, probably a maximum of 100 active players right now.

Tim: How many companies are listed on your site?

Yohei: 70.

Tim: And how do you choose which 70? Because on paper, there’s 400-ish companies in Japan in this market.

Yohei: So one is, need to agree with our commission model, and second, we also interview the companies to see the quality of the company. If the company doesn’t have any kind of experience or got a good criteria to be an energy supplier, we actually don’t put them on.

Tim: You know, I want to get back and dive deeper into the market a little later on, but right now, I want to talk a little bit about you, because you’re running – you’re involved in a number of different companies, so you also run SMAP (Smart Meter Analytics Platform) and both companies were spun out of an organization called the Cambridge Energy Data Lab. Can you tell us a bit about those two organizations?

Yohei: I actually still live in the UK. My main home is actually in London and being taxed for the UK, pretty much. I went to UK back in 2012 as a Cambridge student and I started Masters Degree and carry on to the phD in the energy technologies in Cambridge University. I was examining smart meter data analytics, so I’m like, part of Computer Science Society. So I decided to stay at the company, it’s called the Cambridge Energy Data Lab. That was in 2013 and that was slightly too early to set up a company for energy deregulations..

Tim: So that first company, the Cambride Energy Data Labs, was that with some of your fellow students or what was the purpose of that company?

Yohei: So actually, before my phD and the Cambridge careers, I was running a company in Japan. I started a company like 21. We ran the company for three years, and then managed to sell it, so I have a little bit of experience of an entrepreneur, and having some leader with cash as well. I inject most of the money but some investors were willing to collaborate with me, so I sell the company, the Cambridge Energy Data Lab, and then we actually tried out, back to different ideas, and then only two out of 10 was going well – it fell, basically. It won’t have to be forcing on the energy market in Japan, and one is Smart Meter Data Analysis which seems to be kind of a global business, then for the energy side, energy-switching side in Japan is done by Japanese team. Well, the Smart Meter science part is done by the Cambridge friends.

Tim: Other than the fact they’re in the same industry, they don’t really have a lot to do with each other.

Yohei: Yes, it’s true, yes.

Tim: Silicon Valley investors have a reputation that’s pretty much deserved – they’re not interested in investing in anything outside of Silicon Valley, but Enechange’s investors are primarily Japanese. Did it help you or hurt you with Japanese investors that your team was based in the UK and they had such strong ties to the UK?

 

Yohei: Yes, so that was just impossible to manage Enechange’s business from the UK. No Japanese investor is willing to invest in the UK company. That was already obvious our client will be TEPCO, KEPCO, like all the traditional Japanese companies, and naturally very slow. Even if we say we had a UK company, it’s going to be another two years to just start the project with them. Yes, that’s how we started the company.

Tim: Alright, and so you’re the only member of the management team that’s flying back and forth every two weeks. Everyone else is here in Japan full-time.

Yohei: Yes.

Tim: Let’s talk about the market here in Japan. Enechange is a web-based company but you guys started using television ads pretty early on. Japanese startups in general, not just Enechange, tend to go with television ads very early. If it’s a $10 million round, a big chunk of that money will be spent on TV ads.

Yohei: Yes, yes, that’s also actually pretty much like – and also, the main objective is to raise money for that, so yes.

Tim: So why is TV advertising so important in Japan?

Yohei: I mean, that was kind of big change like, last few years. For the smaller, early-stage startup tends to raise like, $5 million, $10 million, injecting half of the raised money into the TV commercials and then they’re going to see what happens. In Japan, there’s many good case studies right now, so that’s why we actually tried to do that, so.

Tim: Is it a matter of credibility or is it simply a matter of reach, you’re reaching a bigger audience?

Yohei: I think it’s both ways, probably reaching the customer, getting more installation, more installs of apps should come from us, yes. The second is kind of credibility.

Tim: How soon after launch did you guys start doing TV ads?

Yohei: So we started TV commercial this spring for just one year after market deregulation.

Tim: Okay. So basically, as soon as you had the money to do it?

Yohei: Yes, actually. Yes.

Tim: You mentioned before that the market is pretty much split 50-50 between commercial and residential users. These are very different markets in terms of how you reach the customers and what their buying decisions are. Did you have a different go-to market for retail and commercial?

Yohei: Yes, absolutely true, yes. So actually, our earlier size is roughly 50-50.

Tim: So just in line with the market? Yes.

Yohei: Yes. Actually, slightly like industrial customers is actually larger than the residential sector, to be honest. Residential customers say like, “We are 100% down on the website.”

Tim: Yes, I noticed on the commercial side, you have consultants and salesmen that direct outreach.

Yohei: Yes, true. Also, the commercial side is kind of like an energy consultant. They basically send us inquiries or they do like a –

Tim: So inbound sales?

Yohei: Yes, it’s just inbound sales. Example customers is say, like either kind of huge factories or the buildings, so like a hospital or something. They can reach energy companies just on the website, the boss will definitely ask like, “Are they reliable?” We are operating the hospital but what happens  if you change the company.

Tim: Yes, and also, the way they use energy might be completely different. They might be operating at night to try to get cheaper rates or their use profile will be unique.

Yohei: Yes, true. Commercial sector is much more heterogeneous. We basically analyze the consumption by accessing smart meter data, then yes, we consult the better or cheapest energy company.

Tim: Is your commission based on the customer’s energy used over the past three months or the next three months, or how is it calculated?

Yohei: Yes, so it’s pretty much tied with annual energy consumption.

Tim: Well, that makes sense, so if you’re switching over a factory, it’s worth putting one or two people on there and optimizing exactly what they’re going to do.

Yohei: Yes, it’s a little like last week, we got one of the largest clients that was equivalent to like, 100,000 households, so that’s a very, very profitable. One guy literally spent this last three months just for this company.

Tim: I can see why that’s why Enechange is really attractive for them, because you get the same commission from everyone and so you’ve got no mixed incentives – your incentive is really to help them out find them the right one.

Yohei: So that was actually a good point. There are some discussions on the UK side, switching website commission varies. That’s kind of on transparency on commissions. Basically, when we kind of landed in Japan, when we already learned from the UK experience, we set commission criteria and we tried to be uniform as much as we can, and basically, this is our commissions. In theory which is not going to be too high for energy companies. They should be able to afford it.

Tim: Well, as long as you keep your commissions lower than the average cost of customer acquisition, everyone will love you and keep signing up.

Yohei: Yes, that’s why we got 70 companies right now.

Tim: Yes, and looking at the website, you’ve got all the energy companies that I know about anyway.

Yohei: Yes, so that’s why we can get trust for the website from the energy companies, they can trust me and at the same time, for consumers to trust me because we know, like get any kind of bribery deal.

Tim: Yes, and in the end, that trust is your entire brand on both sides. If anyone things that one company is getting an advantage over another – even on the customer side or the supplier side, then it all falls apart.

Yohei: Yes.

Tim: Thinking five, 10 years into the future, are you thinking about expanding into things like comparison sites for mobile phones or similarly complex services?

Yohei: The answer is actually no. I’m just energy geek. I literally have no interest in the smartphones or sim card –

Tim: So do what you know?

Yohei: Yes, do what you know, and actually, my expertise basically is like in the smart meter data or like in a Big Data, so I’m more excited and looking forward to energy industries, like I mentioned, the smart meter or kind of EVs, virtual power plants, like many, many other massive opportunities. Down the line with energy, industrial revolutions, like it’s going to happen in the next 10 years.

Tim: I agree. I mean, I think – we were talking about this before and I think that today, the energy industry looks a lot like it did 50 years ago but 10 years from now, it’s going to look nothing like it does today.

Yohei: Yes, I agree. It’s interesting, obviously, we are not the first price-switching website in Japan. There’s a huge one called Kakaku, and then we are the first energy-switching website, but a price comparison website, kind of expanding into the energy price comparison, obviously.

Tim: Yes, I was actually going to ask you specifically about Kakaku. So do you view them as a major competitor or do you think that their focus on price exclusively puts them at a bit of disadvantage to you?

Yohei: Yes, that was actually an announced deal for the industrial customers. We are on an official partnership with Kakaku.

Tim: Oh, really?

Yohei: Yes, so they are basically under the branch, like under the umbrella of energy-switch network.

 

Tim: Congratulations on that.

Yohei: Yes, so it means like we are actually dominating the market for the whole industrial customers, and then residential sectors, we are technically competing with each other, and that’s what I like. It’s fair to have two price comparison websites in a $100 billion industry.

Tim: There’s room. But still ….

Yohei: We are actually looking at this business as just entrance of the huge energy industrial revolution. So we are actually going to be providing much deeper solution for energy companies, helping them to acquire the customers. We help them manage the customers, so analyze the customer which is the smart meter data. We are actually doing much deeper solutions.

Tim: So what kind of analysis do you want to provide them? What is the information you think they don’t have that you want to give to them?

Yohei: I mean, actually, the sole answer is actually the profitability, and before the deregulation of the energy market, energy companies are never looking to the individual profitability, so actually, they don’t know how much they are earning from this particular customer or they don’t even know if they’re losing money from this customer.

Tim: Well, before, it didn’t matter anyway because they had to provide.

Yohei: Yes, but now, the market was deregulated. The energy companies are forced to compete. The normal public companies, they start looking at profitability of their business. To do so, they need to analyze the data.

Tim: Yes, it’s really interesting, I think that energy retail companies or energy companies in general, up until now, and I think internally in most of these companies, they view the government regulators as their customer, because for the last 100 years, they energy companies have gone to the government and say, “We want to do this. We want to raise our rates, we want to build these power lines. We want to put up this power plant,” and if the government said yes, they could do it, if the government said no, they couldn’t. So I think the idea of the retail customer as a customer is a pretty new one in the industry.

Yohei: Yes, true, yes.

Tim: Well, have you found that Japanese energy companies have made that shift? Are they looking at their customers as actual customers? Do they want to know more about them?

Yohei: Yes, pretty much like large companies, let’s say top 10, top 20 companies, they’re rushing to kind of adopt new technologies right now, and the other companies are pretty much like – my client, actually – so we are actually monopolizing kind of all the customers analysis part in Japan. Yes, so they are aware of that.

Tim: Let’s talk about Japan and the market here as a whole. You’re mining the data, you’re seeing why people are switching and how, so five, 10 years from now, we won’t have 400 retailers; we’re going to be down to – I don’t know what the number will be but it will be less, so who wins? Is it going to be the low-cost providers? Is it going to be the established utilities?

Yohei: The short answer is the company, if we can adopt to the new technology trend. Japan has the largest active smart meter on the planet, over nearly 40 million smart meters sending in meter data to the server. When I was in the UK, they actually say they have like 10 million smart meters, but they are actually not active. So they actually are storing the data on the meter but they’re not sending the data, half-hourly.

Tim: Yes, and actually, Japan’s system, the data quality is really high and the consistency is much higher than in most other countries.

Yohei: Yes, exactly.

Tim: Most people looking at this market will say it’s going to be price-driven, so low-cost will win, or it’s reliability-driven, so the big brands will win, but what you are saying is that there’s going to be new technology and new uses in the market, so differentiators will win.

Yohei: No, I think kind of high-efficient company can win, by analyzing the data. The operation efficiency. As you know, like the regional energy company is having 50 years legacy and they are naturally very, very slow and it’s actually very, very reluctant to adopt. Also at the same time, other giant company who entered the energy market, and also very huge organization, so like a gas company, like telco, they are very slow as well, but this industry is just purely kind of financial business. Energy business is just all about data.

Tim: It has been interesting to watch what’s happened in Texas and Europe – the markets deregulated early, because really deep discounters all went out of business. They couldn’t sustain those margins. So yes, it makes sense, operational efficiency.

Yohei: Basically, it’s not like a telco business. Telco business is seeing kind of gross profit margin is really high, so they can down their price to acquire the customers, but energy industry is usually like, their gross profit is less than 10%.

Tim: Yohei, I want to challenge you on that. So I mean, I think it might well work out that way, but what if it evolves more like the mobile phone industry, which in a sense, it’s kind of similar – they’re selling a commodity that reliability is important, cost is important, but not like the most important thing, but mobile phones both in Japan and in the US, the markets evolved not so that they’re competing on price but they’ve created bundles and options that are so hard to understand, consumers can’t tell what they’re paying, basically. Do you think there’s a chance the energy markets will move in that direction?

Yohei: That can be, yes.

Tim: Yes, I mean, Softbank and AU both have been some of the most active new players in this market.

Yohei: Yes, that’s absolutely true, so the major difference between a telecom industry and energy industry is, the telecom industry is, I think, still the positive sum game. Still, like IOT is coming, everything will be connected to the internet, even like a refrigerator will have a sim card in the near future, so in the number of connections, they’re increasing in a yearly basis. Whereas electricity consumption is pretty much zero sum games. There’s some kind of increasing momentum which is like an electric vehicle or something like that, but still, it’s not like the telecom industry’s expansion.

Tim: Yeah, actually, if you leave electric vehicles out, electricity consumption has been going down in both Japan and the United States because of energy efficiency measures.

Yohei: Yes, the industrial sector is still growing because like in automization, but the residential sector is LED lights, even like, we have new iPhones, like TVs, just getting very efficient, and especially the commercial sector, the electricity consumption is going down, so it means the market itself is basically pretty much steady, so in this kind of market, expansion strategy, it doesn’t sustain all the time.

Tim: That’s true, it’s all market share, isn’t it?

Yohei: Yes.

Tim: That’s true both on the retail side and the generation side. Actually, that brings us to – after the Fukushima disaster and they shut all the nuclear power stations down, Japan has been relying a lot more on natural gas. How do you think this is going to play out? I mean, the current consensus is very much against turning those nuclear power plants back on, but burning natural gas, it’s terrible for the environment, for global warming, and it’s terrible for Japan’s balance of trade because all that gas is imported. Do you think we’re going to see those nuclear plants turned back on?

Yohei: I probably should be against the nuclear power station, right. A kind of good point that you mentioned, like not good for balance of trade which is kind of a crucial point for other countries. That absolutely makes sense but at the same time, that disaster still which is against global trend. In the different countries, like they’re building or restarting nuclear power stations right now, apart from the UK.

Tim: Yes, there’s not a lot of new nuclear capacity being added. So do you think Japan is going to just decommission those plants early?

Yohei: No one knows how to decommission the nuclear power station.

Tim: That’s another problem.

Yohei: The idea is like being the first guy in charge of decommissioning nuclear power stations is going to be absolutely a headache.

Tim: Yes, but Japan right now seems to be kind of stuck in this middle ground where there’s a lot of plants that are not operating, they cannot get permission to run again, but they aren’t going through the decommissioning process either. They’re just sort of kept in this limbo state, and that’s not good for anybody.

Yohei: Right, that’s not good for anybody, like you’re just wasting $1 billion for the maintenance, yes.

Tim: Yes, well, there’s a lot of politics tied up in that as well, so we’ll see.

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 told you you can change one thing about Japan, anything at all – the education system, the legal system, the way people think about risk – anything at all to make things better for startups in Japan, what would you change?

Yohei: The entrepreneur, living in London, so I feel like Tokyo is a totally much easier place than London, in many ways.

Tim: Oh, yes?

Yohei: Yes.

 

Tim: Like how.

Yohei: It actually depends on the industrial idea, but let’s say, energy industry, like even the listener here is like a global audience, they are very, very encouraged to come to Japan or collaborate with a Japanese company because like, let us say, kind of Facebook-like business. It’s not just like local, regional market. There’s like a single global market which like – global market and China market, pretty much, right? So pretty much like them. As long as the market is a global market, like people can do from wherever, there can be some local player at early stage, so that’s why you want to make the billion-dollar company, pretty much like OK you have to go to Silicon Valley generally speaking, but the UK is kind of struggling, like in a UK is hard to start like a business, it’s just easy to start American company, so some of the part of it is like energy. It has no global business. There are regional businesses everywhere, highly fragmented business. In this fragmentation, Japan is the largest deregulated energy market in the world.

Tim: But what about – I mean, that makes sense in terms of the energy markets in Japan are much bigger, but doing business day-to-day, making sales to Japanese utilities versus UK utilities, versus Texas utilities, is it pretty much the same process?

Yohei: It’s actually like literally the same. I’ve been struggling to negotiate with TEPCO and KEPCO, but I’m also very struggling with the British gas energy, you have the same dinosaur. It’s the same.

Tim: Yes, well, utilities are going to be pretty conservative.

Yohei: Actually, another kind of important part is the IPO, so my company, Enechange, is trying to IPO next year which never exists in the UK, kind of IPO like the buy is way higher.

Tim: IPOs are much cheaper and have much lower requirements in Japan than they do in the US or in Europe, in general, but in the UK.

Yohei: So I mean, actually, that’s really good.

Tim: Is that a good thing though? Because a lot of Japanese IPOs are sort of like American series Cs in terms of size, but once a company IPOs, they’ve got a lot less flexibility; they’ve got to disclose a lot more, they’ve got shareholders who are trying to manage them quarter to quarter, so why is it a good thing that Japanese companies can IPO early?

Yohei: I think you made a nice point. So purely and after IPO, like some of the companies are striving to expand, but basically, like in the UK, there’s no IPO bubble market, so basically, they can’t really go IPO in the UK, and that’s a bigger-sized company.

Tim: Okay, and so if someone needs to do a $10 million, $20 million round in the UK, I mean, in Japan, usually, a company is going to IPO if they need to raise that kind of money. So in the UK, that money is just not available? Those companies just flounder?

Yohei: The biggest difference is, we can raise $10 million, $20 million in the UK but the question is, what’s your exit strategy? If seeing that IPO is too far away, the investor will ask you, like M&A options, but there’s no company in the UK who can pay $100 million to acquire a company, and if they want to be acquired by an American company, they better be in the US because there’s no decision to make London,

Tim: Is Japan better? I mean, the mother is IPO option, so does Japan face that same problem? Without the IPO, there’s simply no exit strategy for Japanese companies?

Yohei: Yes, so Japan is roughly like 30 million, so let’s say 30 million, we can – now, there’s many buyers who can pay $30 million, about that range basically like going to IPO, which is great. Everybody can go to IPO. Secondly, the entrepreneur can focus on business. To go the IPO is like kind of two criteria, basically: how much revenue we got and how much profitability we got? Pretty much that’s all. But to be acquired by like Facebook, more major, more importance is how many event you’re  attending  when Facebook decision maker is around and we can exchange cards with them and have a chat with them, and I feel like it’s just literally wasting time.

Tim: Huh. So the IPO is just a more predictable safe path? You can plan for it, everyone knows what to expect on both the investor and the startup side?

Yohei: Yes, and I never attend any pitching meeting. I never meet anyone who doesn’t bring any revenue, like actual connection to me, but it’s just wasting time.

Tim: So listen, do you want to have – found something out that you would want to change about Japan?

Yohei: The only one thing is kind of liquidity of the people’s movement.

Tim: You mean, people changing jobs?

Yohei: Yes, kind of the flexibility, especially as age goes on, people are just reluctant to change a company, basically. Obviously, the people’s capability, which is required by the company, has been changing all the time. So the company want to reform the team with keeping the flexibility, like under the regulation of Japanese law employee is well-protected.

Tim: It’s very hard to fire people in Japan.

Yohei: Yes. Actually, my intention is not like to fire people, but we want to keep the high, nice tensions being like in the company and the employee.

Tim: Yes, no, I think that’s a really important cause and effect you have to keep in mind. So it’s not just that it should be easy to fire people because you want to fire people – nobody does – but in Japan, because it is so hard to fire people, companies tend to think not, “Let’s look at the market and see what we can build and what opportunities there are.” They tend to look at their existing staff and say, “Okay, how can we use these people? What can we assign them to do?” That’s inefficient to the companies, it’s a bad use of employee talent.

Yohei: Yes, that’s absolutely true, and then if employees are feeling like they need to catch up with the latest trend, like they can learn by themselves as well, but many people right now, we’re just trying to be kind of sticking to the company and like AI will destroy all the jobs …

Tim: And hopefully, they’d be retired at that point.

Yohei: Yes, they are not that whole annoying mentalities like that. Actually, at the same time, my company is hiring a lot like 60s, 70s from TEPCO or like in KEPCO, like other energy huge companies. The experience is very valuable, like the Toshiba engineers, many startups want to hire him.

Tim: This is something I think it is changing. I mean, it started changing with designers and engineers and people’s specific skills in their 20s and early 30s, so suddenly, it became okay for big companies to hire them, but most of the employees of big companies or mid-sized companies who are now in their 50s or 60-ish, most of them are trained in a time to be generalists. So they were brought into a company and they were put in sales, and they were put in engineering, and maybe a little time in HR, and a lot of these people don’t have skills that are valuable outside of that company.

Yohei: Yes, generally speaking, it might be quite hard for the people.

Tim: But the ones that do, I think it’s great. You’re hiring people who are in their 50s and 60s, these mid or late-career. Is that common? Do you see more and more companies doing that in Japan?

Yohei: No, they are actually trying to do that because many companies who are like challenging to the energy company, who are doing like health care industries, they need some very experienced people to help, but at the same time, as you said, I don’t think this trend. It won’t apply to all these 50 and 60s. It’s only for a tiny, tiny chunk will be high.

Tim: But I think even if it’s only a tiny chunk, that’s so valuable because if that job market exists and people can change flexibly, we might have – 20 years ago, a very talented 45-year old engineer or salesman in a large Japanese company whose boss has just lost a big political fight, he knows his career is not going to go so well in that company now but he has no other options. But once there’s this job mobility, suddenly, the most talented ones can say, “Okay, well, let me look around. Let’s see who else can use my talents,” and that’s starting to happen?

Yohei: Yes. The average American entrepreneur is aged somewhere in their 40s, right? I think in Japan, it’s going to be a bit younger, say 35 or something, but now, people are getting older to be an entrepreneur or like a second entrepreneur or a third entrepreneur, so yes, I think that’s a good thing to do.

Tim: Hopefully, we’ll be seeing a lot more of that in the future.

Yohei: Yes, I hope so.

Tim: Okay, Yohei, thanks so much for sitting down with me. I really appreciate it.

Yohei: Thank you so much for your time, thank you. I really appreciate it

And we’re back.

You know, Yohei made a very interesting point about how very hard it is for companies to differentiate in a commodity market. Most of the energy advertising has focused on green energy or clean energy, but so far in Japan, customers simply want inexpensive reliable energy and that’s how the markets have been shaking out all over the world.

There are now over 400 companies in Japan’s new deregulated retail energy markets but startups have a hard time competing in the main markets of generation, transmission, and retailing. So far, almost all of the winners there have been the big familiar names. But startups like Enechange are succeeding at the margins. They are succeeding not by trying to take business away from the large established players but creating entirely new business models and the niches opened up by these large regulatory shifts.

Now, Yohei’s points about the attractiveness of the Japanese startup markets and the ease of which companies can IPO is interesting. In the past, I have criticized Japanese startups for IPO-ing too early, and while they still have so much growth potential, that makes sense when you compare Japan to San Francisco, but when you compare it to the UK or European markets, things do look quite a bit different.

Either way you look at it though, Japan is a great place to start a startup, and with all the deregulation going on in energy and finance, and other fields, I’ll be bringing you a lot more stories from the founders who are disrupting Japan.

If you’ve got a story about energy and competing in a deregulated market, Yohei and I would love to hear from you. So come by disruptingjapan.com/show111 and let us know what you think. When you come by the site, you will see all the resources and links that Yohei and I talked about and much, much more in the resources section of the post.

And hey, I know you’ve been meaning to do this for a while now, but when you get the chance, please do give us an honest review on iTunes. It’s really the best way you can help us get the word out and to support the show,

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

I am Tim Romero and thanks for listening to Disrupting Japan.