You never hear the names of some of the world’s best SaaS startups.

Why waste money building awareness among consumers when you can quickly and steadily grow your B2B business across Japan then across Asia?

Today Yu Taniguchi founder of TableCheck returns to the show and answers that question.

TableCheck is rapidly expanding their table-management system business by throwing out a lot of the traditional SaaS playbook, and Yu lays out a model for sustainable, scalable SaaS startups.

It’s a great conversation, and I think you’ll enjoy it.

Show Notes

  • How the TMS market has changed in the last five years
  • Why the first mover advantage is not really an advantage
  • Maintaining differentiation in an increasingly competitive market
  • The huge flaw in the current generation of SaaS “best practices”
  • Demand-side vs supply-side startups
  • Why you should only take the VC investment that you actually (desperately) need
  • Why Japanese (and otter) startups need to be thinking about global markets from day 1
  • Concrete (and sad) examples of what’s wrong with Japan’s education system

Links from the Founder

Transcript

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Some of the most important and successful B2B startups fly under the radar. And that makes sense when you think about it. 

When success depends on dominating a specific business niche, who really cares if most consumers have never heard of you? In fact, as we’ll see, that can actually put your whole startup at risk. Today, Yu Taniguchi, old friend and founder of TableCheck joins us again on Disrupting Japan. 

Now, TableCheck makes a table management solution for restaurants, and Yu and the team have taken a very different approach than most of the competition in this space. 

The last time Yu came on the show, we talked about his business model and how to expand globally with very little capital. There’s a link to the episode in the show notes, and I strongly recommend you listen to it because it was really a good one and we’ll be covering a hundred percent new ground today.

Today, as we catch up with Yu, we find his strategy has worked with some refinements, and TableCheck is expanding rapidly across APAC. 

This is a great real world case study of how Japanese startups can go global. Yu and I also talk about how the current generation of SaaS business models is broken, how to protect your startup from market downturns, and some really good advice about the two kinds of fundraising plans you need to have to survive. 

But you know, Yu tells that story much better than I can, so let’s get right to the interview. 

Interview 

Tim: We’re sitting here with Yu Taniguchi of TableCheck, who is making integrated reservations, CRM billing and more for restaurants. Yu, it is so good to have you back again. Thanks for sitting down with us.

Yu: Thank you so much for inviting me. I’m very honored and excited to be here.

Tim: It’s been four and a half years since you were last on the show and so much has changed since then. You were growing fast then, you’ve continued to, so tell me about your customers today. Who’s using TableCheck and how many are there now?

Yu: We have roughly 7,000 restaurants using our solution both in Japan and overseas. Back then when we did the interview, I think it was around 2,000 restaurants. Roughly we’ve more than tripled since then and taking in consideration that out of the four years, two years have been during the COVID.

Tim: Let’s talk about what’s changed in the market. Four and a half years ago, you were saying that your biggest competition was paper and pencil. Most of your customers were using these manual processes, but over the last four years we’ve seen this huge SaaS boom in every market. How was your market and your competition changed in that time?

Yu: It depends market-by-market, but the Japanese market back then most of the restaurants were managing their reservation and customer data by paper and pencil. Nowadays, we have two, three competitors in the Japanese market. Globally we have, let’s say, 10 major competitors. Now more and more restaurants are starting to use table management system, TMS. So now the market is becoming more mature and the restaurants are starting to use TMS as a standard restaurant operation. The competition is becoming more fierce, but at the same time rather than trying to educate the restaurants to switch from paper and pencil to TMS, convincing that our solution is better than whatever TMS they’re currently using is, I would say, easier.

Tim: That is so true. And I think so many startup founders misunderstand the first mover advantage. On one hand, it’s great to be first to market, but on the other hand, you’ve got to convince your customers that they need you.

Yu: Exactly. It’s like going out to a country where nobody’s wearing shoes, but once everybody starts wearing shoes, it’s much easier to sell better shoes.

Tim: You can compare yourself. And the biggest hurdle of like, do I need a table management system, that’s already taken care of. There are some global companies like OpenTable, but is your competition the same in every market? Are there global players or is this really a country-by-country market?

Yu: Good question. I think it has both aspects. Each market has strong local player. At the same time, there are some players which are going global, including ourselves, TableCheck. This is a good question, actually. Because some local players they tend to sell to smaller margins and global players like ourselves target, for instance, global hotel brands or larger restaurants.

Tim: Okay. There’s a lot more competition today. You’re no longer having to convince people that they should not be using paper and pencil. What’s your main differentiation? What does TableCheck do differently than most of the competition in the market?

Yu: First of all, we support 18 different languages, which is by far the largest number in the market. And also, we invest a lot in localization. Localization, including functions and features. Not only that, but we integrate with major local players, such as POS vendors or payment vendors, because each country has strong players and dominant players in many areas. Some of our competitors, they enter different markets, but they only support globally usable POS vendor or payment vendors.

Tim: Okay, that makes sense. Another thing I’ve noticed, or at least it appears to me from the outside, that TableCheck, you seem to work hard to avoid lock-in, whereas a lot of SaaS companies, the standard strategy is you want to own the marketplace, you want to own the relationships. And it seems like TableCheck, you guys have gone out of your way to ensure that you can take reservations from any platform. You can use a CRM and reach your customers through channels outside of our ecosystem. Am I reading that right? Is that unique to TableCheck or is this sector just different?

Yu: Actually, we don’t want to lock margins with contracts but with the value we provide to the restaurants. We want to be a sticky product, of course. We want lower churn rate, obviously, but we don’t force the restaurants to keep using us. Some of the TMS are provided by OTAs, we call, online travel agents, restaurant websites like Yelp, in Japan that would be GuruNavi, in Singapore that would be Chope. Those players, they try to force restaurants to keep using their TMS with contracts, which state that the customer data belong to OTAs. And also, they don’t allow the customer data to be exported when the restaurant decides to stop using their TMS and switch to another one. In our case, we allow data export at any time. We don’t have any strong contractual limitations for the restaurants.

Tim: Yeah. It seems like you guys are having a much more traditional software approach. You’re selling tools rather than a ecosystem.

Yu: That’s a good point. Our current state is that we are just a tool for the restaurants. And also, like from the diner’s perspective, when they try to make a reservation, visit the restaurant website, they happen to land on TableCheck reservation page. We are just a tool but our business strategy is that we want to evolve ourselves to provide more values in the ecosystem and connect the diners and the restaurants. We are going to build more functions and provide more values to the diners in the future phases.

Tim: Have you found that your customers are getting more educated and more skeptical about some of this lock-in and these ecosystem claims?

Yu: Yeah, exactly. I think that’s why we are rapidly expanding our client base. We’ve been trying to deliver the message to the restaurants that using OTAs’ TMS is very dangerous. They’ll have to continue to use it. The longer they use it, the more customer data is stored in those OTAs’ TMS. And finally, when they decide to stop using that, they have all these customer data as hostage.

Tim: I think this is a real problem across almost the entire SaaS model. A lot of customers end up getting burned because the entry price seems so low.

Yu: Yeah. That’s exactly why we are expanding our market share. We let the merchants know what the risks are. Let’s say restaurants want to accept online reservations. Okay, here’s Chope, here’s Yelp, here’s GuruNavi. They’re not even aware that the customer data belong to the OTAs or they’re signing a contract where they cannot export their customer data.

Tim: Well, yeah, because they always bury it on page 35 of this 75 paid license agreement, right? 

Yu: Exactly.

Tim: Does TableCheck bill on a transaction basis or is it a fixed monthly fee? What’s your revenue structure?

Yu: Unlike OTAs, where they cover charge fees, which is transaction fees, we don’t charge any cover fees. We don’t charge any money when the restaurant accepts online reservations through our system. We actually used to charge initial setup fee and various optional feature monthly fees but currently we only charge fixed monthly fee depending on the size of the restaurant.

Tim: So based on the number of tables.

Yu: Exactly. Yeah.

Tim: And that just seems so much better aligned with actual customer needs.

Yu: As far as I am aware of, all the TMS vendors charge monthly fee regardless of how large the restaurant is. We are the only player which have fixed monthly fee of, let’s say, up to 30 seats, 31 to hundred seats, a hundred ones and more seats.

Tim: One thing I find interesting about TableCheck, so much of the startup activity focused on restaurants or entertainment or travel in general is demand side. We can get you more customers, we’ll bring in more foot traffic, Groupon probably being the most famous of that. But you guys seem to be really targeting streamlining operations. Is that just kind of your unique approach or has the industry sort of shifted towards operations?

Yu: There’s only like two major things we can provide to the restaurants. The restaurants are only interested in two things, I would say. One is increasing revenue. Two is cutting cost. So in terms of cutting cost, we are providing TMS, which can automate or optimize their restaurant operations. But when they want to increase their revenue, mainly they think about acquiring new customers, where the OTAs provide value. But in the long term, we want to provide the let’s increase your revenue side as well by analyzing their data, analyzing customer’s behavior, and building functions to automate or optimize their marketing activities so that they don’t have to deeply rely on OTAs in order to increase revenue or acquire new customers.

Tim: That makes sense. But I’m curious, I mean, we’ve talked about Groupon in the past and how many restaurants got burned using that. Why do you think so much startup activity is focused on that demand-generation side and so little is focused on operations?

Yu: It’s much harder and not so exciting. Building media, for instance, I think is much more fun because you can spend a lot of promotion and event cost and people would be aware if you’re on the street or at the parties and introduce yourself, they would know you. But TableCheck has been so transparent and nobody knew about TableCheck until very recently.

Tim: I’ve always had this theory that the more boring a business sounds, the more profit potential it really has.

Yu: Because nobody wants to do it. 

Tim: Yeah. Yeah. 

Yu: In the sales meetings, sometimes the restaurants have expectation that, oh, if we’re featured on TableCheck, we might be able to acquire new customers. Then our sales team have to clearly state that that’s not the value we provide, but we can definitely decrease your cost and also help your existing customers to repeat visit the restaurant.

Tim: Let’s talk a bit about fundraising. You established the company that would become TableCheck back in 2011. So you’ve been growing steadily for 11 years now and you’ve raised around 10 million total.

Yu: That’s right.

Tim: I mean, that’s a lot of money, but in terms of today’s startup rounds, that’s not a huge amount of money. Was this your strategy from the start or were VCs skeptical of restaurant reservation startups? Why’d you pursue this strategy?

Yu: Initially, the VCs were skeptical about our business model, so we were only able to raise $2 million in the series A, but the business model proved to be solid. The VCs, they encouraged us to use more money. New investors, they would come to us and say like, why are you only looking for 5 million raise? Why don’t you do 20? Why don’t you do 50? But we’ve actually experimented. We’ve tried spending some money on advertisement or marketing activities. It just proved to be ineffective. The restaurant market is interesting especially in Japan, it has a very small and tight community. So if it’s a sushi master chef, we approach to them via cold calling. They would care about who else is using our system. And so we have to close a famous sushi restaurant in order to approach the other places. And they don’t really care about whether we have super cool website or whether they see us on the TV commercials every day. The most important thing is whether their friend’s restaurants are using it or whether their master’s restaurant is using it.

Tim: Right, whether it’s been approved by the market. And I imagine the enterprise clients as well.

Yu: Especially the Japanese restaurants, yeah, Japanese hotels. They care a lot about who else is using our system.

Tim: It’s just really interesting because back in 2011, starting a startup in Japan was not nearly as easy or as fashionable as it is today, money was much harder to come by then. What do you think are kind of the advantages and disadvantages of taking the big money from the VCs and spending like crazy versus — most founders will say, how much money can I raise? I’ll raise as much as I can and I’ll spend and go as big as I can. And it sounds like you’ve taken the other approach of saying, okay, how much money do I need? How much can I deploy and effectively grow my company?

Yu: I actually talked to founders and board members of some of the competitors outside Japan, which are founded about at the same timing, like 2011, and headcount is about the same, client base is about the same. We’ve been growing at a similar pace but they’ve raised, let’s say, five times more money, maybe even more actually. And they’ve been burning a lot of cash. And I would say that it looks fancy and you can run a lot of advertisement. You can spend a lot of money on cool stuff. But especially during the COVID, I’ve realized that staying lean and being close to profitability is very, very important, Because if you are spending and burning a lot of cash, when the market changes, you are at a very high risk of not being able to raise additional finance and run out of cash.

Tim: And you never know when that’s going to happen. I jokingly say this is my third bubble that I’ve been through and you just never know, the bubble might burst in five years, it might go tomorrow.

Yu: We always design two business plans. One is assuming that we cannot raise any additional finance and the second one is if we can raise finance. So even if the market environment changes, we can still survive. Even if we did raise finance with pattern two, we can always go back to pattern one, which allows us to stay profitable.

Tim: Yeah. And it’s funny. I mean, I talk with a lot of founders these days who’s like, oh, well, we are only raising $10 million for series B. And I’m like, that’s a lot of money, man. And I’m just wondering, do you sometimes feel like you’re from like an older generation of startup founders in this way of thinking?

Yu: Maybe it’s not old or new, I think it’s a strategy or philosophy. Some people take more risks and some people don’t. I wouldn’t say I’m a risk averse person, but if I compare myself with people raising tons of cash, I would say I am a risk averse person.

Tim: Yeah. I know what you mean. I’m kind of the same way. I’m not risk averse, but I really want to study all the possible risks and have a plan for them. But the other thing, and I don’t think it gets talked about enough, is that there’s no such thing as free money. If you raise a lot of money, you’re giving away a lot of your company, which is not just the financial aspect, but you’re giving away a lot of control and that when it comes time to like, okay, this is a tough market, we’re going to change strategy. If you’ve given away a lot of your equity, you might not be able to make that call.

Yu: Yeah, exactly. Giving away control destroys the whole purpose of founding a company. In my case, especially, when I worked as an employee, I couldn’t stand the situations where my proposals or my decisions weren’t really reflected to the company. And that’s why I founded my company. So if I give away too much share and the VCs start making decisions, I would have to found another company.

Tim: Yeah. As you become an employee of the board.

Yu: Yeah, exactly. I’m a pretty different type of person, some other companies, where founders give away more than 50% to outside VCs.

Tim: Do you think your early experience at Piku Media kind of shaped that thought process in you?

Yu: They instantly gave away 51% to a VC.

Tim: Back in the rocket internet days.

Yu: Exactly. Yeah. So all the founders, they were actually ousted by the VCs in less than six months.

Tim: Just crazy.

Yu: It’s just you’re giving away the entire control to the VC and becoming an employee of that investor, which destroys the whole purpose of founding a company.

Tim: I agree. No such thing as free money. Know how to deploy it before you ask for it.

Yu: Exactly. And a lot of people, I think they don’t really understand the importance of how much equity can you give in the first round, angel investor round in the series A, series B, they just give away too much in the early stages.

Tim: Yeah. I don’t think it gets talked about enough. On the other hand, like sure if you are, IPO-ing at a 40 billion valuation and you end up with 3% of the company, oh, that’s fantastic. But there’s an awful lot of fundraising series between series A and that mega IPO.

Yu: I think it depends on what your goal is. So if you prioritize your financial income, then of course 3% of 40 billion would be enough. But if your goal is to build a business and stay in control of that business, you still want to keep a lot of shares.

Tim: That’s a really good point.

Yu: Because even if I become rich and the business is not what I expected or where I wanted it to go, that would still be a boring life, I would say. I wouldn’t have chosen this restaurant industry if I wanted to become super rich because the restaurant industry is not the most lucrative or attractive market.

Tim: The worst profit margins of any industry on earth.

Yu: Right.

Tim: I like that. You got to know what you’re in it for and stay true to that.

Yu: Let’s say TableCheck becomes $40 billion company. I own 3% and let’s say the VCs wanted to start exploiting from the restaurants and make more profit. I’ll be very, very ashamed of my decision to give away my shares.

Tim: Let’s talk a bit about going global. Last time we talked, you had a majority of kind of the Japanese market. You just started expanding into Korea. You were running some pilots with the Intercontinental in APAC, but so many things were up in the air. How did that work out?

Yu: Back then we only had the Korean office and we now have Singapore, Thailand, Australia, mainland China, Dubai, Indonesia. Our core strategy is that we target global hotel brands and the reason is because these global hotel brands, they usually have a restriction about what kind of TMS each hotel property can use. This is decided by the headquarters. Let’s say our Intercontinental in Singapore wanted to start using TMS because they’re fed up with managing their reservations paper and pencil, they would have to choose a TMS vendor from a certified vendor list. And how do TMS get certified is the headquarters would run a research project. They would compare TableCheck with OpenTable, ResPack, SevenRooms, ResDiary, all the TMS vendors in the world.

Tim: Does that happen APAC-wide or do you have to go to the headquarters in the US or Europe and get this certification done?

Yu: It depends on the hotel. In our case, let’s say for Hyatt, we have APAC certification. And for other hotel brands, we have the certification for global. This certification process actually takes about one to two years, depending on the hotel brand. And the certified vendor list in case of TMS, it would be three to four vendors in each region.

Tim: So that’s the table stakes. You have to get the certification before you can start selling. But once you’ve got that, how do you choose your markets? Why Singapore and Indonesia? Why Dubai? Is that opportunistic? Are you responding to inquiries or is there something strategic, where you say we are going to go after this market?

Yu: High level, Asia has a faster economic growth compared with other markets, including EU and US. And smaller considerations time zone difference. Our support team, most of them speak English so they can still support the customers outside of Japan. But if there’s 12-hour time zone difference, we have to build another support team. So with the least investment, we can spread our market if it’s Asia.

Tim: Have you just been targeting the fastest-growing tourism markets in Asia?

Yu: Total accessible market is important factor, of course. In our case that would be how many Hyatts, how many Hiltons are there in each market. And of course, we want to target a market, where it’s more educated or more mature because in some other markets, let’s say, if nobody’s making reservation or nobody’s really interested in TMS, then it will take a lot of time for them understanding our value. Ideally, we want to enter a market where all the restaurants are using TMS already.

Tim: Right, and skip that education phase we were talking about before.

Yu: The good thing about global hotel brands is because they systemized the reservation management and customer management for hotel room stays, they actually understand the value of implementing systems for restaurant reservations as well.

Tim: Makes sense. Do you find that your customer needs are pretty universal or is there a lot of variation for market to market?

Yu: As long as the diners make reservation for restaurants, the requirement is similar. In some countries I’ve heard that people don’t make reservations, so those markets we want to avoid entering.

Tim: Really? People just show up?

Yu: People just show up. People are patient enough to wait if it’s full.

Tim: All right. What was the most unexpected thing you found out, some unique market requirement when you were rolling out?

Yu: Maybe China, people purchase vouchers before they make reservations. They pay upfront and the incentive is that they get a slight discount. Paying to the restaurant upfront, even before making reservation was a customer behavior that amazed me.

Tim: That is interesting, although I can see why it would be useful to both sides. The customer gets a discount. The restaurant has that paid for in case there’s a cancellation.

Yu: Actually, that’s true because before Groupon came to the market, nobody was paying upfront to the restaurant. It was only after when you dine, you pay. But when Groupon entered the market, everybody was happy to pay upfront to get some discounts.

Tim: What about the US and Europe, is that on your expansion plans?

Yu: Yes. We always have those markets as our target markets, but we don’t have exact date or plan at the moment because Asia market itself is pretty huge and very attractive and fast-growing. So we want to be dominant in the Asian market and then consider entering into other markets.

Tim: And I would imagine that the US market and the European market would require a lot more capital to scale up in than most Asian countries?

Yu: Even US-based competitor, they are struggling in the US market and actually going out of US now.

Tim: So is OpenTable still the dominant player in the US market now?

Yu: No, no. They’re losing their market share to various players.

Tim: So the market’s getting more fragmented now?

Yu: It is, yeah. In the US and in Japan as well, because previously, OTAs were the only media where the diners looked for restaurant information, but now they have Instagram, Facebook, Google, so many tools people can use not only make reservation, but also look for restaurant ratings or comments, reviews.

Tim: Well, that’s a really good thing for TableCheck, because as you said, you’re not trying to do the lock-in, you’re trying to provide tools. So the more fragmented and open a market is, the more attractive your product becomes.

Yu: Exactly, exactly. The more reservation channels exist in the market, the more demand for a system like TableCheck exist.

Tim: Future growth plans, do you see it as expanding into new markets, new verticals beside restaurants, going deeper into operational streamlining? What’s your main growth strategy?

Yu: As a vertical SaaS, we want to cover more restaurant operations. We currently cover reservation management, customer management, but we want to expand and enter into the marketing, where I mentioned about automating or optimizing their marketing activities and help the existing customers repeat visit them or help them acquire new customers. There’s a lot we can do up in this area, because OTA is really Stone Age business model, where they don’t really take in consideration whether the diner’s preference match the restaurants or not. They prioritize on listing the restaurants, which spend the most advertisement cost to the OTAs.

Tim: Yeah. And as you mentioned, that end is getting really fragmented and people are looking for new solutions so that makes perfect sense. 

Yu: We don’t really have to build our own media. We can collaborate with other players in the market. Let’s say for instance, credit card companies, they have access to a lot of good diners. At the same time, they don’t really have the data of the restaurants, so the concierge will still have to call up the restaurants to make reservation, for instance.

Tim: Looking over the past five years since we last spoke, TableCheck has grown so much. On a personal level, what did you have to learn or change about yourself or your management style to grow with this, to let this happen?

Yu: Stop drinking too much.

Tim: Well, that’s always good. 

Yu: That’s a hard question, but I’m still trying to change. But sharing the vision and culture among the team has been a challenge and still we are trying to improve in this area.

Tim: Yeah. A lot of founders will say things like they’ve had to learn to be much more patient or be willing to explain things several times or…

Yu: Well, that’s true as well because previously, if I would send an email to somebody on Friday night, I would be very frustrated if I didn’t get a reply on Monday morning. I’m waiting for it for two days, but actually people are not working on weekends. That kind of thing I had to learn. Also sometimes I have dreams, I fail in the dreams. Let’s say I talk harsh to somebody in the dream and then they say, oh, I’m going to quit. And I wake up and talk to the same employee in a much soft tone.

Tim: Yeah, I think so. I think people in general, I think take their cues much more from what you’re doing than what you’re saying. Let’s talk a bit about Japan and going global again. Going global was part of your plan from day one. Why was that so important to you?

Yu: Well, if you take a look at the world’s largest companies, it’s dominated by tech companies. And 30 years ago, Japan had many large companies including Toyota, Banks, but now Toyota is the only company in the world’s top 50 in terms of valuation. This is what Nobuyuki Idei, one of our angel investors who passed away, former Sony CEO, Japan has experienced many defeats. The first one is World War II, the second one is the Plaza Accord, and the third one is the IT revolution. As a Japanese, I do want to help the Japanese culture or country itself, Japanese to be more aggressive about business or even their lifestyles. We don’t want to be satisfied just riding on a sinking boat. I wanted to show that Japan can actually dominate the world market with IT or tech solutions.

Tim: I think so too. I mean the Japanese market is big, but it’s not…

Yu: It’s not growing, it’s…

Tim: It’s not growing and it’s not that big. I mean, so why do you think there’s still so few Japanese founders that have these global ambitions, and can we fix it? 

Yu: Yeah. I have to be in charge of education. I think one of the reason, largest reasons is because the Japanese education is so focused on just memorizing numbers, dates and years and not trying to figure out solutions. You cannot be creative. If you become creative, you get bad grades.

Tim: Yeah. The Japanese education really does seem to focus on teaching people to find the right answer.

Yu: Exactly. When I visited the kindergarten my daughter goes to, in the morning, the first thing the teacher asks the entire class is, okay, what’s the weather today? And it was a difficult day because it was raining in the morning, it’s now cloudy, but sometimes you can see the sun. And one child raises her hand and says it’s cloudy. And then the teacher says, no, wrong. And then another kid says it’s sunny. And the teacher says wrong. And then finally, the teacher says it’s sunny after cloudy. Okay, let’s repeat this answer. And she asked the entire class again, okay, what’s the weather today? And everybody says the same thing. And so you are taught to give up thinking, but just memorize what’s the right answer.

Tim: I mean, there’s 12 years of education where that’s being pounded into kids’ heads. How do we undo that?

Yu: I think it’s difficult. If you’re being educated in the Japanese style for 12 years, you need a radical change. In my case, I grew up in Singapore and went to international school, where the education style was exact opposite of the Japanese style. I’ve been lucky. I think that’s one of the reasons why I am doing what I am doing today.

Tim: A surprisingly high percentage of startup founders in Japan have some, oh, different story. Maybe they studied overseas, or one of their parents was a musician, or something a little outside the mainstream. That certainly is a factor, but we are seeing more and more founders with kind of this global ambition, this global sense. Things seem to be headed in the right direction.

Yu: At the same time, I don’t think we have enough people trying to actually enter the global market or being successful. We can see Rakuten has been trying to do that. Mercari has been trying to do that. We don’t actually have the success story yet. So we want to become the first model, where maybe it’s a niche market but at least in the restaurant reservation management scene, we could become dominant.

Tim: Well, I also think there’s something to be said for going global doesn’t necessarily mean setting up an office in San Francisco. The expanding into Southeast Asia and greater APAC that you guys are doing in that, that some of the robotics companies are doing makes a whole lot of sense.

Yu: Yeah, for me, it only makes sense if the market is growing. If there’s two markets, one is with 3% annual growth, two is with 7% growth, why would you choose one? You can always go back to one once you are done with two.

Tim: Yeah. That makes a lot of sense. Hey, well, listen, Yu, I want to thank you so much for sitting down with me today. I really appreciate it.

Yu: Thank you so much. It’s always exciting and fun to talk to you.

Tim: And let’s not let it be four and a half years before we get together again.

Yu: Yeah, it’s been a long time.

Outtro 

And we’re back. 

There was so much good advice in Yu’s story, but one thing really stuck with me after the interview. Yu’s approach to customer attention goes against so-called SaaS best practice, but it might be the only sustainable approach for the long run.

Now, the standard SaaS life cycle is to be open and collaborative during the growth phase, and then start walling things off once you need to become profitable. Facebook did this when they made it very easy to move communities into Facebook groups. And then they started making group owners pay to “promote” messages to their own communities.

In the restaurant management space, most SaaS companies start out with features that allow connectivity and may even allow data export. But since customers do not explicitly own that data, those features get shut off when it’s time to generate cash and the lock-in phase begins.

It’s a terrible experience for the customers. 

Now, a lot of very smart, very successful people in the startup world say that this situation is fine and even natural. After a certain point, locking in the customers and squeezing them for more money becomes the only way to sustain growth for a few more quarters. Whether it’s a restaurant owner who is suddenly informed he must now pay increasingly higher fees to access critical data or a consumer having a speaker stop working unless they pay an upgrade fee.

The theory is that once these startups become too greedy or too aggressive in their rent-seeking and profit extraction, another startup will rise up and put them out of business.

Well, maybe. I mean, clearly that does happen, but it doesn’t have to be that way.

This customer lock-in, this trap and extract business model is pretty new in the technology world. And it causes a lot of damage to our customers and the world as a whole. For 30 years, the software industry grew and profited massively by selling tools rather than seeking rent.

As Yu pointed out, as customers become more knowledgeable, we might see a return to this, but it won’t be easy. The short term financial pressure can be intense. Back in 2015, Kickstarter restructured as a public benefit corporation to avoid being pushed into this rent-seeking trap. And Yu plans to avoid it by staying firmly in control of TableCheck and staying true to his vision.

And after all, there’s a lot of money to be made by delighting your customers.

 

 

If you want to talk more about going global with B2B SaaS, Yu and I would love to hear from you. So come by disruptingjapan.com/show194, and let’s talk about it. If you leave a comment, I guarantee Yu or I or maybe both will respond.

And hey, if you like this show, share a link online or just tell people about it. In this age of omni-channel advertising and reviews of a service, you’d be amazed how much power your honest recommendation really has.

But 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.