Shadow IT has been responsible for more enterprise SaaS deployments and workflow innovation than any growth strategy of the last 15 years.

And that ‘s all about to end.

Today we sit down with Yasu Matsumoto, who stepped down as CEO of Raksul after leading the startup from founding to post-IPO success, to start Josys, a new startup helping enterprises put an end to shadow IT once and for all.

Yasu explains why that the end of shadow IT is actually a good thing for everyone, why he decided to step down from his high-profile CEO role, and the future of SaaS sales and marketing.

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

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Show Notes

  • The problem with shadow IT and why it’s coming to an end
  • The Raksul startup to IPO story
  • The Josys spinout and fundraising as a spinout
  • Why there are so few serial founders in Japan
  • The public’s reaction to Yasu’s decision to resign as CEO of Raksul
  • Why CIOs are fighting back against shadow IT
  • Josys’s global expansion plans and being global from day 1
  • Two two reasons Japanese startups need to enter the US market quickly
  • The important difference between enterprise SaaS and SMB SaaS services
  • The one thing that would lead to a dynamic, mobile workforce in Japan

Links from the Founders

Transcript

Welcome to Disrupting Japan. Straight Talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Salesforce was the first major SaaS Company. They redefined how software was used in and sold to enterprise companies all over the world. And in the two and a half decades since their founding, new SaaS software has pushed into every corner of the enterprise.

But recently, the enterprise has started pushing back, and the bedrock go-to-market strategy that so many enterprise SaaS startups depend on might be about to disappear.

Today we sit down with Yasu Matsumoto, founder of Raksul, and now founder and CEO of Josys, which provides SaaS management tools to the enterprise.

We not only talk about SaaS marketing strategies, but we dive into the important differences between the enterprise and SMB SaaS markets, how to raise VC finance for corporate spinouts, and why we might be about to start seeing a lot more serial founders in Japan.

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

Interview

Tim: So, I’m sitting here with Yasu Matsumoto, the founder and CEO of Josys, who’s providing companies with comprehensive IT device and SaaS management. So, thanks for sitting down with me today.

Yasu: Thanks, Tim.

Tim: So, I gave a really high level overview of what Josys is, but I think you can explain it much better than I can.

Yasu: Josys is our IT operation platform. You can integrate all of the SaaS, what your company use and all of devices your employee use. Integrate all hardware and software into Josys by APIs and you can figure out what kind of a software your company use, what kind of a hardware your company use. And also you can provide account like Slack or Google or Notions Microsoft account for the new employees with a single click. And once they are employee resign the company, you can delete these accounts and device with just a single click.

Tim: So, it’s centralized SaaS license management, centralized account provisioning.

Yasu: Exactly.

Tim: And so you mentioned its API integration, so it’s not that individuals are inputting this information.

Yasu: Yes. Our product is based on the API economy. So, the company use tons of apps after the COVID, but these apps are not controlled by central IT operations. So, each of the department install the new apps by their decision making or sometimes individual, but they’re from the point of a corporate IT or cybersecurity view. That is very dangerous.

Tim: It is, but it’s interesting because that is one of the main marketing strategies of SaaS companies.

Yasu: It is. So, SaaS company like to penetrate from the shadow IT.

Tim: Exactly. Freemium model don’t pay anything until you get five seats.

Yasu: Shadow IT is a good for the go-to market for SaaS Company, but from the security standpoint that is very dangerous and their company have to control the shadow IT, so Josys control all shadow IT.

Tim: I want to dive back into that a little bit later because I think it’s a really important point, but before that, tell me about your customers.

Yasu: Yeah. There’s two type of customer, one’s the SMB, one is the enterprise. They have a different pain point. SMB would like to use Azure for automating all of their IT operation process. They’re facing the lack talent IT operations. So, by using Azure our single click automate all over their workflow, this is a demandable SMB. Enterprise company has a different pain points. Usually they have more than a thousand or 10,000 employees, but IT operation cannot pick out comprehensive IT asset software and hardware. So, they lose their single source of truth. So, by using Josys, they can figure out comprehensive IT asset.

Tim: At the moment are most of your customers or most of your revenue coming from the SMB segment or from the enterprise segment?

Yasu: At this moment in terms of the customer number, 10% of our enterprise customer and the 90% of SMB customers, but there are 40% of revenue came from enterprise and the 60% came from SMB.

Tim: I see. Now you also founded Raksul back in 2009 and that can be a whole other podcast in itself, actually. But really briefly, and correct me if I get it wrong, Raksul was an e-commerce platform that took advantage of printer’s unused capacity all over Japan. So, customers could get print jobs done cheaper, faster, in a more standard way.

Yasu: Perfect explanations.

Tim: Excellent. Great. Glad I got it right. So you IPO’ed in 2018, and you spun out Josys from Raksul a couple years ago, 2021, right?

Yasu: 2020, yeah.

Tim: So, I really want to talk about these kind of corporate spin outs in Japan. Because I think it’s kind of a unique ecosystem here.

Tim: So, after you spun out, you’ve raised about $125 million from a really great collection of VCs. So, tell me about that. What does the cap table look like because VCs are often very hesitant to invest in corporate spinouts?

Yasu: Okay. In terms of cap table, Raksul are minority shareholder in Josys. In this round Raksul invested a 2 billion yen. So, Raksul is a significantl investor, but Raksul doesn’t control Josys. In terms of VC, Global Brain lead the last round and of course they have rights, but they don’t have a big portion of the shares. It’s very distributed. So, they don’t have a control Josys. Full control of Josys is the management of Josys. I and Sanjay,  my co-founder.

Tim: Alright. So, the cap table looks very, very much like a startup.

Yasu: Yeah.

Tim: Oh. So, another thing that I think is unusual but important is serial entrepreneurship. Serial founders are still kind of rare in Japan, right?

Yasu: I think so, yeah.

Tim: Like once you succeed, you’re expected to kind of run that company until you turn it over to your son or something, you know what I mean?

Yasu: Yeah.

Tim: So, when you decided to step down as the CEO of Raksul to start a new startup, was there opposition from the board? What was that conversation like?

Yasu: I stepped back the CEO Raksul last August. I talked with the CFO. I trust him very much. And we have been working for last decade, and I started there Josys two years ago. And Josys is a rapid growing and Josh’s is also a global startup. We are not local. We have a team in India, US, Singapore, and Japan. So, I don’t have enough time to manage two company like our Elon Musk.

Tim: I don’t think he has enough time to manage them either.

Yasu: But I’m not Superman like Elon. So, and the also the Raksul become enough big for me. Raksul generate landed $300 million of revenues and 2230 million of EBITDA are every year. And the expansion strategy is become a more MNA now. So, I like building up a business zero to one and one to 10, but the Raksul require me different strategy. That makes sense. And there I have totally agree on the strategies and I decide the strategy by myself, but I don’t have a passion to acquisitions and our management of that. I have a passion to build up business from zero to ones. And so yeah, this is my second challenge and I didn’t have any hesitations to give the position of the CEO. I’m very happy to step back and pass the button to our new CEO. His background is more financial.

Tim: And so more suited towards the emanation strategy. I mean, as a founder myself, I totally understand that, but what was the reaction from the people around you? Was there concern that, I don’t know, the market might perceive it as you leaving the company or like Elon Musk dividing his attention between a bunch of startups or what was the general reaction to it?

Yasu: Yeah, my very close relation, like a nomination committees or a board or a C class BP, they understand because after I started Josys, I’m smiling much more not being serious so much. So, everybody feels that they’re, oh yes, they are becoming happy. Oh, that’s our best decision for him. This is a reaction from very close relations. But generally the employees of Raksul, their Twitters or medias, they’re surprised because this is unusual in Japan.

Tim: Yeah. CEO generally just don’t do that unless there’s, I don’t know, some kind of a scandal or health problem or people don’t do it for their own reasons.

Yasu: And successfully hides a scandal. Just kidding.

Tim: I know, but I think it’s so important that more people do that. Because like you said, I mean the skillset to go from zero to one or one to 10 is really different. To go from 10 to a hundred to a thousand.

Yasu: Yeah. Totally agree.

Tim: I’m trying to think. I can think of a small handful of people who’ve done it. Do you think we’re seeing more of that in Japan?

Yasu: Yeah. It could be become more common, because I think our younger generation founders affected from Silicon Valley like a Google or American cultures. So, we learn a lot from them. That helps us to push forward.

Tim: Yeah. Well, let’s get back to Josys business model because basically it’s kind of like a SaaS service to manage other SaaS services.

Yasu: Exactly.

Tim: Which I kind of like. Before you mentioned that Josys provided a single source of truth for the IT department. I want to dig into that. What exactly is that and why is it important?

Yasu: Okay. That’s a great question. So, before the COVID IT operation can control every device because every device are in office and the number of SaaS is not so many. But there are after the COVID SaaS has happened and device are distributed because of remote work. So, why single source of truth is important after the COVID, they can’t do that because of their SaaS clouds, or as you said, the SaaS vendor adapt shadow IT strategies. That’s makes our IT operation difficult to control the budget or figure out the right spend or controls the securities.

Tim: So, for your average enterprise CIO, what is his major reason for wanting a single source of truth? Is it just optimizing the licensing spend? Is it keeping track of licenses or is it like having three different SaaS products with the exact same functionality in three different departments? What is he mostly worried about?

Yasu: The first one is post optimizations. Each company use exactly same function with SaaS for three or five or each of the department use that. And if the central IT operation makes contract, they can get the big discount. But each of department cannot. So, cost optimization is one thing, and the second thing is their security. So, usually the enterprise company have many subsidiaries. Sometimes subsidiary are located outside of the mother market. So, they cannot figure out what kind of software the group company using. Many of the Japanese enterprise company had been hacked by hacker outside of Japan are subsidiaries.

Tim: And the SAS products are providing an attack factor for these hackers?

Yasu: Yeah, so many of our SaaS, especially the unmatured SaaS, has a very vulnerability.

Tim: Well, that’s interesting. Actually, let’s talk about, so shadow it, I think most of our listeners are working at startups and their founders and they think shadow IT is a great thing. So, I don’t need to explain all the benefits of shadow IT, but why do CIOs hate shadow IT so much?

Yasu: Yeah, I’m so sorry to say the list of shadow IT, it depends on the SaaS vendors. If the SaaS vendors has their SOX2 and they have the security that is okay. But there are some of the SaaS cannot provide enough security for the clients. And once you could see your company’s data on there, or sometimes it’s our API and forms API they can steal the data over your companies.

Tim: Oh, okay. So, it’s security compliance issues as well.

Yasu: Yeah.

Tim: For where the data’s being stored. Okay, that makes a lot of sense. Yeah, that’s a good point because As a CIO, it’s not only important to be compliant, you have to prove that you’re compliant. And I guess shadow IT absolutely prevents you from proving that you’re in compliance.

Yasu: It is.

Tim: It’s funny you know, every generation of technology is supposed to make things easier. But always ends up creating new problems.

Yasu: Yeah, that’s true. Very true.

Tim: So in another interview, you mentioned that you’re going to be getting into a more complete IT outsourcing services device lifecycle management. Where not only do you push a button to procure SaaS licenses, but you could push a button and have a new employee deliver their laptop and their mobile phone from anywhere in the world.

Yasu: Okay. We are providing our idea outsourcing service that is not only the management of hardware and software, but also we provide the service itself that is our BPO. Why we provide that, because of the pain point of a customer, especially the small to mid-sized customer, their problem is a shortage of IT ops. So, even though we provide their software, they don’t have a talent to use their software. So, what we do are is we are make a procurement of laptop and the configurations and the sensor laptop and we control all of the devices and SaaS. So, we are providing our end-to-end service to the customer.

Tim: So in that case, you would be providing security updates for the devices and handling like ship back repairs and things like that. So, how does that scale because that doesn’t scale as smoothly as like a SaaS business, right?

Yasu: Yeah, that’s a good point. We decided to provide this service only in Japan. So, this is a very R&D for us. So, in Japan we can scaling up because our Japan’s and so huge market.

Tim: Is the hardware component something you might roll out globally in the future if it’s successful in Japan? Or is there something unique about the Japanese market that you think…?

Yasu: I think we can do that in the future globally. But not now.

Tim: Well, I mean it certainly is something that’s needed by small medium businesses everywhere in the world. Especially as IT becomes more central to more and more businesses. But Josys in general has very big plans for going global.

Yasu: Yeah. This is our ambitious, we’re going to start the operation outside of Japan. We started from September with the 40 countries. So, every SMBs enterprise company have the same pain point in New York or San Francisco, Tokyo, London, Sydney, everywhere they’re facing on their new problem that is are happen after the COVID.

Tim: How did you choose which markets you were going to go into first?

Yasu: We start from the US because our US is very big market and we have our product team and marketing team in US. US is our definitely climate market. Also Singapore, which is the mid-price for India and Japan. We have a big tech team in India. So, we put some of sales lab are in Singapore. So, these are two market are primarily for us.

Tim: Usually the two biggest reasons founders give me for going to the US market it’s either the importance of the competition or the importance of the development. Eventually you’re going to have to go to the US market because that is the most competitive and so you might as well start fighting in there as soon as possible. And the other reason’s been on development talent. To access the most qualified, the most advanced developers. So for Josys, what was the driver of focusing in the US market first?

Yasu: The market. In terms of our current, the technology that developed in India, product design, we build product located in Silicon Valley and go to market team are is a Tokyo, Singapore, Silicon Valley. But why we started business in US is our market.

Tim: That makes sense. Let’s talk about Japan in general. So, you mentioned before that, I don’t know if I could call it lucky, but you sort of launched in the middle of COVID and during COVID there was this incredible demand for things to move remotely for processes to move to the cloud. It was a huge boom for SaaS, software and cloud services throughout the country. We also think saw things like remote work process, outsourcing, I mean an ideal environment for companies like Josys. Now that COVID is passed and we’re returning to normal is that trend continuing or has some of it been rolled back?

Yasu: The answer is, yes. Not so many company can manage a fully remote work, but there are employee, the people like to remote work, but we need to connect with the folks. We need to discuss the ideas. So, in that case the office is very variable. So, I think most of the company keeps the style of remote working three days office, two days home.

Tim: And what about the move to the cloud and the move from our SaaS services? It seems like that is still accelerating in Japan?

Yasu: Yes. The cloud has a bunch of benefits for everybody and the clients and the developers. People understand their cloud in this COVID. So the DX…

Tim: Digital Transformation.

Yasu: Yeah. Many people start to use the cloud service.

Tim: In Japan, I think is a really unique and fantastic opportunity for SaaS startups here in that, especially at the enterprise level, the systems integrators controlled so much of the company’s IT spend, they controlled even like hardware provisioning. And I think SaaS is providing an opportunity to skip a whole generation of technology and come in at like much lower cost.

Yasu: Yeah, I totally agree. Enterprise SaaS and their SMB SaaS is different, but the new phenomenon are in Japan are the shortage of worker. So, we are facing on the very critical shortage of labor and we need to introduce the softwares and the robots. And I think of Japan really busy, fast advanced country that are adapter efficiency.

Tim: That makes sense. I mean there’s certainly a huge pressing need for it. Before I let you go, 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 that you could change one thing about Japan, anything at all, the education system, the way people think about risk, the way people adopt new technologies, anything at all to make it better for startups and innovation in Japan, what would you change?

Yasu: I would change the labor system.

Tim: How would you change it?

Yasu: People think that stays there one company for forever labor. Or sometimes I feel that directly speaking, it’s our company cannot do the layoff. I don’t say that I want to do that, but because of this mix, people that don’t have the agency or the passion to do something, it makes energy low. It’s the problem of Japan is the people don’t have energy to growing by themselves or invest themselves.

Tim: So, they don’t really have a passion for their work.

Yasu: Yeah. Passion for the work that is the cause of lacking the innovations. Once people have the passion to the work that helps the country empower their innovations.

Tim: Walk me through that. So, how would changing the labor laws lead the employees to be more passionate, more innovative?

Yasu: I think that is very opposite way, but from my point of view, people don’t make an effort to improve themselves well, and also the management side don’t really require their high target. So, I started a business in India or Singapore or US and is a totally different views. People have the motivation to improve themselves because that’s makes them better life, better positions.

Tim: I agree with that, but I’m curious about why, because I’ve heard two different theories about why that works that way. So, the one theory is kind of fear. They realize that if they don’t work hard, they can get fired. And the other theory is more reward that they realize if they do work hard, they can get further advancement and get rewards. So, which do you think is like the stronger effect?

Yasu: I think both, the labor system is a current low liquidity labor system makes the worker low motivation because that is a low reward and the low requirement and low pressures. I’d say in US or Singapore, India, people work hard and get see engagement to the companies, but sometimes they can decide to leave the company.

Tim: Yeah, that makes sense. So, it’s actually they both kind of go together, I suppose. It’s the sort of flow of people that makes the change.

Yasu: Liquidity. So, back to the question, I’m going to change the liquidity of the people. I feel that Japan is a low liquidity, low flow culture. People stay one place forever working with the single companies and they’re very single relation to the community. But once they expose to different world they can get stimulations and you know leave other countries. I want to improve employee mobility.

Tim: That makes sense. And I think that the situation seems to be improving in Japan now. We’re seeing more people like for mid-career at enterprises leaving to join startups.

Yasu: Yeah. It’s our mobility brings ideas and luck and passions. Of course, people can stay in one place by his or her own decision making, but the society itself don’t encourage the mobility. So, I want to change society to encourage the mobility of the people.

Tim: Well, sounds like Japan’s on the right track anyway.

Yasu: Yeah. Yeah.

Tim: Well listen Yasu, thanks so much for sitting down with me. Yeah. I appreciate it.

Yasu: Thank you Tim.

Outtro

And we’re back.

As tools like Josys become more and more prevalent, the age of shadow IT, it is a SaaS go to market is coming to a close.

And that’s a shame.

I mean, Yasu is absolutely correct. The security and overspend issues we talked about are very real and very important. But still the way shadow IT empowered individual teams to select the software that’s the best fit for them led to huge gains in innovation and in team productivity and satisfaction as well. Shadow IT has been one of the driving forces of the SaaS boom over the last 15 years.

Getting back to Josys, venture capital funding of seed stage corporate spinouts is pretty rare in the US but it’s becoming increasingly common here in Japan. And while it’s fairly common here for VCs to invest in Spinouts, even when the parent company maintains a controlling interest, Yasu and the team structured the cap table right. The parent company, Raksul is just one investor among several. And the control lies with the founding team just like it should at any early stage startup.

What is unfortunately still unusual, however, is Yasu’s decision to hand over the reins of his post IPO startup and to start again. Yasu is not exactly unique in his decision, but such founders in Japan, number in the single digits. Far too many people see the IPO and the status and wealth that comes with it as the end goal. You are done. You have now won the startup game.

Well, maybe, but for startups and for most things that are worth being passionate about, the goal of the game is not to win. The goal of the game is to keep playing.

 

 

If you want to talk more about SaaS and shadow IT, Yasu, and I would love to hear from you. So, come by disrupting japan.com/show209 and let’s talk about it. And hey, if you enjoy disrupting Japan, share a link online or just tell people about it. Disrupting Japan is free forever and letting people know about the show is the absolute best way you can support the podcast.

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.