Twenty years ago, we all thought that starting a startup required a special and rare kind of talent. It was something you either had or you didn’t. Today, founding and running a startup is considered more of a learnable skill. It has its own best practices,  industry standards, and common knowledge.

And, in both startups and enterprises, I find it refreshing to talk to people who have succeeded by going against those industry standards.

Peter Galante started what would become the wildly successful Japanese Pod 101 with no clear idea how to monetize and no clear business plan. He did, however, have a firm conviction that what he wanted to build had value and the people would flock to it.

And he was right.

Peter and I talk about how his unconventional business plan and his rejection of VC advice and standard best practices, actually resulted in a rapidly growing startup in a market protected from even his best-funded competitors.

It’s an interesting conversation, and I think you’ll enjoy it.

Show Notes

  • Who is really studying Japanese online
  • Why most Japanese language learners fail
  • What you need to know about turning a hobby into a business
  • What happens when your startup start changing for free content
  • Why podcasting is dying and video is rising
  • How content creators can get paid when so much content is free
  • How to defend your business against better-funded startups

Links from the Founder

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

I’m Tim Romero and thanks for joining me.

Today, we’re going to sit down and talk with startup founder and fellow podcaster Peter Galante, founder of Japanese Pod 101, and if you study Japanese, then you’ve probably already listened to more than a few of those episodes.

When I went over to their studio for the conversation, Peter mentioned that he was actually a little bit nervous about coming on the show. That came as quite a surprise to me. I mean, I’m a friendly guy and I genuinely love learning about business models and taking them apart, you know, breaking them down into their individual movies parts, holding them up to the light to see how they work. I think that subject is endlessly fascinating and I learn something new every time I do it but that’s my approach and not everyone thinks this way.

Not everyone approaches startups as an exercise in business model design where you have a system of interacting components that need to be optimized in underserved markets that need to be served. Some people, in fact, probably more founders that are willing to admit it start out with a vision of what they want to be doing and then figure out how to backfit some kind of sustainable business model onto it.

This is exactly what Peter has done and as we’ll see during the interview, this is exactly what has not only led to the success of Japanese Pod 101 but it is also what is preventing even well-funded competition from entering this space. We also – and as a podcaster, this breaks my heart – we also talked about the ongoing and transformative shift from audio to video content.

Oh, yeah, and Peter wanted to make sure I let you know that about the same time this podcast is released, Japanese Pod 101 will exceed 1 billion downloads. That’s pretty impressive for something that started out as a hobby but you know, Peter tells that story a lot better than I can. So let’s get right to the interview.

Tim: I’m sitting here with Peter Galante of Innovative Language Learning who is redefining online language education but is more famous and I think well known by a lot of listeners for creating Japanese Pod 101. So thanks for sitting down with me.

Peter: Thanks for having me. I’m actually a very big fan of your show.

Tim: Well, thank you, many of our listeners already know and are probably already subscribers to Japanese Pod 101 but can you just briefly explain what it is and what your company does?

Peter: What we do is we provide about 10 to 15-minute lessons teaching Japanese, usually centered around a conversation. We introduce the conversation, then you hear the conversation, and it’s usually two voice actors of speaking Japanese. After that, we break down the conversation and explain the nuances of the words, the vocabulary and usually, some central point that ties this conversation together such as a grammar point or a set phrase.

Tim: Okay, and the podcast acts as sort of sample lessons, and then people come onto the site and they subscribe for the whole package?

Peter: Exactly. We have a free music model, so the lesson is actually free for two weeks. So you can actually – if you can subscribe from day one, you can have all our multimedia content for free.

Tim: I wish I was that dedicated in studying my Japanese. I come in and out of it. No, you support 34 languages now, right?

Peter: That’s correct.

Tim: That’s pretty amazing. Well, listen, before we dive really deep into the business model, tell me a bit about your customers. So who is subscribing to the Innovative Language Learning system?

Peter: Sorry, Tim, I thought you were here to give me a business model because I…

Tim: We can work on that afterwards.

Peter: Yeah, let’s work on that, actually.

Tim: But who are they? Are they younger, older, do they skew male, female?

Peter: So we have listeners as young as eight years old all the way up to people in the 80s. So the free content is consumed by a wide variety of people. The paying customers tend to be about 30 to 40 years old, professional people who are interested in self-growth.

Tim: That’s not what I would have guessed. I would have guessed it would have skewed much younger. What’s the percentage of Japanese learners versus the other 33 languages?

Peter: When we first started 12 years ago, Japanese was, of course, the whole thing and we worked very, very hard in Japanese to build up the other languages while maintaining the high quality of Japanese content. So over the years, the other languages have grown quite a lot and Japanese is about at 20%.

Tim: Well, listen, I think you’ve done something that Japanese Pod and in Innovative Language Learning that a whole lot of westerners who come to Japan dream of doing. You started with something that was just kind of an idea and you grew it into something that’s a growing, thriving business. So let’s take a few steps back and talk a bit about you and how all this stuff got started. So why did you first come to Japan? What brought you here?

Peter: Is spite a good answer?

Tim: Spite? It’s an interesting answer. Why did you move to Japan for spite?

Peter: So kind of a half joke. I have to back up a bit. Spite wasn’t the key catalyst but it played it important role. So when I was in high school, we had – this is early 90s – we had a Japanese exchange teacher come stay at our house. I’m from New York and this is at the time when Japan was taking over, they were going to be the new number one economy, and I think at that time, the internet wasn’t as disseminated, so we kind of paid attention to the narrative that the media wanted to portray and that was that we’re losing.

Tim: Right, this was the Japan as Number One era.

Peter: Correct, and meeting someone from Japan and spending time with them up close and learning about the culture and language, and just more important, making a real life long friend was the main reason I became interested in Japanese and Japan. So when I went to University, I chose Japanese as the language to study and my Japanese teacher wasn’t very good at it but you have to understand, year one or first sem – Japanese 1 has about 100 students. Japanese 2 has 10 students, Japanese 3…

Tim: It’s a tough language, yeah.

Peter: So I managed to make it to 3 and my Japanese teacher just said to me, “You should go to Japan,” so then, like yeah, I want to go to Japan, and then I interviewed for something called the JET Programme.

Tim: Ah, okay.

Peter: And I didn’t get it.

Tim: Oh, okay.

Peter: That’s where the spite came in. So then I kind of made it a goal to come to Japan. I wound up coming as an English teacher and slowly working my way back into the school system here.

Tim: You just sent out a resumes, you just contacted language schools independently and found someone to hire you?

Peter: Yeah, feverishly.

Tim: You mentioned you’re working your way back into the education system but you’re also studying at heat Hitotsubashi, right? You’re studying for your PhD there.

Peter: That’s correct.

Tim: Was that something you left education to do or is that something you were doing kind of part time while you were paying the bills by teaching English?

Peter: I think the way my professor looks at it is they kicked me out to pursue a career as an entrepreneur. So after coming to Japan as an English teacher, I had quite a rigorous schedule. So in the morning, I would go to Japanese school from about 9 to 1 and I go to teach English from 1:30 to 9, I kind of do this constantly and I worked my way back into academia. I got a job as – oh, I got a position as a research student at a university in Ibaraki. From there, I took an entrance exam into a masters program and that’s when I got to have Hitotsubashi. Again, this is in Japanese. So I got my masters degree in Japanese, well, I was studying in Japanese.

Tim: So all the coursework is in Japanese?

Peter: That’s what I was trying to say. Then, I made it to the PhD program and about two or three years in, this is when I started this business.

Tim: So when you started the podcast, what were you trying to achieve? Did you have this vision of creating this company or was it something you want to do for fun, or what led you to it?

Peter: I think it was a passion. All of my institutionalized Japanese language learning tended to be towards a middle-aged person who taught very formal Japanese. They were all great teachers and they were so kind and nice but when I got to Japan, I met – how can I phrase this? Crazy people like me.

Tim: Crazy in what way? What do you mean?

Peter: They like to joke, they like to laugh, they like to go out Friday night very late. It was a very different image than I had come in contact with, with professional teaching but more than that, they used a completely different language than what I learned in the classroom.

Tim: No, no, it is. What you learn in the classroom is completely different from what you’ll hear at a bar in izakaya.

Peter: And Tim, let me ask you a question. Where do you spend most of your time?

Tim: You know, it’s funny you ask that. I actually learned Japanese more in bars and izakayas than in academic setting. I had to unlearn an awful lot of bad habits. So yeah, we spend more time speaking informal Japanese but as a formal stuff, you don’t want to mess up.

Peter: Yeah, they’re both critically important and I agree and I understand with the way they teach it. So what I wanted to do was find a clever way to bring this information to Japanese learners to give them a head start that I never had what interacting with Japanese people.

Tim: So did you envision it as a company or was it just this side project that seemed fun?

Peter: I definitely did not envision it as a company. In fact, I did not even know how to do a podcast. I didn’t know anything about audio but I just knew that I wanted to do this and when you’re motivated, it’s powerful for learning.

Tim: What was the turning point? What was the point where you decided, okay, I can make a business out of this or I could make a job out of this?

Peter: I don’t know if I’m there yet, Tim.

Tim: I think you’re there. We walked through a whole room full of people diligently working in translating and selling.

Peter: Yeah, I think in December 2005 is when we first started and basically, we made the podcast, and we put it out, and we had a few hundred downloads a day, and then somebody in Apple put our podcast on the front page of the iTunes interface and we went from about a couple hundred podcasts a day to a million a month, brought down the servers.

Tim: Holy cow.

Peter: So luck factor into that for us. I think we had a good product but someone was kind enough to do that for us which gave us the opportunity, and all of a sudden, we had all this traffic.

Tim: That’s amazing. I mean, a million a month, I would be surprised there were that many people listening to podcasts in 2005 who are interested in Japan.

Peter: It was wild because at one point, we had one of the top 100 podcasts – not like, in language or education but –

Tim: Period.

Peter: Period.

Tim: That’s awesome, and so once you hit this level of recognition, were you then scrambling behind the scenes saying, “Okay, how can we make money out of this? How do we turn this into a business?” Or did you kind of map out what you wanted to do?

Peter: So I think for us and the reason I brought the date is 2005, December is it took about six months for me to even start to really think about how can this be a profitable business. After we had all of the traffic, then we had to find people and we bootstrapped this so we had was Japanese investor but we have never taken outside investing. So we had a monthly budget which I didn’t take any of us, so we started with a small monthly budget. How do you build a team when you need top talent?

Tim: Your initial team was, you had two other co-founders with you, right? And how did you get them on board?

Peter: So the Japanese partner, I think she wanted to join because of the school that I’d gone to. Hitotsubashi is a very big brand here in Japan. To put in context, I believe the sister school is still Wharton Business School in the US and I know we had students from Berkeley and many very prestigious universities around the world send their exchange students here and vice versa. So I pitched an idea to her and she had turned it down a year earlier, and this time she said, “Just go, you can have some space and you can use some resources,” meaning human resources in her translation company. That’s the earlier episodes have these people appearing on them every day. I didn’t know which resource we could use so I had to be very flexible.

Tim: So everyone’s a voice actor?

Peter: Correct. The second founder, and I think this is very relevant to modern-day schooling because the network that you build along the way, it’s a very important asset you build, and the second founder, he was an IT consultant at formally Andersen Consulting which is now –

Tim: Accenture.

Peter: Accenture. I called him up and I said, “Hey, I’m doing this thing called podcasting, I think it could be big and I think we could do something. Do you want to join?” And he had another business at the time and he said, “Give me a date, I know what you’re talking about.” And a day later, he’s like, “Yeah, I want to try with you.” He took care of the IT, and then I could focus on creating the content. Those are the three people but then we still had to build the team. The way we built the team was one through our community. We had a very vibrant community with people leaving comments and we appealed to the community, said, “Hey, does anyone want to join?” And that’s how we found the first programmer and the first person to really vet our content to make it much higher level. The second resource that we use was actually Craigslist.

Tim: Craigslist?

Peter: Yeah.

Tim: You are recruiting engineers or translators, or voice actors? Who are you…

Peter: Just like you, Tim, voice – a personality.

Tim: Ah.

Peter: And we managed to find a very good personality that wound up being part of the show for a couple of years.

Tim: You know, it’s interesting, and kind of refreshing. You were genuinely thinking of creating the product, creating a buzz, and kind of trying to fit a business model into it. Most founders today, and actually most people who want to start a startup, I actually usually advice to do the other thing, is to figure out the business model before you get started. So while I was looking at this or actually, I mean, looking back to 2005, I guess your real competition would’ve been like, language courses on DVD? Was that really who you were…

Peter: Yes, and CDs, yeah.

Tim: And CDs.

Peter: But I think the real challenge was, it was such a new model that during the six months or the first few months, we managed to use, then once the team was built, we could estimate how much money we were spending and we went from $0 to $20,000 very fast, then we could turn the focus to okay, how do we make money from this? And remember, we were giving everything away for free and when we introduced this payment system, the community was not very happy. Some people – it was divided – some people were very supportive, “Hey, you need to make a living and this is really great. We want more. We’re willing to support you.” So other people were like, “Hey, what’s going on? We’ve had this for free, we expect it for free. We’re never coming back.”

Tim: So how long were you in operation before you went to the freemium model? How long were you giving it away for free?

Peter: Six months.

Tim: Well, that’s not too long, but still, people don’t like paying for things they used to get for free.

Peter: Setting expectations is such an interesting part of – in marketing too, setting people’s expectations of when sales will happen and things like this, it’s a very interesting part of the business.

Tim: Well, I think it’s also interesting that you were basically running a SaaS-based freemium model long before there was those terms really came into fashion or probably even existed. Let’s see… Actually, yeah, let’s break it down in those terms because that fundamentally is the model: you’re creating a tremendous amount of content, you’re giving a lot of it away for free, and then you have different tiers of paid subscriptions to access different amounts and different types of content. So right now, are all of your revenues only subscription fees?

Peter: Well, we’re trying to kind of diversify our income streams a bit but right now, it’s still over 80% comes from subscriptions.

Tim: Okay, well, what are the kind of things do you guys do?

Peter: It’s quite interesting, we talk about 2005. 10 years ago, we were a very audio centric company, and in 2017 was the crossover point for video being actually a more popular medium for people to consume more lessons than audio and right now, audio is actually shrinking of it where video is exponentially increasing.

Tim: That’s interesting but video content’s a lot more expensive to produce that audio is.

Peter: Yes. Exponentially is the word. Exponentially is that word. Yeah, so finding that balance and reinventing yourself as a company is what we’ve had to do several times already because the way this market is moving with educational material is so many things are becoming free, and 10 years ago, you had to pay for quality content but now, there’s quality content being produced by the hours, every second. So, we’re moving more towards a model of assessing and guiding through a sea of content as opposed to being our incredible content is our differentiating factor because in our field, barrier of entry is so low.

Tim: Well, that makes a lot of sense because I mean, if someone, even if they sign up for a paid subscription, they can download as much content as they want, so it makes sense you focus on tools to guide them through their learning process or – well, with video, I’m curious. Is that pressure to create video, is it, the people who are learning the language are saying they want more video content or are using more video content, or is it the marketing side where YouTube content is getting more engagement than the spoken audio?

Peter: So I believe it’s both but I think it’s driven more by the latter. We create two types of content. Internally, we defined them as engagement and academic. Academic is the type of content that will appear on YouTube but will also appear on our site, and will be included inside of a learning path that will have at some point, the ability for us to assess you, and that type of content does very well but it’s a bit of a different graph. When that academic content is released, there is a pop, then a drop, and then over time, it creeps back off, the views – the number of views, I’m referring to. When first they release it, maybe it’s 5000 views, then it drops down the first week, and then the second week, there’s maybe 1000 views or 500 views. As time goes by, people are like, “Oh, this is very good. Let me keep going back to it,” and then we have engaging content. Engaging content is kind of meant to feed the users because they’re very interested in getting new content. They are often driven by marketing ideas such as top 10 dishes you have to try when you’re in Tokyo. The viewgraph of these users, they pop, and that they drop, and then…

Tim: Nothing more.

Peter: DOA.

Tim: Right, well, I mean, that makes sense. You have the content creates to drive people to the site, and then you have content that’s part of your larger academic mission.

Peter: Correct.

Tim: So what are the main channels you use to attract new customers? The podcast obviously, we talked about YouTube. How else do you get people to learn about Japanese Pod 101 and to get them to the site?

Peter: In the past, we used – iTunes was our biggest traffic driver. These days, actually, several times this past month, YouTube has been our biggest traffic driver which is – it’s actually credible. In addition to that, we have a lot of traffic that comes from SEO. SEO’s very competitive. Again, you’re competing against people giving away excellent content for free. Sometimes, it’s hard to really capture those keywords. Applications are another amazing driver of traffic.

Tim: When you say applications, what do you mean?

Peter: IOS applications and Android applications. So with these two types of applications do drive a lot of traffic.

Tim: I know the trend’s pretty consistent around the world across all the languages, I mean, are the same – do you see the same trends of for example, people engaging more with the video YouTube content that want to learn Japanese as those that want to learn Hindi or Spanish?

Peter: Yeah, YouTube is really a dominating force. I think people very early on in their learning experience, I think go to YouTube to find good content, and so we’ve seen that growth across all of our languages. We bucket 33 languages together. They’re are the non-English as second language. We have one English channel, and that’s kind of separate because were teaching English in English but most of these other channels, I mean, the growth is the same across everything.

Tim: Okay.

Peter: Youtube’s been very big for us, applications are very big. We do a good amount of AdWords, Google’s still a very paid advertising – Google is still very effective for measuring things. Facebook is interesting for us. Facebook, we have had a lot of luck with paid advertising on Facebook but by creating very good content, we’re able to add them to our community and we don’t have a lot of success directly marketing to people but if they join our community and we do a type of marketing to them, we have a lot more success but Facebook still has quite a few challenge – it’s…

Tim: There’s a lot of mixed opinions on Facebook. Have you found that the effectiveness for Facebook has remained pretty steady or gone down over time, or just, it’s never been one of your most effective tools?

Peter: Is this answer going on Facebook? To be speak perfectly honestly, yeah, we haven’t had a lot of success with Facebook but it’s the platform we kind of have to be, so we’re learning to optimize our content there, doing things with video, making it one by one, a video what they recommend is much better than embedding a YouTube video or even adding a video not to their specs. So it seems like if you really go out of your way to play by their rules, it is rewarded and they’re taking some page out of Youtube’s book by going after more longform things in our experience.

Tim: Yeah, from my experience and from a lot of my guests have told me is that whether it’s YouTube or Facebook, or Snapchat, it’s – anytime they’re trying to promote a certain type of media, you’ll do very well to play by their rules, and to jump on whatever they’re pushing as aggressively as possible for that time. Long-term, it’s harder to say. As I mentioned before, a lot of our listeners are running SaaS companies or are planning on starting SaaS companies. So I’m curious, what kind of cool tools and techniques do you use to convert users once you’ve got them to your site, and then to upsell them to the higher levels of subscription once they’re on the site?

Peter: So we have a funnel and of course, we use a drip campaign, so when a new user comes in, depending on the channel, we acquire them. So we realized that anyone who comes to the site on a desktop, we’ve had much more success converting. Mobile people are a little more fickle – how does that sound? So the conversion rate’s a lot lower. So for example, we developed two drip campaigns, two types of marketing depending on lead, and in the early days, what we try to do is we showcase our content as best as we can.

Tim: So well most well-run SaaS startups need to have some form of upselling. So I’ve noticed, because I mean, I’m a customer and so I’ve noticed your drip campaigns or at least one of them but I also noticed the application itself is pretty aggressive in doing the upsell, and I mean this in the best possible way, that it’s aggressive in trying to upsell and that it’s at very strategic points saying, “Hey, you know, if you bought the premium plus, you’d be able to do this,” and I think you’ve got an interesting integrated approach into getting that upsell.

Peter: First, thank you for being a subscriber. Second, thank you for answering the question the way I wanted to but yeah, we try to showcase the content, and then at certain points, say, “Here’s how you can improve faster.” As time goes on, we’re trying to get more motivational reasons why a user is studying so that we can provide them with the content that’s more relevant to them because more and more people want that personalization. At the same time, they’re very scared about possibly giving over too much information about themselves, so we try to keep it language centric. Why are you studying? What is your goal? From that information, we try to create a best personalized approach for them.

Tim: Okay, what about customer churn, because I would imagine that learning a language or signing up for language lessons would be a lot like, I don’t know, joining the gym where people start out with good intentions but kind of a fall off. So can you share what levels of churn you have and how you combat it?

Peter: Yeah, churn is as you said a very significant issue for any type of company like ours. I think, and from what I heard about Udemy too, I mean, the number of people who actually complete the courses is so low. How do you get them to the end line? A lot of that comes from bringing them along with some type of interaction. Ultimately, people can really relate to teachers. People can really relate to personalities. So when we were creating the content that was kind the multimedia – it’s kind of one-way, right? You’re passively learning. You’re listening and/or you’re watching, so we pay close attention to have a wide variety of hosts so that you could find someone that you want to identify with.

Tim: Okay, so you’re trying to build a personal connection either through the voice actors and the characters in the content or if you can upsell them to a real human being who’s acting as their teacher and their guide?

Peter: Exactly, and then the second part is the interaction. If you like your teacher and you want to communicate with your teacher and you’re having a very good personalized experience, you’re going to stay and you’re going to try harder. Second approach is, we’re creating courses where they finish in a certain amount of time, so you have a certain amount of time to complete something and people seem to be more engaged when there’s a bit of a deadline, and finally, this is quite interesting from people who are interested in where education is going to cause a lot of talk about portfolios, portfolio learning, and we’re recently shifting over the past year for people to provide a portfolio, so you would take a video of yourself at a sushi restaurant ordering sushi or an audio recording of yourself using or applying what you learned, send it in, and if a teacher approves it, you add that to your portfolio. So there’s actual online or multimedia proof that you were proficient at some point in time.

Tim: That’s good. I mean, that’s taking it to a step where the CDs and DVDs can’t compete. It’s not simply a consumer passively – well, not passively – it’s not simply a consumer consuming the product but it’s actually interacting and building a commitment to the platform by participating.

Peter: By the way, can I hire you for marketing consulting? This is great.

Tim: Well, I do that. We can talk about that afterwards, but before, you mentioned that you were bootstrapped, have you ever looked venture funding?

Peter: Early on, we did and the best advice I ever got, one of the listeners of the show happened to work in a private equity fund in New York and he came to see ya and he just was a fan of the show. When he came – when I went to New York, he said, “Come in, and let’s see if there’s something we can do,” and later, I found out, it was his money that he was going to invest and we spent so much time putting together the pitch, and then the night before we change the number, and this one when we’re about six months in, and we went in and we said, “David, we would like $3 million,” and he said, “Guys,” took our pitch, pushed it aside – “Listen, if I give you $3 million, you wouldn’t know what to do with it.” It was the best advice I ever heard. If I had – if we got that money, well, I don’t think we would’ve known what to do with it. We probably would’ve called a headhunting company and we probably would’ve brought in some guy who is used to having a team to execute with, and we probably would’ve gone about building the company completely differently and by not having the money, we were forced to think creatively. We’re forced to make every penny count, we’re forced to pitch the people who became part of the company on our vision.

Tim: That makes sense. I mean, you’re forced to focus on providing customer value immediately to generate revenue. You’re forced to keep the team as small as humanly possible to run lean and to focus on your mission. It makes sense. I always tell people, don’t look for venture funding unless you absolutely have to but once you started to scale, once you had five people or 10 people, or 20 people, did you ever think, okay, now, I know what I can do with $2 or $3 million and now is the time to go look for venture funding. Did you ever think of going back to that well?

Peter: I think by the time, you know, interestingly enough, we did go back and talk but at this point, for better or worse, we now had a clear vision in our heads of what we wanted and when we pitched it and they didn’t agree, we had the luxury of walking away and we did it because their advise, and it was business sound – “Guy’s, listen. See these other 24 languages? Kill ’em. These eight are going to make you all the money,” and they were not incorrect but there are certain other reasons that we wanted to build a portfolio language as the way we did, and businesswise, I believe we’re slightly stronger with this bigger portfolio and the numbers, if probably their numbers and our numbers didn’t match up was great to be able to say, “Listen, our visions don’t align and we’re going to just keep going our way because we have a vision we were locked into,’ and at that time, we weren’t even ready to take the money. To get the money, we had to do a couple more things, and then once we got the money, we would have to spin on several months on how to spend it.

Tim: No, I think it’s great that you guys are an example of a successful bootstrap SaaS startup because of so many founders go into the process thinking that, well, they have to raise money. The first thing they do when the initial team gets together and start planning out to do that raise. So it’s great that you not only bootstrapped it from the concept phase, but all through the growth phase, you’ve been growing on revenues.

Peter: Correct.

Tim: That said, how has the market changed since 2005? So is your competition still people making DVDs and CDs or are there a lot of funded startups that are offering the same types of services that you are now?

Peter: There are very few people doing what we’re doing, and when I sit down and look, I think, wow, I’m really breaking ground here. I’m really making something new, or I don’t know what I’m doing. So a lot of times, I think it falls towards the latter. I just think that starting, looking back at everything that’s happened, I don’t think I would ever start a company the way or do the company the way we did. We’re a very content centric company and many of the companies that are coming out now are very platform centric where they’re introducing tutors and students, or they’re using an algorithm to show images and words integrated with a audio voice and it’s very scalable. You can have the platform in 34 languages and our approach is that we’re creating some interesting content in English to teach to people who want to learn a target language.

Tim: So this huge library of content and coursework provides a most – it prevents other companies from easily entering into the business?

Peter: Or they may not even want it, so yeah.

Tim: That’s the other point. I mean, thinking through now. I mean, VCs have generally not been very interested in investing into this space. I’m not sure why exactly. It’s a big market, there’s a lot of innovative companies but I would bet that a VC would be particularly unwilling to invest in creating a huge content library.

Peter: I think one of the reasons is, is because I didn’t realize it at the time but when I started this is that usually, there’s a production company in a distribution company, right? Very rarely is there someone kind of doing both, especially from starting. We built-up expertise in both but at the same time, it’s really hard to maintain that cutting-edge expertise in production and distribution, and we’re just fortunate to have an incredibly talented team here that can keep up with this kind of interesting vision that we have. So some of our competitors compete in audio and some of our competitors compete in video, and some of our competitors compete in applications but I don’t know of too many companies that have the offering that we have across these multiples of languages.

Tim: Excellent. So with content being so important, how did you expand into other markets? How did you build up the content for 33 other languages?

Peter: It started with a project that I worked on. Again, I wish I had a little more academic background in linguistics and language acquisition – my background is actually economics – so there are certain things that are scalable, certain concepts that are scalable and certain things that are localized. Food is a great example of both, right? There are certain foods and beverages that will scale across all languages. For example possibly, water, that’s universal, and then you have Japanese sake. Of course, it’s grown globally. It’s different markets but originally, it was a very localized term, and then you have these very niche things such as kobosu which is like a citrus juice from the southern islands. So what we did was we focused on universal scalable content. The model was there, the hard work, the legwork was done, and then we needed to hire the performers,

Tim: And that was just through Craigslist or similar message boards around the world ? You’d say, “We need voice actors and people to refine this content?”

Peter: Yeah, but we’d usually start with the community: “Hey, guys, we’re going to launch a new language. Any learners out there native in this language?” and then we would then reach out to them and see if they’re willing to work with us or we can – If they’re willing to help us with their network, and Tim, we have done so well with that strategy.

Tim: Alright. That’s an excellent way to expand in a very cost-effective one.

Peter: Yeah, it goes back to our core, right?

Tim: Right, right, and people appreciating the content you’re creating. So what is next for Innovative Language Learning? You can’t expand by making any more languages. Are you going to stay on the current path and grow organically? Are you going to be releasing new products? Are you going to go back and finish your PhD?

Peter: This is a perfect time for this question. So right now, we are changing the pedagogy. So a lot of the lessons that we have are based around the conversation that you can consume as we had mentioned, passively and it’s not so interactive, and for shifting that model to something called can-do learning. So basically, if you want to introduce yourself, we’re going to work backwards from the ability to do that. We’re going to give you the building blocks introduce yourself, then we’ll give you model conversations. So for example, you’ll need to know the set phrase on how to introduce yourself, you’ll just need to know how to say your name, your nationality, and what country you’re from. We’ll give you these building blocks in the form of multimedia lessons.

Tim: Okay, so the user would set their goal and you’d figure out what steps they need to do to reach that goal?

Peter: Correct. Then, we’ll have you execute in some form of multimedia – audio or video, send it to us, and will assess you, and if you pass, you’ll get credit. It goes into your portfolio, and right now, this is a very innovative way of proving language acquisition. At this point, there are no companies as large as us doing this type of learning.

Tim: You know, I think that really hits on a key point that keeps coming up over and over again when I talk with Ed Tech startups, and that’s the tools are useful but at some point, it always seems you need some kind of human interaction between the student and the instructor and all the platforms that try to eliminate that decrease the effectiveness.

Peter: Yeah, I think that’s a very good observation.

Tim: Well, listen, Peter, 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 that I told you that you could change one thing about Japanese society – anything at all – the education system, legal system, the way people think about risk, anything at all to make it better for startups and innovation in Japan, what would you change?

Peter: I would wave that wand to immigration and try to have the let more immigrants in because I do think that immigrants are hungry – I’m an immigrant –

Tim: Yup, well, so am I.

Peter: And look at us, we hustle, we work. Many of the immigrants that I know here work really hard, many of the immigrants I had as friends in the US work hard, many of my Japanese friends have grown up very comfortably. Now, for others, they worked hard, they had something to prove, they really want to show the world that Japan was an incredible country and this generation, many of my friends, they think about what’s going on Friday night. What are we doing this weekend?

Tim: Yeah. Well, I think that immigration culture is pretty tied into the innovation culture because even in San Francisco, there is a disproportionate number of entrepreneurs and founders that are immigrants, and here in Tokyo, the number of foreign startup founders is a much higher percentage than you would expect just from the general population. What I’ve seen in Japan though, it seems like the government seems to be very open to immigration for entrepreneurs and people with four-year college degrees, and if you will, the “right” kind of foreigners.

Peter: Well, let’s rephrase that, successful entrepreneurs, not coming-with+nothing entrepreneurs, right?

Tim: But do you think that, since it’s a magic wand, you can do whatever you like with it, do you think that Japan would benefit from opening up the doors to unskilled labor and semiskilled labor as well as the entrepreneurs and the innovators?

Peter: Wow, we went from economics to political science real fast.

Tim: It tends to happen.

Peter: There’s so many factors that come into it. I can just state that I think immigration in all forms is a very good thing.

Tim: I agree but it does make sense. I think even if Japan increases immigration of low skilled and semiskilled labor, just by having to interact day-to-day with people from different backgrounds and different ideas, and different ways of thinking I think in and of itself would increase innovation and creativity because it forces you to think differently.

Peter: I agree and they may need more workers in every sector. I have friends in the hotel industry that can’t get enough workers, I have friends in – across-the-board, there’s just not enough.

Tim: Do you think it’s changing?

Peter: To be honest, I think it is. I think the Japanese move in a glacial pace sometimes but I’ve noticed that many of my friends get five-year visas now as opposed to – I used to get a one-year visa.

Tim: I remember those well.

Peter: And I’m talking about last year. So I think things are changing for the positive but I think it makes a lot of sense to open up immigration in Japan to allow for these creative type people to come in and it’s such a different way of thinking and approaching things.

Tim: Yeah, I think it will be good for the country in the long-term and we seem to be headed that way so that’s a great thing.

Peter: But that said, I think one of the nice things about Tokyo and Japan right now is, of course, it’s safe. So looking at it from a place to live and grow, you know, I think Tokyo is safe. The food is…

Tim: Fantastic.

Peter: Fantastic, healthcare is fantastic, and think above all, it’s comparatively cheap for a supercity.

Tim: I agree. It’s got a bad rap for being expensive but it’s cheaper than San Francisco or New York.

Peter: Way cheaper. Sydney, Hong Kong, Singapore, London.

Tim: And the only thing you’ve got to be absolutely sure you have to do is learn the language which is tricky but that’s where Japanese Pod 101 comes in.

Peter: Thank you very much.

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

Peter: Tim, thank you so much. It was great to meet you and great chatting with you.

And we’re back.

What I find most interesting about Japanese Pod 101’s story is that the very thing that has made it hard for them to scale is what prevents others from entering the space and competing with them. No VC will fund the creation of thousands of educational videos and even if they did, without that large and engaged community, a new start up would have to pay five times what it cost Japanese Pod to create these lessons.

The truth is, content is just not highly valued today. Even the word ‘content’ is somewhat dismissive and commodifying. Content is whatever fluff you need to put up on the page to attract advertisers or build Google juice for SEO, or prove you’re an authority in the business but in today’s world, eh, that’s the way it is.

Meaningful podcasts and articles, and movies, and stories are not content. They have value in and of themselves and they’re created by people who are not focused on the bottom line. This is, of course, why most artists are poor and why most corporate content is so relentlessly mediocre. VCs quite rightly don’t want to invest in content creation.

If a potential competitor to Japanese Pod went to a VC said, “Hey, we need to spend $2 million to great content,” the VC would turn them down and tell them, “Look, that’s a waste of money, find a way to get your users to generate it. Spend that money where it counts – on marketing and customer acquisition,” and from a business mechanics point of view, that’s good advice, but you know what?

That doesn’t work.

In every successful Ed Tech startup I’ve talked to, there’s been some aspect of the company that doesn’t scale, that can’t really scale. Some real human to human interaction that increases in costs linearly with the increased number of users, good businessmen, good VCs and good founders have trained themselves to identify these frictions and eliminate them. These frictions limit the growth and they drive up costs. But you know something, in many cases, those human frictions are the very reason that these companies are succeeding.

Education really almost requires some kind of human interaction. It requires the teacher to care. Whether that teacher is a scrappy Tokyo startup or a middle aged elementary school teacher, they have to genuinely care about what they’re doing. They have to see their vocation as something more than creating content. For this reason, the VCs who are telling their Ed Tech portfolio companies to optimize their business models and externalize their content creation might actually be doing their portfolio companies to failure.

If you’ve got thoughts on learning Japanese or creating content, Peter and I would love to hear from you. So come by 124 and let us know what you think, and when you come to the site, you’ll see all the links and resources that Peter and I talked about in the resources section of the post.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups and no about the show.

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