What makes people pay for new online events

Tim: So, I’m sitting here with Taku Harada of Peatix, the event ticketing and promotion service. Thanks for sitting down with me.

Taku: It’s great to be back, I guess. We talked several years ago. It’s nice to see you again.

Tim: Likewise, and we’re being very appropriately socially distanced here, you being in New York.

Taku: Very much.

Tim: Yeah. Yeah, actually, you were one of my very first guests on the show and that was, man, almost six years ago now.

Taku: Was it six years ago?

Tim: Yeah, 5 ½, six years. Times change.

Taku: When was it, 2013 or so? I’m curious to find out what I had said back then, if it matches up with the way I’m thinking right now.

Tim: Yeah. We finished off a bottle of wine at the old engine yard office in Tokyo.

Taku: Yeah, an Ebisu, right?

Tim: Yeah. Now, it was a really great interview and we’re not going to cover the same ground again today although I mean, you talk about some great stuff in terms of like founder motivation and more reasonable expectations for this journey.

Taku: That would have been maybe a year and a half or maybe even close to two years after we started Peatix, I hope I’m not going to contradict myself today too much, but let’s see how it goes.

Tim: Well, no, that’s actually what I’m – well, not hopefully you’re going to contradict yourself but I think this is like this really awesome chance to kind of check in and see how the predictions and strategies played out and where you had to pivot because I don’t know, there’s this big mess of like entrepreneurship being this study journey from point A to point B, and it’s nothing like that.

Taku: No, no, it’s a lot of ups and downs, it’s uphill all, you have to go downhill and just go left and right, and somehow, when you look back, okay, maybe you are in a higher place than you were before. It’s never a linear straight line as you know.

Tim: Yeah. Well, actually, let’s jump right into it. I mean, the biggest thing that’s coming to mind here is that as a start of focused on event planning, I mean, COVID must have really had quite an impact on your business.

Taku: This was as it was for most people, I’m sure, totally unexpected. Boom! Everything hit, but I would say, what was it, late March? I remember specifically when the Tokyo Marathon was canceled towards the second half of March. That was when everything hit us, all the events that were on our platform, they started to get canceled and we had to do all the refunds, and everything just turned upside down, and then the second tsunami, so to speak, was first week of April when Japan declared its national emergency, and that was just our world had totally turned upside down.

Tim: So, how does a company that is just built around these live events, how do you develop? How do you adapt to something like that?

Taku: It felt like, let’s see, let’s see, maybe a week of total panic, not knowing what to do, and then several days of sort of a very low point which was just being depressed and wondering what the hell we are supposed to do. But then, gradually picking ourselves up and just thinking about where the market would go. Thankfully, the majority of Peatix, the events on Peatix, they are not the sort of the large-scale sports or music entertainment. The majority of our events were a longtail community meet ups and whatnot. We did see that it would be relatively easier for these kinds of events to go online. We saw an opportunity there, we figured it out and said, what we could do is sort of tweak the platform a bit, but really, a lot of communication to our customers, communicating to them that okay, this is how your communities is survived by taking things online.

Tim: So, were you just like, proactively reaching out to your customers and saying, “Okay, now, it’s time to move everything online, and here’s how you do it”?

Taku: Yeah, so people were just canceling their off-line events, we took the stance of being very proactive in supporting those efforts and communicating to our customers how to cancel your events, how to do the refunds. We figured that okay, the very least we can do is to try to build trust with our customers, so that was that phase, and then once we figured out that the online strategy, I was proactively going out there talking to the customers, “This is how you should go online with your events online.” We launched an online event series by ourselves, just as a showcase, so to speak, and this thankfully has thousands of viewers and listeners every week. Just positioning Peatix as your go-to platform for your online events, and very quickly, all these events started to sort of flood our platform during April. Yeah, we are in a very sort of good place right now.

Tim: So, everyone adapted pretty quickly then?

Taku: Yeah.

Tim: So, what makes a good online event? I mean, I’m sort of like old school and even – you and I are doing this online now, but it’s not the same as sitting across the table and drinking wine together.

Taku: Yeah, no, I mean, think folks are still trying to figure everything out, not everything is perfect – there are a lot of technical glitches along the way but because it’s such a transition area., I think the participants are always, they tend to be a little weekend. Okay, maybe because of connectivity issues, the event might go down for a couple of minutes or so but it’s not like oh, everybody is pissed off and yelling and screaming at the organizer. People are a little more receptive and patient with things. In terms of format, Zoom, the typical event that we see on our platform is using Zoom speakers, just talking about the topic of their choice within their communities, so that communication among the participants and the organizers and how to bring that online and how to bring that sense of conductivity. It continues to be a challenge but there are various tools out there and we are really amazed with how creative people are in trying to replicate the experience online.

Tim: So, are people willing to pay to attend online events?

Taku: They are, so pre-COVID, I would say maybe 60%, 70% of our events were paid events. Typically, $50 or ¥4000-¥5000 would be the ticket price for these paid events. In the post-COVID world – not “post” but during this COVID world, maybe only 30% of the events that we have are paid events.

Tim: But that’s still pretty high.

Taku: It’s still pretty high.

Tim: All things considered, yeah.

Taku: Yeah, and the average ticket price is much lower than the pre-COVID days, maybe even half – let’s say ¥2000-¥3000, maybe not even ¥2000. That is the average ticket price, so we have to make it up to the volume, obviously, and the volume is catching up, thankfully.

Tim: Aww.

Taku: Yes, people are willing to pay, and that mix continues to go up, so it’s about 30% today. I think we’re going to see that mix go up higher over the coming days.

Tim: Alright. Yeah, it makes sense as everyone kind of figures out the new medium, yeah. So, as we – well, both New York and Tokyo, I mean, as we come out of this COVID crisis and things get back to the way they were in the before times, do you think that things that will be permanently changed? Is there some things that will people keep doing online?

Taku: I think that something will be permanent. I think a lot of people are realizing that some of these changes, it opened up some new opportunities for many people. With the online events, there being no physical restrictions, obviously. What we have seen is pre-COVID, maybe an event series that had 50 participants at most, you add a zero to that, literally, because of the lack of physical restrictions, so that is a great thing for that community. We think, and who knows when this thing will end? It might take a year or so, or maybe more for things to go back to total normalcy.

Tim: Sure.

Taku: Maybe there is a hybrid model in the end. Think of it as like a TV programs. You got the studio, some people in the audience, but most people participate in reviewing it through the television system or online, so that sort of set up is what I think we’ll see even when we go back to normal.

Tim: Yeah, that would be – I haven’t really thought about that, but it is forcing people to, if you will, kind of experiment with a new medium and see what value can be delivered in this format.

Taku: Mm-hmm. In a very odd way, many of our customers are embracing this change because it has opened doors to new possibilities and opportunities. A lot of it is good. Again, the hybrid model where you would have the physical interactions at the event but maybe 10 times the number of people in the studio or at the venue are participating through online means. Having that huge chunk of participants would obviously be much better for that community over the long term.

Tim: Yeah, yeah, it scales.

Taku: Yeah, the scalability is amazing and we are seeing a lot of participants. I would say it used to be maybe 60%, 70% of our events were pretty much in the Tokyo metropolitan area or in the Kanto region, a pretty large chunk in the Osaka Kansai region, but now, it’s really spread out through Japan and other countries as well.

Tim: Well, it’s true, it does eliminate the whole geographic problems. You can have an event wherever you are and people from all over the world can attend.

Taku: Yeah, I think it’s an amazing thing.

Tim: Okay, let’s talk about something besides COVID – that’s all everyone’s talking about, but I want to talk about what really has happened with you and with Peatix over the last five, six years, so last time we talked, you were talking about how you had to kind of bootstrap things up – your original marketing channels were like, physically going to events into clubs and building up this kind of community of personal connection, and at that time, we were talking about display ads and SEM, and what was the next step for marketing, and what turned out to be the next step for marketing?

Taku: It was, I would have to say, unfortunately a bit, maybe, it has pretty much been the same game, the continuation of what we were doing back then. We still don’t spend any marketing dollars for SEM or display ads, or anything, I would even say that that strategy that I talked about back in the day of participants bringing in more participants, that has only worked much better at a much higher magnitude.

Tim: Alright, so it’s been entirely network effects?

Taku: Entirely network effect, more organizers bring in more organizers, more participants bring in more participants and communities. That part has been amazing. On Peatix, if you buy a ticket to an event, you are asked to download our app. You will find more events, you will find the tickets but you will find a bunch of other events as well area we have, what, maybe 30,000 to 40,000 downloads of our app every month and we don’t spend a single cent in getting those downloads, so that part has worked quite well, and again, who’s to say what we will be doing in a year or two?

Tim: Now, that’s interesting because the online event planning and the networking, it has been and continues to be an incredibly competitive space, and with the reliance on network effects, it would seem to be more likely global industry would consolidate around like a few major players. Is that happening?

Taku: I think I want to point out different business model that we have aspired to build over time. Traditional ticketing company, their business is taking fees for each ticket sell. Although we do that and I think I talked about this before, our goal has been to, let’s say you publish an event on Peatix, so you want more attendees into your event, so we are providing sort of access into our customer database which is about 5 million right now to get more attendees into your community and events, so that’s where we make some money – a lot of money, actually, these days, and also connecting third parties such as corporate sponsors or venues with the event communities, and that revenue is growing as well. So, we are slowly coming to a point where we don’t really care about ticketing fees anymore.

Tim: Is that significantly different than the brands who shall not be named, their business model? It seems like everyone is kind of at least saying the same thing in terms of the value added they bring to the organizers.

Taku: But ticketing companies are not saying, right? Your traditional, at least in Japan, their goal is to bring in more people into the convenience stores, right? That’s it, and that they will take kind of each transaction but there is no aspect of discoverability, discovering more events or communities, connecting corporate sponsors, that’s not their business – they haven’t built anything there. We have for the past eight, nine years, that is really coming to fruition. So, the network effect, the more our database grows, the more attendees that each event organizer can get.

Tim: And is that something – I mean, you were touching on it just briefly but do you think you will ever be at a point where you could, for example, completely do away with ticketing charges and to focus only on the tools and helping organizers bring in more people?

Taku: I think we will definitely come to a point. I’m not going to predict when and where we won’t care about making margins off the ticketing piece. We will have to cover the cost obviously in terms of processing and whatnot, but we are actually today at a point where we don’t care – you can be ticketing your events at a competitor of hours, let’s say Eventbrite or something like that. We well, if you want, we will feature your events on our apps, your event will be exposed in our search results and whatnot, but once the customer hit the ‘get ticket’ button, it’ll jump to Eventbrite or a third-party ticketing site. We won’t care, but we will provide you with the opportunity for exposure, so we are at that stage right now.

Tim: Okay, so really focusing on adding value to the planners and the organizers.

Taku: Right, and their biggest concern is getting more attendees and filling their seats. Ironically, in the COVID world there are no limitations in terms of seats, but nonetheless, they want more people to attend their events.

Tim: Right. So, you are based in New York but you still have a pretty big customer base in Japan and in other parts of Asia as well. What does that look like percentagewise?

Taku: Japan has been explosive for us, especially last year. What used to be – when we were talking, I think, around 2015, 2016 or so, at least, was about 60% to 70% Japan, the rest being the rest of the world. Right now, Japan is exploding, over 80% is Japan.

Tim: Well, what’s driving that?

Taku: I think the brand perception, for lack of a better term, that network, again, the network effect is we grow and grow, it just gets better and better, so just writing that wave in Japan right now. We do believe that things outside of Japan will follow that same path eventually. It is a timing issue, but today, about 80% of the business is in Japan right now. We are a highly distributed team worldwide. We’ve got people in New York City, obviously, even within New York, upstate New York and we got people in Manila, Singapore and Malaysia, all over the place, so it doesn’t matter where we are, really.

Tim: Alright. Well, that’s what I did say I was going to ask you is like, it was such a big customer base in Japan, if you were considering moving back to Japan after having moved to New York?

Taku: Yeah, well, not now, but I’ve been spending considerable amount of time in Tokyo and Singapore and whatnot. I’d say maybe pre-COVID – no, half of my time was spent in Tokyo, but things are changing, who knows? It really doesn’t matter today, as long as I can take the time zone defense. It doesn’t matter for any of us within the company.

Tim: Okay. Another thing that we were both talking about last time, and it’s almost unfortunately a perfect time to revisit it, you were talking about how to many startups were just burning through huge amounts of cash to acquire new customers. You predicted that would come back to haunt most of them.

Taku: Mm-hmm, wasn’t I right?

Tim: Yeah, yeah. I mean, I think with COVID, this is exactly what we are seeing. So, you guys were running pretty lean pre-COVID did you have to make the adjustments when –

Taku: We weren’t profitable last time I was talking.

Tim: No.

Taku: For a fact, we raised about $15 million over time. We are profitable, actually. We became profitable last year for the full year of 2019. We have kept it lean: we are only about 40-plus people worldwide which I think is amazing, but yes, COVID hit us, we struggle parts of March, especially April, but thankfully, we are at a breakeven level again. Fingers crossed, but it doesn’t seem like we’re going to have to raise again.

Tim: Do you want to raise again? Is it something you think you might do in the future? Are you on a pretty, pretty solid path to where you want to go now?

Taku: I would say we are on a pretty solid path, and I’ll explain a little why, but I’ll also say never say never, right? So, who knows, some opportunities might arise, some new strategies might come into play, but pretty much, our fixed costs have been sort of at over the years while our growth profits have been going up and up, and up, and the two lines intersected last year, and so theoretically, beyond that, it’s all beautiful profit beyond that, and that’s – we’re on the verge of being hugely profitable going forward. Hopefully, we can just, again, this is probably the Amazon DNA in all of us, as you might recall, a large number of our management team is from Amazon, but the idea is to generate profits but reinvest those profits wherever appropriate back into the business for further growth. That’s what we aspire to do. Last round was series D. I mean, I’m not a big fan of doing E, F, G, and beyond.

Tim: Well, I mean, if you don’t need it, I mean, don’t take it if you don’t need it, right?

Taku: Yeah, that’s pretty much been our philosophy from day one, and I am really thankful that we became profitable – this COVID thing has hit us, you are not in the middle of her raise, we were not asked some startups, I’m sure, their unit economics might be terrible, they need that cash but I’m sure they are trying to figure out what to do. I’m just like, thank God, I’m not out there trying to raise at this terrible timing.

Tim: So, you started Peatix in 2011, right?

Taku: 2011, right.

Tim: Yeah, and you moved to New York like, almost right away, and the last time we talked, and a few other times we talked, you’ve been very kind of adamant that no, no, Peatix is not a Japanese company. Legally, culturally, ambition-wise, it’s an American company.

Taku: I wouldn’t say American but international.

Tim: No? International, okay.

Taku: Yeah, international.

Tim: I’m curious, so almost 9 years since you made that decision, have you seen Japanese startups change over those years? I mean, is the culture getting better? Is it becoming less Japanese and more international?

Taku: That’s a tough question. I think we see more Japanese startups having international employees. That’s definitely something that I see. You have your engineers who are sick of San Francisco, love Japan, they get an engineering job at a Japanese startup. I think we see a growing –

Tim: I think we do see a lot of that, but the founders themselves, I mean, the attitude and the ambition that we were talking about last time, that core of…

Taku: I think unfortunately, that has sort of been tempered a bit compared to win you were – I remember 2011, 2012, 2013 around that period, there were growing number of startups back then, Japanese entrepreneurs with global ambitions or international ambitions. Obviously, I don’t have hard numbers in front of me, but I don’t see – I’m sure it has a lot to do with sort of the SaaS segment really presenting itself with a huge opportunity, especially in a very idiosyncratic corporate environment such as Japan, these SaaS companies have had to build solutions very specific to Japan which doesn’t have international outreach.

Tim: But I mean, hard numbers aside and business rationale aside, I mean, in the founders you speak to, in the new founders you are seeing, it almost sounds like attitude might have gotten a little worse, that people are a little less ambitious. Is that true?

Taku: Yeah, I don’t know if it’s worse. I think the opportunity, the old economy of Japan changing and trying to transform itself. This has been accelerated with COVID, but that opportunity is so large that I think that a lot of startups are really just trying to focus on that opportunity for now, at least. They tend to be B2B SaaS type of services, but I think Japan – again, you know Japan is a very weird market where it’s very closed but it’s a very large closed market, so just focusing on that is a pretty large opportunity.

Tim: Well, and I think part of it though is Japanese VCs love to invest in B2B SaaS companies because they are simple to measure, you know within six months whether you made a good investment or not, they are very spreadsheet-friendly.

Taku: Yeah, I wish I was a SaaS company – someday.

Tim: Well, do you think COVID – so you’re saying like before, I mean, it is true, technological disruption or even innovation will drive – it’s what opens up a lot of these business opportunities, whether it’s smartphones or the Internet the first time, or desktop computers. Do you think that COVID and Japanese society being forced, being dragged, kicking and screaming into working from home could kickstart a new generation?

Taku: I hope so.

Tim: Yeah?

Taku: It varies among segments, but maybe a little more consumer-facing service might have international possibilities more than ever. I’m not complaining but so much of the startup community has been focusing on B2B SaaS type of businesses, and for that opportunity, it seems like because these platforms need to be very Japan-specific, I don’t see a lot of possibility of those going overseas.

Tim: I think you’re right on that, and I think that really a supply and demand, but I mean, the demand coming from the VCs, like there’s investment money available and those startups get funded and there’s a lot of really kind of odd B2B SaaS companies in Japan.

Taku: Yeah, don’t get me started on that.

Tim: No, I mean, some of the stuff you’ll see on the back of taxis, you’ll kind of go, “Really? Okay.”

Taku: But the very fact that a lot of these startups have the money to pay for those taxi ads is amazing, right?

Tim: Exactly!

Taku: It speaks to itself, and so I’m just pointing out, whether or not I like it personally, that is the reality and I understand, it’s a huge economic opportunity for investors and entrepreneurs.

Tim: Yeah, I mean, I really…

Taku: But I’m a consumer-oriented guy, I have always –

Tim: Well, you are, but you’re also one of the few Japanese founds I know that just said, “We’re going global from the start,” and actually did it.

Taku: I mean, it’s not easy, we’re struggling in many ways, but the aspiration is definitely still there if not bigger. There must be a growing number of entrepreneurs in Japan that should go in that direction.

Tim: Yeah, I mean, if attacking the global market means much faster adoption, it’ll be – well, actually, even the VC attention. Did you raise mostly from Japanese VCs or foreign VCs?

Taku: It was a mix. Maybe 50% and the rest being overseas. Again, as we’ve both alluded to, I think most Japanese VCs right now, I don’t think global or international is a priority for them right now because this SaaS opportunity is so huge right in front of their eyes, and they just want startups to focus on Japan first.

Tim: Yeah, that’s the blessing and the curse of the Japanese economy being so big.

Taku: Yeah, I totally agree, it’s sort of unfortunately the same thing all over again, right? You had the first generation or second generation of startups, because the domestic market is so large, they’re able to grow very quickly in Japan and by the time they’re too big, it’s sort of too late to go overseas, right?

Tim: Yeah, and there’s a lot of pressure from the investors to not go overseas because it’s risky and it takes a lot of capital, and they’re like, “No, no, just IPO and you’ll do all that risky stuff later” It’s like, wait, no, that doesn’t work.

Taku: Yeah, it’s just a question of you as the entrepreneur, what’s going to drive you, right? And it becomes a philosophical or motivational topic. It’s a very tough question. But in the end, the entrepreneur will – bleep this out – but do whatever the f*** you want, right? That’s the idea, right?

Tim: Well, Taka, 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 people’s attitudes towards risk, the legal system – anything at all to make it better for startups and innovation in Japan, what would you change?

Taku: I wish that big companies wouldn’t dictate the direction of the Japanese startups. I wish that the Japanese startups could sort of not ignore but I hope they’re going to be in a position where prioritizing the demands and needs of the big old corporate world of Japan is not a priority for them and they can just look elsewhere.

Tim: No, that’s a really interesting topic, so do you mean in terms of the large company dominance of distribution channels and the market and mindshare? Do you mean like large companies’ capture of government policy and licensing, or why do you think it is that these startups have to please the big companies so much?

Taku: Large Japanese companies have tons of cash, right? If you look at their balance sheets, it’s just amazing, the amount of cash that they hold, and unfortunately, for startups, that is their first customer, and unless you build a very consumer-facing service such as ours, your business is going to be dictated by whatever the needs that these big clients want, and they’re very demanding, they want customization all the time.

Tim: Oh, God, yes.

Taku: The typical demand is can you white label your service for us? We’ve said no to these demands throughout the years, never gave in, which has enabled us to build a more scalable platform and approach to things, but I think especially in the B2B world, because you need that revenue for the big corporate client, they’re doing a lot of customization all the time which sort of eats away from resources.

Tim: Well, yeah, it’s easy to lose track of your own vision if you’re constantly customizing it and getting all the details for every client.

Taku: Right, and so yeah, it is a choice. I’m not saying it’s right or wrong, I’m just very gently pointing out that maybe if you have such a short-term view of things and you’re talking to the –

Tim: I definitely – I mean, everything you customize, you’re incurring a debt, a technical debt that you’re going to have to support that, and I’ve seen a couple of startups that that was undoubtedly the reason they eventually went out of business – they just couldn’t support that.

Taku: I think we know a few, right?

Tim: Yeah. But one of the things that I’ve been most excited about, one of the developments I’ve been most excited about over the last 10 years has been like, during the dotcom era, all the startups were basically selling to big companies; that was the only option but I think these days, we’re seeing more startups selling to other startups.

Taku: Startups in the SMB, so I tend to like personally the… What’s a good example? I guess Smart HR, I think they’re great. The core business, the clientele that they’ve been able to acquire, it’s like the SMBs, the startups and the smaller businesses out there which I’m sure there’s very few customization requests going on and white labeling and all that. I think they’re well positioned for a lot of scalability going forward. Those are the startups that I really admire, the ones that are able to sort of say no to the short-term stuff but have this big vision in mind.

Tim: Well, there’s an awful lot of SMBs in Japan.

Taku: Yeah, that’s a huge segment, right? I guess going back to your question, I wish and I hope the old Japanese economy, typically being the Japanese conglomerates, I hope they don’t dictate the direction of the startup community.

Tim: Yeah, I know they want to and I know the politicians and the large company vision of startups is just oh, we’ll get lots of innovation and new ideas, but no disruption of Japan.

Taku: I appreciate their interest, I think they’re great people, right? But corporations are weird creatures, right? And I say this because the Japanese corporate world has been very active in investing in startups either directly or as LPs, and we’ve run into situations because it’s sort of like that investor relation in the background, very strong demands of what we should do or what we should build for – I just don’t think it’s a healthy thing. We love the money, but please, alright, take a step back, let things unfold organically. Don’t be so demanding.

Tim: Well, hopefully, we’ll be seeing a lot more of that, and I think we are seeing startups, at least the fairly successful ones kind of assert their independence that way.

Taku: Yeah, yeah, that kind of backbone. Typically, these services that have been able to target the SMB or the individual as their main customer base, they tend to have more scalable possibilities, I think.

Tim: Well, hopefully, we’ll be seeing a lot more of that.

Taku: Yeah.

Tim: Well, listen, Taka, I want to thank you so much for sitting down with me.

Taku: No, thank you.

Tim: Even though we’re 10,000 miles apart but sitting down with me, and we’ll have like a real glass of wine next time.

Taku: Yeah, yeah, I hope to have that glass of wine.