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Relationship Companies vs. Product Companies

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This is a guest post by Tim Romero. Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor. The Japanese translation of this article is available here. There is a common misunderstanding among Japanese startups that is causing many of the to go out of business just as they should be hitting their rapid growth phase. Correcting this misunderstanding would do more to promote the success of Japanese startups than all of government startup programs and academic accelerators combined. the difference between a relationship based company and a product based company is important, often not obvious at first. All famous consumer brands are product companies, Facebook, Nike, Honda, Apple, Seiko, Google. Customers are attracted to them, because of the product they make. On average customers feel a greater loyalty to those companies than those companies do to their customers. Sure, all of these companies developed a brand that acts as a kind of halo, that lets them charge a premium price…

Tim Romero

This is a guest post by Tim Romero. Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor.

The Japanese translation of this article is available here.


Image credit: bakelyt / 123RF

There is a common misunderstanding among Japanese startups that is causing many of the to go out of business just as they should be hitting their rapid growth phase. Correcting this misunderstanding would do more to promote the success of Japanese startups than all of government startup programs and academic accelerators combined.

the difference between a relationship based company and a product based company is important, often not obvious at first. All famous consumer brands are product companies, Facebook, Nike, Honda, Apple, Seiko, Google. Customers are attracted to them, because of the product they make. On average customers feel a greater loyalty to those companies than those companies do to their customers.

Sure, all of these companies developed a brand that acts as a kind of halo, that lets them charge a premium price and sell a greater range of products than their competitors. But, in the end, it’s all about the products they make. Product based companies can scale globally. But, just because you make a product, doesn’t mean you’re a product based company.

These relationships were more important back then

Image credit: ponsulak / 123RF

In fact, most Japanese companies with products are not actually product based companies at all. They’re relationship companies. This is slowly starting to change, but the cultural importance of relationships has a long history here. When I started my first Japanese company back in 1998, the goal of almost every startup was to become part of a large company supply chain. Having that kind of relationship guaranteed a steady, if low margin, stream of business.

These relationships were more important back then, because although the keiretsu were starting to crumble under their own weight, most companies still preferred to business within their own corporate groups. And, small to medium enterprises had very little independent buying power. In fact, these captive, protected keiretsu micro-markets, is one of the big reasons Japan did not develop a globally competitive software market in the ‘80s and ‘90s.

At the time an independent Japanese company that would sell its products across multiple keiretsu groups, was a rare and powerful beast indeed. For the most part, the way to survive was to build what your client, very often your only client, to build what they told you to build.

Things have improved a lot in the last 20 years, but still a huge number of Japanese startups are really firms that have one major client and no hope of scaling. They have a relationship that guarantees a certain level of orders, but they have no product that can stand on its own in the marketplace.

Don’t get me wrong, although way too much importance is placed on relationships in Japan, it’s great to have those relationships. Knowing the right people can give you a huge head start in getting your first customers and in getting distribution. But, your product has to be more important than any single customer you have or things are going to break down eventually.

Relationship Companies vs. Product Companies

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Now, it can be hard to tell if a company is truly a product company or if it’s a relationship company in the early stages. And, nearly all companies with a product will insist that they are product companies. But, a few giveaways are:

  1. If you are still, or if you are planning on doing custom development work after you receive funding, then you’re almost certainly a relationship company.
  2. If your product requires extensive customization and you’re the only company doing that customization, than you’re probably a relationship company.
  3. If your product started out as a project you did for one customer and then you decided to turn it into a mass market product, then you are most likely a relationship company.
  4. If losing your two biggest clients would put you out of business, then you are certainly a relationship company.

There’s nothing intrinsically wrong with relationship companies of course. In fact, in the early stages, relationship companies often see traction sooner and grow faster than product companies. But, relationships don’t scale and growth will eventually be limited by the strength of the CEO’s industry connections. Of course, relationship companies can still make a lot of money. And, powerful, well connected CEOs can even take a relationship company public, but they can never scale to be a global player.

Actually, relationship companies are fine, if you have strong relationships and want to leverage those into a company, do that. More power to you. The real problem is that this relationship thinking is holding back Japan’s startup community.

The tendency to value relationships over products, is probably the single largest obstacle preventing Japan from really developing a pay it forward startup culture. I see it constantly. Far too many people view their connections and their network as something to be jealously guarded, as some kind of competitive advantage. And, people who think along these lines are unlikely to make introductions without trying to extract value from them.

Advice for Japanese startup founders

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Of course, there are plenty of Japanese who have, or at least try to, embrace the idea of open networks and paying it forward. But, we’re in the minority. At least, for now. But, we’re going to change that. So, advice number one for Japanese startup founders comes in two parts.

Part A, never pay for an introduction of any kind. Never agree to let an organization take a percentage of financing that might result from an introduction to a VC or from coaching you on how to present to them. Most of these people are trying to scam you anyway. Likewise, never give someone a percentage of a deal that might result from introducing you to a potential customer. Of course, affiliate programs and reseller programs are powerful tools. Use them when appropriate. But, as a startup founder, if someone ever tells you that they know a prospect that you should approach, but will only make that introduction if they get a percentage of the deal, politely walk away. You’re dealing with a gatekeeper or a parasite and their opinion is probably not highly valued by the person that they are promising to introduce you to.

Part B, let’s all start making a conscious effort to pay it forward. Promise yourself that at least once a week, no matter what, you’ll introduce two people who would benefit from knowing each other. Or, recommend another startups product to a potential customer. Now, I’ll warn you in advance, if you do this right, it will feel unfair. You’ll feel like you’re making five times as many introductions and ten times as many recommendations as you receive. But, that’s fine. It means you’re doing it right and you’ll greatly benefit from this in the long run. I promise.

And, best of all, if all of us commit to this, open networks will win and we can put the gatekeepers and the parasites out of business.

Now, I sometimes get accused of being a cheerleader for Japan and it’s true. I’m quite optimistic about the future of Japan in general, and Japanese startups in particular. I suppose part of the reason it looks that way is because so many people, including the Japanese themselves, are often hesitant to point out all the things that are going right in Japan. People also tend to ask me about top down ways of improving things for startups in Japan, but top down things are going pretty well. The trends are all moving the right direction and there’s only so much you can do top down anyway.

The real power for change in startups is and will always be bottom up.

Creating Japan’s Open Internet – Kaneto Kanemoto

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The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero. Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor. Kaneto Kanemoto founded OKWave to address a problem that was unique to the Japanese internet in the mid-1990’s. Most of the country felt the situation was inevitable, even natural, but Kanemoto-san knew it had to change. Although Japanese people are exceptionally polite in day-to-day interaction, due to the anonymous nature of the Internet, people behaved very differently online. In the early days, the mood was one of bullying, hostility and exclusion. Kanemoto-san founded OKWave to address these problems on the Internet in particular and in society in general, and he has succeeded remarkably at both. The Internet is a far more helpful and much more welcoming place thanks to him and OKWave. Tim: For those who don’t know, can you explain what…

tim-romero
Tim Romero

The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero.

Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor.


kaneto-kanemoto-startup-founder-okwave
OKWave founder Kaneto Kanemoto

Kaneto Kanemoto founded OKWave to address a problem that was unique to the Japanese internet in the mid-1990’s. Most of the country felt the situation was inevitable, even natural, but Kanemoto-san knew it had to change.

Although Japanese people are exceptionally polite in day-to-day interaction, due to the anonymous nature of the Internet, people behaved very differently online. In the early days, the mood was one of bullying, hostility and exclusion.

Kanemoto-san founded OKWave to address these problems on the Internet in particular and in society in general, and he has succeeded remarkably at both. The Internet is a far more helpful and much more welcoming place thanks to him and OKWave.


Tim: For those who don’t know, can you explain what OKWave does?

OKWave is Japan’s largest Q&A community. We have over 40 million active users who come to ask and answer questions about work and life, and even about love.

Tim: Really, people talk about their love life?

Sure. People ask “I’m in love with my boss. What should I do?” or “I’m having trouble getting pregnant, what can I do?” When we first started, we had a lot of IT-based questions, but as more and more non-technical people started using the Internet, there were more and more questions about everyday life.

Tim: OKWave is doing very well today, and you went from founding to IPO in only six years, but most people don’t realize what a hard time you had building the company.

I think my company built me as much as I built my company. I’m Japanese, but I was born in Japan with Korean nationality. No one knew or said anything about it until my parents changed my nationality in childhood. After that happened, my classmates leaned that I was not a natural-born Japanese, and I have a very hard time. I was bullied badly, even by kids that I thought were my good friends.

Tim: It must be hard for a child to understand what’s going in a situation like that.

Yes, I was 10-years-old then and I could not really image what prejudice was until I experienced it. My parents wanted the best for me, but no one knew about my nationality until after I become Japanese.

Tim: Many people say the being an outsider helps you think differently and can be an advantage as an entrepreneur. Was that the case?

I don’t think so. In my case I think it just made it hard to trust other people. I went to an Arts college and got a job as a designer at a good company, but I wasn’t happy there. I felt like they did not really appreciate or understand my design, so I left to find work in Tokyo. At the time I really wanted to work at Sofmap.

Tim: How did that work out?

Not well. My wife was very against the move and even threatened to divorce me. I left for Tokyo by myself, and due to my own mistakes in judgement, I ended up not getting the job, and I was actually living in a park for six months?

Tim: You were homeless for six months?

Yes. I was until I met a Chinese women who had moved to Japan and was trying to find work. I told her my story, but she didn’t feel sorry for me. In fact, she scolded me for being so weak. For not appreciating how easy I had things. For using little challenges and other people’s opinions as excuses for not trying. I was shocked at first, but I realized she was right. The next day I made some phone calls and got a very, very low-paying freelance job as a designer, but that was the start.

okwave-global-edition_screenshot
Image credit: OKWave

Tim: The start? How did that lead to OkWave?

I was soon designing web pages, but I didn’t really know how to do the job, so I went online to ask people basic questions. It’s seems natural today, but in the mid-1990s, people were upset. People told me to go away and said I had no right to waste their time with such basic questions.

Tim: That’s one thing that amazes me. Japanese people are very polite, but when they are anonymous on the Internet they can be pretty horrible.

That’s true, and it used to be worse. I decided then that I wanted to make a site where anyone could ask questions safely. At that time, no one thought it would work. Venture capitalists and private investors told me that there was no incentive for anyone to answer questions for free on the internet.

Tim: So you decided to use your own money?

Sort of. I went back to visit my wife who had stayed behind in Aichi for the past two years. I wanted to apologize and tell her all the details of my life in Tokyo, and maybe start over together. I told her about my plan. She thought about it, and gave me the money she had been saving those two years. It was enough to launch OKWave back in 2000.

Tim: Wow! That’s a lot of pressure. It’s one thing to lose investor’s money, but your wife’s savings?

Yes. [Laughs] Failure was not an option. Fortunately, the site grew quickly after we launched. People were attracted to a place where members were friendly and they could ask questions freely. After investors saw the model working, they understood it and Rakuten invested. Growth continued steadily and we were able to IPO. From outside it might look like we were able to IPO very quickly, but it was actually a very long road to get there.


It’s hard to believe that back in 1997 Japanese VCs could not even imagine the internet becoming an open and friendly place where people are willing to take the time to answer questions simply because they’ve been asked.

Most assumed the Internet would evolve to mirror Japanese business culture at that time, a collection of tightly-knit alliances and closed communities. The open internet is an obvious reality to us today, but Kanemoto-san deserves credit for not only seeing it before others did, but committing his life to making it happen.

The happiest company in the world – Yuka Fujii

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The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero. Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor. Yuka Fujii considers Famarry to be the happiest company in the world, and looking at who her customers are, I think she just might be right. But behind this happy company is an aggressive plan to disrupt a cartel of photo studios that have dominated the Japanese market for decades. Changes in technology and demographics have opened up a small crack in this wall, and Famarry plans on using it to gain a foothold and then to change the entire industry for the better. Tim: Can you explain a what Famarry does? It’s basically crowd-sourcing of photographers, and we’ve started with pre-wedding photography. About 70,000 couples get married in Japan every year, and about half of them do pre-wedding photography. That’s the…

tim-romero
Tim Romero

The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero.

Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor.


yuka-fujii-statup-founder-famarry
Famarry founder Yuka Fujii

Yuka Fujii considers Famarry to be the happiest company in the world, and looking at who her customers are, I think she just might be right.

But behind this happy company is an aggressive plan to disrupt a cartel of photo studios that have dominated the Japanese market for decades. Changes in technology and demographics have opened up a small crack in this wall, and Famarry plans on using it to gain a foothold and then to change the entire industry for the better.

Tim: Can you explain a what Famarry does?

It’s basically crowd-sourcing of photographers, and we’ve started with pre-wedding photography. About 70,000 couples get married in Japan every year, and about half of them do pre-wedding photography. That’s the initial market we are focusing on.

Tim:  So they go to a romantic spot with a beautiful back drop and take pictures?

Exactly. The wedding photographer is usually arranged by the venue, so the couple has no choice, but people find pre-wedding photographers by word of mouth or by searching online.

Tim: How have you marketed to this audience?

We’ve had great success using Instagram. It’s nearly a perfect fit for us since it’s all about sharing photos. We run promotions, of course, but most of our customers want to share their own photos, so it’s a more modern version of word-of-mouth. It makes it easy for people to hear about us and to find a photographer they really like.

Tim: On thing that worries me about this business is that you will have very few repeat customers. Since most people only get married once, you would always need to be recruiting new customers.

We plan to build on that. A wedding is the start of a family, so naturally our customers will soon want baby pictures and then family pictures. In the future we’ll be offering these other kinds of photography services so we can grow with our clients.

Tim:  You mentioned before that the photography business is changing in Japan?

The industry is becoming more accessible. Quality camera equipment used to be very expensive, but that’s not the case any more. There are many more skilled photographers with high-quality equipment than their used to be. Also, until recently, the studios controlled just about everything. They had a set of standard backdrops and poses and the customer mostly did what they were told to do. People are now starting to see photography differently. More and more people want something that suits their own character and tastes.

Tim: So there is more independence in the industry now?

There will be. It’s much easier for a photographer to be independent these days, and we try to match those photographers up with clients who suit their style. In the future, it will be very hard for the photography studios to stay in business using their current business model. Independent photographers can deliver higher quality at a lower cost and with a style customized to the customers’ personal tastes.

famarry-porfolio-photos
Image credit: Famarry

Tim: What made you target the wedding market? With Japan’s aging population, it does not seem particularly attractive.

The overall market may be shrinking from year to year in Japan, but it’s still a huge market. Not much has changed recently, so it’s a market that’s ready for disruption. As you said, the market is not growing, and many Japanese companies are trying to grow business overseas rather than innovate at home, which makes it easer for us.

Tim: Do you think being a women entrepreneur has made things easier or harder for you?

A bit of both, I suppose. Being different makes it easier to get press attention, but it can make it harder to do certain deals. With a startup you have to just deal with whatever advantages or disadvantages you have. I don’t think too much about it. In our case, however, most of our customers are women, so perhaps I can relate to them better.

Tim: I thought they were couples.

They are, but the woman generally take control of the wedding, and they are the ones who make the decisions about things like pre-wedding photography.

Tim: That makes sense. And even when it comes time for baby pictures or family portraits, it will be the wives driving the process.

Exactly.

Tim: What surprised you most about running your own business?

Both how hard it was and how fun it was. I knew it was going to be hard, but I guess you don’t really understand something until you go through it. I’m not complaining. It was just harder than I expected it would be. But I was also surprised ho much I enjoy interacting with both our staff and our customers. It’s a very happy business. To hear the voices of our customers every day and how happy they are with our service is a very encouraging thing.

Tim: I had not thought of that, but actually you are working with people at some of the happiest times of their lives. I can see how interacting with these people every day would be wonderful, and put you and your staff in a good mood as well.

Yes. that’s true. It’s also a pleasure working with the photographers. They are artists who are happy to be chosen to work with couples who like their style. Everyone is really nice, and I really want to help them. I think that we are doing a very good thing here.


I love the fact that Fujii-san considers Famarry to be the happiest business in the world, and she just might right about that.

Famarry, however, also represents a text book example of a beneficial disruptive businesses. The fundamental structure of Famarry results in their costs being much lower and their flexibility being much higher than traditional photography studios. The studios will be forced to either change the way to do business or go out of business.

Hopefully, Famarry will remain a happy business as they continue to grow.

The best podcasts about Japan in 2016

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The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero. Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor. There is a bit of a podcast renaissance going on in Japan. The quality varies, of course, so I put together this list of the very best podcasts being made about Japan today. All of the podcasts listed below publish regularly, have solid production values, are genuinely interesting, and have something worthwhile to say about living and doing business in Japan. Please give them a listen, and be sure to let me know if there are any high-quality Japan-focused podcasts that you think should be included. Japanese Lifestyle Podcasts Just Japan Kevin O’Shea podcasts from Kobe, and talks about anything in Japan he finds interesting, which turns out to be a very broad range of topics. The weekly show that includes guests…

tim-romero
Tim Romero

The content of this article first appeared on Disrupting Japan. It has been reproduced by The Bridge with the approval of Disrupting Japan and the article’s author Tim Romero.

Tim is a Tokyo-based entrepreneur, podcaster and author who has started four companies and led Japan market entry for others since coming to Japan more than 20 years ago. Tim hosts the Disrupting Japan podcast and is deeply involved in Japan’s startup community as an investor, founder and mentor.


Speak into the Mic. CC BY 2.0 via Flickr by Alan Levine

There is a bit of a podcast renaissance going on in Japan. The quality varies, of course, so I put together this list of the very best podcasts being made about Japan today. All of the podcasts listed below publish regularly, have solid production values, are genuinely interesting, and have something worthwhile to say about living and doing business in Japan.

Please give them a listen, and be sure to let me know if there are any high-quality Japan-focused podcasts that you think should be included.

Japanese Lifestyle Podcasts

Kevin O’Shea podcasts from Kobe, and talks about anything in Japan he finds interesting, which turns out to be a very broad range of topics. The weekly show that includes guests from all over the country as well as Kevin’s own musings about what life is like for a foreigner living in Japan.

Everyone loves Japanese food, but if you really want to understand it you should listen to Japan Eats. Each week, New York-based food-writer Akiko Katayama and her guests dive in depth into a specific Japanese dish, drink or aspect of Japanese food culture.

A wonderful slice-of-Japan podcast. Each week, Anthony Joh talks with people ranging from English teachers to crime-reporters to professional wrestlers to capture the incredible diversity that is Tokyo. Sadly, Anthony has put this project aside, but the back-episodes are well worth listening to.

Japanese Business & News Podcasts

An fantastic source of information on startups, venture capital, and innovation in Japan. Each week, Tim Romero sits down over beers with founders and CEOs to talk about fundraising, selling to Japanese enterprises, and the social pressures of starting your own company in Japan.

If you are a Japanese policy wonk, you need to be listening to Tokyo on Fire. In short, weekly videos, Tim Langley and Michael Cucek tear apart a current event and explain what they think the Japanese press is overlooking.

Even though I don’t listen to this much any more, I feel obliged to include it for the sake of completeness. It’s the news. In English. Read to you by NHK. It is always exactly what you expect it to be.

Podcasts for Learning Japanese

Despite the title, this is not really a news podcast. Each weak, Michael & Mami read a few current event stories in both Japanese and English and then chat about them while bouncing back and fourth between the two languages. It’s perfect for making sure you can talk current events with your Japanese colleagues.

You have to buy a separate subscription if you want access to the full library of Japanese lessons and learning tools, but their free podcast and video lessons are well worth your time. A few times a week, Japanese Pod puts out lessons ranging from very beginner to intermediate levels.

Japanese History Podcasts

If you are a Japanese history buff, you probably already listen to this podcast. Even if you are not, however, you might want to give it a listen. History scholar Isaac Meyer tells stories of significant Japanese historical events and lets each tale unfold over several months.

This is the official podcast of the Samurai Archives History Forum. The emphasis here is less on historical storytelling and more on detailed analysis of specific events in Japanese history. The hosts also discuss how historical events still influence Japanese society today.