The Truth About Japan: Can Japan's New Startup Spirit Revitalize The Japanese Economy?

By James Santagata
Principal Consultant, SiliconEdge

Ask the average person to think of Japan and then to share with you the first thing that pops into their mind. I can guarantee you that they'll almost certainly read back from one or more of these several powerful and well-established myths and memes: 

1. High-Tech Japan:
A High-tech and Cyberpunk culture and society comprised of very polite albeit non-thinking and undifferentiated robots and drones all clothed similarly in their business or school uniforms and all marching off to the office or to school. Visitors find themselves amazed by the high-tech, 20-function paperless Toto toilets, the jaw-dropping variety of merchandise dispensed by ubiquitous vending machines, the automated, elevator-driven parking structures, auto-opening doors, sensor-controlled escalators and so on.

2. Old Japan:
The nostalgic view of Japan found in Tom Cruise's "The Last Samurai" and other movies before which focuses on the picturesque Japan. The culture and the style.  The polite, disciplined demeanor of the people. The attention to detail and quality. The lacquer ware artisan, the sword craftsman. Mount Fuji (富士山), Kyoto, Nara and Kamakura. Geisha. Sumo. Onsens. Samurai. Ninja.  Swords. Shamisen. Kimono.

3. Modern Japan / Culture Japan:
The exporting of top talent in baseball as well as having its players picked up by European soccer clubs. The deep stable of world-class swimmers, gymnasts, wrestlers and figure skaters. Beyond this, the delicious, healthy cuisine of Japan: sushi, sashima and various other staple dishes of Japan. Karaoke, manga, anime, video games. Modern Japan is about talent and culture.

4. WWII Japan:
Banzai human waves attacks, Kamikaze pilots, rapacious invasions of civilian cities along with soldiers and civilians who would rather toss themselves off the cliffs at Saipan than surrender.

5. Basket-case Japan:
20 years of economic malaise, a deflating economy, aging population, declining birthrate, a broken self-image and the inability to create or innovate as China continues to eclipse Japan in terms of GDP all while the world waits for Japan to sink into economic obscurity and irrelevance.

I've discussed and hopefully skewered a few of these myths and memes in detail, in particular:
1. Japan May Be Able To Compete Globally But Not Yet
2. Can Japan Compete? You Betcha And Here's Why
3. Japan's Problem: Severe Lack Of Leadership Not A Lack Of Innovation Or Creativity

We've also discussed these topics in detail (articles and podcasts) over at FirstPoint Japan. The FirstPoint Japan Expert Interview Series may be of interest to you.

The New York Times' Martin Fackler (see below) wrote a nice piece on some of the startup activity happening in Japan, however, I think it still misses some of the key points of where Japan has been, where it is, and what it needs.

In a nutshell, over the last 30 years the Japanese economy has been held captive by the power wielded by ossified electronic giants such as Panasonic and others, as well as the very real monetary, career and social risk that entrepreneurs face in Japan which is only compounded by the huge amount of regulatory capture found in Japan.

Surely Japan has had world class entrepreneurs before, such as Akio Morita who founded Sony, Soichiro Honda who founded Honda,Konosuke Matsushita who founded Panasonic (formerly known as Matsushita) and Kiichiro Toyoda who took his families Toyoda Loom Works and transformed them into an automotive powerhouse called Toyota.

The point remains, though, that if Morita were still alive today, he wouldn't recognize Sony as it stands today, and worse, the suits currently running Sony would never, ever hire a maverick entrepreneur and genius like Morita.

Akio Morita was Japan's Steve Jobs, except that he was Steve Jobs, before Steve Jobs even got out of his diapers.

How aggressive and prolific was Akio Morita? 

Well, in terms of fights. he didn't not shy away, not only co-penning the somewhat acerbic book "The Japan That Can Say No: Why Japan Will Be First Among Equals" (and see Amazon) but also refusing to bow to arm-twisting by the US content industry that wanted to ban his Betamax recorder.

Morita fought this case all the way to the US Supreme Court (Sony Corp. of America v. Universal City Studios, Inc) and won!, making this not only a victory for Morita and Sony but for all other electronic manufacturers after them and especially making this a victory for us lowly consumers.

If you look closely at Japan, you'll find that it is usually during absolute or relative social or economic chaos that such dynamic entrepreneurs have risen. Mind you, this is not because "necessity is the mother of all invention" but because the chaos at had had broken or cracked the social conformity or regulatory capture just enough for a few green shoots to sneak through. 

These green shoots, these entrepreneurs and creators and makers, the were always there. They always had the ability to perform. But they were choked out. By a combination of social conformity and most importantly rent-seeking incumbents.

In recent years, perhaps over the last three or four years, Japanese entrepreneurs and startups as well as entrepreneurs and startups in general are getting media attention (thanks in part to the visibility of Steve Jobs / Apple / iPhone and Mark Zuckerberg / Facebook among others). And with that, it has slowly become "okay" to be an entrepreneur again while at the same time the immediate financial and social risks are greatly reduced and even longer term social and career risks are lower.

In other words, currently, huge momentum is building in Japan, it's under surface and it's not just Japanese entrepreneurs but foreigners as well, many of whom have relocated in Japan from tech hot spots in the US including Silicon Valley, New York and everywhere in between.

These startups are critical to put further pressure on the ossified Japanese corporations to either compete and streamline their business OR die a quick, brutal death and then be composted, releasing and recycling their talent and know-how back into the pool of Japanese labor, intellectual property and financial pool.

It's exactly that intra-industry competitiveness and dynamism that is a hallmark of Silicon Valley's constant success in the world technology markets (and post-tech as well) and conversely it was exactly that lack of intra-industry competitiveness and dynamism that was the death knell for Detroit's once vaunted auto industry.

Japanese Start-Ups Channel Samurai Spirit

By Martin Fackler
Published: December 25, 2013

TOKYO — The 20-somethings in jeans sipping espresso and tapping on laptops at this Tokyo business incubator would look more at home in Silicon Valley than in Japan, where for years the surest signs of success were the gray suits of its corporate salarymen. But for those hoping the nation’s latest economic plan will drag Japan from its long malaise, the young men and women here at Samurai Startup Island represent a crucial component: a revival of entrepreneurship.

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The signs of that comeback are still new, and tentative enough that the statistics on start-ups and initial public offerings have not caught up. But analysts and investors report that hundreds of new Internet and technology-related companies have sprung up in the last two to three years, creating an ecosystem of incubators like Samurai Startup Island and so-called accelerator new venture investment funds, which invest in early-state start-ups in hopes of cashing in.

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For years, sagging entrepreneurial spirit has been cited as a major reason for Japan’s inability to save itself from a devastating deflationary spiral. The nation that produced Sony, Toyota and Honda has created few successors.

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When he started investing in new companies six years ago, Mr. Sakakibara was lucky if two would-be entrepreneurs approached him in a week to seek financing. Now he gets two such queries a day, he said.

He and others closely watching start-ups attribute the increase in interest to cultural shifts that have slowly chipped away at Japan’s famously insular culture.

Having grown up immersed in an online world that stretches beyond national borders, young Japanese appear more willing to draw inspiration from foreign role models like Steve Jobs, the founder of Apple. And having seen Sony cede market share to South Korea’s Samsung, many no longer share their salarymen fathers’ belief in the permanence of established corporations or lifetime jobs.

“In a world where everything is risky, it’s better to be your own boss, in charge of your own destiny,” said Yoshinori Fukushima, 25, whose year-old Internet company has grown to 14 employees.

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Some warn that Japan has a way to go to become a hotbed of break-the-boundaries venture behavior. Noriyuki Takahashi, who specializes in entrepreneurship at Tokyo’s Musashi University, pointed to comparative global surveys that place Japan at the bottom among leading Western and Asian economies in social acceptance of entrepreneurs.

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[more] Japan's Emerging Startup Spirit >>