Where to find the hottest startup companies in Japan

I came over to Japan to answer two questions. One: what’s changing? Two: what’s the best way to profit from it?

I came over to Japan to answer two questions. One: what’s changing? Two: what’s the best way to profit from it?

There’s no better man to help me answer those questions than Tim Romero. Tim is an American who first arrived in Tokyo 30 years ago and has been living there permanently for 20.

In that time he’s had a short-lived career as a rock musician and founded three companies. He now teaches innovation at New York University’s Tokyo campus, consults with large Japanese companies, and hosts the excellent Disrupting Japan podcast.

I met with Tim this week to talk about the changing startup scene. In the following extract, he explains what Japanese companies do best.

SK: What do Japanese startups do better than other countries?

Tim: Eldercare. Europe and America are facing the same kind of demographic trends, but Japan’s going to get there like a decade earlier. So there’s a great opportunity to build expertise and test new markets. So I think there’s a lot of potential there.

SK: Care robots for example, are something you read about and which look interesting. But is there really a market there?

TR: Not yet, because I haven’t seen a whole lot of companies built around it. But it’s one I continue to be optimistic about.

Another industry I’d mention is the internet of things. Which is a very broad category. But there are so many clever, creative internet of things companies in Japan.  I think Japan is lagging significantly on the software side of the internet of things, and that’s hurting them right now. But they’re catching up.

SK: Is that because of the embedded skills in hardware manufacturing you find here?

TR: Yeah. If you go to San Francisco, most internet of things startups are like three really smart guys in their 20s. In Japan, a lot of internet of things startups are two really smart guys in their 20s and one really smart guy in his 50s who’s spent his whole career at say, Nissan, and who understands outsourcing and quality assurance. And that’s a really good combination. So I’m optimistic about that as well. And they’re catching up on the software.

In terms of, if you will, more cultural skills, a thing I think is just wonderful about Japan is there is an attention to detail and a precision and a love of doing something in the best way possible just for the sake of doing it in the best way possible, and I haven’t seen that anywhere else in the world.

SK: That’s almost an unfashionable idea in American business, where the ethic is to move fast and fail quickly. Does this famous attention to detail count against Japanese companies?

TR: It does. The whole idea of a minimum viable product is really tough to get into people’s heads in Japan. The bar for what is considered a viable product is much higher here. Because customers won’t put up with it. Customers are the ones who determine what is minimally viable. So it makes cycle times longer.

But, I’m a big believer that there are no inherent advantages or disadvantages, just differences. And this attention to detail is one of those. It definitely has a downside — it makes cycle times longer, as I said, and it’s much harder for Japanese teams to pivot away from a bad idea. But I think [this attention to detail] is unique.

The example I’d give is this: my friend went to his wife’s hometown out in western Japan, and there’s this little soba noodle shop there. It’s been there for almost a hundred years. It’s run by the grandson or great grandson of the original owner. And he doesn’t open every day. He makes the soba every day. But sometimes it just doesn’t quite work out. So he puts a sign out which says “Sorry, the soba’s not quite good enough today. Please come back tomorrow.”

In the west that would be mind-boggling. In Japan it’s not exactly common — but it’s not shocking.

SK: And do you think that mindset is helpful or harmful to software development?

TR: Overall, I think it’s harmful to software because the cost of being wrong is so small. The ability to go out and get feedback quickly is very inexpensive. Whereas things like hardware — or even food — there’s more value in achieving that perfection before you bring it to market. Even in software there are pluses and minuses, but on average it’s a liability in software. But on average, I’d say it’s an asset with hardware.

[Editor’s note] Tim’s point about Japanese attention to detail certainly rings true when you’re over here. It’s full of 80 and 140 year old shops which have been selling the same, perfectly-crafted product for generations. They build things properly over here.

I’m looking closely at a couple of small cap hardware makers. Penny Share Letter readers can read more in the next issue. If you’d like to read about them for yourself, click here to sign up.

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