Disrupting Japan

Japan market entry is hard. Consumer tastes are different, business culture is different, and market needs can be radically different from those anywhere else.  Entering the Japanese market is a challenge for even the strongest and best positioned brands. Today we sit down with Ernie Higa, the man behind two incredibly successful market entries, Dominoes Pizza and Wendys, both of which looked like extreme long-shots at the time. We talk about when to localize and when to stay true to the brand, the importance of repositioning, and how to find startup opportunities in Japan today. It's a great conversation, and I think you'll enjoy it. Show Notes How to determine the kind of startup you can create How to sell to Japanese enterprises even when you are not fluent The importance of focusing on difficult things How Ernie knew that pizza would sell in Japan when all evidence said otherwise How Japanese and US consumers measure quality differently When to localize in Japan and when to stay true to the brand Rethinking pricing and positioning for the Japanese market Why Wendy's could re-enter the Japanese market when others failed Japan's changing approach to shareholder value How Japanese attitudes abotu failure are changing in Japan Links from the Founder Everything you ever wanted to know about Higa Industries Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Perhaps the most common question my non-Japanese listeners ask me is, what kind of a startup should I start in Japan? You know, I want to be helpful, but the answer to that question depends not just on market opportunities, but the skills and the temperament of the specific would be founder in question. The right question to ask is really what is the best startup for me personally to start right now? And no one can really know that except for you. But there are some things that remain true and some strategies that remain effective for all people and across decades. Well, today we sit down with Ernie Higa, a man who's kind of a legend among those of us who really study Japan market entry. Ernie brought both Domino's Pizza and Wendy's to Japan. And although both of those ventures seem like extreme long shots at the time, Ernie made them both work and prosper. Ernie and I talk about how to identify entrepreneurial opportunities, how to know what needs to be localized for the Japanese market and what needs to remain true to the brand and what so many people misunderstand about brands and branding in Japan. But, you know, Ernie tells that story much better than I can. So let's get right to the interview. Interview Tim: So, we're sitting here with Ernie Higa, the representative director of First Kitchen and Wendy's Japan, but best known as the man who first brought Domino's Pizza to Japan. So thanks for sitting down with us. Ernie: Well, thank you, Tim, for having me. Tim: I really appreciate this. I wanted to get you on the show for a very long time. So, you founded Domino's back in 1985, but let's step back a bit before then. Many young founders today are looking to Japan, trying to figure out where they fit in, what value they can add. So in your case, why Japan? Ernie: Well, back in those days, Japan was becoming the second largest economy in the world and was really growing fast. So, there was opportunity here. Having said that, as an entrepreneur, the last thing you want to do is do something that large companies were already doing. So, the idea was to pick a niche business where I felt that I had a more of a competitive edge and leverage my understanding of both Japan and the US. And learning about Japan dedicated myself to learn the business here, learn the language, learn the culture, but to find an area where the large companies, say for example, the Mitsubishis of the world, Mitsubishis of the world were not doing, or they were not so adept. Just to give an example the first business I got involved in was in the lumber business in the 1970s, a little bit different than today. There was the US Japan trade wars. The US companies were trying to figure out how to break into the Japanese marketplace. And there's also some geopolitical pressure as well too. And one of the things was in the lumber business the normally large trading firms would import logs from the United States and have it cut in Japanese sawmills for the Japanese housing size and specifications. But the US said, well, we want the value done in US sawmills. So, you might ban the export of logs to Japan. And of course that was great, except that in the US houses are built on what they call two by four construction. And so there are different sizes, different quality requirements, and the Japanese housings sizes were built upon what they call post and beam. And even further, there was a huge prefabricate home building market that was using lumber, and they had even more difficult sizes, specifications, and so on. And so if the US sawmills could cut those sides, fine, but none of them could. And so this is an opportunity for someone like myself to say, oh, maybe I'll take on that challenge and see if I can't find a US sawmill or a Canadian sawmill at that time to cut for the Japanese marketplace. And that's really where I started. Tim: How did you get that insight? Were you involved in the lumber industry before then, or no? Ernie: No. When you're an entrepreneur opportunities just come by chance and you just have to be looking for that and then again, see where you can fit in. But by chance, I happened to meet a director of a company called Misawa Homes, and in those days, the largest end user of lumber in Japan. And so when this potential of the ban of export of logs came about from the US side, Misawa Holmes said, we really need to have our size and our specification cut in the US otherwise it'll be out of business. Tim: There's an opening. Yeah. Ernie: So, that was an opening and I got to know the director and said, we have this issue. And I said, well, maybe I can resolve that. Who knows? I had no background in the lumber business, but I thought it was an opportunity. Tim: Well, I agree there's a lot of the finding the opportunity is just kind of keeping your antenna up and looking for them. But when you first came to Japan, did you speak Japanese? Did you have a solid cultural understanding of Japanese business? Ernie: Well, so that's an interesting question. I guess since I'm of Japanese descent, there was maybe in my upbringing some sense about Japan, but I really had to start almost from ground zero when I came here. So, and I said, okay, if Japan's a difficult mark to get involved, then this is what I should try to do. But to do that, obviously you do have to learn the language. You do have to learn the culture and the ways of doing business here, which are different than the US. I will dedicate myself, but I'll give myself five years and really work at it and see if I'm able to do that. And then the opportunity with the lumber business came along and I said, okay, this is what I'll try. Tim: What's your kind of best advice to so many foreign founders and aspiring founders here in Japan today? A lot of people come here, they work really hard, they're studying every day, but it takes a while. It's not like you can learn the language in a year and do business. So, like on a practical level, how did you compensate for that early on? Ernie: Well, you're asking very deep questions, but since I was an entrepreneur, if I didn't learn the language and the culture and the way of doing business very quickly, I would go bankrupt. I had a lot of incentive to learn very quickly. So, it took a while. But when you're an entrepreneur, timing and luck and circumstances does play a role. Tim: But I also think, like even with a lack of strong language ability, it sounds like if you're solving a big enough problem, the market will work around that. The bigger edge is not the fluency. It is solving a meaningful problem that they can't solve on their own. Ernie: Yes. So that's where, for example, if you're a large firm, say, we don't need to do that. But if you're trying to develop as an entrepreneur, a new business, then you have to say, okay, there's an opportunity, but there's a lot of issues. Can I resolve it or not? And that was my first entrepreneurial venture where I had to leverage everything I knew, but in a niche area. But it had a big opportunity, but that no one else wanted to do. Unfortunately, the most difficult things is where there's potential for an entrepreneur. Tim: I think that's true. I mean, you have to be doing something that is difficult and or that nobody else wants to do. Otherwise, better funded companies would already be doing it. Ernie: They'd be doing it. Right. And so going back to your initial question to do this business, I had to learn not only Japanese, but we started to sell all over Japan and they have different dialects. And so I had to learn various different Japanese dialects to sell this lumber business. I went the whole nine yards in terms of really trying to get involved in the language and the culture and… Tim: And super traditional business as well. Ernie: Very traditional. And so the interesting thing, because I had to go out to the countryside, whatever, and the fact that I was a Japanese was actually kind of a novelty. And so it ended up being an advantage working with these guys in lumber business who once we got to know each other, very fun for them. Tim: So, identifying a gap in the market, a painful problem, figuring out how to solve it, that makes a lot of sense. But pizza, because how does pizza fit into this? Because back in the mid-eighties, this was not a problem that needed solving Japanese people just didn't need a lot of pizza.

Japan has one of the longest lived and healthiest populations in the world, and let Japanese startups are playing a relatively small role in the recent longevity-tech boom. The longevity market includes everything from health-tech wearables, to foods and supplements, to lifestyle coaching, to invasive medical procedures. The offerings themselves range from the incredibly useful and helpful to the wasteful and the outright dangerous. To make sense of all this, today we talk with Bilal Kharouni the CEO of Ekei Labs, who explains his startup's pivots through multiple sectors of the budding longevity market. It's a great conversation, and I think you'll enjoy it. Show Notes What exactly is “biological age” Where health tracking apps are useful and where they are dangerous How to market supplements in Japan's tightly regulated  market The business and medical challenges in direct-to-consumer health tech Pivoting from supplements to consumer test kits to research The path for commercializing  today's university medical research Business models that work for startups in medical research Advice to founders coming to Japan to start a startup How to sell in Japan with limited Japanese abilities How foreign founders can recruit Japanese advisors for their startup How Japan’s new via restrictions will affect foreign entrepreneurs in Japan Links from the Founder Everything you ever wanted to know about Ekei Labs Connect with Bilal The Aging Consortium is work on the clinical translation of the biomarkers of aging Life Biosciences is developing epigenetic reprogramming (gene therapy) protocols Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Japan is one of the longest lived populations in the world, and as you get older, well, you start thinking more and more about getting older. Of course, getting older is much better than the alternative, but we all want to slow it down a bit and do it in a healthy way. Now those of you who know me won't be surprised to learn that once I got interested in this topic, I got a little obsessive. I have a smart scale and a smart watch and a smart ring all confidently telling me slightly conflicting things about the state of my health. And anti-aging startups are a mixed bag at best, ranging from difficult, boring, but very effective medical advice about diet and exercise to fund cutting edge wearables and trendy supplements and treatments that are a complete waste of money and everything in between. Well, today we sit down with Bilal Kharouni, the CEO of Ekei Labs, who's going to help us make sense of all this. Now, the Ekei Lab's journey and their pivots while trying to find product market fit in the anti-aging market is really a microcosm of the whole wellness industry from supplements to consumer facing tech to medical research to well, I’ll let Bilal explain where it all ends. Now, interestingly, Bilal and I had this conversation in Okinawa, home of Japan's longest lived population. And we talk about finding product market fit in health tech, how to sell to Japanese enterprises when your Japanese ability is limited, and how Japan's new visa restrictions are going to impact startups here. But, you know, Bilal tells that story much better than I can. So, let's get right to the interview. Interview Tim: I'm sitting here with Bilal Kharouni, the founder and CEO of Ekei Labs, who's selling direct to consumer longevity testing and support services. So thanks for sitting down with us. Bilal: Yeah, thanks for having me. Tim: Now you're based in Tokyo, but we're sitting here in Okinawa today. You've recently joined the OIST incubator, so tell me about that. Bilal: Yes, we work on aging and longevity. So for us, there's not a better place than the blue zone of Okinawa to really sit our lab and working on aging. Actually, we pivoted quite a lot from direct to consumer longevity tests. So we really have a platform that is more intended for joint research. We went much further in terms of research, so having both the lab and the talent and also the perfect location too. Tim: Well, I mean Okinawa famously as one of the longest lived populations in the world. Is that coincidence or does that inform your research in some ways? Bilal: So, it's pretty consciously I will say, the reason why Okinawa and people live the longest are part due to diet or social activities being surrounded by their loved ones, which is great. But what we're investigating is mostly therapeutics to increase healthy lifespan. So, it's a deep tech zone I would say. However, for people who have an interest in longevity and living longer and who wants to work on these topics, it's a very attractive location and it's an attractive location for hiring some of the best people. We had the chance having members quitting the job for Tokyo to join us in Okinawa to work with us. Tim: Well, I can certainly see the appeal of coming to work here. So, let's talk about biological age. Because this is something that fascinates me. But what exactly is it, like my smart scale at home tells me about biological age. I think this wearable also will give me a biological age, but what exactly is it? Bilal: So, it's a very interesting question, and that can be quite confusing for many people because as you're mentioning, you have so many different biological age for one chronological age. So, it's really looking at the spectrum. So that can be, for example, your cardiovascular health, your fitness or any kind of biomarkers and see how you benchmark compared to rest of population. So, you might be 32 years old, but for example, your cardiovascular system might correspond to a healthy individual of 18 years old. So, you could say that your cardiovascular health is of someone of 18 years old and… Tim: But is it something that is scientifically defined? Is there like an accepted way to measure these biomarkers and calculate it this way? Is there an accepted scientific consensus about how to calculate it? Bilal: There is not a scientific consensus yet and that's actually big challenge in our industry. We have different ways of measuring chronological age using, for example, evidence marker, glycome marker proteomics, and the big question in which ones have a clinical translation. Because I can give you a chronological age, but if it doesn't mean anything in terms of risk of the disease or physical conditions, it's frankly huge metrics. Tim: I'm also curious about. Okay, not necessarily the way you calculate it specifically, but industry-wide. So, when biological age is calculated, is the actual chronological age always used as an input or can it be calculated independently or is it more of like an adjustment factor? Bilal: So when you do the algorithm, you have a dataset with the metadata sets with the gender, that helps calibrate the chronological age. And ultimately you would want when you take input from a patient not knowing the chronological age and estimates the biological age independently of the chronological age and industry-wide, there are different clocks. And now there's a huge work for having this clinical and scientific validation. So each year, actually I'm going to Boston in October for the biomarkers of aging symposium that takes place at the Harvard Medical School. So that's really ongoing discussions in the field. Tim: So your offering also involves a mobile app? This app provides insights and advice on how people can improve their biological age. So, what kind of insights and what kind of lifestyle changes does it recommend? Bilal: So for the app, low hanging fruit for someone like the diet, sleep, physical activity, and we put this app for use for clinicians and they can be also very helpful for the clinicians who have both a surgical age metrics as well as information the lifestyle of their patients. Because can be quite difficult for the clinics to know how well the patient eat or sleep. And then the medical doctor can really guide the medical journey to help them in their longevity medical journey. Tim: So, what are the biomarkers you're looking at? I mean, you've recently been selling like a home test kit for that's like a blood sample. So, you've got the blood test and what other information goes into the calculation? Bilal: So we have two type of product services. So, the one actually describes is for our individual use and we use a biomarker called IgG glycome. And what is amazing with this biomarker, it is that is very responsive to interventions, an intervention of eight to 10 weeks and do another test. You can see a data, you can see a difference in this biomarker like, and what is also great with this biomarker that is extremely linked with chronic inflammations and chronic inflammations are linked with a myriad of chronic disease. Tim: So, is that like just a coincident marker or is that actually directly related to biological aging? Bilal: That's a great question. Menopause is probably one of the condition that is the most linked to medical aging. And when we say that so many times it's misdiagnosed and mis-documented. So, having ways of getting the early science through this IgG glycome measurements and then having better medication or better health optimization or better response from the medical doctors, we think is extremely important. And probably the first longevity drugs that we could see on the market will be a drug targeting menopause and perimenopause. That may be one of the first age related condition that we might be able to treat one day. Tim: Excellent. Let's take a step back for a minute and kind of talk about how Ekei Labs came to be and how we ended up in this room having this conversation. So, you actually launched in 2019 with a completely different business model.

In the popular imagination, Japan is almost synonymous with robots. While Japan once dominated cutting-edge robotics, over the past decade she has fallen further and further behind the US and China. Today we sit down with Chiamin Lai of Firstlight Capital, who believes that Japan might just regain that leadership. We talk about the unique opportunity and advantage Japan has in the deployment of practical physical AI, the enterprise culture that is holding it back, and what a handful of innovators are doing about it today. It's a great conversation, and I think you'll enjoy it. Show Notes How starting startups in Japan has changed over the past 20 years -- especially for foreigners How Japan's labor shortage is driving the adoption of physical AI The biggest problem in integrating GenAI and robotics The best use cases for physical AI today and why healthcare is not one of them How secrecy is holding back AI innovation What keeps Japanese enterprise from embracing open innovation Can Japan's VC ecosystem afford to fund AI in the era of massive funding rounds Why physical AI companies should not create their own hardware Why Japanese startups should not look to hardware for competitive advantage The importance of industry cooperation and why it's critical for Japan's AI success What physical AI will look like in Japan in five years Links from the Founder Everything you ever wanted to know about Firstlight Capital Firstlight's thesis on Physical AI Connect with Chiamin on LinkedIn Follow her on Twitter @chiamin_lai Chiamin's excellent series on Physical AI in Japan Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Japan has always had a special and very positive relationship with robots from Astro Boy and Doraemon in the fifties and sixties, to Sony's Asimo in the 2000s to SoftBanks Pepper in the 2010s. It has always felt like Japan was set to create and then to lead a humanoid robot revolution. But that didn't happen. In fact, today, Japan seems to be far behind both China and the US in the development of not just humanoid robots, but intelligent robots in general. Well, today we sit down with Chiamin Lai partner at Firstlight Capital, to discuss how that came to be and what we can do about it. Now, Chiamin's investment interests are deeply focused on physical AI and specifically physical AI startups in Japan. And she remains optimistic about the future of AI and robotics in Japan. We talk about the market and the financial structures pushing Japan to adopt meaningful physical AI before the rest of the world. The technology and social challenges of trying to use AI and robotics and healthcare, and some really great advice for physical AI startups that are planning to raise money. But, you know, Chiamin tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, we're sitting here with Chiamin Lai, the general partner at Firstlight Capital, and a director at Japan Venture Capital Association. So, thanks for sitting down with me. Chiamin: Thank you, Tim. Tim: Before joining Firstlight, you worked in startups and investing in Japan and in China and in the US but you've had ties to Japan for quite a while, haven't you? Chiamin: Yeah, I was born Taiwan, but then I came here when I was teenager, and after that I received education here. I also work in Japan, but then later to Europe and then came back. So I can say this is like my hometown in the way. I have more friends, more connection, and my family here. So yeah, some of my friends said, you are more Japanese than we are. Sometimes I agree. Tim: Yeah, I know the feeling. I've been here over 30 years myself. Yeah, it kind of sneaks up on you. And Japan is a very comfortable place to live once you kind of get used to it all. Chiamin: Yeah. But I would say it actually changed a lot for the past 20 years or 30 years. When I came, Japan is not that open up. Like people sometimes complain about they have a hard time finding apartment and so on. I'm like, okay when I came it was worse. Tim: Yeah, that's for sure. Chiamin: Yeah. Finding a part-time job, finding a job was not that easy at that time because we still have a lot of population. They don't really need a foreigner to work for their company. Tim: Well, I think that's one of the biggest changes is so when I started my first startups back in the dotcom era, a big part of it was that there weren't a lot of options open to foreigners in Japan. Having a regular career track job was exceptionally rare, and now it's almost kind of flipped. Chiamin: Yeah. Yeah. I agree. I think it's good for the country. I think both you and I, we stay here for a long time, so we have a deep understanding about this country and a lot of foreigner like us I think we all wish that we can contribute somehow to this society because it's a good country to live. That's also one of the reason why, even though I left for few years and I decided to come back to Japan and to do some contribution, and that's one of the reason I'm here. Tim: Well, let's talk about that because first slide invests fairly broadly in pre-seed, up to seed, but your own focus and your own passion seems to be in physical AI. So what is physical AI and why is it important now? Chiamin: So as a fund, our investment thesis is how can we actually solve the demographic challenge here in Japan. And if you want to solve that problem, of course you can use AI, we can use software, we can use automation. A lot of solution out there. So for my investment, I also of course invest in AI company, SaaS company. But one of the reason why I have heavily looking into physical AI is because of my background. Before I came back after COVID, I work in China for seven years. So I actually witnessed the heavy growth in China for entrepreneurship from 2011 to 2019. And then I also was working for a DCM, which is a Silicon Valley venture capital. I also was seeing how the Silicon Valley startup was doing. When I came back to this industry, I look in Japan, I think one thing that a lot of entrepreneurs forgot is what is the strength about this society and what is the heavily problem that you solve. For the past five years, SaaS has become a very common platform or common tool for a lot of office worker. But what we’re looking into this social problem right now, we need to urgently solve the problem on the ground, which means that essential worker. If you look at the restaurant, if you look at the construction, we are heavily lacking people, but we don't really have a solution to solve. So, let me come back to your question of physical AI. My definition of physical AI is how can we embed artificial intelligence on the actual physical operation? Tim: I mean, there's a lot in there. So let me try to peel that back a bit. So, could physical AI just be IoT rebranded with some AI, or is it something fundamentally different? Chiamin: I think right now, if you look at the VC, a lot of investment tied to humanoid robotics. If you look at recent fundraise with figure AI, with all those very interesting robotics company, humanoid company, right now, I think US, they are aiming for that. For me, I think it could be robotics, it could be using hardware to embed artificial intelligence. And to go back to you saying, is that a rebounding of IoT? I disagree. Because what we are talking about is how do you distinguish gen AI and AI, that's the discussion we normally have. Tim: Well, I mean, I want to get into that just nailing down what physical AI is before we get into gen AI. So there's AI can be applied to industrial processes, to robotics control, to like I mentioned IoT with a bit of AI shoved in there. But physical AI, does it require robotics? Does it require AI actually controlling something in the environment? Chiamin: I would say physical AI would be the enabler for automation in terms of action. Tim: So, does smart sensors count as physical AI? Chiamin: No. No, I don't count smart sensors as physical AI, it's automation of the procedure or process on the ground. So, let me give you a very easy imagination for physical AI on the construction side. So, if you are building the house here in Japan today, you need to have director checking the progress. So, making sure your house can be built and also making sure it's on time and on quality. Today, how do they do that? Is they will need to visit the site. They will need to use the measure to really measure exactly the length and so on. But Japan, today, we are lacking a lot of experience monitor person because they are retiring. So, what's happening today is the undergrads come to onsite, he's going to check in your house. Are you going to be comfortable for not really experienced person to making sure all the construction is correct. That's going to happen in 10 years, or even in five years. Now, when we say physical AI is if you have a tool there that has intelligence that can actually check what is going on the ground, using the AI to understand your status as well as the lengths because you need to measure what is going on, if that can be automated. And then you can have an agent to tell you, okay, in this case, this is what you need to do. Tim: So, the physical AI is AI that is interacting with the physical world in some… Chiamin: Yeah. And then it can generate action. And that's why I think why people say robotics right now, because you need somebody to do the actual physical world. Tim: Well, yeah. In most cases there would be some sort of an interaction component. Chiamin: Right, exactly. Is that there needs to be action there. Tim: So talking about AGI,

Japanese startups is hot right now, and more and more foreign money is flowing in. But many Japanese VCs remain stubbornly outward-looking. Today we sit down with Shri Dodani, who after a series of highly successful American startups, decided that Japan is the best place to invest right now, and co-founded of Global Hands-On VC, to make those investments. We talk about the unique advantages startups have in Japan and why Japanese founders often have trouble leveraging those advantages. It's a great conversation, and I think you'll enjoy it. Show Notes The unique potential Shri first saw in the Japanese market How Japanese buying patterns help Japanese startups Japan's transition from VC 1.0 to VC 2.0 Are Japanese startups really becoming more globally minded? Why the large global VCs seem to have so little interest in Japan How Japanese VCs and corporates are more supportive of startups than in other markets Why it's important to invest in  Japanese founders "with a bit of an attitude” What's holding Japanese founders back today What actually stops Japanese founders from going global? The importance of role models and for Japanese founders to mentor The most promising startup sectors in Japan How recent immigration tightening will affect innovation in both the US and Japan Links from the Founder Everything you ever wanted to know about GHOVC Follow them on Note Connect with Shri on LinkedIn Check out an interview with him on YouTube Follow (GHOVC co-founder) Ken Yasunaga on Twitter @ken_yasunaga Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Longtime listeners of Disrupting Japan know that I'm extremely bullish about Japanese startups. In fact, most of us on the ground here are pretty optimistic about the whole situation. And yet a surprising number of Japanese LPs and VCs seem to have little interest in investing in Japan preferring to focus on high profile San Francisco. Today we sit down with Shri Dodani and we look into exactly why that is. Now Shri is a successful American founder with multiple exits, totaling well over $1.5 billion. And when he transitioned from startup to VC and put his first fund together, he decided to focus exclusively on Japan in order to take advantage of what he thought Japanese and foreign VCs alike were overlooking. Shri and I talk about Japan's transition from VC 1.0 to VC 2.0, the aspects of the Japanese market that give it a unique advantage over Silicon Valley in some areas, the one thing that's holding Japanese founders back the most and why it's important to invest in founders who have a bit of an attitude. But, you know, Shri tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, I'm sitting here with Shri Ddani of Global Hands-on VC, a serial entrepreneur and founder and managing partner at Global Hands-on VC. So, thanks for sitting down with me. Shri: Thank you, Tim. It’s an honor. Tim: I'm glad we've got a chance to talk because I think you really do have a different perspective on what's going on in the Japanese market today. And just to give our listeners a bit of a background, so before moving into VC, you had a remarkable string of successes. As a founder, as an operator, you had six startups and six exits, including one that was a $550 million acquisition and IPO that was worth over a billion. I don't want to dig too much into that because we could be here all day talking about it and it'd be a worthwhile conversation. But after being such a successful operator for so many different types of startups, why the move to VC? Shri: A good question. So sometime I do one day even after became a VC, that should I continue doing my own companies because I'm good at that. Having done company in different field, you kind of get the nose for the technology. Obviously you have to be technical person, but beyond that, you get nose of different technology, how they relate to the actual product. And how do consumer or the industries benefit out of that? Most of the VCs come from financial world and what we can bring them uniquely is that we give them perspective from development perspective, but we can help the companies from a product development perspective as well. Tim: I can completely understand the value add both to the other partners, to the investors, to the startups you're investing in. But like on a personal level, it's a really different job. So, why did you want to make that jump? Shri: Service time, I've done several companies, as you noted, they've done in different industry. So as you want to get new challenge always right, because that's what keeps you young. Secondly, I've invested in over 25 now 28 companies of my own money and equal number of companies as an advisor as well. So, I've made money as an individual investor, a good rate of return and it was an opportunity for me to work with Ken to sort of make it more formal. Tim: So, this is something you were kind of building up to through personal investments and angel investments over time. And as someone who's also done both VCs and founding startups, the ability to interact with lots of different ideas and ability to support a lot of different bets and interesting markets is exciting, but do you miss the ability to execute your own vision? Shri: Absolutely. Absolutely. I'd be lying if I said that I don't, right? Because I think ultimately, we are wired to drive our own destiny, but all along the way I have an opportunity to be advisors and investors and one of the things you learn is that the way to scale your operation is to other smart people as well. So, the downside, I'm not driving it, but the upside is I'm learning tremendously more from much, much smarter people than I am. Tim: You and Ken together established Global Hands-on what made you decide to join other partners rather than pulling in a fund of your own? Shri: Ken was investor in my company that we eventually exited and Ken and I got along well and he was with INCJ after that fund. And as part of it INCJ, him and I have invested in two Japanese company. So we've been touch, we've been helping companies go global. And even from that perspective, it was a good thing for me. I can't do Japanese company without Ken for sure, because I don't speak Japanese. So you needed a partner in Japan. So, that's one thing. Second thing, the challenge for me was Japan is, I'm trying to figure it out, that Japanese government, Japanese entrepreneur, everyone is doing fantastic job. They're following all the textbook thing of how to do startups, how to invest in startup how to nurture the startup. For some reason they can't break out in terms of the mass scale, a scalable global business. And I'm trying to understand why. Tim: This is something that's puzzled a lot of people, myself included. It's an ongoing theme of Disrupting Japan. So that makes sense to operate in Japan. You definitely won a strong team, people with a track record and the team at Global Hands on, definitely is that. But taking a step back, I mean, why Japan in particular? There's all kinds of things going on all over the world, so why focus on Japan? Shri: Yeah, it's a very good question, why Japan, especially for me, I could do something else in the US or anywhere else. In 2005, I put my first money into a fund in India. It was a small fund for $5 million. I wrote the first check it is now called Excel India. At that time, nobody wanted to invest until Google put last $1 million, the $11 million fund. And then we hit the flip card, the flip card changed the entire India story and they have massive investment, massive capital flow, a lot of startups, a lot of activity, energy and so forth. Japan, to me, because I'm a startup guy, feels like here's a country that had a lot of capital, has a government behind it, and a lot of talent, engineering talent, a lot of core technology on a global basis. It should be right for a disruption from a startup point of view where you could create new startups and hopefully get a competitive advantage from an investment point of view as well, while others are not seeing the same opportunity. So, for me it was no different than me doing a startup looking at where are the opportunities, what can be disrupted? Where can you get unfair advantage before competition discovers that opportunity? That's what interested me in Japan. Tim: So let's talk a bit about your history and connections to Japan. Shri: So back when I was working for another startup, early eighties, I was responsible for Japan joint venture with SIE chemicals. So, I've been exposed then it was obviously in a different time as before the bubble. Since then, I've done my own startups, six of them, almost every one of them had either investor, customer or partner in Japan. The three things that they taught me all along, it's very hard to get into Japanese customer because they're very, very demanding and challenging, but in reverse order, you learn the most from them. They make your product better, they make your technology better, they make you work towards success. Tim: Well, and Japanese customers also tend to be incredibly loyal. Shri: Loyal as well. Tim: Yeah. The upfront effort required in that long sales cycle is probably made up with mathematical identity, with lower churn rates and longer retention on the backend. Shri: Absolutely. Absolutely. And since then, every one of them, there's people still using those products even now, right? Tim: So identifying Japan as an underappreciated opportunity really makes sense. But there's a lot of early stage funds in Japan. So what were you trying to achieve with this one that was different? Shri: Yeah, for me, Tim, we're still learning.

According to Taro, Japan's logistics industry is on the brink of collapse, and it's hard to argue that he's wrong. Taro Sasaki founded Hacobu with the goal of modernizing Japan's logistics industry. He found few takers for the first few years, and then a new law changed everything. We talk about how Japan's demographic and economic challenges, why some industries simply refuse to invest in themselves, and how to sell to them anyway. It's a great conversation, and I think you'll enjoy it. Show Notes Why Japanese logistics is on the brink of collapse The factors pushing demand for trucking higher in Japan What's preventing Japan's logistics industry from modernizing How to sell digital products to skeptical analog industries A new Japanese law mandating business efficiency How to bootstrap a complex application ecosystem from scratch The huge value hiding inside Japanese logistics data Hacobu's global expansion plans Taro’s best advice to founders wanting to sell into traditional, blue collar industries The importance of dreaming big -- even in Japan Links from the Founder Everything you ever wanted to know about Hacobu Keep up with the latest on Hacobu [Japanese] Hacobu's survey of 1271 Japanese truck drivers [Japanese] Friend Taro on Facebook Connect with him on LinkedIn Follow him on Twitter @tarosasaki Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Today we are going to talk about how to drive innovation into traditional, conservative, low margin blue collar industries. Now, that might sound hard to do, but it's actually even harder than it sounds. And, you know, that's why so few startups seriously attempt it and why it's extremely profitable for the few founders who manage to get it right. Today we sit down with Taro Sasaki, the founder of Hacobu, a startup that is finally, finally bringing digital transformation and automation to Japan's logistics industry. Taro’s constant refinement and testing of his ideal customer profile and go to market is a story that all founders can learn a lot from. Taro and I talk about the best path for founders to take when trying to sell to industries that are resisting digitization, how a lack of regulation can sometimes actually lead to less innovation. Why the logistics market is so hard to crack globally, and the two big factors that led to Hacobu’s sudden change of fortune. But, you know, Taro tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, I am sitting here with Taro Sasaki, the founder of Hacobu, who is reinventing Trucking Logistics in Japan. So thanks for sitting down with us Taro: Thank you too. Tim: So, MOVO is a suite of SaaS tools that handle fleet tracking vehicle dispatch loading, unloading.  I gave a brief explanation in the intro, but I think you can explain it much better than I can. So, what is MOVO? Taro: So, Japanese logistics infrastructure is collapsing. Tim: What do you mean collapsing? Taro: So, the number of truck drivers is decreasing. The government estimates that in 2030, 25% of truck driver will short to the demand. Tim: So, what's causing it? It's a lower paying job that younger people just don't want to get into? Taro: Yeah, yeah. That's one of the reasons. And also the business process in the infra is very outdated and very analog, there are many inefficient things going on. So, the demand for the truck driver is increasing, but actually the supply of the truck driver is decreasing. So, the gap is going to increase. Tim: That's interesting. So, the demand for trucking is actually increasing recently? Taro: Yes. Because of the development EC, we want to get things, for example, at the supermarket, we want the commercial goods on demand so that the suppliers have to deliver the products on time that we want to buy it. So, the amount of goods in one truck is decreasing. Tim: So, is this increase in demand, is it mostly that sort of last mile delivery? Is it long haul freight or is it both are increasing? Taro: Both of them. Tim: Wow. Did not expect that. Taro: Yeah, because B2C logistics is easy to understand because, you know… Tim: The whole e-commerce boom is Yeah, Taro: Yeah. But there is a big infra in the back of the EC, which is called B2B logistics. For example, there's a factory, and the factory have to be supplied. So the suppliers have to deliver to the factory by a track. And then after the factory manufacturer, they have to deliver to warehouse. And then the warehouse deliver to the supermarket, the EC in a warehouse. This B2B logistics infra much bigger than the EC infra. The number of the size of the infra is about like 50 cho-yen comparing to EC, which is about three cho-yen. Tim: And so Hacobu's goal, MOVO's goal is to address that 25% shortfall through increases of efficiency. I want to dig into that and the challenges of trying to bring digital transformation to these conservative blue collar industries. But before that, tell me a bit about your customers. So you have 850 or so customers using your products now. So what kind of companies are they? Taro: So there are many stakeholders in this infra, there is manufacturer and then talk warehouse, which is outsourced to large logistics, sample leaf. And then there is distributor, and then there is a retailer. Tim: So in Japan, from the time that Kirin makes that beer in their factory to the time it is sitting in a glass on my kitchen table, how many different warehouses has it been in? How many different trucks has that bottle of beer been on? Taro: At least two or three. And the trucks are not owned by large logistics companies, but by a small truck companies that there are about 60,000 small tracking companies in Japan. And then most of them are, papa, mama tracking companies, and then large logistics companies outsource business to those small tracking companies. So, there are two axis of the complication. Layers, times layers, those are all the stakeholders. And then communication between those stakeholders done fax and phone calls so that the data related to logistics are not connected to each other. Tim: So, in your system, you have different software components that support all of these different. Functions from the drivers themselves to the vehicle dispatch to the loading and unloading. So who's the customer that is paying for the service? Which part of the chain do you identify as like your real customer? Taro: It's by case by case. For example, Aeon the large retailer in Japan, they buy our application by themselves. But for example, 7-11, they outsource a logistics to logistics companies. So they ask the logistics companies to use our system. So, it's case by case up to the power balance between the shippers and logistic companies. Tim: Okay. So that's interesting. So in the case of something like 7-11, you're not actually selling directly to the logistics company. You're selling to the end client who will then go downstream and tell the logistics companies, we want you to use this software. We want you to use MOVO software. Interesting. Taro: So, you have to find a trigger point. So in the case of Aeon, you have to talk to Aeon directly. They directly use our system. But in the case of 7-11, we talk to 7-11. And also we have to talk to the logistics companies that 7-11, outsource their business. So, that's why I was saying case by case. Tim: I want to get back into the go-to market and sales cycle in a minute. But before that, I want to talk a little about you. Taro: Me? Okay. Yeah. Tim: So, you founded Hacobu back in 2015, but you started a number of startups before that, right? Taro: Yeah, yeah. Two startups. So, this is the third startup. Tim: And your previous startups were let's see, there was Glossy Box, which was a beauty e-commerce site and Fresco, which is kind of a food e-commerce site. So, why the change? What drove the move from like this very marketing intensive B2C e-commerce to a pure B2B pledge? Taro: So, my entrepreneurial life started from Glossy Box which was backed by Rocket Internet. Do you remember that? Rocket internet? Tim: A lot of Japanese founders today have a bit of a rocket internet story. Taro: Yes. They are not, superhero in the entrepreneurial in a scene, kind of heal. Tim: But I understand it can be a great learning experience. Taro: Yes, that's right. So, a friend of mine at the business school, his Korean guy, he first started Glossy Box back up by Rocket Internet in Korea. And then he successfully launched the business in 2011 something. And then he came to Japan. He was in charge of rolling out the business to APAC. He came to Japan and was looking for a CEO of Japanese business. And he asked me to take that role. And that was my entry to this entrepreneurial role scene. And then not so long one year and a half, but it was successful. In nine month, the business got profitable. I thought, oh, starting business is my calling. The pressure from Rocket Internet is very tough. But I kind of enjoyed it. But Glossy Box, the business model was given by Rocket Internet. So, I wanted to start a business from really scratch, and then I started Fresca. I thought e-commerce business is very easy because Glossy Box was successful in the short term. I thought I hacked online marketing, and then I found that Rocket Internet started HelloFresh. So, I thought I brought it to Japan. I copied the business model in Japan, but it didn't go well because the logistics was very difficult. So, I changed the business model to like online mall of high-end food, which was not successful at all because online marketing at Glossy Box was successful. But it is very different from online marketing for high-end products. Tim: E-Commerce has always been fiercely,