Starting vs Scaling in Japan
In the past year, there’s been a noticeable uptick in the Tokyo tech startup environment. There are several positive English-language commentaries around this (great stuff on: http://www.disruptingjapan.com/), and Japan could certainly use more entrepreneurial activity both for the economy’s sake as well as to inspire a new generation of innovators. However, I have a more nuanced view of things: Japan is becoming a great place to start a startup but remains an extremely challenging place to scale that company.
The main reason for the above is the relative lack of competition for resources for early stage startups vs. other ecosystems. When starting a company, the two most important resources are people and capital. On the people side, while Japan still lacks a large pool of risk-takers and many workers lack creativity, critical thinking and English skills- due to the country’s educational system- there are still many diamonds in the rough. With loads of online resources, it is easier to find these kinds of motivated people and you will soon find that the pool of employers they have to choose from is severely limited. And because of this lack of competition and legacy employment practices, engineering salaries in Tokyo are less than half of what they are in the Bay Area.
On the capital front, there’s been a proliferation of seed funds, angel investors and accelerators over the past couple years. Investors constantly tell me that there is “too much money in the market” relative to the quality and quantity of deals. Again, while the pool of capital is minuscule compared to the Bay Area, the bar for securing investment tends to be a bit lower (traction, team, technology standards)…although valuations are lower as well. However, for getting your company off the ground, I’d argue it would be easier to do it in Tokyo vs. California.
That is, of course, if your early customers will be in Japan. This is the main challenge at the beginning, because if you want to scale that startup in Japan, it is going to be hard- ironically for exactly the reasons cited above. You can find your initial 10-20 employees and raise your first round of funding here easier in the US, but beyond that, very few funds can invest past the series A stage and you may find that you hit a very hard wall with finding the right talent (although you may have a workaround, as sponsoring visas for foreign workers is easier in Japan vs. the US). A great Quora discussion on this is here: http://www.quora.com/What-are-the-biggest-challenges-facing-foreign-entrepreneurs-who-plan-to-launch-startups-in-Japan
What’s the solution? Well, if you are an entrepreneur, its your job to find one! Its not easy to start a company anywhere, and Japan offers some distinct pros and cons for starting up. Hopefully more success stories will keep this early virtuous cycle going.