Report No.4
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Japan Entrepreneur Report No. 4 February 2003
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- Succeeding amid Japan's recession
- Expressing your values in the form of a business
- Acquiring technology customers in Japan
- Super Rock Jam IV in Shibuya February 26
- Japan Media Review, SunBridge fund, Habitat Week
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Succeeding amid Japan's recession
Just over ten years ago, Mikio Kurihara was thunderstruck
with an idea for a new business he was sure would be a
winner amid Japan's stagnating economy. His idea for
achieving success during a recession? First, conceive a
brand new "fast food" concept in a mature market dominated
by entrenched, multibillion dollar global players. Next,
build the restaurants at locations less convenient to
consumers compared to rivals. Finally, charge higher
prices than competitors.
Hardly sounds like a recipe for success, does it? Yet by last
year Kurihara's Freshness Burger chain had grown to 140
restaurants, all managed by a central staff of only 30, who
produce headquarters revenue equivalent to more than one
million U.S. dollars per person annually.
The stunning success of Kurihara's brainchild underscores
both his entrepreneurial brilliance and the structural changes
altering consumption patterns in Japan in fundamental ways.
Kurihara perceived that a growing number of consumers
were tiring of eating less-than-healthy, mass-produced food,
served instantly but impersonally in sterile, mechanized
environments. Instead he offered "slow" but convenient
food made with fresh ingredients, individually served at
wooden tables and chairs in warm and friendly surroundings
that invite lingering rather than rushing.
I was first attracted to Freshness Burger by its trademark
eco-themed signage, which makes it stick out like a healthy
green plant amid Tokyo's concrete-gray urbanscape. It was
a delight to discover that the restaurant served real,
fresh-squeezed orange juice at prices close to those charged
by rivals for carbonated sugar water. Moreover, the
hamburgers were delicious and the atmosphere downright
comforting. I became a regular customer, and felt good
about feeding my kids Freshness burgers and real orange
juice. After discovering Freshness, I've come to believe
that the biggest problem McDonald's faces is not marketing,
but less-than-healthy food offerings and its plastic, sterile
atmosphere.
"We train our employees to use their own words to respond
to customers, based on their own the judgments concerning
the situation at hand, rather than merely repeating stock
phrases from the employee manual like workers at the large
hamburger chains," says Kurihara. Kurihara also discarded
the idea of full-dress uniforms from the outset. Such
uniforms, he says, help create an image of cleanliness but
obfuscate the personality of the server and de-personalize the
atmosphere of the restaurant. Instead, his employees wear
Freshness Burger aprons and blue bandannas over clothes of
their own choosing.
Expressing your values in the form of a business
"Starting a venture means expressing your own values in the
form of a business," says entrepreneur Masao Horiba. In
Freshness Burger's case, the values that Kurihara forged into
a business - and with which Freshness is waging its
increasingly successful competition against giant fast food
rivals - include health, naturalness, environmental
consciousness, de-standardization, personalization,
individualization, and priority on high-touch over high-tech.
In my view, these values are far more compelling than those
brought to market by the competition, and much more in line
with the growing return on the part of Japanese consumers to
an emphasis on health and inner life.
Other key ingredients in Freshness Burger's success include
aggressive outsourcing of everything from employee training
to menu development, and crystal clear visual and interior
concepts for its restaurants from the start ("old American,
natural, high-touch, environmentally conscious"). Kurihara
stresses that concept-driven logistical and pricing decisions
made at the outset are critical, since midstream changes are
costly. Competitors that decide to start using recycled
paper or natural ingredients, for example, face significant
cost increases against a relatively fixed revenue structure, he
says.
Takashi Sakamoto is another entrepreneur who has thrived
despite Japan's recession - or more likely, because of it. In
1991, at the age of 50, he launched his first used bookstore,
just a year before the first Freshness Burger restaurant
opened its doors. At last count, Book Off! had 629 stores,
including several in the United States.
Book Off! revolutionized the used book market with a very
simple policy: it buys any used book from anyone at ten
percent of the list price, and sells all books at fifty percent of
list price. This clear, easy-to-understand policy provides
the company with millions of eager suppliers and a healthy
margin on each sale.
The brilliance of this pricing scheme was in creating a
simple rule that can be implemented even by inexperienced,
part-time workers. At traditional used bookstores,
experienced buyers must assess the value of each book based
on its rarity, condition and marketability. This creates two
problems: it limits the flow of used books into the shop, and
it makes it difficult for consumers, who are book "novices,"
to know beforehand how much they might receive, if
anything, for books they want to sell. Book Off! solved
these problems neatly with its simple buying/pricing rule,
and in so doing turned Japan's used book sector conventions
upside down.
Another key innovation accomplished by Book Off! was
transforming the image of the used bookstore from one of
dingy, dirty, poorly lit, user-unfriendly, out-of-the-way
retailers clustered in Tokyo's Kanda district to one of clean,
brightly lit, easy-to-use outlets conveniently located and
staffed by cheerful, helpful employees. What's more, in
previous ventures Sakamoto learned the importance of
presentation, and pioneered the use of tools and techniques
to clean covers and grind dog-eared page edges off of used
books, making them appear almost new.
In a country where new book discounting is essentially
against the law, being able to buy nearly new books at half
price clearly provides tremendous value to increasingly
thrift-conscious consumers. Perhaps more important, Book
Off!'s values harmonize with consumers' growing
appreciation of the value of recycling, and their fledgling
rebellion against a "throwaway" culture that disdains
purchases of anything previously owned by another person.
Another value not only espoused but also embodied by Book
Off! is working for the benefit of others. Book Off!
headquarters works for the benefit of franchisees. Store
managers work for the benefit of employees. And
employees work for the benefit of consumers, who can make
money selling their books and save money buying books at
Book Off! This desire to help others is reflected in
Sakamoto's own activities following Book Off!'s success.
He recently launched Book Off! Startup, a support service
for new entrepreneurs.
"We are particularly interested in low-tech ventures and
non-IT businesses," Sakamoto emphasizes. "Restaurants
and used merchandise operations are good examples. In the
used merchandise business, the older the counterpart new
merchandise sector, the bigger the business opportunity.
These types of businesses have the potential to grow very
large if you can process the merchandise and add value in
some way. Small ventures have the potential to win out
over large players if you can use your own sensibilities to
add value."
The success of businesspeople like Book Off!'s Sakamoto
and Freshness Burger's Kurihara suggest that when the
personal values held by savvy entrepreneurs match new
consumer values being forged in response to economic
conditions, explosive growth can result. The secret is
accurately reading and understanding the signs of the times,
and, of course, having and expressing compelling personal
values - something that cannot be accomplished by mere
commercial intention.
What sectors are best in a recession?
The biggest opportunities for entrepreneurship in Japan
today lie in the domestic service sector, in my view. There
are several reasons for this, the first of which is that services
simply account for a much larger piece of the economic pie.
"Already Japan is a service economy. Jobs in the sector
account for more than 70 percent of total employment. The
major problem is that Japan's services are tightly regulated
and heavily subsidized. Looking at the sector, one could be
forgiven that thinking that Japan is a socialist country," notes
former Ministry of Finance official Eisuke Sakakibara,
writing in this month's International Herald Tribune.
A second reason is that Japan's manufacturing/export
industries have long been exposed to the disciplines of
international competition and thus have been subject to the
same globalization and deflation-driven turbulence
experienced by all participants in the worldwide free market
economy. They are therefore price-competitive and have
largely completed much of the restructuring mandated by
maturing markets and slower global demand.
In contrast, as Sakakibara notes, Japan's service sector is still
highly regulated and uncompetitive. Unlike manufacturing,
domestic services are untradable internationally, and are
therefore not subject to global quality and price competition.
But in order to revive its moribund economy, Japan is almost
certain to be forced to deregulate its service sector and allow
free - or at least less-restrictive - competition. That means
big opportunity for entrepreneurs with the moxie to launch
new businesses amid less-than-certain economic conditions.
Finally, Japan's domestic market for manufactured goods are
mature and declining, while markets for services,
particularly those targeting older consumers, are growing.
Consumers are increasingly discovering that services, rather
than merchandise, help them fulfill their personal goals and
enjoy life more.
What should aspiring entrepreneurs look for when choosing
a sector for a new business? Here are some clues that can
be taken from experts like Kurihara and Sakamoto:
- Government-mandated pricing anomalies
Japan's retail price maintenance rules, which prohibit new
books from being discounted, created huge pent-up demand
for discounts. Book Off! exploited this anomaly brilliantly.
Music CDs, newspapers and certain other merchandise
categories are still subject to these rules. What other
sectors are still subject to government price controls?
Health care, for one.
- Outmoded industry practices
Outmoded industry practices abound in Japan. In the new
retail book sector, wholesalers Tohan and Nippan, which
distribute the same books, combined control 90 percent of
the market, and "territory" rules prohibit even well-funded
entrepreneurs from launching bookstores that sell new books.
In another example, almost all domestic Japanese hotels still
have an absurd "per-person" pricing scheme with no
apparent basis in law or logic. Now the French hotel
operator Accor is starting to clean up in the domestic market
by offering per-room pricing, which is nothing more than the
international standard, but nothing less than revolutionary in
Japan. The result is rates that are often half those of
domestic rivals.
- Changing consumer values
Fashion, tastes, and personal values follow economics.
Keywords include thrift, health, recycling, cost-savings,
environmental consciousness, and community service.
Look at businesses supported by Bubble era consumer
values and imagine their counterparts expressed with
post-Bubble values.
Specifically, here are some of what I believe are promising
areas for entrepreneurship in today's Japan:
Corporate and outsourcing services
Outplacement services, temporary specialized employment
sourcing and dispatch, and outsourced professional corporate
services such as accounting, administration, marketing,
personnel, and in-house training.
Health care and medicine
Health, fitness and rehabilitation consulting, medical facility
administration, nursing care and senior services, veterinary
services.
Education and training
Corporate and employee training services, private
alternatives to public schools, executive and specialized
English language training, self-improvement and how-to
seminars.
Interested in learning more? Attend our service sector
entrepreneurship event next Wednesday evening February 26.
See below for details, or sign up now at
<http://www.japanentrepreneur.com/event20030226-form.html>.
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Acquiring technology customers in Japan
Yuichi Terashima has spent ten years helping solve some of
the knottiest problems faced by technology entrepreneurs.
How do you go about assessing the commercial viability of
your product or service offering? How do you identify
potential customers and the best sales channels? Finally,
how do you position and market your product to maximize
success? This month we spoke with Terashima-san, Chief
Marketing Officer at software and technology service
marketing consultancy eBridge, to learn some of the basics
of acquiring technology customers in Japan. Following are
some excerpts from the conversation.
- Entrepreneurs are often focused on developing and
promoting the functional and strategic benefits of their
products or services, and less enthusiastic about tackling the
difficult task of developing sales channels and securing
customers for those products or services. You seem to
specialize precisely in those tasks that entrepreneurs may
find less glamorous.
Our original mission was to provide sales and marketing
support to technology ventures at SunBridge, but today we
serve well-established technology firms as well. That's
because in the IT industry, both new ventures and
established corporations face the same set of issues with
respect to sales and marketing. For any company interested
in cost-efficient marketing, the issue naturally resolves to a
common approach that has its origins in the peculiarities of
Japan's information technology market. For example,
Japanese corporations generally do not have strong, in-house
technology departments. Most companies here depend on
systems integrators to both develop and execute their IT
strategies. These systems integrators provide consulting,
development, and outsourced operating/management
services to their corporate clients.
- What are some of the differences between the IT divisions
at Japanese and U.S. companies, and why do Japanese
companies depend so heavily on systems integrators?
In contrast to the U.S., technical departments at Japanese
corporations tend to be small, have low status within the
organization, with tiny budgets and little say with respect to
strategy or other critical affairs of the company. One of my
colleagues here was personally very surprised to learn that
some ten percent of all employees of the Boeing Company
belong to technical or SI groups. This would be an
extraordinarily high figure for a Japanese corporation.
There are several reasons why Japanese companies depend
so heavily on systems integrators. One is that there is a
tremendous number of corporations in Japan, the
overwhelming majority of which are small and
medium-sized enterprises. These firms simply do not have
the capacity to develop, build, and manage their own
information systems, so in most cases they outsource these
tasks to integrators. Hardware manufacturers, responding
to these corporate needs, started offering system
development and maintenance services rather than simply
selling products to end-users. At the same time, other large
corporations with strong in-house IT capabilities started
seeing opportunities in the systems integrator market and
spun off their SI divisions into separate companies that serve
this market.
In an IT industry structured like this, it is difficult to
generate revenues by focusing on direct sales to end-users.
It is crucial to identify systems integrators who "own" clients
that are strong prospective customers, and provide those SI
shops with products and services appropriate to those
prospects' needs.
eBridge's strength lies in our network, which encompasses
essentially all of Japan's leading domestic systems
integrators. We have the ability to speak directly and in
confidence with these SI houses, understand trends in the
domestic IT market through the insight they provide, and to
show them appropriate new product and service offerings.
- Specifically how do you go about evaluating the potential
of the company's product or service, then identifying and
developing the appropriate sales channels?
We employ our network to obtain product or service
evaluations from major players in the IT industry, then
compile and analyze the feedback. Systems integrators
here have many clients and a strong grasp of end-user needs.
The ability to investigate and identify multiple customer
needs through a single party is extremely efficient.
Each of the SI houses in our network specializes in a
different field. The customer segments they handle differ
as well. If you don't have a firm grasp on the key customer
segments handled by each of the systems integrators, which
in turn have their own fields of specialty, it's impossible to
accurately evaluate the market potential of a particular
technology product or service. Moreover, the larger the
company, the more complex the organization, and the more
difficult it is to understand whether you are even doing
pre-sales research with the appropriate division or not.
Pre-sales research interviews with the wrong division can
result in damaging, off-target feedback. Our strong
network of relationships with systems integrators enables us
to gather data from the most appropriate divisions of the
most highly qualified prospective end-user companies.
- What areas of high growth do you foresee in Japan over the
next few years?
Remote instruction, or "e-learning," is one. One of the
largest Japanese software vendors already dominates the
system software portion of this sector, so what the market
needs now is more on the content side. There is still very
little high-quality e-learning content courseware in Japan,
and what's available is limited to only a few subject areas.
We also believe demand for Linux applications will grow as
the Linux operating system becomes more popular.
- Please describe the complementary market entry feasibility
opinion letter service offered by eBridge.
Companies serious about entering the Japanese software or
ASP market should forward information on their product or
service to <japanentry@sunbridge.com>. We offer, on a
complementary basis, preliminary comments on the
marketability of that product or service in Japan.
Companies requesting the opinion letter service should
provide full contact information, a URL at which we can
read detailed product information, and an overview of their
business and the product or service's current status in the
market.
Yuichi Terashima
Chief Marketing Officer
eBridge Corp.
www.ebridge.co.jp/en/
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Super Rock Jam IV in Shibuya February 26
Longtime readers of Japan Internet Report (www.jir.net)
may recall some great subscriber parties we had in Tokyo in
years past. Well, mark your calendars for Wednesday
evening February 26, because we are going to do it again.
The place is Mark City, adjoining Shibuya Station, and the
theme is service sector entrepreneurship by foreigners in
Japan. Enjoy an hour of socializing fueled by fresh beer on
tap, then have your thoughts stimulated by our panel of
successful entrepreneurs, who will identify the most
promising sectors for entrepreneurs in Japan and reveal
secrets for thriving in a recession. Finally, enjoy another
hour of free mingling with guests and panelists, who will
include CEOs Joichi Ito (Neoteny), Neeraj Jhanji (ImaHima)
Kevin McAuliffe (Newport Japan) and Allen Miner
(SunBridge). Jeff Char (J-Seed) will act as MC and yours
truly as moderator.
Sign up now at
<http://www.japanentrepreneur.com/event20030226-form.html>, or see
<http://www.japanentrepreneur.com/200301.html#3> for
more details and directions for finding the party place at
Mark City.
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Japan Media Review, SunBridge fund, Habitat Week
Some readers have written to ask if Japan Entrepreneur
Report can be published more frequently. The answer is no,
but if you want to hear more of my opining, check out the
debut issue of Japan Media Review
(www.japanmediareview.com). The good folks there
foolishly asked me to do an interview, and I even more
foolishly accepted.
Interested in getting in on the ground floor of some
bleeding-edge technology ventures in Japan? Results on
SunBridge investments to date are quite promising, and the
company is currently putting together a small, early stage,
IT-focused fund of ten to twelve million dollars. Qualified
investors who are interested in reviewing the fund
prospectus are invited to send an inquiry to
<fund@sunbridge.com>.
Want to tap into some leading edge thinking about business
and entrepreneurship in Japan? Japanese-speaking JER
readers should consider attending a day or five of Habitat
Week, which starts next Monday (February 24 through 28).
It's a great opportunity to gain insight from some
high-powered speakers and check out venture firms, their
suppliers and customers, and of course the SunBridge
Venture Habitat. Full details can be seen in Japanese at
<http://www.sunbridge.com/event/eve03-hw.htm>.
Interested in marketing your services to Habitat Week
attendees? Tables are available to qualified exhibitors for
only 5,000 yen per day. Contact Minako Marushima at
5459.0539 or <marushima@sunbridge.com> for more
information.
See you during Habitat Week!
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Tim Clark
Senior Fellow
SunBridge Corp.
Voice 813.5459.0765
Fax 813.5459.0629
clark@sunbridge.com
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Copyright 2002-2003 Tim Clark
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