Report No.10
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Japan Entrepreneur Report No. 10 August 2003
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- The failure issue
- Terrie Lloyd on winning and losing
- Four strikes and you're in
- Failure a better teacher than success?
- Bits and bytes
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The failure issue
Failure is finally starting to get some respect in Japan.
One example: Earlier this year the Ministry of Education, Culture,
Sports, Science and Technology made public a database of instances of
failure--including causes, effects and lessons learned-- compiled and
analyzed over the past three years by a study group dubbed the "Failure
Experience Management Workshop."
The Ministry reportedly hired slip-up guru Yotaro Hatamura, author of
best-selling books-about-blunders such as "The Case for Studying
Failure," and "Techniques for Leveraging Failure at Work," to head up a
billion yen effort to study where Japan went wrong, both in science and
business.
Being a rather accomplished gaffer myself, I was inspired to take a look
at Mr. Hatamura's books at Amazon.co.jp. A search for publications with
"failure" ('shippai') in the title turned up 918 books published through
2003, 80 percent more compared to the number of such titles published
through 1997. Not exactly robust social science research, but scrolling
through the Amazon.co.jp listings reinforced my sense that
businesspeople are starting to regard entrepreneurial failure less as a
permanent black mark and more as evidence that someone made a gutsy
decision to start a new business, then benefited from the "hard knocks"
wisdom only the experience of flopping can teach.
Certainly Japan's bruising economy is changing attitudes toward
"failure." When competent people are laid off in cost-cutting efforts
or lose their jobs because their employers go bankrupt, being out of
work starts to lose its stigma. More important, becoming an
entrepreneur starts to appear more attractive. Maybe going into
business for yourself seems less risky when the choice is driven by
necessity rather than perceived opportunity.
In any case, the Japanese government seems to be acknowledging the value
of failure, and taking steps to improve the entrepreneurial environment,
as we'll see later in "Four strikes and you're in." In the meantime,
read on to learn why for entrepreneur Terrie Lloyd, failure is truly not
an option. And please enjoy the rest of our failure issue of JER: not
for the flops, but for the opportunities to be found on the flip side.
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Terrie Lloyd on winning and losing
Terrie Lloyd (www.terrie.com) is one of Tokyo's most prolific serial
entrepreneurs. Residing in Japan for nearly two decades, he has
launched nearly a dozen companies in Tokyo and successfully sold
several--at least one for a multi-million dollar sum. He's a survivor
of harrowing market reversals, economic downturns, and the hard personal
lessons of both "bootstrapping" and taking on venture capital.
JER correspondents Dave Mori and Carl Kay caught up with Terrie before
and after his presentation at the August meeting of the Entrepreneur
Association of Tokyo. Following are excerpts from their discussions:
- "In Japan, avoiding failure is more important than achieving success."
Do you agree with this statement? Why or why not?
Absolutely. This is why people, including many entrepreneurs, are
reluctant to take risks. Failure creates major stigma around the
businessperson and cripples them in terms of removing the "trust factor"
from their personal networks. Since almost all business in Japan is
done on the basis of trust and who you know, loss of these assets can be
a fatal blow to someone's business ambitions.
- Tell us a little bit about your background and how you came to Japan.
I was born and raised in New Zealand, which is the end of the earth as
far as technology is concerned. I left home at sixteen and worked in a
factory for three years. I studied electronics and TV technology by
correspondence course. At nineteen I traveled around the world for a
year, ending up in Australia where I started working for a computer
company. I officially emigrated and became a naturalized Australian. In
1980 I got into the computer business as an engineer just ahead of the
appearance of the first PCs. I was a digital engineer, fixing logic
cards, doing software development in assembler, and so forth.
When I arrived in Japan in 1984 I was one of the few people there who
knew about CPUs such as the 8088. I went there under a new Australian
program that granted working holiday visas. I had some cash saved from
my work as a computer engineer in Australia. When I got to Tokyo I
visited the Australian working holiday program office to deliver a
present from a friend of mine to his girlfriend who was on the front
desk there. She asked what work I did. I said that I was a computer
engineer, and she immediately replied, "Oh, wait, don't go, I have
several opportunities for you!" I was still in my traveling shorts and
sandals, but she sent me off to two interviews that very day. I
immediately got a job at a translation company.
I spoke zero Japanese but knew a lot about computers. I was assigned
jobs such as rewriting of manuals and technical writing. I was a full-
time employee there for six months. I became friends with the owner and
still am today--she is an investor in my current company. But after
four or five months I saw the opportunity to set up my own translation
company.
A friend and I ran the company out of my apartment--one room to sleep in
and one for the company, very amateurish. There were no PCs in Japan
then; we still used an IBM ball typewriter. I wonder how the four
employees felt about working in an apartment. But we were a tight group,
worked hard and made money, grew the business. For a while we had a
joint venture with another company, but that didn't work out, and
eventually we parted ways with the JV partner.
- Give us a personal example of failure in the Japan market and what you
learned from it.
I had my third crisis as an entrepreneur in 2001, years after the sale
of my first company. I took a big gamble in 1999--there was a lot of
venture capital around. I rolled the dice and wound up with a situation
where I grew four businesses very rapidly, but ended up with a declining
market, weak management, and hundreds of people on the payroll. The
market went from bad to disastrous, to a total disaster. I can't say I
almost lost the business, because this time I was more fortified--I knew
what procedures to use. Nevertheless, it has been extremely trying and
very disappointing--bitterly disappointing, actually--to see all that
work from the previous six or seven years go down the tubes and having
to start again. But this is all part of the game. It's all cyclical.
- What is the role of failure in an entrepreneur's life?
In Japan at least, failure is not an option--it is shameful and
basically precludes you from doing business as a trusted entity from
that point onwards. And, frankly, failure isn't really an option
anywhere else either, except maybe in Silicon Valley. Note that a
failed company is not a failed entrepreneur, so long as the entrepreneur
continues to survive. The key to preventing a venture from failing,
even when things look their worst, is to listen to the market and to
morph and provide services and products that the market actually wants.
A company that climbs back out of the hole through selling the public
genuinely sought-after products and services is a company that can
recover.
If I can give any advice at all it is quite simply that these things are
just meant to test you, it separates the grownups from the kids. The
successful ones are basically the people who come through it stronger.
I never could understand people who shut down their companies and ran
away from them. You don't have to shut down a company, period.
Creditors will always give you credit exposure if they have confidence
in you. You should never walk away from your responsibilities.
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Four strikes and you're in
So you think you want to be a real venture capitalist? Well, you'll
have to strike out at least four times, say pros with hard-won VC
credentials.
"It takes four bad investments to make a good venture capitalist," says
Charles Kaye, President of Warburg Pincus, one of the oldest and largest
venture capital firms in the United States. Mr. Kaye was speaking
informally to a SunBridge-led group of Japanese venture sector
professionals visiting the U.S. in May of this year on a government-
sponsored mission to identify professional development programs that
might improve competency and professionalism in Japan's venture capital
industry. What did the group discover?
"Experience trumps education," says SunBridge founder Allen Miner, who
led the group. "That message, though expected, came through clearly and
consistently from everyone we met with. What VCs need is business
experience, including the experience of failure." (Allen later admitted
that SunBridge has succeeded in achieving the four bad investment
benchmark.)
Professional venture capitalists focus sharply on practical business
experience--and constructive learning from failure. Successful venture
capitalists in the U.S. still favor the practice of apprenticeship, and
say that on-the-job-training is far more important to professional
development than formal education. They also stress that training
related to venture capital is inseparable from that related to
entrepreneurship.
"Venture capital education should be considered a subset of training in
entrepreneurship," says Professor William D. Bygrave of Babson College,
an expert on venture capital and a key architect of the influential
Global Entrepreneurship Monitor (www.gemconsortium.org). Professor
Bygrave notes that there are only about 6,000 venture capitalists in all
of North America, too few to justify a specialized academic program, and
that Babson College's MBA course in venture capital is designed to help
students understand the sector as one potential source of
entrepreneurial funding rather than provide career training as a VC.
All this suggests that the Japanese government's idea to improve
training for venture capitalists--the goal of the study mission--is well
meaning but misplaced.
"Japan's priority should be on creating entrepreneurs, not training
venture capitalists," says Joe Schoendorf of Accel Partners, a venture
capitalist with deep Japan experience. Several years ago Mr. Schoendorf
was asked by MITI officials on a U.S. venture capital study tour what
could be done to increase the number of entrepreneurs in Japan.
In reply, he asked the group whether they could imagine a newspaper
headline announcing that Sony's Nobuyuki Idei (now chairman) had decided
to leave Sony to run a venture firm. After two minutes of conspicuous
silence, they replied that they could not. Mr. Schoendorf later had the
opportunity to ask the same question directly to Mr. Idei, and Mr. Idei
himself agreed that such a headline was unimaginable.
Mr. Schoendorf's point is that Japanese society is over-appreciative of
large companies, under-appreciative of entrepreneurs, and downright
disrespectful of career-changers. To encourage entrepreneurship,
Japanese society must learn to respect those who give up successful
careers in large companies to pursue entrepreneurial visions--people
like James Barksdale, who left FedEx to join Netscape, or John Chambers,
who joined Cisco after stints at IBM and Wang.
Furthermore, since fewer than one in 1,000 new companies actually use
the services of a venture capital firm, entrepreneurs must thrive if the
venture capital industry itself is to survive, Mr. Schoendorf points out.
"Create a society that encourages entrepreneurship before worrying about
VC education" is Mr. Schoendorf's response to the bureaucrats' inquiry
into professional development for VCs. That means not only tolerating,
but welcoming, and learning from failure.
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Failure a better teacher than success?
Jack Ma knows a thing or two about flips and flops. In 1995, he was an
English teacher in mainland China. A few years later, he's running
Alibaba.com, China's most successful business-to-business e-commerce
portal, and guest lecturing at the Harvard Business School (many of the
professors there are baffled by his views). Here's his take on failure:
"The lessons learned from success stories only apply under certain
conditions. But examples of failure teach us all something."
What Jack says hits home with me, because I have a rather impressive
record of small business busts. I've stumbled through a number of
entrepreneurial ventures over the years: forming bands and making
records, writing and producing publications, assembling retail products,
and so forth. Most of these efforts were clinkers in terms of
businesses. Some were naive, a couple embarrassingly so.
But as the years passed and my experience grew, the efforts became less
naive and more practical. And after at least four failures, when I was
finally able to identify my core skills and align my entrepreneurial
efforts with them, the next venture evolved into something that was
eventually valued highly by a third party.
So--as Terrie says--if I can give any advice at all, it would be simply
this: the key is trying. Experience accrues to those who try. And the
most common precursor of success is a string of failures, each one of
which teaches an unforgettable lesson. Here's how Shakespeare put it:
Our doubts are traitors
And make us lose the good we oft might win
By fearing to attempt
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Bits and bytes
Dr. Martin Haemming, a Berkeley professor and leading researcher of
global trends in entrepreneurship and venture capital, will give a
seminar entitled "Entrepreneurship and Venture Capital: Facts, Trends,
Lessons" on Monday, September 1 at the SunBridge Venture Habitat from
17:00 to 20:00. The seminar will be given in English and approximately
half the time allotted for Q&A. There is a 2,000-yen participation fee.
For details and an outline of the presentation, see
<http://club.sunbridge.com/modules/news/article.php?storyid=48>.
Terrie Lloyd will offer a half-day seminar on entrepreneurship
Saturday, September 6, at the J@pan Inc offices in Minami-Aoyama,
answering questions such as: Do you really need to invest ten million
yen in order to form a corporation? How do you get that money back
again? How do you sponsor your own visa? The seminar, presented in
English, will be held from 10:30 till 14:30 and limited to 15
participants. Price including bento lunch and light refreshments is
20,000 yen, with a 5,000-yen discount for pre-payment. To register
contact <yukiko@japaninc.com> or call 3499-2399 in Tokyo.
Author and publisher Caroline Pover and partner Yuriko Miyazaki will
share their experiences overcoming obstacles to starting businesses in
Japan at the next Entrepreneur Association of Tokyo meeting September 9.
See <www.ea-tokyo.com> for details.
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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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