Report No.33 Final Issue, September 2005
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Japan Entrepreneur Report No. 33 Final Issue
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- JER's Final Issue: New options
- Flat panel's father is entrepreneur by design
- Thinking of selling your company?
- Bits and bytes
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JER's Final Issue: Options
This is the final issue of Japan Entrepreneur Report. After writing a
book and thirty-three articles about entrepreneurship in Japan, I'm
itching to write about it less--and practice it more.
That said, I must admit that one of my first post-JER projects is to
write a new book. While I've learned how unprofitable writing books can
be (they say any idiot can write a book, and some idiots do), the
process has helped me rediscover the role option theory plays in
entrepreneurship. Sometimes an unprofitable move is smart because it
creates new opportunities (options) to do what was previously impossible.
My next book should enjoy a broader audience, because it will be first
and foremost a business book rather than a book about Japan per se. So
wish me luck! And many thanks to readers who purchased and otherwise
supported Saying Yes to Japan. I couldn't have done it without you.
To keep from getting, too, well, bookish about entrepreneurship, I'm
going to jump back into the game by helping out--and possibly investing
in--foreign firms moving into Japan's service sectors. I'll also
continue teaching international marketing and working to develop a new
entrepreneurship course, one focused on the 99.9 percent of
entrepreneurial activity that doesn't involve venture capital.
It's been a privilege to share my thoughts on entrepreneurship through
this newsletter. I've especially enjoyed the opportunity to meet so many
brilliant entrepreneurs, such as Iizuka Katsumi, whose story appears
below. I want to thank Allen Miner and SunBridge
(<http://www.sunbridge.com>) for the support that made JER possible, and
for the opportunity to continue serving as non-resident Senior Fellow
for SunBridge here in the United States, where I now reside.
Please stay in touch by visiting my personal Web site at
<http://www.timclark.net>. And remember: Keep making new options!
Tim Clark
tim@timclark.net
SayingYesToJapan.com
Voice (U.S.) 503.235.4419
Fax (U.S.) 503.235.4429
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Flat panel's father is entrepreneur by design
Twenty-two year old U.S. college students ordinarily don't scout middle-
aged Japanese managers, but Iizuka Katsumi snapped to attention when he
heard from a firm run by a young Texan named Michael Dell.
The year was 1987, and the 37-year-old Iizuka was happily employed by
RadioShack as a purchasing manager for Asia. But he foresaw that nimble
upstarts like Dell, not plodders like Tandy, RadioShack's parent, would
write PC industry history in the 1990s and beyond. So he jumped.
Iizuka moved to Texas and eventually headed Dell Japan, Japan's top-
grossing Internet retailer in 1998. Next, he founded Akia, a fast-
growing maker of computers, Macintosh-compatible and otherwise.
But Iizuka really hit his stride on July 18, 1996, when Akia introduced
the Microbook PC display: The world's first flat-panel computer monitor
for non-industrial applications. The display won Nikkei's Best Product
of the Year award, and, more importantly, it fueled Iizuka's conviction
that the entire computer monitor industry would eventually be overtaken
by flat-panel models.
Overtaking that industry is exactly what Iizuka intends with his latest
startup: byd:sign, a designer and builder of flat-panel televisions and
computer monitors. In the unlikely Tokyo borough of Tsukiji,
distinguished as home to Asia's largest fish market, I caught up with
Iizuka in an office strewn with cables, giant screens in mid-test, and
the happy, slightly sloppy buzz of a burgeoning venture.
- Tell us about your first encounter with Michael Dell.
I was 37 years old and Michael was 22 years old in 1987 when Michael
recruited the head of RadioShack's computer division, who in turn
recruited a number of people from the Tandy Corporation, RadioShack's
parent, including me. What Michael did was really great, because at the
time Dell was still a small company with only about $80 million in sales,
whereas RadioShack was a seven or eight billion dollar enterprise--100
times bigger than Dell. At the time, Mr. Nishimuro, who was the general
manager of Toshiba's semiconductor division, and who is now chairman of
Toshiba, told me, "Iizuka-san, are you crazy? Why are you going to work
for them?"
- Why did you?
Because I felt RadioShack's business had matured. Their computer
business was too slow. Dell was doing something new--direct response
marketing--it was a unique business model. I wanted to find a bigger
challenge in the computer business within a new company, and with a new
business model. I stayed with Dell until 1995.
- Let's talk strategy. Aren't flat-panel televisions and monitors
becoming commodities, much like PCs themselves? How does byd:sign
differentiate?
Design is very, very important. Flat screen televisions are expensive
compared to conventional television sets, so buyers care a lot about
design. China is now a huge manufacturer of televisions, putting out 40
million sets per year, but Chinese companies are unable to build nicely
designed products. Our televisions are made using 100 percent Japanese
industrial design. They're not the lowest-priced products available, but
we're able to achieve good quality and excellent internal and external
design.
- Why did you initially concentrate on original equipment manufacturing
(OEM), or private- brand sales overseas?
I worked for RadioShack for 14 years, and based on my experience there,
I knew that U.S. consumers are willing to accept store brands. So a key
part of our strategy is minimizing risk by having our customers sell
under their own brands. Probably 80 percent of our U.S. sales are under
private labels. When we sell OEM, we collect our money and don't have to
worry about after-service, returns and so forth. Our customers handle
support services and everything else. It's a very simple, efficient way
of doing business. When we sell under our own brand, we have to have
service staff, call centers and all the rest. Our company is only two
years old. It's much safer to grow by selling our products to large
customers on an OEM basis. The margins are smaller but more predictable.
- How about Japan sales?
Japan is different. Ninety-nine percent of consumer-electronics
merchandise in Japanese stores is made by Japanese manufacturers. With
few exceptions, notably Korean companies, foreign electronics
manufacturers are unsuccessful in Japan, despite huge promotional
spending. How can a small, modestly funded Japanese venture manufacturer
like byd:sign be successful in Japan? My strategy is this: Don't rush!
If we were in a hurry to be successful in Japan, we would have to spend
an enormous amount on marketing. The U.S. market is generally more
accepting of new challengers, as long as the product offers good value.
- How are your products doing in Japan?
Our products are doing very, very well in Japan--better than we
expected.Our biggest Japanese outlets now are Yodobashi Camera, Bic
Camera and Costco Japan.We're now in Don Quixote as well and they're
selling a lot. Seiyu starts next month.We also sell directly over the
Internet.
-Do you have some wise words for aspiring entrepreneurs?
Two obvious-sounding things, equally important. One is a "never give up"
spirit. Some people thought I was finished [after Akia], but I came back.
I never give up.
The second is passion. This is very, very important. I always believed
in the potential of flat-screen monitors. I told myself that LCD
television was going to be a huge business and that I was going to be a
leader in that category. Some people thought I was nuts. They'd say
"Iizuka-san, are you crazy? How can you go up against companies like
Sharp and Samsung?"
But three or four years ago I went to Korea, China and Taiwan and met
with many of the top television and PC manufacturers, and most of them
said, "Oh, no, no, no..." But, today, everyone I know--without
exception--is trying to build LCD televisions.
- What are your ultimate goals for byd:sign? Do you plan an IPO?
I would like to sell our products on every continent around the world.
We also have plans to release other digital consumer electronic products.
And yes, we have people working now on IPO plans for Japan.
Iizuka Katsumi
bydsign.co.jp
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Thinking of selling your company?
Several readers have written to me for advice about selling their
companies. It's a sensitive topic, because the last thing a business
founder/owner wants to do is alarm company stakeholders by broaching the
subject of selling. Here are a few tips from my own experience and from
in-depth interviews with more than a dozen other entrepreneurs who
successfully sold businesses in Japan, or to Japanese buyers, at prices
ranging from one to 40 million U.S. dollars.
First of all, there are two kinds of buyers: Financial and strategic.
Financial buyers seek to increase revenue and earnings by expanding
their product or service line, customer list or operating territory.
They may pay only a small multiple of net earnings or revenues for your
business. So if your operation grosses U.S. $300,000 in sales with net
earnings of $30,000, a financial buyer might offer you three or four
times net earnings ($90,000-120,000) or one times revenue ($300,000)--
maybe more, maybe less.
The other sort is the strategic buyer, who by purchasing your business
acquires technology, intellectual property, a strong brand, thought
leadership or other advantages in addition to incremental revenue or
earnings. Such buyers may pay far higher multiples of revenues or
earnings. Over the last year, several Japanese companies paid
substantially more than ten times revenue for strategic acquisitions.
As a rule of thumb, if your company is in a mature, traditional business
sector, it is more likely to attract a financial buyer. If it is in a
"hot" or emerging sector you have better chances of attracting a
strategic buyer. But don't be discouraged if you're not running a
bleeding-edge biotechnology or mobile communications venture. If you
have predictable earnings and cash flow, a loyal customer base, control
over a certain sales territory, skilled and loyal employees or a
systematic business model that can be scaled up by a larger company, you
may enjoy good prospects for a sale. Potential buyers weigh the price of
such assets against the time, cost and execution risk of developing the
assets internally. Remember: Even tiny firms can develop assets
attractive to much larger companies.
One first step toward selling a company is finding a trustworthy party
you can confide in and explore your thoughts about selling with. Many
owners feel more comfortable talking with a disinterested but
trustworthy third party working in an unrelated business sector. You'll
need to be able to talk freely and in confidence not only about the
transaction and its financial and tax consequences, but also about how
the transition from owner to employee will affect you personally and
impact your future career.
It's helpful to do this aloud in the presence of a trusted, objective
observer--preferably someone with more life experience than you--who
helps you keep perspective by seeing the bigger, post-sale picture.
Don't wait! You have far more to gain by frankly discussing your
intention to sell than you have to lose by risking a leak to
competitors--an unlikely scenario if you're discreet.
Most small-business owners lack friends or acquaintances with company-
selling experience. Yet those who've sold businesses--and lived several
years with the personal and financial consequences--offer the best
advice. You might be surprised at how willing successful company sellers
are to share their experiences with sincere, motivated listeners.
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Bits and bytes
Entrepreneur Carl Kay, whose company became the world's leading English-
to-Japanese localization services provider in the mid-1990s, will
discuss how "cultural arbitrage" can give foreign entrepreneurs a
powerful edge in Japan's multi-trillion dollar domestic services market.
Sponsored by the Foreign Correspondents Club of Japan, the event will
take place Thursday evening September 23. See
<http://199.239.235.234/events/> for details.
Attention readers residing in or around Cincinnati, San Francisco, Los
Angeles, San Diego, Chicago and New York: I would love to meet you in
person this month or next. I will be in Cincinnati September 9-11, San
Francisco September 19, Los Angeles September 20-21, San Diego Sept. 22,
Chicago October 1 and New York October 2-4. See
<http://199.239.235.234/events/> for partix.
As always, be sure to check out Rolomail (<http://www.rolomail.com>) for
everything Japan-related: Books, dictionaries, learning aids, software,
electronic devices, manga--and much more.
Working to establish a brand in Japan? Get some powerful hints from
Gordon Thom, President of Dyson Japan, at the Entrepreneurs Association
of Tokyo meeting Tuesday, September 6. See <http://www.ea-tokyo.com> for
details.
The Japan Entrepreneur Report archives are located at
<http://www.japanentrepreneur.com/archive.html>. Good stuff, if I do say
so myself. Feel free to peruse and pass along with attribution.
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Copyright 2002-2005 Tim Clark
Reproduction in whole or in part without express written permission is
prohibited, but feel free to pass along or quote with URL
(<www.japanentrepreneur.com>).
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