Terrie's Take: Startups & Tokyo's TiE Chapter, Sales Tax, Skymark, Stem Cells, and Nuclear Intrigue

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japanese-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on February 3, 2014

Feature:

  • TiE Tokyo Chapter Open for Business

Briefs:

  • Share buyers think post-tax consumption will fall
  • Skymark hits market turbulence
  • Breakthrough by Riken researcher in stem cells
  • Class action suit against builders of Daiichi plant
  • NHK hushing up negative nuclear discussions prior to election

TiE Tokyo Chapter Open for Business
The start of a new year brings with it new dreams and opportunities. Within the business sphere, and for the betterment of society by keeping people employed, one of the most valuable dreams is to create a new business. Unfortunately in Japan kids are given a head start in learning risk aversion, thanks to the scoldings they get from their teachers from primary school onwards, whenever they try to do something different. Teamwork and following the rules is all-important and kids quickly get the message not to stand out. For this reason, most company start-ups are done either by men in their 50's who have realized that they have missed the management elevator and therefore expect to get squeezed out of their companies, or by part-timers and contract workers who are looking for tax benefits to offset their second-class job status.

The number of young people who actually WANT to start a company because they dare to dream big is still disappointingly small, our guess is that it is less than 1% of all graduates. In comparison, in the USA the number of graduates wanting to start a company some day is said to be as high as 54% (Kauffman Foundation study). OK, there is a growing group of young Japanese who flirt with the idea of a start-up (either starting one or joining one to see how it's done). However, flirting and doing are not the same thing. We recently interviewed a young woman who was smart, international, highly motivated, wanting to build a business, and in our opinion would make a good CEO herself in the not-so-distant future. But once she found out that she would have to figure out most of the job for herself (biz dev role -- maybe we were too honest), she promptly lost interest. Unfortunately for her, before you can dream of the money and Google-like office bliss, there is a river of risk and mountain of unknowns to cross first. Japan needs its young people to be a little bit more hungry and adventurous.

There are some bright spots, though, such as the increasing number of accelerators, mostly in Tokyo, which provide not only mentoring but also core business training and mental conditioning. Since most Japanese kids coming out of university have little or no idea what is involved in practical business, such training is really critical to their survival and eventual success. Of course the training is generally through Japanese eyes and hands, and so we feel the "chains of limitation" (i.e., educating those kids about what you shouldn't do, versus what you should dare to do) are still there and still causing many start-ups to think small.

Then there is the lack of all-important role models -- companies headed by young people making lots of money and leading interesting lifestyles. There was a short surge of role models back in the early 2000's, when a bunch of current Japanese internet companies went public, but after the Lehman Shock the flow of IPOS dried up and so did the stimulus for 5-7 years of university graduates. We're hoping, like many others, that Nomura's prediction of a significant increase in IPOs this year, will turn things around and that public media attention as well as a renewed interest by investment funds in start-ups will mean that we will see a second wave come through.

Another problem confronting Japanese start-ups is the funding gap -- between the JPY5m-JPY10m that a new company will receive from its founders and friends, followed by the JPY5m-JPY20m they can get from the accelerators or angel investors, there is a gap of about JPY50m-JPY100m that they will need to make their first commercially viable products and services (think operating costs for 10 people for at least 12 months). Without this money, most start-ups need to find their own cash (very few), or they have to start small and build their way up to a fundable level by selling interim services. This results in very few commercially strong products coming out of Japan, and the local start-ups getting overtaken by better funded foreign competitors and local corporately backed entities because of their slow ascent.

Of course, there are investors to help start-ups across the funding gap -- the nation's VCs. The problem is that there are just not that many of them and the biggest ones are only doing just 3-5 fundings a year, seeing about 20 - 50 candidates to make a single positive decision. Because of supply and demand, Japan's VCs typically want to see their candidates already fielding their product/service and have customers and be gaining commercial traction. Or they have to have some very seriously geeky technology out of a university lab (which is actually happening a lot). So it's a Catch-22 for most start-ups and they stay small.

But rather than complaining about the situation, our role in life is to make things better. For example, with dwindling student numbers and therefore dwindling government funding, Universities are finally starting to realize that helping their student base and research product transition into start-ups can provide them with an important link to a sustainable economic future. Not only do they get licencing revenue if a product makes it, they also get known as the place that helped successful new businesses get their edge, thus causing other ambitious youngsters to seek to join their courses. Waseda and Keio are doing well in stimulating student entrepreneurship, and others are watching carefully.

Another way to make things better is to share information and know-how with experts. Not everyone wants to be in the furnace of an accelerator to find out whether they have what it takes. Instead, the funnel of advisors needs to be wider, and the people (existing entrepreneurs and professionals) assisting the start-up need to come from a more diverse base, so as to give the new entrepreneur enough data to plot their own course. Back in 1994, Yoshi Hori, the current owner of Globis University and Globis Capital (a leading VC), started the first Japan chapter of a global self-help entrepreneur group called the YEO (Young Entrepreneurs Organization).

Yoshi lined up 38 original members, including two foreigners, one of whom was this writer. The group was something completely new, and was dedicated to helping new entrepreneurs make contact with each other and share common problems and solutions, and also to mentor future entrepreneurs. The YEO was quite successful and continues today as just "EO" (Entrepreneur's Organization), with 180 members and two chapters in Japan. Worldwide, the EO has 131 chapters and about 9,500 members. All of these members are founders and owners of businesses with revenues of more than JPY100m annually -- making the conversations and content of their meetings very different to other business organizations. They are an excellent resource for new start-ups.

http://www.eonetwork.org/Pages/welcome.aspx

Another newer global self-help entrepreneurial business organization has appeared on the Japan scene, and this one seeks specifically to develop new entrepreneurs, although the networking aspect is there as well. The organization is called TiE (from "The Indus Entrepreneurs"). Unlike the EO, TiE is not limited to CEO/Founders, so anyone interested in developing entrepreneurship can join the network. TiE has an interesting background, as can be deduced from the name. It's well known that many of Silicon Valley's successful high-tech entrepreneurs are immigrants, and according to the Kauffman Foundation, between 2006 and 2012 at least 43.9% of start-ups had at least one foreign founder -- and 30% of them came from India. TiE was formally established in 1994 by a group of these Indian-origin entrepreneurs and since evolved into one of the largest networking organizations in the world. Nowadays, TiE has 61 chapters in 17 countries, with about 15,000 members.

By natural osmosis the group grew and attracted the attention of many successful business innovators with no Indian connections, and the decision was made in the early 2000's to open the organization to anyone wanting to become an entrepreneur or to support those who were making the effort. The founders' underlying ethos is still evident in TiE today, and its philosophy is "A compatible blend of the Silicon Valley culture of economic value creation through Entrepreneurship, and the ancient South Asian tradition of Guru/Shishya or Teacher/Disciple relationship."

What makes TiE stand out is the passion and activity of its membership base in reaching out to new businesspeople. Since the organization is predicated on Silicon Valley entrepreneurial values, its members are in for the full deal: risk taking, passion to build, appropriate financing, the importance of networking and mentoring, and intense work ethic. It isn't for everyone, but it can certainly provide a rocket boost for anyone looking to build a leadership position in their sector. The network is particularly open, and a member from here in Tokyo can reach out to members elsewhere around the world and expect that they will be looked after. We often see international members looking to come to Tokyo ask for meet ups with local members.

One of the best parts of TiE, is the range of events organized by each chapter around the world. At the top of the pile is TiE50, which will be held in May this year in Silicon Valley. Roughly 3,000 to 4,000 members from all over the world go to Tie50, both to see 50 hot start-ups compete for ranking by their peers, and to network with the hundreds of investors and company founders there. Many international deals start with meetings at TiE50. Last year two Japanese start-ups presented there and both of them emerged as finalists. One of the firms, a software company started by a university graduate, subsequently scored US$1m in funding by an investor also present at the event. The other, an electric vehicle maker, got into a business deal with a manufacturer in India.

After an informal first year, TiE Japan has just set itself up as a formal NPO in Japan and is now inviting people interested in supporting the linkage of Japan's entrepreneurs with the international market to contact its President, Kaz Terada, to get details of how to sign up. If you are an experienced entrepreneur, investor, or business educator, then you may want to join as a Charter member. On the other hand, if you are looking to get into business for yourself or you are simply interested in meeting some of Japan's hottest start-ups at an intimate level on "pitch nights", then you can look at joining as a regular member. Fees and conditions of membership are available from Mr. Terada at: kaz(a)a2oventures.com.

Share buyers think post-tax consumption will fall 
One of the best barometers of public opinion on economics is to be found in the stock market. Given that frugal-friendly company stocks have suddenly become popular again, while luxury company stocks are being dumped, it seems that many investors are betting that consumers are going to stop spending and move back down-market after the consumption tax increase in March. For example, Isetan shares fell by 12.1% in January, while beef bowl chain Yoshinoya shares rose 13.7%. Investors have figured out that since 70% of Japan's wages are paid by small-medium sized companies (roughly 80% of the work force), most people will NOT be receiving pay rises when the unions start pushing the big firms for more money for their workers. (Source: TT commentary from asia.nikkei.com, Feb 1, 2014)

Skymark hits market turbulence
Not a happy time for Skymark Airlines at the moment. The company continues to cut routes from its destination list, following its termination of Narita-Fukuoka flights last November. The new terminations will be Narita-Asahikawa, Narita-Ishigaki Island, Haneda-Asahikawa, Haneda-Kumamoto, and Kobe-Ishigaki. The airline is blaming competition from JetStar on the niche routes and predatory early-booking discounts by ANA/JAL on the bread-and-butter routes. ***Ed: However, rather than JetStar taking away Skymark business, we imagine the real problem is that unless you're offering compelling deals as JetStar does, Tokyo-ites feel that Narita is just too far to go for domestic flights. We wouldn't be surprised if Skymark eventually go under -- or maybe Tony Fernandez at AirAsia will buy them out?** (Source: TT commentary from asia.nikkei.com, Feb 1, 2014)

Breakthrough by Riken researcher in stem cells
It's all over the news that there has been an amazing discovery in relation to stem cells -- that regular mature cells can be "shocked" by environmental stimuli into becoming pluripotent. The new technique is not only much quicker and productive than the gene insertion method used by Shinya Yamanaka, it can also be used in ALL parts of the body, and so is suitable for cloning as well as regeneration. Very good original announcement article in Nature magazine. ***Ed: As a side note, it's interesting how many Western media reports mention Charles Vacanti at Harvard University in connection to the discovery, whereas the reality is that a Riken scientist who was on his team was responsible over a period of 5 years for the discovery. Her finding is being hailed as the breakthrough that will bring iPS treatments into the mainstream of medicine.** (Source: TT commentary from nature.com, Jan 29, 2014)

Class action suit against builders of Daiichi plant
In an unusual development, roughly 1,400 plaintiffs have filed suit against the builders of the Fukushima Daiichi nuclear power plant, charging the companies with failing to install safety improvements to the plant during the over 40+ years of its operation, and consequently bear responsibility for the explosions and contamination. Currently Japanese law protects the companies from prosecution, and the class action suit, which seeks just 100 yen per plaintiff, seeks to overturn that law and make the companies responsible for not only Fukushima but also any other reactors they may have worked on. The companies being targeted are General Electric, Toshiba, and Hitachi. (Source: TT commentary from voiceofrussia.com, Jan 29, 2014)

NHK hushing up negative nuclear discussions prior to election
Looks like the LDP political machine is up to its old tricks again already. Orders have come from the top that there should be no discussion of nuclear issues at NHK prior to the Tokyo gubernatorial elections. Given that former PM Koizumi and Hosokawa are firmly anti-nuclear, while the LDP's candidate Masazoe is for nuclear, it's clear which political source the new policy is being directed from. The NHK orders appear to have been quite heavy handed and have caused a well-known economist from Toyo University to resign from a morning news program because of the restriction. ***Ed: Another reason we seldom watch NHK -- there is already plenty of propaganda in the world, without having to watch it being done badly.** (Source: TT commentary from japantimes.co.jp, Jan 30, 2014)

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Images: Terrie's Take; AkihabaraNews

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