Tokyo-based podcaster explains Japan’s declining startup scene and its future

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This article is part of Tech in Asia’s partnership with Speak Up Asia where we publish the revised transcripts from the show’s podcast interviews with Asian entrepreneurs. This is heavily revised from the original transcripts. For the full interview, go here.

Tim Romero is the host of the Disrupting Japan podcast. He has interviewed a lot of business owners to get a good insight into the state of entrepreneurship in Japan.

Now, there’s been a lot of discussion about the decline of entrepreneurship in the nation, specifically compared to the bubble era in the 1980s and early 1990s. But Romero feels that Japan’s best days are still ahead of it and, in many ways, the country is even more innovative now than it was in the past.

I asked him what his thoughts are on this issue, what happened to the go-go 80s of Japan to cause it to decline the way it did, and where it can go from here.

What do you think has caused the decline?

Basically, what happened is Japan became a victim of its own success. In the 70s and 80s, the domestic market became so big that the companies focused internally. They didn’t need to compete with the global giants. They focused more and more on the domestic market, and that kind of strangled the innovation.

I think what we’re seeing right now is a return to both the economic climate and the attitude that existed in the 50s and 60s. Today’s millennials, for example, don’t have this guaranteed lifetime employment. They don’t have a guarantee of a cushy life. So, a lot of them are saying, “Wait, we’ve got to start something. I want to take control of my own future.”

Similarly, on the macro scale, the Japanese economy has been flat for the last 15 years. Real growth needs to come from outside. We have both startups and Japanese mid-sized companies once again saying, “We need to go global. We need to innovate globally to achieve growth.”

What is the difference between the culture now and in the 50s?

In many ways, Japan was culturally much more restricted in the 50s than it is today. That’s probably true in most countries. But I like to say that culture is bullshit. It obviously exists, but people use it to explain away things that we don’t understand. And I think the rise in entrepreneurship and the growth of startups can be explained by simply looking at risks and rewards.

Let’s go back to 30 years or so. We had a young student who just graduated from the University of Tokyo and he was thinking “Should I join a large corporation or start my own company?”

On the startup side, back then, you really couldn’t get equity financing. It was all personal loans and if you failed, those loans would follow you around for the rest of your life. The bankruptcy laws at that point were really strict. And even if you did really well and managed to do an IPO, you’d live a comfortable life but make about the same amount of money that an executive makes in Mitsubishi or Panasonic. But if you went into a large company, you’d have a guaranteed job for life. If you worked hard, you’d get a steady stream of big promotions. If you didn’t work hard, you’d get a steady stream of small promotions.

So, joining a company was all reward and no risk. Starting a company was all risk and no reward.

But today, that has changed. There’s no more lifetime employment and guaranteed promotions, so joining a big company has become less rewarding and riskier. At the same time, starting your own company has become less risky because there’s equity financing now. Nobody has to take personal loans.

The attitude toward failure is changing slightly in Japan, and the rewards are much bigger. There are mergers and acquisitions. There are a lot of people now who, after seven years of hard work, walk away with US$20 million in their pocket. That’s not crazy San Francisco money, but it’s motivating.

Is there a mindset shift among young entrepreneurs?

We don’t see many startups coming out of Japan. Why do you think that is?

How do women contribute to the revival of Japan’s economy?

Are there challenges that women face in Japan?

Do you think Japanese entrepreneurs need English skills to scale their companies globally?

Does Japan lag behind many Asian countries in software development?

Does Japan need to import talent or develop local talent to lead again?

What sectors have a unique advantage for Japanese entrepreneurs?