At Creative Lounge Mov, a popular co-working space in Tokyo’s trendy Shibuya district, a chorus of keyboard strokes fill the air as mostly 20-something programmers and designers attempt to build the next big thing. Despite less than flattering accounts of Japan’s startup culture (or, rather, lack thereof), young entrepreneurs have flocked to Mov. Monthly memberships – which range from about US$200 for an unreserved lounge seat to over US$1,200 for a private booth – are sold out.
Japan is sometimes criticized for not having a home-grown Google or Facebook, but if the country ever does produce something of that scale, it will probably come from someone like the T-shirt and jeans-clad creatives who occupy Mov. Surely serial entrepreneur William Hiroyuki Saito hopes so – Mov is just one of more than 25 companies the Japanese-American computer whiz started, invested in, or helped in some direct capacity since launching his first computer software business at the age of 14.
Saito, a California native whose parents were born in Japan, spent his summers interning with some of Japan’s biggest tech firms during the glamor-and-glitz of the 1980s bubble era. Through those early connections, he was able to land contracts with the likes of Fujitsu, NEC, Sony, and Toshiba. After some youthful failures, Saito found his true calling in biometric security. He was named Ernst and Young’s Entrepreneur of the Year in 1998.
After selling his company to Microsoft in 2004, he relocated to Japan with the goal of giving back to the next generation and reawakening Japan’s entrepreneurial spirit. He founded InTecur, a venture capital and technology consultancy firm, the following year. Since then, Saito has collected superlatives, university teaching posts, and seats on the boards of numerous foreign companies trying to establish themselves in the Japanese market and domestic companies hoping to expand globally. He was appointed as a special adviser to Prime Minister Abe’s cabinet in 2013 – a move that made him the country’s de facto “cyber czar,” among other things, as well as the English-speaking face of Abenomics.
Tech in Asia recently spoke with Mr. Saito about the state of Japan’s startup ecosystem, what’s holding it back, and how it can eventually thrive.
Are more young people in Japan passing on the big names and joining startups?
Saito: Well, it depends on where you look. The Mov co-working space is sold out and can’t take any new memberships, so that shows you the amount of interest and hunger for a place like that. Our foundation, IMPACT Japan Foundation (IJF), is also working with Tokyu Group to build the next generation building across the street, which will have four times as much space. IJF is also building our own building to support entrepreneurs in the Tohoku area in Sendai right now, to be completed by December.
In places that have had disasters, for example, people are more amenable to starting ventures. Historically, Japan has been that way. [Disaster] has been a catalyst for a lot of companies. If you look at Sony or Honda, these were postwar. Rakuten was after the Kobe earthquake. My bet here, for building this in the Tohoku area, is because there is a sense that things can’t fail any worse, that naturally you’d expect to see a lot of entrepreneurs coming from there.
Some of Japan’s biggest tech firms took a gamble on you when you were a teenager. I don’t see anything like that happening today. Why not?
Saito: I think corporations are more averse to failure now than during the bubble years. You have these salarymen that just go up the escalator with no real leadership experience, so they don’t want to go out on a limb necessarily – everyone was cost cutting – especially in a deflationary climate.
I really believe that there’s a one-for-one connection with the amount of drinking money a company spends and its stock price, because one of the last few venues where Japanese could truly communicate was [at the bar] after five o’clock, with beers. When you cut that budget, more people don’t communicate with each other, hence you see large companies having limited communication, becoming conservative and inward looking.
The ability to take risks and weather a few losses before you pick a winner has also greatly diminished. There’s something wrong when, since 1971, 11 industries in Japan have had no change in leadership. That could either be to the credit of strong Japanese companies or having no real competition – I think it’s the latter. You don’t see a replenishment of large companies by smaller companies, therefore these big companies just tend to degenerate over time.
You mentioned Japan’s negative attitude toward failure. Why is that mindset so prevalent here?
Saito: People are so adverse to failure that they tell you you’d be crazy to start a company because if you fail you could lose your house and screw up your family – it’s pretty risky here.
Bankers are saying they need to change with Abenomics and the Olympics coming, they’re asking me what they can do. I’m telling them they’re part of the problem. These guys have venture arms that say they’re doing VC and I’m telling them that their VC stands for ‘very cowardly’ or ‘very conservative.’ You’re doing very little VC and then you’re asking them to collateralize – that’s not an investment. In my book that’s called a loan.
People fail, but they can’t declare failure or bankruptcy because their home would be taken away, so they just leave that as-is and in the meantime, to hold things together, they’re working the midnight shift at some menial job. It’s sad, so I told the industry banking association to change the way they do business. They need to figure out how to collateralize all those bad debts and then have these people work it off in terms of a new entrepreneurial venture.
Frankly, I only make investments in people who have failed because, if you look at all the famous companies in Japan – Sony, Hitachi, NEC, Honda – before they created these companies they had some other company before it that failed. I say that everybody has to fail once, that is why as in investment criteria I don’t invest unless they’ve failed because I know some will fail. If I know they’re going to fail to begin with, then I want them to fail with someone else’s money. Then I want to be the second investor, and it’s worked marvelously, because when Japanese fail, they feel really ashamed of it and really try to learn a lesson from it, and they know they can do it right if they have a second chance – but no one in this society gives them a second chance. So I do, and I’ve got a huge line outside my door.
What tech-related sectors are you watching and investing in and why?
Saito: Japan is the first country in history to experience both a shrinking and aging population simultaneously. Everything is upside down – right now it’s 3.3 children per adult that take care of the elderly. Those 3.3 people are having a tough time, they might have to take extended leave from work or quit outright. In 30 years that number could reach one-to-one. For that to work, a lot of things in society will have to change, and that’s going to rely on a lot of technology – whether it’s robotics or sensors or so on. I see a lot of developments in those areas.
But why is this important? Starting with Europe, Korea, China, and the US, in 13 to 16 years they’ll all be in the same exact boat. So Japan, a country that’s taking it on the chin right now, is probably going to figure it out. If it’s gonna happen anywhere, it is good that it’s happening here because we don’t throw our elderly out onto the streets. By the time we figure it out, the rest of the world will be in the same boat and, boy, will we be able to sell it.
All the investments that I make are with that assumption. Be it materials, robotics, batteries – you need all of these things to sustain an elderly population. It’s very important, now for Japan, but in 15 years for the rest of the world. And you know they’re gonna come over here and ask to sell them that technology.
You were raised bilingual. How important is being able to speak English for a Japanese entrepreneur?
Saito: It is mandatory that you know English, but the global language isn’t English – it’s broken English. Japanese are too stuck on trying to speak it perfectly when that’s not the point. People need to realize that communication is essential and unfortunately they don’t teach you communication in Japanese schools, they just teach you how to pass tests.
It’s not what you know or remember or memorize, it is why and how you apply that. That is lacking from Japanese education. The average Japanese person takes seven years of English classes, but I don’t know where that goes. I bring up this issue whenever I speak with the Ministry of Education.
You’re involved with the Code.org foundation. How has it been received in Japan?
Saito: There’s a big problem and that is figuring out who will we use as the spokesperson in Japan. If you look at Code.org commercials in the US, you have everyone from Steve Jobs to Gates to Mark Zuckerberg. Who would be the equivalent in Japan? You think about it really, really hard and there is no one. There is no prominent, distinguished programmer where people go ‘Whoa, I know that person, programming is cool.’ Not a single person. Is that sad or what?
A lot of your own work has been with biometrics. We’ve even got fingerprint scanners built into our phones now. Are we on the cusp of a biometrics boom?
Saito: All technologies are approaching a singularity. The smartphone you carry in your pocket is now more powerful than a supercomputer just 12 years ago. Your Playstation 3 is more powerful than the last Cray Supercomputer. It’s all just a function of processing speed to do this biometrics stuff.
At the [US] Department of Homeland Security, seven or eight years ago, we could do iris detection at 10 meters from someone running. Just imagine what we can do now. If you have sensors that can detect whether grandma’s in her room and alive, I can see various uses for that.
People also wonder how you can sell Japan’s safety and security ‘feeling.’ A home-grown security industry could package and sell that.
Will there ever be a “Silicon Valley of Asia” and can Japan create it?
Saito: Not to that extent and not in Japan, because it’s a direct function with the amount of diversity you have, the amount of open discussion, and the acceptance of failure. Even with the special economic zones and the changing of policies, you can’t just suddenly change diversity or lack thereof.
What’s amazing is that 40 percent of startups in Silicon Valley are done by Indians. I don’t see many Indians in Japan. Diversity is very, very important. The one and only biggest strength that the US has, the thing that makes it special, is diversity. It is the most diverse country on the planet. Unfortunately, Japan is the second-least diverse country on the planet.
We also lose 16 percent of the GDP by not utilizing women. Out of 19 investments I have, 15 are run by women. IRR-wise, they do about 20 percent better than the men. When companies ask me for help finding country managers, I almost always recommend women.
If diversity is the US’ greatest strength, what is Japan’s?
Saito: Because it is so homogeneous there is a certain expectation as far as level of education. Japan is the only country where if you go voting, you actually have to write the candidate’s name. This is an amazing feat because that assumes that the whole population can write.
You had a lot of success in the US. Why didn’t you stay in California?
Saito: Japan is my retirement. I felt like I should give back to all the Japanese companies that helped me get my start. But more importantly, knowing how to speak Japanese in the US is not useful, but knowing English in Japan is actually quite useful.
In a few years, Asia is going to represent 50 percent of the world’s GDP, so why not be here?