Why startups in Japan have trouble pivoting

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

Japanese startups have trouble pivoting. With the country’s consensus-driven approach to decision making and the importance it places on social harmony, it’s hard for people to stand up and say, “I think we’re taking the wrong path here.”

But some Japanese startups have been able to pivot their way through many business models. One such company is DeNA, a popular gaming startup of the dotcom era. Its co-founder and an active angel investor in Japan, Shogo Kawada, takes us through how the company has pivoted from auctions, ecommerce, to mobile gaming, and the difficulties it faced.

Angel investor Shogo Kawada. Photo credit: CrunchBase.

Tell us the story of DeNA

We started DeNA as an ecommerce auctions company. It first started its PC-based auction service in 1999. When we started, there was no Yahoo Auction. Yes, eBay already existed in the US, but there wasn’t a big C2C market in Japan.

We had an alliance with Recruit and Sony at the time, and we used their customer base to start our C2C market. But in September, Yahoo entered the Japanese market and leveraged their strong traffic.

They were the number one in the market at the time. We chased them for a long time, but they were still number one.

How did you pivot?

C2C was a winner-takes-all market. It was profitable, but we had a very tough time. So, we decided to also do business in ecommerce shopping. We made some profits, but we weren’t strongly profitable. That was 2003, and there was no iPhone or smartphones. So, people didn’t believe in buying something through their mobile phones.

At that time, Japan had businesses with monthly content subscriptions. So, it was a very simple business model, and there was almost no ecommerce activity. Phones at that time only had bluetooth, so entrepreneurs didn’t believe that people could input their names and addresses through such a small device.

But take young Japanese women’s high school students, for example. They use their mobile phones with such acrobatic skill. They could use the buttons to write long mails and even a novel. I realized this fact, so we created a new kind of C2C market.

When iPhones became popular, why didn’t DeNA capture the market?

DeNA’s mobile auction market was basically based on the subscription model used in the old mobile phone infrastructure, which was totally different from the smartphone. Yahoo Auction couldn’t move into mobile, and the old mobile phones couldn’t get into the smartphone business.