Creating a 'third place' strategy

Japan market entry is hard. Consumer tastes are different, business culture is different, and market needs can be radically different from those anywhere else.  Entering the Japanese market is a challenge for even the strongest and best positioned brands. Today we sit down with Ernie Higa, the man behind two incredibly successful market entries, Dominoes Pizza and Wendys, both of which looked like extreme long-shots at the time. We talk about when to localize and when to stay true to the brand, the importance of repositioning, and how to find startup opportunities in Japan today. It's a great conversation, and I think you'll enjoy it. Show Notes How to determine the kind of startup you can create How to sell to Japanese enterprises even when you are not fluent The importance of focusing on difficult things How Ernie knew that pizza would sell in Japan when all evidence said otherwise How Japanese and US consumers measure quality differently When to localize in Japan and when to stay true to the brand Rethinking pricing and positioning for the Japanese market Why Wendy's could re-enter the Japanese market when others failed Japan's changing approach to shareholder value How Japanese attitudes abotu failure are changing in Japan Links from the Founder Everything you ever wanted to know about Higa Industries Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Perhaps the most common question my non-Japanese listeners ask me is, what kind of a startup should I start in Japan? You know, I want to be helpful, but the answer to that question depends not just on market opportunities, but the skills and the temperament of the specific would be founder in question. The right question to ask is really what is the best startup for me personally to start right now? And no one can really know that except for you. But there are some things that remain true and some strategies that remain effective for all people and across decades. Well, today we sit down with Ernie Higa, a man who's kind of a legend among those of us who really study Japan market entry. Ernie brought both Domino's Pizza and Wendy's to Japan. And although both of those ventures seem like extreme long shots at the time, Ernie made them both work and prosper. Ernie and I talk about how to identify entrepreneurial opportunities, how to know what needs to be localized for the Japanese market and what needs to remain true to the brand and what so many people misunderstand about brands and branding in Japan. But, you know, Ernie tells that story much better than I can. So let's get right to the interview. Interview Tim: So, we're sitting here with Ernie Higa, the representative director of First Kitchen and Wendy's Japan, but best known as the man who first brought Domino's Pizza to Japan. So thanks for sitting down with us. Ernie: Well, thank you, Tim, for having me. Tim: I really appreciate this. I wanted to get you on the show for a very long time. So, you founded Domino's back in 1985, but let's step back a bit before then. Many young founders today are looking to Japan, trying to figure out where they fit in, what value they can add. So in your case, why Japan? Ernie: Well, back in those days, Japan was becoming the second largest economy in the world and was really growing fast. So, there was opportunity here. Having said that, as an entrepreneur, the last thing you want to do is do something that large companies were already doing. So, the idea was to pick a niche business where I felt that I had a more of a competitive edge and leverage my understanding of both Japan and the US. And learning about Japan dedicated myself to learn the business here, learn the language, learn the culture, but to find an area where the large companies, say for example, the Mitsubishis of the world, Mitsubishis of the world were not doing, or they were not so adept. Just to give an example the first business I got involved in was in the lumber business in the 1970s, a little bit different than today. There was the US Japan trade wars. The US companies were trying to figure out how to break into the Japanese marketplace. And there's also some geopolitical pressure as well too. And one of the things was in the lumber business the normally large trading firms would import logs from the United States and have it cut in Japanese sawmills for the Japanese housing size and specifications. But the US said, well, we want the value done in US sawmills. So, you might ban the export of logs to Japan. And of course that was great, except that in the US houses are built on what they call two by four construction. And so there are different sizes, different quality requirements, and the Japanese housings sizes were built upon what they call post and beam. And even further, there was a huge prefabricate home building market that was using lumber, and they had even more difficult sizes, specifications, and so on. And so if the US sawmills could cut those sides, fine, but none of them could. And so this is an opportunity for someone like myself to say, oh, maybe I'll take on that challenge and see if I can't find a US sawmill or a Canadian sawmill at that time to cut for the Japanese marketplace. And that's really where I started. Tim: How did you get that insight? Were you involved in the lumber industry before then, or no? Ernie: No. When you're an entrepreneur opportunities just come by chance and you just have to be looking for that and then again, see where you can fit in. But by chance, I happened to meet a director of a company called Misawa Homes, and in those days, the largest end user of lumber in Japan. And so when this potential of the ban of export of logs came about from the US side, Misawa Holmes said, we really need to have our size and our specification cut in the US otherwise it'll be out of business. Tim: There's an opening. Yeah. Ernie: So, that was an opening and I got to know the director and said, we have this issue. And I said, well, maybe I can resolve that. Who knows? I had no background in the lumber business, but I thought it was an opportunity. Tim: Well, I agree there's a lot of the finding the opportunity is just kind of keeping your antenna up and looking for them. But when you first came to Japan, did you speak Japanese? Did you have a solid cultural understanding of Japanese business? Ernie: Well, so that's an interesting question. I guess since I'm of Japanese descent, there was maybe in my upbringing some sense about Japan, but I really had to start almost from ground zero when I came here. So, and I said, okay, if Japan's a difficult mark to get involved, then this is what I should try to do. But to do that, obviously you do have to learn the language. You do have to learn the culture and the ways of doing business here, which are different than the US. I will dedicate myself, but I'll give myself five years and really work at it and see if I'm able to do that. And then the opportunity with the lumber business came along and I said, okay, this is what I'll try. Tim: What's your kind of best advice to so many foreign founders and aspiring founders here in Japan today? A lot of people come here, they work really hard, they're studying every day, but it takes a while. It's not like you can learn the language in a year and do business. So, like on a practical level, how did you compensate for that early on? Ernie: Well, you're asking very deep questions, but since I was an entrepreneur, if I didn't learn the language and the culture and the way of doing business very quickly, I would go bankrupt. I had a lot of incentive to learn very quickly. So, it took a while. But when you're an entrepreneur, timing and luck and circumstances does play a role. Tim: But I also think, like even with a lack of strong language ability, it sounds like if you're solving a big enough problem, the market will work around that. The bigger edge is not the fluency. It is solving a meaningful problem that they can't solve on their own. Ernie: Yes. So that's where, for example, if you're a large firm, say, we don't need to do that. But if you're trying to develop as an entrepreneur, a new business, then you have to say, okay, there's an opportunity, but there's a lot of issues. Can I resolve it or not? And that was my first entrepreneurial venture where I had to leverage everything I knew, but in a niche area. But it had a big opportunity, but that no one else wanted to do. Unfortunately, the most difficult things is where there's potential for an entrepreneur. Tim: I think that's true. I mean, you have to be doing something that is difficult and or that nobody else wants to do. Otherwise, better funded companies would already be doing it. Ernie: They'd be doing it. Right. And so going back to your initial question to do this business, I had to learn not only Japanese, but we started to sell all over Japan and they have different dialects. And so I had to learn various different Japanese dialects to sell this lumber business. I went the whole nine yards in terms of really trying to get involved in the language and the culture and… Tim: And super traditional business as well. Ernie: Very traditional. And so the interesting thing, because I had to go out to the countryside, whatever, and the fact that I was a Japanese was actually kind of a novelty. And so it ended up being an advantage working with these guys in lumber business who once we got to know each other, very fun for them. Tim: So, identifying a gap in the market, a painful problem, figuring out how to solve it, that makes a lot of sense. But pizza, because how does pizza fit into this? Because back in the mid-eighties, this was not a problem that needed solving Japanese people just didn't need a lot of pizza.