Introduction

Coming up with ideas is easy. Spotting the bad one early is a rare skill. Today we talk with Yo Shibata serial entrepreneur an investor about how you know if you really have a great startup idea. We chat about what it was like being acquired by Rakuten, and what can be done to improve M&A in Japan. Yo also talks publicly for the first time about is new startup and why the current B2B SaaS trend in Japan might have peaked and might be about to completely reverse itself. It's a great conversation, and I think you'll enjoy it. Show Notes The advantage of launching early on a new platform The reason for Japanese consumers' love for points systems What it's like to be acquired by Rakuten The birth of the Tokyo Founders Fund The weakness almost all Japanese VC Funds have How to know when you ave a good startup idea Te importance of "Founder-Market Fit" Is this new "anti-SaaS" platform the way forward Why most Japanese enterprises are bad at M&A The most important difference between Japanese and US startup culture Why the ecosystem is more important than the startups themselves Links from the Founder Check out Tailor Yo's big bet against the SaaS trend. ... and they are hiring Follow Yo on Twitter @yoyoshibata Be sure to give a listen to Yo's podcast START/FM Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me. So, how do you know if your startup idea is any good? After all, coming up with ideas is easy, knowing how to evaluate them before spending a lot of time and money, well, that's that' a real skill, and we're going to get to that. Today we sit down with Yo Shibata, serial entrepreneur, investor, and well-known figure in Japan startup ecosystem. We talk about where Japanese startups are heading and the big bet Yo is making on his next startup. A big bet based on the idea that the current B2B SaaS boom in Japan has got it all wrong.  Now, Yo's theory flies in the face of all common knowledge about the Japanese market, but as long-time fans of disrupting Japan know, I am a hopeless contrarian. Anyone who can make a compelling case about why conventional wisdom is wrong always has my full attention.  I just love those stories and ideas, and I love bringing them to you. So Yo and I dive deep into why Japan's current SaaS trend might be about to reverse itself, and what might take its place. We talk about what it's like to be acquired by Rakuten, how corporate Japan is getting better at M&A, and of course, how to know if you actually have a good startup idea.  But you know, Yo tells that story much better than I can so let's get right to the interview. Interview  Tim: So we're sitting here with Yo Shibata, serial entrepreneur and investor. So thanks for sitting down with us, I really appreciate it.  Yo: Thank you for having me. Pretty excited.  Tim: I'm excited to have you here. And I mean, Yo, you've done so much here. You've started a number of companies, you've started your own fund, you even have your own podcast. It's a great opportunity to really dig in.  Yo: Yeah, yeah, pretty much.  Tim: Just for background, let's talk about your startups. There's been a lot of them.  Yo: Right.  Tim: Your first one you started in college, right?  Yo: Yes, that was when I was 19 or 20 years old. I started a small company with my friend. It was SEO consulting firm. That was back in 2005 or something like that.  Tim: Was that something you planned on like scaling into a big company or was that just beer money for you and your friend?  Yo: Back in 2005, in Japan, there was no venture capital, especially like seed stage, very rarely saw angel investors. They usually took majority stakes with like, $50,000 or something like that.  Tim: Yeah. And back then, angel investors, they were all doctors or lawyers, they weren't startup people at all.  Yo: Exactly. And startups didn't have any bargaining power. And so if they offer $50,000 with half of the company, the only choice is to accept. So that was the situation back then. We had ambition to become big, but there were no knowledge on how to scale a startup. So I don't know if SEO company is sufficient to go public or not.  Tim: Yeah, I could see that. That's the kind of, as you know now, I mean, that's the kind of startup that's really hard to scale. It scales linearly. As you get more clients, you need more experts.  Yo: Exactly, exactly.  Tim: So after you shut that down, you started Code Start.  Yo: Exactly. So after I left the initial startup, I joined McKinsey, and spent three years as a consultant. And then around 2010, so iPhone launched in Japan and I saw a lot of startups in the US. The AWS was available, iPhones taking off, so there were platform. So it became really easy to start a web service. I left McKinsey and started a small app that enables users to compare price by scanning barcode. It was a good timing, the great timing. I got almost like 1 million downloads when there were only like 4 million devices sold in Japan, so like more than 20% penetration to users. But there were no business model and so I sold that company, then I started a new startup.  Tim: So when you sold it to IMJ, right?  Yo: Yes, IMJ. Tim: What did they want to do with that product?  Yo: IMJ at the time was basically consulting business then. They wanted their own web service, not B2B but B2C service. They thought our service is good start for them to start direct to consumer like media business.  Tim: So they viewed it as a means of customer acquisition? Yo: Yeah, I think so. Yeah.  Tim: How did that work out for them? Did it work out?  Yo: It didn't work out for them. After spending several years, they again sold our service to Opt, I think. There were a lot of users still, hundreds of thousands users but no monetization?  Tim: Yeah. It's a clever use, people love it but it's really tough to put a business model around that. Yo: Exactly, exactly. There were lot of such mobile apps back then, no business model. Even Instagram didn't have any business model. So that was like-- Tim: That's true. It was this great experimental time, right? It was all this new technology. We were suddenly walking around with these supercomputers in our pockets. Cloud computing had made spinning up a business super cheap, and the whole world was trying to figure out what to do with it.  Yo: Exactly.  Tim: It was fun times.  Yo: Yeah, yea, yeah, it was fun times. For the initial version, I think we only spent $5,000 to develop, and then it got downloaded 1 million times. So that was a crazy time.  Tim: Okay. So after that sale, you dove right back in and you started Spotlight, which was a online points management, right?  Yo: Yes. It's a location-based service. You go to retail stores and check in and then you earn points just by walking into the stores.  Tim: Yeah. I've always been kind of amazed at how powerful the point system is, membership points. Yo: In Japan. Tim: Yes. Japanese consumers love these point programs.  Yo: Yeah, exactly, exactly. The interesting thing is that consumers will react, like giving 2% of the purchase demand and give back like 2% points to the customers. Then just discarding 5%, they don't react, but giving double points, they're going to buy, so strange.  Tim: This has been researched to death and the consumers even know. They'll tell you, yeah, that's not it. Yo: Yeah, exactly. Yeah. Maybe that's kind of like gamification or some sort of like, yeah, very interesting.  Tim: So that was rolled into Rakuten's massive Rakuten point system.  Yo: Exactly, yeah.  Tim: How did that end up? What was the end result?  Yo: It went well. Rakuten at that time, they were trying to launch a new point card to the real retail stores. So they wanted the unique feature to convince retail chain to join their ecosystem. So they used us to penetrate into retail stores, and it was successful. And our company merged with Rakuten Payment. It became also huge for Rakuten. It was a good acquisition, I think.  Tim: I want to get back to your Rakuten experience in just a minute.  Yo: Okay.  Tim: Because the next thing you did after you sold your company to Rakuten, you started the Tokyo Founders Fund.  Yo: Yep. The Angel Investment Fund.  Tim: And that was really unique and interesting at the time.  Yo: Yes, it was.  Tim: For our listeners who aren't in Japan, even now, but especially in 2015, most funds, the investment committee were finance guys. It was extremely unusual to have anyone with startup experience making investment decisions.  Yo: Exactly. Even now, I think we rarely see venture capitalists with a true real entrepreneurial background.  Tim: Yeah. I think that is one of the weaknesses of Japanese VC in general, the fact that they tend to be really smart finance guys.  Yo: Yeah.  Tim: And so there's a lot of things they overlook. But how was the Tokyo Founders Fund viewed by other VCs?  Yo: Well, we weren't competing against the Japanese VCs, because we wrote small checks to very early stages, and we focused on overseas investment at the time. It was very welcomed. I think Japanese startup community, including VCs are very supportive of successful entrepreneurs funding and helping the next generation of entrepreneurs.  Tim: Do you think there was a lasting impact? It seemed to me it had such potential to change the way VCs looked at investment.  Yo: Yeah, I hope so. I hope we had some impact. And also timing-wise, around that time, a lot of young entrepreneurs went public or got acquired and had some cash to invest in -- angel investing became kind of became mainstream in Japan, angel investing by successful entrepreneurs. And I think Tokyo Founders Fund was very symbolic of the times. It played a role model, I think, you know,