Disrupting Japan

Twenty years ago, we all thought that starting a startup required a special and rare kind of talent. It was something you either had or you didn't. Today, founding and running a startup is considered more of a learnable skill. It has its own best practices,  industry standards, and common knowledge. And, in both startups and enterprises, I find it refreshing to talk to people who have succeeded by going against those industry standards. Peter Galante started what would become the wildly successful Japanese Pod 101 with no clear idea how to monetize and no clear business plan. He did, however, have a firm conviction that what he wanted to build had value and the people would flock to it. And he was right. Peter and I talk about how his unconventional business plan and his rejection of VC advice and standard best practices, actually resulted in a rapidly growing startup in a market protected from even his best-funded competitors. It's an interesting conversation, and I think you'll enjoy it. Show Notes Who is really studying Japanese online Why most Japanese language learners fail What you need to know about turning a hobby into a business What happens when your startup start changing for free content Why podcasting is dying [Noooo!!!!] and video is rising How content creators can get paid when so much content is free How to defend your business against better-funded startups Links from the Founder Everything you ever wanted to know about Innovative Language Learning JapanesePod 101 JapanesePod101 on YouTube Connect with Peter on LinkedIn Friend him on Facebook [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript  Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Today, we're going to sit down and talk with startup founder and fellow podcaster Peter Galante, founder of Japanese Pod 101, and if you study Japanese, then you've probably already listened to more than a few of those episodes. When I went over to their studio for the conversation, Peter mentioned that he was actually a little bit nervous about coming on the show. That came as quite a surprise to me. I mean, I'm a friendly guy and I genuinely love learning about business models and taking them apart, you know, breaking them down into their individual movies parts, holding them up to the light to see how they work. I think that subject is endlessly fascinating and I learn something new every time I do it but that's my approach and not everyone thinks this way. Not everyone approaches startups as an exercise in business model design where you have a system of interacting components that need to be optimized in underserved markets that need to be served. Some people, in fact, probably more founders that are willing to admit it start out with a vision of what they want to be doing and then figure out how to backfit some kind of sustainable business model onto it. This is exactly what Peter has done and as we'll see during the interview, this is exactly what has not only led to the success of Japanese Pod 101 but it is also what is preventing even well-funded competition from entering this space. We also - and as a podcaster, this breaks my heart - we also talked about the ongoing and transformative shift from audio to video content. Oh, yeah, and Peter wanted to make sure I let you know that about the same time this podcast is released, Japanese Pod 101 will exceed 1 billion downloads. That's pretty impressive for something that started out as a hobby but you know, Peter tells that story a lot better than I can. So let's get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] [interview] Tim: I'm sitting here with Peter Galante of Innovative Language Learning who is redefining online language education but is more famous and I think well known by a lot of listeners for creating Japanese Pod 101. So thanks for sitting down with me. Peter: Thanks for having me. I'm actually a very big fan of your show. Tim: Well, thank you, many of our listeners already know and are probably already subscribers to Japanese Pod 101 but can you just briefly explain what it is and what your company does? Peter: What we do is we provide about 10 to 15-minute lessons teaching Japanese, usually centered around a conversation. We introduce the conversation, then you hear the conversation, and it's usually two voice actors of speaking Japanese. After that, we break down the conversation and explain the nuances of the words, the vocabulary and usually, some central point that ties this conversation together such as a grammar point or a set phrase. Tim: Okay, and the podcast acts as sort of sample lessons, and then people come onto the site and they subscribe for the whole package? Peter: Exactly. We have a free music model, so the lesson is actually free for two weeks. So you can actually - if you can subscribe from day one, you can have all our multimedia content for free. Tim: I wish I was that dedicated in studying my Japanese. I come in and out of it. No, you support 34 languages now, right? Peter: That's correct. Tim: That's pretty amazing. Well, listen, before we dive really deep into the business model, tell me a bit about your customers. So who is subscribing to the Innovative Language Learning system? Peter: Sorry, Tim, I thought you were here to give me a business model because I… Tim: We can work on that afterwards. Peter: Yeah, let's work on that, actually. Tim: But who are they? Are they younger, older, do they skew male, female? Peter: So we have listeners as young as eight years old all the way up to people in the 80s. So the free content is consumed by a wide variety of people. The paying customers tend to be about 30 to 40 years old, professional people who are interested in self-growth. Tim: That's not what I would have guessed. I would have guessed it would have skewed much younger. What's the percentage of Japanese learners versus the other 33 languages? Peter: When we first started 12 years ago, Japanese was, of course, the whole thing and we worked very, very hard in Japanese to build up the other languages while maintaining the high quality of Japanese content. So over the years, the other languages have grown quite a lot and Japanese is about at 20%. Tim: Well, listen, I think you've done something that Japanese Pod and in Innovative Language Learning that a whole lot of westerners who come to Japan dream of doing. You started with something that was just kind of an idea and you grew it into something that's a growing, thriving business. So let's take a few steps back and talk a bit about you and how all this stuff got started. So why did you first come to Japan? What brought you here? Peter: Is spite a good answer? Tim: Spite? It's an interesting answer. Why did you move to Japan for spite? Peter: So kind of a half joke. I have to back up a bit. Spite wasn't the key catalyst but it played it important role. So when I was in high school, we had - this is early 90s - we had a Japanese exchange teacher come stay at our house. I'm from New York and this is at the time when Japan was taking over, they were going to be the new number one economy, and I think at that time, the internet wasn't as disseminated, so we kind of paid attention to the narrative that the media wanted to portray and that was that we're losing. Tim: Right, this was the Japan as Number One era. Peter: Correct, and meeting someone from Japan and spending time with them up close and learning about the culture and language, and just more important, making a real life long friend was the main reason I became interested in Japanese and Japan. So when I went to University, I chose Japanese as the language to study and my Japanese teacher wasn't very good at it but you have to understand, year one or first sem - Japanese 1 has about 100 students. Japanese 2 has 10 students, Japanese 3... Tim: It's a tough language, yeah. Peter: So I managed to make it to 3 and my Japanese teacher just said to me, “You should go to Japan,” so then, like yeah, I want to go to Japan, and then I interviewed for something called the JET Programme. Tim: Ah, okay. Peter: And I didn't get it. Tim: Oh, okay. Peter: That's where the spite came in. So then I kind of made it a goal to come to Japan. I wound up coming as an English teacher and slowly working my way back into the school system here. Tim: You just sent out a resumes, you just contacted language schools independently and found someone to hire you? Peter: Yeah, feverishly. Tim: You mentioned you're working your way back into the education system but you’re also studying at heat Hitotsubashi, right? You're studying for your PhD there. Peter: That's correct. Tim: Was that something you left education to do or is that something you were doing kind of part time while you were paying the bills by teaching English? Peter: I think the way my professor looks at it is they kicked me out to pursue a career as an entrepreneur. So after coming to Japan as an English teacher, I had quite a rigorous schedule. So in the morning, I would go to Japanese school from about 9 to 1 and I go to teach English from 1:30 to 9, I kind of do this constantly and I worked my way back into academia. I got a job as – oh, I got a position as a research student at a university in Ibaraki. From there, I took an entrance exam into a masters program and that's when I got to have Hitotsubashi. Again, this is in Japanese. So I got my masters degree in Japanese, well, I was studying in Japanese. Tim: So all the coursework is in Japanese? Peter: That's what I was trying to say. Then,

This is a rather personal episode. We have no guests this time. It’s just you and me. Today, rather than diving deep into a specific aspect of startups in Japan, we are going to take a hard look at both what is and what is not working within the Japanese startup ecosystem as a whole. And at the end, I'm going to answer the most common question I am asked by overseas audiences. "Where are the Japanese unicorns?" You might already know about Japan's two existing unicorns, but I'm going to explain where the next four will be coming from. I guarantee that it's from somewhere you would not have expected. So let's get right to it. UPDATE:  Evocative Machines are starting to take off in Japan. If you are interested in the subject, please check out The Evocative Machines Project. [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan. Straight talk from Japan's most successful entrepreneurs. I'm Tim Romero, and thanks for joining me. Once again, I’ve got a special show for you today. There will be no guests, no beer, no playful banter with someone speaking English as a second language. Today, it’s just you and me. It’s been a while since I’ve done one of these one-on-one episodes. Way too long really. I truly enjoy doing them and they tend to be my most popular episodes, but man they take a lot of time to write and put together. This episode, in particular, I had to rewrite two or three times, to make sure you would really understand what I am trying to explain. Because by the end of this episode you and I will definitely be in new and uncertain territory, and I for one love being in new and uncertain territory. By the time we’re done, you’ll have a solid idea of where Japan’s next dozen unicorn startups will be coming from. First, I want to tell you what inspired me to create this episode for you. In fact, it was kind of a strange situation. I mean twice a month we sit down and talk about innovation in Japan. I’m privileged to talk with and to introduce you to some of the most interesting founders and innovators in Japan. I spend a lot of time talking, writing and thinking about how the startup ecosystem is changing. But. You know, I think I missed something. Something important. And, I think the reason I might have missed it was because I watch things so closely that when …. Well, lets back up a bit so all of this will make sense. Actually, it was my friend Allen Miner who first pointed out the change. For those of you who don’t know him, Allen was one of Japan’s first modern VCs and he also brought both Salesforce and Oracle to Japan.  And by the way, if you have not listened to the Disrupting Japan episode where Allen tells the story of Oracle’s Japan market entry, you really need to go back and listen. Someday business schools will make proper case studies from that story, but until then, it’s a Disrupting Japan exclusive. It’s a story of fake it till you make it on a multi-billion dollar scale. The plot involves intrigue, secret dealings, and … rock-concerts. What more could you possibly want?    Go and listen to it right now. I'll wait. … Welcome back. Did you listen to the episode? No, of course, you didn’t. Nobody ever does. It’s a silly conceit. I don’t know why we podcasters keep using it. We should stop. Anyway, give Allen’s interview a listen when you get the chance. Now back to our story. For the past eight years, the Japan Society of Northern California has given out annual innovation awards to startups in both Japan and the US. They are a really worthwhile organization that has been around for more than 100 years. I’m on the advisory committee for the awards, and last month in Tokyo I attended the awards ceremony for the Japanese startups. The winners, by the way, were Mujin, Soracom, and Cloudian.  Ken, the founder of Soracom was on the show last year, and you’ll be hearing from the other two founders on the show soon. So, Allen was making an informal speech at the awards and he made an observation that made me question if I had missed something big in Japan’s startup ecosystem. He mentioned that for the past seven years there had always been a gap, a significant gap, between the quality of the Japanese startups who won the awards and their US counterparts. The American startups had always seemed to have expanded faster, to have more real-world deployments and to be frank, the US startups just seemed more innovative than the Japanese were. But this year was different. The three startups that won this year's awards could stand up with any silicon valley startup of the same age and industry. And he was right. I’m always talking about how fast the startup ecosystem is improving and how the quality of both founders and startups is rapidly approaching that of what we see in America. But what if it’s already happened and I missed it. Disrupting Japan has always been about bringing you the best and most interesting things that  Japan’s startup landscape has to offer. But is it possible that I’ve missed the forest by focusing too much on the individual trees? In these one-on-one episodes, I usually go deep on a specific topic that I think is very important but little understood, but today we are going to do the opposite. We are going to go wide. We are going to take a step back and take inventory of the entire startup ecosystem and see where we really stand. We’ll take a look at what’s working, what’s truly exceptional and what is still lacking. We’ll look at the state of fundraising and financing, the changing social attitudes towards startups, the true state of innovation in Japan, and we’ll wrap up by talking about Japan’s future unicorn farm, and where exactly the second era of Japanese innovation will come from.   Startup Financing and Fundraising in Japan First, let's talk about fundraising and the availability of capital. There is plenty of risk capital in Japan, and by all measures, the amount is increasing. Japanese venture firms raised more than $2.5 billion in 2017, which is more than a 400% increase from 2012. But numbers don’t tell the whole story. Sure, everyone like numbers, because they seem objective and it’s easy to think that you understand what they mean, but let’s look at what these numbers really tell us about the startup ecosystem. The biggest effect of this increased funding is that is has made founders a lot more confident and aggressive, and a lot less stressed. Years ago when I began asking founders why and how they started their companies, most had stories about how they had to convince their wives, or their parents, or their parent’s wives, to let them start a startup. Most founders had people begging them not to do it, and some even lost friendships.    A decade or longer ago, when financing was hard and valuations were low. Most founders had to scrimp, to deprive themselves of basic necessities. One founder, Kanemoto-san from OKWave,  came on the show and explained that he was actually homeless when he was bootstrapping his company. Another told me about how he had to secretly use his wife’s jewelry as collateral for a loan to get the money he needed to keep his company going, and by the way, he also told me emphatically. "Tim, Tim. Your startup is important, but there are some things that you should just never do." This just doesn’t happen anymore. Newer founders rarely have a dramatic origin story. I mean sure, just like founders all over the world, they work hard, and they’re happy to talk about their passion and their vision, but newer founders also tend to receive social support. Family, friends and even co-workers encourage their efforts. I’ve actually had a number of people tell me, “I had two VCs who wanted to give me money, and my friends and parents thought it was a good idea, so why not?” And that is awesome! Over the past decade starting a company in Japan has gone from “Am I really willing to bet my entire future on this.” To “Hey, why not? What’s the downside?” And that’s the way it should be. When you are not worried about your next meal. When you are not worried about making payroll next month. When you are not worried about gangsters trying to collect a loan secured by your wife’s jewelry, you are going to dream bigger. You are going to double down and roll the dice again rather than try to protect whatever gains you have already made. You are far more likely to grow a billion dollar company with this attitude.  And that’s exactly what we are seeing in Japan. From dozens of newly minted founders who are explaining how they are going to disrupt their industry, to iSpace, who raised over $90 million to commercialize the moon. Japan’s startups are finally dreaming big. On the VC side, however, while the progress has been impressive, the transformation is less complete. VCs everywhere in the world are basically skittish and risk-averse creatures, they are herd animals by nature. Oh, they like to see themselves as hunters, as lions scouring the startup savanna for stray unicorns, but in truth, they have more in common with the jittery gazelles. We see the same dynamic in Japan, but its a bit more pronounced. Japanese VCs are very willing to invest in standard startup business models with clear metrics. If you have B2B SaaS startup or a mobile marketplace with promising metrics, you *will* get funded. If your idea is a little more innovative, but you have a good pedigree; you come from the University of Tokyo or a top-tier investment bank, you’ll get funded. And if you are more off the beaten path? Well, you’ll have to work a lot harder and raise money at lower valuations, but the money is there. There is another odd effect that is a result of both the herd nature of Japan’s VCs and the fact that there are still relatively few deals.

If you've ever done business in Japan, someone probably walked you through the intricacies of Japanese business card culture. Chika Terada, the founder of Sansan, created one of Japan's most successful startups around the business card protocol. And even though Sansan has been expanding quickly and is on track for an IPO, Chika thinks that Japanese business card culture will soon disappear. Chika and I talk about the challenges of rapidly scaling a company, and how the IPO market in Japan will change in the next few years. We also talk about what Chika learned as his company expanded into other markets and how even B2B business is really a complex mix of business and culture. It's an interesting conversation, and I think you'll enjoy it. Show Notes Why business cards are not data, but an event marker Why Sansan wants to replace business cards How to save the corporate culture when you are committed to things that don't scale How stock options should be (and are) used at Japanese startups Why marketing is so hard to disrupt in Japan How Japan's business card culture extends overseas How big company attitudes towards startups re changing in Japan How to teach innovation in Japan Links from the Founder Everything you ever wanted to know about Sansan Check out Eight for business networking Sansan in English Friend Chika on Facebook [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. You know, anyone who has done business in Japan has had to learn the intricacies of Japanese business card culture and the protocol involved in exchanging them. Well, Chika Terada has built Sansan, one of Japan's most successful startups around business cards. The name Sansan started as a play on words, kind of like the band Mister Mister but the company itself has grown into a powerhouse of B2B CRM and corporate relationship management in Japan where LinkedIn has failed. Now, Chika and I talk a lot about the challenges involved in scaling a company up so quickly and what he's learned by expanding into international markets, some with business card cultures very similar to Japan and some with very different protocols, and we talk about why we might finally be seeing a shift in the unhealthy fixation that so many Japanese investors and founders have on the IPO. And you know, despite the fact that Sansan has built its entire business on business cards and the protocols surrounding them, Chika explains why he thinks that they may eventually go away and what will replace them. But you know, Chika tells that story much better than I can. So let's get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] [Interview] Tim: So we're sitting here with Chika Terada, the CEO and founder of Sansan who is really changing how Japan looks at business cards. So thanks for sitting down with me. Chika: Thank you, thank you very much for giving me this opportunity to talk with you again. Tim: Again, yes, it's great to have you back on the show because you were actually the very first guest I had on this show over three and half years ago. Chika: I'm very pleased to hear. I mean, by looking at your success after the first interview, that's remarkable. Tim: And likewise, you as well. Sansan has been just growing at a fantastic rate since that interview and jt's one of the real startup success stories in Japan. People from overseas often see Sansan as kind of like a business card scanning app and I know it's a lot more than that. It's more like a networking tool but maybe you can just start out by explaining what Sansan is and what Eight is. Chika: Right, it is true that our company deals about business cards but this means our company is all about the business encounters. People meet people in business every day and in Japan and in other Asian countries, people exchange business cards. This is a kind of culture so we provide two services, one is same name as the company Sansan for companies and the other services called Eight which is for business professionals. So Sansan is more like CRM solution based on business cards. The idea is that assuming the business cards as the representative of the business encounters, if you can manage business cards successfully as a company, it's going to be your sharing database because you can search that database with the name of the company you'd like to access, then you may or may not find a past to that company that your colleagues have. So that's the whole idea and that data itself can be utilized or exported to other system like salesforce.com. Tim: Well, and you also sort of work out the whole, the corporate org charts and hierarchy based on these cards, right? Chika: Because business cards have the information of title and organizations, so we can structure organizations by capturing business cards. Tim: And every April, when Japanese companies reorganize, Sansan kind of keeps track of that reorganization, right? Well, I think it's interesting. You guys have really filled a niche that LinkedIn wanted to fill in Japan but wasn't able to. Chika: Well, it's about our B2C service. I mean, Eight is the most suitable for that aspect. I mean, you use it for free to build your network. So you scan a business card and you connect with others, and before scanning the cards of others, you’re required to register your own business card. As you scan business cards, you may connected to the people of business cards you scan if they are on the network. Tim: I really liked the way you had of putting it that the business card represents an encounter rather than an individual. Do you think this is at the heart of why Sansan has been so successful when getting in this niche that LinkedIn has not been, this focus on encounters rather than broadcasting information about yourself? Chika: Well, why it is well-adapted in Japanese market is because first of all, people use business cards and we have some trouble managing or keeping track of business cards after they're received. Of course, we'd like to replace business cards in the end because we don't believe the usefulness of paper business cards at all. This is a culture right now and it can be altered. Tim: Yeah, no, I think it is interesting. Maybe I've just been in Japan so long. Japan definitely has a business card culture where that card does represent the encounter. The US and China don't have that. I find it to be very easy workflow. So if I've gone to an event, I can go back home and look over 25 business cards and remember, oh, I talked to this guy about the this and I talked to her about this, and I promised to follow up. Without those business cards, I can't remember everyone I talked to and who I have to follow up with. Chika: So, there is still a merit of a business card because it's portable and everyone has one but still, we'd like to provide a way in which you can do the same thing online digitally. So recently, we released a new feature in which you can scan business cards on the spot and you can send your digital business cards to his or her email. So the image is included, so it's almost similar to the paper business cards. We try in anyway. Tim: Step-by-step moving towards digitalization. Chika: But we like to keep or sustain a taste of business cards and the benefit of business cards like you said. So we are in a transition period, I think. Tim: Okay, well, one of the things that was unique about SanSan when you were first starting off was that all of the business cards your customers would scan and you would have human staff double check to make sure it's right. Are you still doing that? Chika: Yes, and the automation really is getting high. From the beginning, we use the technologies and also we used human power. It's a combination. OCR technologies cannot be perfect. The accuracy rate would be like, 80% to 90% but the remaining 10% to 20% is critical because when you talk about the information, if you get an email address lacking one letter, it's useless, right? So to fill that gap, we've been using crowdsourcing. So as we gather the accurate data, we can automate the process. So we combine technologies with human power. In the beginning, maybe it was only 10% automated but now the rate is like at 60% or 70%, so remaining 30% is done by human. Tim: Okay, that's still quite a lot of human labor going into this. Do you think AI will ever be at the point where you can just trust AI to do this? Chika: Well, partially, we trust AI. For example, our engine to distinguish language of business cards are fully AI-based. We trust it so we just sort the business cards into English, Chinese, Japanese, or other language using that AI. In that part, there is no human involved. We used to have human in that part as well. So step-by-step, we automate by using AI, and once AI passes the threshold that we can replace human, we apply that to that point. Tim: That makes sense. Actually, as you've scaled up, right now, you have around 400 people. So over the past four or five years, you guys have moved from being like a cool small startup to sort of a cool large start up. What did you have to change about your company or your culture to make that happen? Chika: Well, there have been challenges to scale, of course but already have a challenge, right? So to be honest, I don't have any specific case or a transient period that I would just say that it was difficult. I don't have such story, to be honest. Tim: Well, okay, from my own experience, I've always noticed that when I was running startups and the team was really small, like five or six people, that's almost like a magical time.

Startups are changing how business is done in Japan, but medicine remains stubbornly resistant to innovation. In some ways, that's good. We are literally experimenting with peoples lives, so caution is definitely warranted. We don't want to rush things. However, Japan's national health insurance acts as a single buyer, and sometimes the only way to innovate is to go around them. That's exactly what Kenichi Ishii, the founder of Next Innovation has done. Their long-term strategy involves creating widespread and comprehensive telemedicine in Japan, but right now they have developed a basic approach that has reduced the cost of some medical treatments by more than 70% And business is booming. Ken and Next Innovation are both proudly from Osaka, and we also talk a lot about the state of the Osaka startup ecosystem. It's a great conversation, and I think you'll enjoy it. Show Notes Why medical startups need to innovate around Japan's national health insurance How to cross-sell in the medical market Why Osaka offers a competitive advantage to some kinds of startups What is holding back telemedicine in Japan The culture of secrecy in Japanese medicine The most likely source for innovation in Japanese medicine Links from the Founder Everything you ever wanted to know about Next Innovation Friend Ken on Facebook Check out the Sumashin app The Osaka Innovation Hub is the center of Osaka's startup scene [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. The medical industry is one of the hardest to disrupt and in some ways, that's a good thing. I mean, we're literally experimenting with people's lives here so there's a good argument to be made for being conservative and taking things slowly, but you know, looking at the national health insurance system in Japan and the health systems of all developed nations, it becomes pretty obvious that not only can improvements be made but that improvements must be made. Well, today, we talk with Kenichi Ishii, the founder of Next Innovation. Their long-term strategy involves increasing the use and acceptance of telemedicine in Japan in general but right now, they've developed a basic approach to telemedicine that enables them to sell prescription drugs over the I, and business is booming. Oh, and Next Innovation is a proudly Osaka-based startup. Ken and I talk a lot about the challenges Osaka has faced in developing a startup ecosystem and why it seems that those problems might be over, and you'll be hearing from more and more Osaka startups on the show. During the interview, Ken and I talk about value-based medicine and price-based medicine. It's not really intuitive so it's probably best if I explain it to you now. When Ken talks about cost-based patients, he means those who see medical treatment as a means to an end and they want it done simply, cheaply, and quickly. The value-based patients are those that want to be involved either because of an interest in the treatment or for other social reasons that we’ll talk about. Ken will explain why this difference is important, how Japan's tight control over the medical industry forced him and his team to be very resourceful in launching this product, the crisis Japanese hospitals are facing now and why we can't stay on our current path; we need to innovate our way out of this situation. But you know, can tells that story much better than I can, so let's get right to the interview  [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] [Interview] Tim: So I'm sitting here with Kenichi of Next Innovation, a true telemedicine startup in Japan. So thanks for sitting down with me. Kenichi: Thank you, nice to meet you. Tim: Telemedicine covers a really broad area, so can you just briefly explain what Next Innovation does? Kenichi: Our products, we call it smashing, it means smart and of course, the clinic, and there are three unique points. The first, main content is text-based communication. Tim: So not video? Text-based? Kenichi: Yeah, it's not video. We have a video, it's available but almost doctors, not choice. Second, we never use Japanese insurance systems. Tim: So you don't use the national healthcare system. Kenichi: Yes, yes, because we target all over the world. If we use the Japanese unique insurance system, we can't – Tim: It will be hard to go global? Kenichi: Yes, yes, yes. Tim: That makes sense but – well, so basically, you're providing online consultation for things like flu shots, erectile dysfunction drugs, hair loss, hayfever, and cat allergies, right? Kenichi: Yes, yes, yes. Tim: So if national health insurance doesn't cover your service, how can you compete with all of the clinics where – Kenichi: Yes, exactly. Tim: The cost must be much higher. Kenichi: Yes, we never use the insurance system but some customers, payment money is almost equal insurance system use. Tim: So it costs the same to use your service as the co-pay of someone using the national health insurance? Kenichi: Yes, yes, yes. Tim: How do you do that? Because Japan has a pretty good national health insurance so where is your cost savings on this? Kenichi: One point is, doctor’s fee. For example, a doctor and patient appointment is same time, but it is hard to each people and our products take text-based communication. So each people don't have to admit at the same time. Tim: Okay, so it's more efficient for the doctors, it uses less of their time? Kenichi: Yes, yes, yes. The next one, almost Japanese insurance systemic including the pharmacist fee, drugstore, our product omit this system. Tim: So you deliver the drugs by postal mail? Kenichi: Yes, from clinic to patient. So it is a second cost down point. Tim: And the third one? Kenichi: We can only use generic medicines. Tim: So no brand-name drugs? Kenichi: Yes, yes. Tim: Alright, but that means that this efficiency drops your cost to 30% or so, right? Kenichi: Yes, yes, almost 30%, likely 30%. Tim: 30% of the standard – or it seems to be exactly why we need more innovation in medtech. Kenichi: Yes. For example, a patient with hayfever, around 4,000 yen each visit. So our target wants to buy the prescription drug but never go to the clinic. Tim: So I do decide on these specific types of medical problems? Kenichi: We think of the development, each categories, doctors and the customers, so we focus on the first time, the doctors - they don't know how to use telemedicine. So at first, we target low-risk disease and low-risk solutions. This is very important. That's the first time, I take the ED market. Viagra is small risk and it is easy to diagnose. Tim: Alright, and the same thing with the same thing with hayfever and cat allergies. That makes sense. I really like this because when people think of telemedicine and innovation, we tend to think of video consultations or high-tech but this is actually a pretty low-tech approach and it's a just very efficient. Kenichi: Yes, I think so. Tim: Well, tell me about your customers. So erectile dysfunction and hair loss seems to target a very specific demographic, but cat allergies and hayfever seem to be targeting a very different group of people. Kenichi: For example, ED service to 50 years and men and hayfever and allergic market is 20s or 30s female. It is a separate market with right to the cross sale in the markets, ED and AGS, and including the allergic market to, for example, the pills. Tim: So for example, hair loss, electrical dysfunction, that's probably an easier cross-sale. So do you use different marketing channels to reach the erectile dysfunction and hair loss customers than you use to reach the car allergy customers? [pro_ad_display_adzone id="1652"  info_text="Sponsored by"  font_color="grey”  ] Kenichi: So I hope to engage with the customers by internet. It is very easy to collect information, just lots of information on the website. Tim: Very much like any other kind of e-commerce. Kenichi: Yes, yes, like e-commerce. Tim: So search engine optimization, some social media… Kenichi: Yes, yes, that's right. Tim: That makes sense. Before we get into the details of the product and the business model, let's talk a bit about you. You actually grew up in the Tokyo area and you went to university in Tokyo, but you moved to Osaka in 2013. What was the reason for the move? Kenichi: I love Osaka and Kansai area, there is no competitor in this market. Tim: But I mean, this was back before you started Next Innovation, so 2013. Kenichi: Oh, okay, I understand. I have belonged to the pharmaceutical company from 2001 to 2013 and this is twice location from Sapporo to Osaka at 2005. Tim: Okay, so the company transferred to you? And actually, I mean, you had a really long and successful career in the pharmaceutical industry. So what made you leave and want to start a startup? Kenichi: I think some pharmaceutical companies, very, very great company but limited. There's a lot of regulations and innovation. For example, we have to talk about no license drug with the doctors. We cannot speak with customers. I think this is very frustrating, medical players changing very, very slowly. Tim: Yeah, it's a very conservative industry. Kenichi: Yes. If I want to change it, it couldn't change including the player. Tim: So it has to be changed from the outside. Kenichi: Yes, yes. Tim: That makes a lot of sense. What did your colleagues think of your decision? Were they supportive of you deciding to leave the company and start your own business? Kenichi: Almost of my colleges and the boss said to me, "It crazy. Don't do it."

Preferred Networks is making changes in Japan. Over the past few years, this AI startup has raised more than $130M in venture funding and grown to more than 130 people. If you live outside of Japan, you might not have heard of this team, but they are working with Toyota to create the next generation of driverless cars. They are working with Japan's most advanced industrial robot manufacturers to improve efficiency. They are also working with many financial institutions on fraud detection. Oh yes, and they also built Japan's most powerful commercial supercomputer. Today we sit down and talk with Daisuke Okanohara, the technical co-founder of Preferred Networks. Daisuke and I talk about the story behind Preferred Networks, he also shares his challenges and current strategies for maintaining the company's experimental and engineering culture as it grows larger and more structured. Daisuke also talks about his time at Google, how Japanese AI stacks up to China and the US, and why he’s convinced that their biggest competition is going to come from somewhere you would never expect. It's a great discussion, and I think you'll enjoy it. Show Notes What edge-heavy computing is and why it's important How a Google Internship changed Daisuke's outlook on AI The future of driverless cars at Toyota Why the team decided to build Japan's most powerful supercomputer Why you can't sell disruptive products to large companies How to keep a curious spirit even as your company grows Where the real competition in AI will come from Links from the Founder Everything you ever wanted to know about Preferred Networks Check out their Homepage Follow them on Twitter @PreferredNet Check out Chainer Preferred Networks free open source AI library The core Chainer project PaintsChainer Cupy Chainer [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Preferred Networks is without question the brightest star in the constellation of Japanese AI startups. It attracted about 130 million in venture funding and have grown to more than 130 people over the past few years. Of course, if you don't follow AI, you might not have heard about them at all but they are the technology behind Toyota’s driverless cars, some of FANUC’s industrial robots, many cutting-edge applications in other verticals, and as a side project, they also built Japan's most powerful commercial supercomputer. It's an interesting team to say the least and today, we sit down and talk with Daisuke Okanohara, Preferred Networks’ technical cofounder. We talk about how Preferred Networks got started and got to scale and he also shares his challenges and strategies of trying to maintain the company's experimental and engineering culture as it grows larger and monthly revenue pressures increase. Daisuke also talks about his time at Google, how Japanese AI stacks up to China and the US, and why he's convinced that their biggest competition is going to come from somewhere you would never expect it. But you know, Daisuke tells that story much better than I can, so let’s gets right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] [Interview] Tim: So I'm sitting here with Daisuke Okanohara, the cofounder and Executive Vice President of Preferred Networks, Japan's leading and probably most innovative AI startup. So thanks for sitting down with me today. Daisuke: Thank you very much. Tim: So Preferred Networks talks a lot about the importance of edge -heavy computing. So can you explain exactly what edge-heavy computing is and why it's important? Daisuke: Cloud computing is one of the most important trends in the IT area and most people believe that most computations or operations should be done at a data center or across site, and it's okay if we deal with fragile information but when it comes to solving real-world problems like operating robots or autonomous driving, we need to process data at the edge site or near to the device. Tim: So just so make sure I understand it correctly, edge-heavy computing is important because of the latency of how quickly? Daisuke: Yeah, and reliability. Tim: Ah, right, right, because you want to always have connectivity? Daisuke: Yes, current internet, it's not reliable to use for the mission-critical tasks. Tim: Okay, so it's really a trade-off between the latency versus the amount of computing power you have? So if you can wait for the results, it's great to compete in the cloud but the closer to real-time, the more important edge computing is? Daisuke: Yes. Tim: Alright, that makes a lot of sense. But isn't the promise of big data that you need like, huge data sets? So when you are using edge-heavy computing, do you still send all the information to the cloud for analyzing later or do you generally try to make self-contained systems? Daisuke: Our goal is to extract the information at the edge site and only send the essential information to the data center or other place, so we do not even know the data center or cloud but when there are many devices, we cannot send all the data to the cloud and we need to process most of the computation at the edge site. Tim: Okay, so it's just a more clear separation of training data and execution data? Daisuke: Yeah. In the current status, training requires much more computation part so we need to train the model at the cloud site and the operation execution or inference at the edge site. Tim: Okay. Now, Preferred Networks is involved in AI applications ranging from like, automotive and factory automation, life sciences, network security, and I want to talk about all of those in a little bit but before that, I want to talk a little bit about you. So before you got your PhD, you were an intern at Google in San Francisco? How did that happen? Daisuke: Yes. At the time, I started Natural Language Processing and many of my friends started working at Google. I was also interested in how Google solves a problem and how the people in Google are working, so that they could produce many excellent products. Tim: So did you apply to Google in San Francisco from Japan or did you apply to Google Japan and said, "You need to work with this group in San Francisco"? Daisuke: Actually, I applied to Google Japan but at the time, Google Japan did not have enough resources to accept intern members, so internship students went to San Francisco. Tim: Okay, so it sounds like you had a real passion for AI before you started working with Google. So what did you take away from that internship? Daisuke: Before working at Google, I did not imagine how AI can be used for solving many problems. For example, the search engine, motion transition, image recognition, speech recognition, and so on. So many products and services use machine learning as an essential tool. Tim: That's interesting because I think in a lot of technologies, Japan is very strong in academic research but tends to be weaker in creating new products and bringing new products to market, not just AI. Daisuke: Yeah, I think Japanese is a bit conservative and they hesitate to do different things. In my opinion, it comes from Japan is a monoculture. All people speak Japanese and spend the same expenses wear the same clothes and maybe in the companies, so it is very tough to start new things. I think that diversity is very important to bring new products to our futures. Tim: Yeah. It makes sense working with Google, you understood the importance of practical applications of AI but then when you came back to Japan, you went back into university. Daisuke: Actually, I started my original company Preferred Infrastructure. I did research at school at daytime and I did business maybe at night or at the morning, so I did not spend – Tim: Okay. Well, that's right because Preferred Networks was spun out of Preferred Infrastructure. So you started Preferred Infrastructure while you were in college. Why did you decide to spin out a new company out of Preferred Infrastructure? Because it focuses on the same kind of technologies, right? Daisuke: Yes. Preferred researcher focus is not using AI in the real world and we have very good business and the business was growing, so it was difficult to focus on two things, the current business and a very different business on AI and IOT. Therefore, we decided that it is better to separate the company into groups so that each group can focus on the one thing. Tim: Okay, so if I understand, Preferred Infrastructure is more general AI and Preferred Networks is more applications and IOT? Daisuke: Yeah. Preferred Infrastructure, the main business is to sell search engines or recommendation engine, and the main customer, the media companies and those main data was text. Tim: Okay, so Preferred Networks is the one that has a more general mission to bring AI to different sorts of industries? Daisuke: Yes, and the difference is Preferred Infrastructure, the original company, did not raise the money from the partners or venture capitals at all. Tim: Okay, let's talk applications and some of the things you're working on. So one of the most exciting projects is your collaboration with Toyota and their focus on autonomous vehicles, and you've been working with them for three, four years now and they just recently invested $95 million into Preferred Networks to accelerate that research. So tell me about what you're doing with Toyota and the self-driving Prius. Daisuke: We try to apply the AI technologies, especially the deep learning and the related technologies, and there are so many programs in the autonomous driving as you know. In our company,

Education is very hard to disrupt. That’s both good and bad. Education is so important to both individuals and society, it should not be changed on a whim, but over time it seems that our institutions of higher education have drifted away from meeting students real needs. Yoshito Hori, founder and CEO of Globis, is making radical changes. He turned a small training school into Japan's first independent and fully accredited business school with an MBA. Less than ten years later, Globis became Japan’s most popular MBA program. We talk about the need for change in education and about the successful, real-world pilot program Globis is running to modernize Japanese higher education. Yoshito also shares insights on how to teach innovative thinking and explains why such a high percentage of Globis MBAs go on to found starts or join them. It's a fascinating discussion and I think you'll really enjoy it. Show Notes Why most Japanese do not want to attend full-time MBA programs How to make an advanced degree both exclusive and inexpensive How to groom MBA students to start startups How Sumitomo missed out on a multi-billion dollar business Why Japanese higher education is so resistant to change This difference between SPOCs and MOOCs, and why it's important How drinking in front of your computer might save higher education Links from the Founder Check out Globis Yoshito's blog on entrepreneurship in Japan Follow Yoshito on Twitter@YoshiHoriGLOBIS Connect with him on LinkedIn Yoshito's article on 100 Actions to revive Japan The G1 Global Conference [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Disrupting Japan. Straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero, and thanks for joining me. You know, education is hard to disrupt. And as long-time fans know very well, that’s both a good thing and a bad thing. It’s good because education is so important and foundational not only to how well a given child will do later in life but also because in the large developed nations, the educational system forms the basis of society itself. It provides us all with a shared set of experiences. So the fact that we don’t change the rules every few years is a good thing. On the other hand, this lack of disruption leads to educational systems that don’t really meet the needs of today’s students and today’s societies for that matter. So clearly, there must be a better way of doing things than what we’re doing now. Well, today, I’d like to introduce you to someone who’s found a better way. Yoshito Hori founded Globis as a small business training school and grew it into Japan’s first independent and fully accredited business school offering MBAs. And then, Globis became Japan’s most popular MBA program. Yoshito’s strategy for innovation is fascinating. Unlike similar schools in the US, Globis does not compete on cost. In fact, the Globis MBA is more expensive than similar degree programs at Todai or Hitotsubashi. No. Globis is doing something unique and something that is making a lot of people rethink how university and post graduate education is done in Japan. But you know, Yoshito tells that story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1404"  info_text="Sponsored by"  font_color="grey" ] [Interview]  Tim: So we’re sitting here today with Yoshi Hori of Globis. Thank you so much for sitting down with me. Yoshi: Thank you very much as well. Tim: Globis has about 7,000 students per year. It’s the most popular MBA in Japan. It always does well in the national business school rankings here. But what seems most unusual, it’s a truly international MBA program. You have students both from Japan and overseas now, right? Yoshi: Yeah. Tim: What sort of ratio? Yoshi: Well, we have English MBA program and Japanese MBA program. Japanese MBA program is a part-time program. English MBA program, we have part-time, full-time, and online. We have roughly about over 100 English MBA program students. We have about 800 Japanese MBA programs. Tim: That’s interesting. So you have more Japanese students but it sounds like there’s a lot more flexibility in the English language courses. Yoshi: That’s right, yeah. Tim: Why is that? Yoshi: Well, our vision is to become number 1 business school in Asia. In order to become number 1 business school, we need to have full-time English MBA program. But in case of Japanese, we don’t need to have full-time in Japanese MBA program because not many people quit jobs to get MBA in Japan. Therefore, in Japanese side, we have Japanese MBA program in five locations with Mito and Shin-Yokohama at Yokohama station for hop campuses and also online.  Most of Japanese students participate and enroll into MBA program as a part-time MBA program. In case of English, we need to have full-time MBA program so that quite a few students come from overseas. There are roughly about more than 50 different nationalities within Globis MBA. More than 90% of Futa MBA program is non-Japanese. So it’s a very truly international MBA program. Tim: Moving forward, do you think there will be more and more international students fueling the growth or more Japanese? Yoshi: We feel that there will be more and more non-Japanese international MBA students coming in. The reason is that we have not been into English MBA programs until 2009. We have been around only for about 8 or 9 years and we just started full-time MBA program in 2012. We have a lot more room to grow. Tim: MBA programs in the US tend to be quite expensive and Globis as about 4 million yen per year. How does that compare with MBA programs at Waseda or Keio? Yoshi: Well, Waseda and Keio are almost about the same. But difficulties in Japan is that we have national universities like Hitotsubashi and Tokyo University which is roughly about one-quarter of tuition compared to Globis and they are highly reputed as well. So therefore, it’s difficult for us to raise our tuition simply because we are dragged down by those national good university in Japan as for tuitions. Tim: Are their tuitions so low just because of the government subsidies towards those universities? Yoshi: Yes. 70% of those revenue for those national universities are tax payers’ money. So it’s highly subsidized, mostly run by the tax payers’ money. Tim: Okay. It does make it difficult to compete. Yoshi: Well, you know, we cannot raise our tuition higher and we have to appeal to our potential students that our quality of education is three times or four times better than those who are run by tax payers’ money. Tim: Before we get too deep into the program and the school and Japan, you’ve got a traditional MBA and you became an entrepreneur. What percentage of your MBA students go on to become entrepreneurs and what percentage would you say take the more traditional career path? Yoshi: I would say roughly about 10% becoming entrepreneur and 20% more are joining entrepreneur companies. And then roughly about 20% will be changing jobs to consulting or other foreign affiliate companies. I think roughly about half remain in their companies. Tim: Are those numbers pretty similar for both the Japanese students and the non-Japanese students? Yoshi: In case of non-Japanese students, it’s difficult to compare because quite a few of them come from overseas to study here in Japan and most of Japanese students are living here in Japan, and therefore it’s difficult to compare. But in case of non-Japanese students who come to Japan, some start their own companies here, some change their jobs, and some go back to their home countries. Tim: So that 30% of Japanese Globis MBAs are either starting a new company or joining a startup company? Yoshi: Yeah. Tim: That’s fantastic. That’s really high. Yoshi: It’s quite high. Tim: Excellent. Well, listen, before we talk more about Globis, let’s take a step back and talk about you. Yoshi: Okay. Tim: So you went to Harvard Business School. This was back in 1992, when you were graduating, and this was before the last internet bubble. What made you decide to start a new company rather than just join a consulting firm or going to a very high-paying job at a Japanese firm? Yoshi: I was sponsored by Sumitomo Corporation to get my MBA. I feel thankful for my sponsor company, Sumitomo that I had never thought about changing my jobs. I was planning to come back and I did come back to Sumitomo but I really wanted to start up mu own companies and I want to become an entrepreneur. So I came up with 30-40 business ideas and I shortlisted it into 2, and I raised 2 business plans within Sumitomo Corporation for the new businesses to be done and executed by Sumitomo Corporation. But those two business plans were rejected by Sumitomo and therefore I had to do either of them by myself and I chose this Globis idea. I raised capital from my friends, small capital only about $8,000 and I started Globis from scratch. Tim: But what changed your mind? There must have been some point. So you were on a great career track at Sumitomo, where they’d sent you to get your MBA. Was starting your own company you always wanted to do since you were a boy? Yoshi: I never thought about becoming an entrepreneur in my life until I went to Harvard. My father was a nuclear scientist and my grandpa was a politician and the other one was also engineer-scientist. So I always thought about becoming a scientist or a politician but I decided to become more like a business person so I joined Sumitomo Corporation. But when I got into MBA, I was quite shocked about the split within MBA. Quite a few colleagues of mine wanted to become entrepreneurs and I start to think about what is entrepreneurship and how you can start a company, how you can make it grow.

The insurance industry has proven very resistant to innovation. In fact, it has not really changed much in the past 200 years. The way insurance is sold and managed has changed, of course, but from the point of view of the consumer, things remain surpassingly like they were a century ago. Today we talk with someone who is changing that. Kazuya “Kazy” Hata is CEO of JustInCase, a new breed of Japanese insurance company that offers insurance over the smartphone and then monitors how you use your phone, your lifestyle, and your social connections to determine what your premium should be. We also talk about the next logical step for smart-phone-based insurance. Being able to ensure specific activities or possessions at will, maybe just for a few hours or while you are on a trip. It’s a great conversation, and I think you will really enjoy it. Show Notes Who actually buys long-term cell phone insurance What behavior might make you a "risky" smartphone user Why there are so few life sciences startups in Japan The future of insurance on demand Why P2P insurance presents a unique market opportunity Why it is so hard for insurance companies to innovate How Japan's FSA is working to encourage insurance innovation Links from the Founder Everything you wanted to know about JustInCase Kazy's blog (Japanese) Follow Kazy on Twitter @KazyHata Friend him on Facebook Genome Link Online Hackathon [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I'm Tim Romero and thanks for joining me. You know, the insurance industry is really resistant to innovation. The modern insurance industry was largely developed in the 17th and 18th century and it's not changed a whole lot since then. Oh, the tools have changed: insurance is sold very differently today, risks are better understood and better quantified, better measured, and the emergence of the global reinsurance market has made the system far more stable, but the way insurance works from your point of view, from the way you and I see it, things have changed very little over the past hundred years. Most of the change in the industry is driven by regulatory changes rather than entrepreneurial innovation, and for insurance, I've got to say, I'm pretty much okay with that. Insurance firms need to remain solvent for decades and theoretically forever, and the fail fast, fail forward philosophy doesn't really work when it comes time to pay out life insurance or after a natural disaster, and yet, there needs to be a way to innovate and that's what we're going to talk about today. Kazuya Hata or “Kazy” as his friends call him is the founder and CEO of JustInCase. JustInCase offers insurance over the smartphone and the first product they're insuring is your smartphone itself. JustInCase then uses artificial intelligence to analyze your usage profile and your social connections to determine the premium you should be paying. We also talk about the next logical step for a smartphone-based insurance, being able to enter specific activities or possessions at will, maybe just for a few hours or while you're on a trip. The cellphone interface and the personal rich data which we continuously share about ourselves online, whether we know it or not allows companies to build up a personalized risk profile and both offer customized and flexible products and replace the number of fraudulent claims. But you know, Kazi tells this story much better than I can so let's get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] [Interview] I'm sitting here with Kazy Hata of JustInCase who offers not only insurance on your cellphone but actually sells insurance on the cellphone. Does that make sense? Kazuya: That's actually right, yes. Tim: Well, thanks for sitting down with me. Okay, let's talk about your product. You're offering basic cellphone repair insurance for 200 Yen a month, right? Kazuya: Well, at the very cheapest, yes, and that's after the discount but we have about 30% on every discount, it can be as low as 200 Yen to maybe 400 Yen. Tim: So that seems like it's cheaper than AppleCare but more expensive than manufacturer's warranties. Kazuya: Right, right, right, because manufacturer warranty for the first 12 months normally comes without any cost. Tim: Okay, and are you ensuring customers only at the point where they buy the products or are you insuring them, if someone's had their phone for three years and wants to get insurance, will you sell them insurance? Kazuya: Yeah, we are open to both cases, brand new, of course, and also, we will definitely accept the second hand older smartphone, but our policy currently is only up to iPhone 5S, so iPhone 4 or iPhone 3, that's too old so we will not accept. Tim: Oh, I see, so anything 5S or later. Kazuya: Yes, 5S or later. Tim: How many years ago was the 5S? Kazuya: It's like three years or four, or maybe five years. Tim: Oh, okay. Kazuya: Yeah, so it's effectively everything. Tim: So tell me about your customers. Are you selling to companies that are managing lots of phones, are you selling to individuals? Kazuya: Right, our first product definitely - well, we want women definitely, but first product will be definitely by a man like late 20, 30, 40, maybe 50, like somebody who goes to the MVNO, not like SoftBank, DoCoMo which costs like $10,000 Yen per month but it can be lower, like 1/3. Tim: And that's just because it's less expensive? Kazuya: Yeah, it's less expensive and it can cover the second hand older smartphone, not only brand new one, because typically like AppleCare only accept something so brand new or like 50 days old. Tim: Okay. Well, listen, before we dive into the real details of the business model, let's talk about you for a minute. Kazuya: Sure. Tim: So you founded JustInCase with your co-founders in 2016 but before that, you were an actuary at Milliman, right? Kazuya: Right, right, right, that's where I started my career, yes. Tim: Yeah, and your technical co-founder also worked with you at insurance companies as well, right? Kazuya: He was actually my client at that time. Tim: Oh, really? Okay. Kazuya: But we know each other like 10 years. Tim: But it seems to me like - I used to work in insurance and I know a lot of actuaries and actuaries tend to be very conservative people. They tend to be risk-averse in general. What made you decide to start a company? Kazuya: Right, that's a good question. I wanted to be a mathematician when I was 18 years old. I felt I'm the most genius person in the world, then I went to the university and everybody wants to be a mathematician. Everyone is a lot more smarter than me, yes, okay, so I need to do something different. Otherwise, why am I here? So since then, about 20 years ago, my strategy of my life is do something different if you think I can do it, so I have insurance knowledge, insurance experience, oh, okay, insurtech. Maybe that's what I'm doing for the next few years. Tim: Okay, but again, what made you decide to start a company? How did you mathematically look at, you know, these are the risks, these are the rewards, now it's time to start? Kazuya: Well, it is a lot easier, like 10 years ago when lifemed was created, now it's more common to have a startup and funded by VCS or angels. Right now, it's a lot easier. Even me two years ago when I was thinking or Google it, and then everybody's doing outside of Japan but not in Japan. Why not? I'd like to do something nobody is doing. Tim: Okay. Let's talk about your app which is really kind of the center of the product. So the app actually uses AI technology to track the user's interaction with the phone and determine their risk level and their insurance premium? Kazuya: Yeah, yeah, that's right. Tim: What exactly does it monitor? Kazuya: Well, it monitors based on whatever you allow us to get and such information includes gyro accelerator, sensors information or steps you walked today, distance you walked or you moved, and then we analyze the data, not one by one but as a group, a policyholder group, and then we categorize them as risky or less risky. [pro_ad_display_adzone id="1652"  info_text="Sponsored by"  font_color="grey”  ] Tim: And do you use GPS location information? Kazuya: We do use that when it's necessary, yes. Tim: And what about things like social connections? Kazuya: Right, yeah, we are in the middle of a filing process to the Japanese FSA which is a regulator but we don't plan to use that initially because it's more complex. Tim: I would imagine that your social network would be very strong indicators towards your credit worthiness, your stability with the phone, right? Kazuya: Right, right, right. Yeah, yeah. If you are using it everyday, and then if you're not, but obviously you’re not, the insurance business law is quite strict that insurance premium has to be fair among users. That's where we think we are very strong at. Tim: You mentioned you haven't rolled that out yet. Do you think there will be resistance to that kind of idea, people being judged based on who their friends are or who their connections are? Do you think that Japanese people will accept that as a good thing or do you think that they will resist it as kind of a privacy invasion? Kazuya: Yes, it's potentially quite controversial but probably, we don't use the information, only the information but we use multiple information, so in this smartphone insurance case, we don't use that information but people might think this dynamic pricing concept, they might not like it, but we're trying very hard to make it better for most of the people.

Blue Innovation attracted a lot of international attention last year when they announced the  T-Frend drone system. This dystopian drone flies around offices after hours reminding staff not to work overtime, and taking pictures of those who violate overtime policy so that management can be alerted. We’ll talk about this particular drone, of course, but Blue Innovation's technology is much broader and is making an impact an many more important, if perhaps less visible, areas. Founder and CEO Takayuki Kumada explains the early days of the company and why they decided to pivot into drones in the first place. We also talk about the future of drones in Japan and globally, about what’s really holding the industry back, and why the Japanese government crackdown on drones might have actually forced the industry to focus on a very specialized and very lucrative niche. It’s a great conversation, and I think you’ll enjoy it. Show Notes What is a drone integrator, and why are they important? How Blue Innovation pivoted from environmental consulting to drones How drones navigate with no WiFi no GPS and no light What kinds of jobs drones should not do Why flying drones make more sense than swimming or crawling drones Which industries will be most affected by drones What's really holding drones back How Japan can overcome China's lead in drones Links from the Founder Check out everything Blue Innovation is doing Blue Innovation's Facebook page Japan Drone 2018 on the Blue Innovation blog Friend Takayuki on Facebook [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. One of the ideas I've talked about a lot over the past few years and one that's finally gaining some acceptance is that the bulk of meaningful innovation in Japan is going to come not from startups but from midsized companies. Of course, Japanese venture capital and the ecosystem will adapt to include these players but things are going to develop differently in Japan than in the United States. With this in mind, perhaps you won't be too surprised to learn that Japan's leading drone company is not a traditional startup but a midsized company that pivoted into drones from a completely different industry. Today, we’ll sit down with Takayuki Kumada, founder and CEO of Blue Innovation, Japan's leading drone integrator. Now, Blue Innovation attracted international attention last year with the announcement of their T-Frend drone. Now, this drone is designed to reduce overtime by flying around the office taking pictures of staff and telling them to go home, and yeah, we talk about how effective this is likely to be but we also talk about the integrator strategy, the one that's being pursued by a lot of the most successful high-tech startups in Japan. It's a strategy that allows them to quickly collaborate across industries and brings an immediate cash flow, but it does come at a cost and it might not be stable long-term, but we’ll get into that. We also talk about the future of drones, both in Japan and globally and what's really holding the industry back, and why the Japanese government’s crackdown on drones might have actually forced the industry to focus on a very specialized and very lucrative niche, But you know, Takayuki tells the story much better than I can, so let's get right to the interview. [Interview] [pro_ad_display_adzone id="1404"  info_text="Sponsored by"  font_color="grey" ] Tim: So I'm sitting here with Takayuki Kumada, the CEO of Blue Innovation, and Blue Innovation is developing civil engineering services using drones. So thanks for sitting down with me. Takayuki: Thank you very much. Tim: Okay. On your website and in interviews, I've heard you describe Blue Innovation as drone integrators. I was wondering if you could explain, what exactly does that mean? What is a drone integrator? Takayuki: Ah, I see. So drone integrator means hardware and a software, and a solution. We manage each component. Tim: So you work with various different companies in different industries to sell drone technologies, right? Takayuki: Yes, that's right. Tim: Before we get into all of the different systems you're developing, let's step back a bit because Blue Innovation, it didn't start out making drones. Blue Innovation started in 1999. Takayuki: Yes, that's right. Tim: And you were focusing on environmental issues or coastal erosion? Takayuki: Yes, yes, that's right. First, our business side is power protection to disaster, so we developed the countermeasure against beach erosion and tsunami. So we need some aerial photograph because we try to understand the cause of disaster, so aerial photograph is very, very important. So we bought the aerial photograph for some company in the past but we could not gather it after the disaster. After the disaster areacs photograph, we could not get that, so we thought, so how to get and how to take a photograph after that disaster at a point. Tim: So it turned out that at the time when it was most important to get that information, to get the photographs, you couldn't get it? Takayuki: Yes, yes, that's right. Right after the disaster, yes. Tim: So at that time, did you contract out to drone companies? Did you buy drones yourself? How did you start using your own? Takayuki: 10 years ago, we searched the technology for how to take a photo, aerial photograph. We found the technology in University of Tokyo. So the University of Tokyo developed the drone system. So we met the professor, so Professor Suzuki developed the UAV, or unmanned aerial vehicles. Tim: So he was developing the hardware or the software that controlled it? Takayuki: Both. Tim: Both? Takayuki: Yes, hardware and software. The main part, the main research part is software. Tim: And this was in 2000 – what year was this? Takayuki: 2006. Tim: That was pretty early in the drone - Takayuki: Yes, so we try to – "Please print the area robot," so Professor Suzuki said, "Okay, let's together try the research." So first time that we used the coastal monitoring by this UAV, we developed the coastal monitoring system using the UAV. Tim: At that time, you were still a coastal erosion environmental company just using drones, so when did you make the pivot to become a drone company yourselves? Takayuki: So ICAO decided their own concept to aircraft, so many company developed the Revised Aviation Law all over the world. At the time in Japan, the government didn't move the Revised Aviation Law, but some maybe IT venture, the Yahoo, Google moved very faster, then maybe some IT venture company contact us, they said, "So we want to develop the UAV system, drone system. Do you have the drone system, UAV system?" So maybe about four or five years ago, maybe companies contact us about drone system because there are some drones on our website. Tim: So these startups and venture companies were contacting you, hoping you would be a customer for their photography services or were they contacting you to be a partner for developing drone systems? Takayuki: No, case-by-case, so development and they were service, and the aerial photograph, security. So many, many company contacted our company. So the contact number of drone is very larger than the coastal problems so we decide that we focus on the drone business maybe five years ago, yeah. Tim: Okay, your background when you were in university, your whole career was on studying that coastal erosion, so that must've been a hard decision to make. Takayuki: Yeah. About 10 Years ago in Japan, the big tsunami attacked Japan. Tim: Right, the big earthquake and tsunami. Takayuki: Yeah, yeah, yeah, so at the time, so we had so many, many jobs as a countermeasure against tsunami. So many, many jobs, and after three years, the coastal problems gradually smaller. Yeah, yeah. Tim: So the environmental and coastal monitoring business was going down at the same time drone business was going up? Takayuki: Yes. This is a very crosspoint. So our company, this is a big chance to re-contract our company. Tim: Okay. Well, you've certainly done a lot since then. So let's talk about some of the use cases because you're working with companies and organizations in so many different industries right now. So one of the ones that you've announced recently is that tunnel inspection projects with Mitsubishi. Can you talk a little about that? Takayuki: Yeah, Mitsubishi project, this system is a very narrow space in atomic, and no GPS and no radio waves, okay? So how to fly area? So our team drone can fly without GPS and without radio waves. So this drone, so some sensor on the drone, so  … . Tim: A lot of your use cases are indoor drones and as you mentioned, it's very challenging to navigate without GPS, without Wi-Fi or radio waves and sometimes, even in the dark. So what technology do you use to do that? Takayuki: This is a very, very secret system. So for example, in office and the factory, and the tunnel, we select a different sensor unit. This is a very, very secret system there. In the factory and in the office, we use a different sensor. This is very, very difficult to select the sensor and the sensor fusion is very difficult. This is our technology. [pro_ad_display_adzone id="1653"  info_text="Sponsored by"  font_color="grey”  ] Tim: Can you talk about the general base of the technologies, is it like infrared, is it sound? Is it too secret even to give that level of description? Takayuki: So it's a secret system because before the announcement, okay? Tim: When are you planning on announcing? Takayuki: Maybe April. Tim: Okay, alright, we’ll have to follow up for later. Well, actually,

Have you ever been at a crowded and noisy party and heard a conversation across the room? You catch pieces of it, and you know it is interesting, but you can’t quite make it out and you can quite push your way over to that side of the room to be a part of it. Well, that was the situation a lot of our guests found themselves in a few weeks ago, so today we are going to set things right. Last month 500 Startups and Disrupting Japan held a joint event that focused on how Japanese and foreign staff can work best together at startups. As the event, I had a great discussion with three startup founders who are leading multi-cultural teams.  They candidly shared their stories and advice and even told us about some of their biggest mistakes. It was a great discussion, the event was a huge success, and we’ll definitely be doing it again very soon. But in a way, the event was too successful. Way more people showed up than we expected and the place was packed. Everyone had a good time, but the room was so packed and noisy that only the people close to the front got a chance to hear some amazingly good advice and life experiences. So I thought I would release the entire conversation as a special in-between episode of Disrupting Japan. There are no show notes for this one and it's not transcribed, but it is a great conversation with three experts on how startups can recruit, retain and get the very best out of multi-lingual, multi-cultural staff.  Leave a comment

Hardware is hard. In fact, sometimes the simplest and most straightforward ideas turn out to be the hardest to implement. Today I’d like you to meet Kyohi Kang the founder and CEO of Atmoph. Atmoph is a programmable window which can display the sights and sounds of hundreds of scenic places from all over the world. It's an exciting project, and the team attracted a great deal of early interest. They even ran one of the most successful Kickstarter campaigns and a smaller, but still successful, Japanese campaign on Makuake. But this success almost bankrupted them. Kyohi and I discuss how this happened and how other startups can avoid falling into the same trap. We also discuss Kyoto and the fledgeling startup ecosystem that is just starting to spread its wings there. And we'll dive into detail about why, unlike most other startups, Atmoph has decided to remain a hardware startup rather than pivoting to software and licensing when presented with that option. It’s a great discussion, and I think you’ll enjoy it. Show Notes What are digital windows and who wants to use them? What happens when the Kickstarter money runs out? What are the important differences between crowdfunding in Japan and the US What hardware startups really need to know about crowdfunding How you can be bankrupted by crowdfunding too well How to maintain sales momentum after the crowdfunding period ends Why you have to choose to be a hardware company or a software company. The dangers of trying to do both. Why the founders left Tokyo to start a company in Kyoto How the Osaka and Kyoto startups communities are different Links from the Founder Check out Atmoph - You won't really get it until you see it. Friend Kyuhi on Facebook Follow him on Twitter @kyohik Atmoph's Social Sites AtMpoh on Twitter AtMpoh on Facebook AtMpoh on Instagram [shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. You know, I was moderating a discussion panel at the big Hakusuka event last month and before things kicked off, I sat down at a café with Kyohi Kang, the found of Atmoph. Now, Atmoph is one of those ideas that is so obvious once you see it that you're sure that someone has thought of it before. In fact, you're pretty sure that you've thought of it before. We did, right? And yet, Atmoph seems to be the only company in the world that is producing this product. What is it? Well, I'm getting to that. You'll hear a lot of the details during the interview and it's always challenging to describe something so intensely visual on an audio podcast, but Atmoph is literally a window onto the world. It's a 27-inch diameter monitor that's mounted in a picture frame and it displays the sights and sounds of, well, anywhere, really: a window onto a Polynesian beach, a Roman Piazza - anywhere. Kyohi and I also talk about how Atmoph's very successful Kickstarter campaign almost bankrupted his company and since the team has run crowdfunding campaigns in both the US and Japan, we'll go over some of the most important differences between the platforms in both countries, and more importantly, the important differences about the customers and the customer expectations in both countries, and even though we met in Osaka, we talk a lot about Kyoto. Kyoto has the potential to become one of the most important startup communities in Japan. It's not quite there yet but there's a lot of promising signs and a lot of promising startups, for that matter. But you know, Kyohi tells that story much better than I can. So let's get right to the interview. [Interview] [pro_ad_display_adzone id="1404"  info_text="Sponsored by"  font_color="grey" ] Tim: So I'm sitting here with Kyohi Kang of Atmoph and it's kind of a digital window, so thanks for sitting down with me. Kyohi: Thank you for inviting for this interview. Tim: I think you guys have got a really, really interesting product but you can probably explain it a lot better than just a digital window, so tell us a little bit about what Atmoph is. Kyohi: We are calling "digital window" but the concept is very simple and you can hang on your wall, and it's a 27-inch display and once you hang it on your wall, you can see a view of the world, and every content is filmed by us in 4K and you can see such as views in Iceland, France, Germany, and also Hawaii, Japan, anywhere in the world. Tim: And it also has sound as well, right? Kyohi: Right. It has one speaker inside so that you can feel as if you are actually there like Hawaiian beaches, sound of the waves, sound of the birds. Tim: Now, I've noticed that - I mean, looking around the world, there are lots of kind of digital picture frames for still images, but Atmoph seems to be one of the very, very few companies that has brought a video window type of a concept to market. Why do you think that is? Kyohi: There are many digital art frame companies out there but we wanted to have a window, like a virtual window. In nature, everything is moving, like wind and also the fires and birds flying, so to feel as if it's real, we thought it should be moving. Tim: So the idea is kind of the window out into the world, so if I had Atmoph installed and it was looking out into a Hawaiian beach, would I see like, the scene changing at different times of the day? Kyohi: Yes, yes, indeed. There are many locations and also many seasons, and many different times, so you can see in the morning or sunset, or nighttime. Tim: So tell me about your customers. Who is using Atmoph? Kyohi: From last year, we started shipping and about half of our customers is purchasing our window because there is some kind of closeness in their environment, like from their window, they can only see the next buildings or highways. Tim: So most of your customers, I mean, is it consumers or is it office space? Kyohi: 70% is consumer. The rest is restaurants, bars, and clinics, offices. Tim: Well, I could see why this would be very attractive to restaurants in particular, especially in Japan. There’s so many basement Italian restaurants that you could have a window out on Florence or something. Kyohi: Actually, there are many, really many places, café or bar without any window, so yeah, they should be all our targets. Tim: That seems to be almost a perfect target for you. So let's back up a bit. So this started out, well, it started out as an idea, but back in 2015, you launched a very successful Kickstarter campaign. Kyohi: Yes, we did. Tim: How did that go? Running a Kickstarter campaign from Japan has got to be somewhat challenging. Kyohi: It was all about challenging because at that time, doing Kickstarter in Japan was very rare, so it was hard to do, and for us, that was our first crowdfunding project, so everything was very tough. The reason we needed to do crowdfunding was we didn't have enough money to do the manufacturing production. Also, many people are asking, nobody would want a digital window, everybody said. So I needed to prove at least some customers should buy. Tim: And how much did you raise on Kickstarter? Kyohi: About US$160,000. Tim: Okay, so that's a substantial raise, more than enough to get the product through the first batch of production. Kyohi: Yes, we thought, but we needed more money because making injection molding, it costs a lot, and also, to do a project for crowdfunding, we need to reduce the price because it's a kind of presale. Tim: Well, you mentioned that it wasn't quite enough money but you did deliver the products, so how did you do that? Kyohi: Yes, Kickstarter campaign was good and also, after that, we did another crowdfunding in Japan too. Tim: That's right, you ran a Makuake. Kyohi: A Makuake. Yes, we did that too but it seemed okay, but to make enough products, we needed to collect more and we asked for some governmental bank for startups’ loan, and also, one year later, we did first round of VC funding, US$1 million, approximately. Tim: Was the VC funding after you delivered the product or while you were still in – Kyohi: While. Tim: Oh, wow. So you needed that funding in order to fulfill the Kickstarter promises.l? Kyohi: Right, right. Tim: What turned out to be a difficult part? What did you underestimate? Kyohi: We underestimated too many things. First, it was our first time doing production, so we needed to find good manufacturers but it was very hard, so each time we visit and find, they said, "We can't do this, we can't do this in small batch,” or something. Tim: So did you do your manufacturing in Japan or in China? [pro_ad_display_adzone id="1653"  info_text="Sponsored by"  font_color="grey”  ] Kyohi: Yes, in Japan. Tim: In Japan? Kyohi: Yes, actually, but we have about five manufacturers coordinating each other. So assembling is in Nara, next to Kyoto, and the board production is in Osaka, and some plastic parts and cable are near Shanghai, so all products gathered in Nara and assemble. Tim: Almost all of the hardware products on not just Kickstarter but the hardware startups tend to outsource to China. Kyohi: Yes. Tim: Why did you decide to have your manufacturing in Japan even though you knew the costs were going to be much higher? Kyohi: Yes, because actually, it sounds we are better, because we didn't have enough money. To do manufacturing in China, we needed to travel often to do the negotiation or see actual product going on, but we didn't have money. We needed to save our money, so we were based in Kyoto, so there are many manufacturers in Kansai area because in the past, Panasonic manufacturing, there are many bunch of them, so we thought it's easier and also cheaper,