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Nikkei Business Daily May 28, 2018

Forging Successful Partnership Deals in Japan

Forging significant partnership deals in Japan is quite different than in the US and other
parts of the world. Many Silicon Valley startups trying to close their first significant deal
with a Japanese partner experience frustration and usually failure because they do not
properly account for the differences in business and deal practices.

We counsel our start-up teams that it is critical that they invest the necessary time to
understand and plan for these local differences if they want a chance at successful entry
into the Japanese market.

We find that the key to effective business development is managing the approval process
and, just as importantly, the communication of deal status throughout the deal process.
Startup executives can successfully navigate both if they know what to watch for, run an
appropriate process, and use tactics that are especially developed for the local market.

The following are deal-making best practices we offer to our start up executives, ranging
from overall strategic orientation to process management tactics:

1. Always avoid taking short cuts to get the deal done, such as withholding information
to accelerate approvals. Instead, ensure utmost integrity in all disclosures and deal
discussions. Doing so will help build the foundation for the start-up to live up to their
counterpart’s high expectations for an honest, productive and long-term relationship.

2. Pursue a win-win an outcome as a primary, and not secondary, objective. This
requires negotiators to find a neutral “landing zone” in which incentives are aligned
and risk is shared fairly.

3. Engage the product team as internal champion. We recognize that in Japanese
companies, it is unusual to forge a significant partnership without the product team’s
appreciation and support. But also recognize that the process towards closing will
involve a long list of internal stakeholders in the vetting and approval process. Expect
6-12 months of meetings involving corporate staff, business development, and even
board approval for deals of $1M or more.

4. If corporate investment opportunities are offered, politely defer these conversations
until after a strong commercial deal is successfully concluded. Corporate investment
in early stage startups can cause complications for start-ups including misalignment
between corporate investors and the venture investors at a later stage.

5. Once engineering requirements have been described and there is a full understanding
of product needs, schedules and a plan, draft a detailed proposal with the lead product
champion. Be patient as your initial proposal undergoes an iterative review process.
Additional stakeholder requirements may surface and what seem like meandering
deal discussions will ensue. This is the normal consensus-building process and should
not be sped up by imposing ultimatums or price cuts.

6. Once your proposal has been fully socialized by your partner’s stakeholders, take the
final negotiation step of “advancing towards a close”. This can be accomplished by
drafting a short document with a checklist of required steps in order for the
agreement to be signed and sharing this document with the product champion for
input. Once they are comfortable with it, they will become the evangelists for what
becomes a plan of action towards closure.

7. Ensure that the entire deal process has been an exercise of practical information
gathering on deal influences and parameters, so that there are no last minute
surprises. For example, know the answer to all of the following before “advancing
towards a close” for final approval:

  • Whose budget are payments coming from?
  • What is the company’s fiscal calendar?
  • What are yen or dollar limit approvals?
  • Which committees and boards must be involved in final approval?
  • Is there a possibility of re-organization impacting deal champions and
    approvals?
  • What national holidays might affect the negotiation and execution milestones?

8. Finally, we recommend to the executives who will be pursuing partnerships in Japan
to very carefully direct expectations back in their home offices. As important as
understanding and effectively sheparding all of the complex process steps and
stakeholders involved in a successful, high-potential long-term relationship in Japan,
is careful management of internal sentiment regarding the significant investment of
time and resources into a presence in the Japanese market. Since significant deals in
Japan often take 2-3X longer than those in the U.S., realistic timetables and long-term
strategic objectives supported by the senior executive team and even Board are a
necessary foundation for the executive team doing business in Japan.

We often find that doing business in Japan as a foreigner shines a light on our own unique
business cultural differences. Ultimately, at CVG we hope to illuminate a bridge between
the business cultures.

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If you want to contact us

We place a high priority on meeting with start-ups that are referred by someone we know. If you aren’t already connected to our network, feel free to send us an email. Forgive us in advance for only responding to cold introductions that are absolutely fascinating.