Joanna Drake Earl
General Partner, Core Ventures Group
In our last column, we published the top 5 common Japanese misunderstandings that we see in Silicon Valley. We thought it appropriate to take the reverse angle and share the most frequent misunderstandings that Western start-ups have about doing business with Japanese companies.
“Despite, Japanese companies’ reputation for being slow, my deal is actually moving fast!”
It is common for Western entrepreneurs to overestimate the progress of a deal with Japanese companies based on perceived dynamics in early meetings. Japanese business executives tend to be overly polite. They nod their heads and offer positive responses like “that is very interesting,” which western entrepreneurs will interpret as an affirmative stance. At Core Ventures Group, we explain to our entrepreneurs that the decision making process of Japanese companies includes a myriad of influences and facts, such as critical business unit input, fiscal year schedule and how their company executives mentally denominate contracts into yen. Instead of asking our CEO’s, “How did your last meeting in Japan go?” We ask more data-driven questions that will more clearly gauge progress like, “Did the Japanese company say they could sign the contract before March 31?” or “Does this customer need board approval for contracts larger than 100 million yen? If so, should we just lower the price to $825,000 USD?” The western entrepreneurs who form the most successful relationships with Japanese partners are those who take time to learn how business is done in Japan and can properly set expectations about deal process and pace for stakeholders in the west.
Deal-making with Japanese companies is onerous and not worth the investment.
Western entrepreneurs who haven’t had success building a true partnership with a Japanese company are tempted to avoid Japanese partners altogether as too difficult and time consuming. While Japanese deals typically do take longer than those with U.S. companies, and require significant investment in live meetings, they are relatively predictable if one learns the signals and has a trusted Japanese partner to help navigate. Japanese corporations tend to be extremely valuable partners in the long-term, because of their loyalty, dedication to quality, willingness to be fair on price, and effectiveness as reference accounts.
Start-ups should enter the European markets before Japan.
Many Western entrepreneurs choose to enter Europe because they are more comfortable with Western languages and culture. In practice they often find that expanding beyond just the UK means establishing multiple offices, each with its own business culture, technological infrastructure and language. At Core Ventures Group we see the Japanese market as very attractive for most technical and B2B businesses given its high concentration of Fortune 500 companies, third largest GDP, geographic density, advanced tech infrastructure and unified business culture, including data-driven decision-making. Language and cultural barriers are real but they can be systematically overcome by smart western executives with the help of trusted Japanese partners. One third of Core Ventures Group’ portfolio companies have successfully forged business in Japan even in their first couple of years.
Japanese companies are behind in technology.
Many Silicon Valley entrepreneurs believe that, most cutting edge technology is originating predominately from Western technology hubs. They can be naively unaware of continued Japanese leadership in digital media, commerce, healthtech and fundamental technologies. And they may be caught up in the industry hype machine that exhaustingly trumpets every product launch and financing that happens in Silicon Valley. The growing spotlight from global media outlets on Silicon Valley just adds to the echo chamber effect. In great contrast, there is minimal persistent coverage of the Japanese and broader Asia tech scene back to Silicon Valley and even fewer local entrepreneurs studying it. No wonder important technology Japanese companies like Recruit and Rakuten are not well known or understood in Silicon Valley. Similarly in industrial technologies, the largest Japanese corporations continue to nurture the most advanced robotics, AI and IoT in their labs and to deploy more rapidly than western counterparts, but with seemingly little credit from western tech entrepreneurs.
Japanese partners don’t have a lot to contribute to start-ups.
This myth is the easiest to debunk. Given the analytical orientation of most Japanese business teams, there is usually enormous value for resource-constrained start-ups to gain access to Japanese corporate market information, and specific business insights to be gleaned from competitors and customers in Japanese market itself. In addition, the opportunity to leverage a Japanese partner as both conduit to their usually extensive global business footprint outside of Japan, as well as a reference account to other Japanese partners can be invaluable to a western start-up.