Founder Interview: Technology Entrepreneurship in Japan – Part Two

This summer SignTime will be running a blog series on a number of areas related to the technology industry, innovation, start-up culture, and growing a technology business in Japan.  We’re starting off this series with a “meet the founder” interview with our CEO and co-founder, Jim Weisser. This is the second edition of this series.  If you missed the first installment, you can catch up with it here.  

Do you find the regulatory hurdles in Japan difficult?

Regulatory challenges depend on what you’re doing. For me, because there’s a legal aspect to what SignTime is doing with e-signatures, yes it’s difficult compared with the US but comparable to the EU. 

There is a lot of regulation in Japan because it defaults towards ‘you’re not allowed’ to do something different. It’s why you see things like floppy disks or faxes required in government filings – the current administration, of course, wouldn’t choose that technology but when the regulations were written or revised that was state of the art. The default answer here is no, whereas the default is yes in the U.S.

How much experience did you have in the U.S. before coming to Japan?

Minimal—my business career has all been in Japan. 

What are the steps in Japan to build a successful business? 

So, we [SignTime] bid on our first real proposal without an entity because both my business partner and I already had entities, so we just did it as a business unit of one of them. After all, why spend the money on lawyers and accountants if you aren’t sure there is an opportunity. After that bid, we believed there was a business and so went ahead and incorporated as part of our pre-seed funding process.

What happened on that first deal? You won that bid?

No, we lost, but we went ahead and incorporated. In my experience in B2B sales, you never win the first deal, because you don’t know enough about what the customer values to even present very effectively. I’ve never won my second deal either, but by the third I expect to have a fairly good chance of closing. And if we can’t close by opportunity 10, we were wrong about the market or we’re the wrong people to do it.  With SignTime, we know the market in Japan has a very low penetration of e-signature use, so the long term opportunities are very solid. 

What was the next step in SignTime’s development at the initial incorporation stage?

Recruiting. At that point, we were stretched very thin. The company was very much theoretical. When we started it, I was the first employee.  We needed to set about recruiting a very high quality team of people. 

Was there any kind of mishap or lessons learned generally from the start-ups you’ve done that you could pass along to people?

Let’s see. One thing that I found is that contracts are basically non-enforceable. Contracts are useful only for remembering the agreement that you and a counterparty came to. That’s because, if you end up at the point where you have to litigate with someone, you’ve lost, if you’re a small, fast-moving business.

That may just be the deal size I was doing—if you’re doing $100 million real estate deals, maybe it’s different. In the SaaS space, where you’re doing a bunch of deals at 100 bucks, 1000 bucks, or 10,000 bucks a month at the high end, litigation is just not useful. Your ability to have meaningful litigation is low, so it’s about trusting the counterparty. If you have a bad feeling on a deal, you probably should just not do it. 

I mentioned before about hiring for potential. There were a couple of times I hired for past experience, and it typically didn’t work out. Interestingly, it’s because the people who were willing to take the risk to come to a startup at that point were so desperate that they would take anything…unfortunately, though, those were rarely the top performers.

That has changed a bit now, but there’s still some truth to that in the job market where your earnings potential from your early 40s through early to mid-50s is so heavy against your whole career earnings in Japan. It’s true everywhere, but especially here, right? [Note from 2024: this is a reference to lifetime employment in Japan, where compensation is typically age rather than performance based.]

That earning potential ends up being skewed against hiring experienced team members at a start-up, so you might find someone who’s at the tail end of their career and wants to come to work at a startup. I haven’t been successful at finding work for those people as anything other than advisors. But some advisors work out just fine, so long as you both understand what you’re getting into. Are you looking to this person for advice, for door opening, or something else? One thing no advisor can do is completely handle business development. [Note from 2024: I often hear first time founders asking about this.] 

One mistake first-time founders make, and I certainly did, is assuming that your early employee’s motivations will be essentially the same as yours. 

As a founder, you really felt like ‘we’re gonna go do this, we’re gonna build it.’ For them, this is a job, and the gap between a founder and a job is material. Sure they took a risk on the job, and on you, but that’s a different thing. That’s something I didn’t really figure out until a few years in.

What was the process of building the SignTime business after incorporation and your initial hires?

One of the issues we struggled with is just how slow customer acquisition can be. I don’t think people have internalized that typically. Japan is the third largest market in the world. There are tons of companies here selling a lot of stuff. There’s no reason for them to buy your thing. That immediately ends the conversation with a bunch of companies. 

In tech, and probably in most businesses, people also underestimate the importance of Japanese distribution. There are a lot of companies that are direct everywhere except Japan. Typically, and this may be tech related, the channel to the customer is controlled by that vendor, so the vendor lock here is very, very strong. 

That’s true some other places, too, but, in the U.S., you’ll usually see more of an independent function inside the company that is saying we should be doing this or that [technology-wise]. So you should expect that it’s going to take a while to build a customer base—and that’s particularly true of Japan because it’s a conservative, relationship-based country. [Note from 2024: I’ve read that 70% of technology decisions at Japanese companies are made by a 3rd party vendor, compared to 30% in the US. I haven’t been able to find the source, but that sounds right.]

It’s also that, in tech especially, you see companies that enter the Japanese market and leave after a year so it’s hard if you’re perceived as being foreign. There’s two important things here. One is that there are plenty of companies that have come over and not really done the work on the market and just left. The other thing is that, at this point, almost anyone who is a decision-maker in a Japanese company has been rewarded for cost control not for growth. 

If you think about it, there’s a demographic headwind in Japan. If you’re losing population, then you’re losing consumers. The people who are in senior management, particularly ones who are more or less my age, I’m 51, their entire business career has been in a down market, in a negative demographic environment. 

And so they’ve won through cost cutting. That’s different from what you’ll see in other developed markets, or in other growth markets around the world. 

That makes it seem like Japan is a hard place to start a business. Would you say that?

This is definitely playing with the level of difficulty turned up. But that doesn’t mean there aren’t foreigners who’ve succeeded here, right? There are foreigners who have built very successful companies. One of the entrepreneurs no one talks about anymore because he’s really old is Bill Totten. Have you ever heard of Bill? 

Bill was at IBM or somewhere in the late 60s and early 70s – and wanted to start a company selling that era of computer products. That company he founded in 1972 is called KK Assist. 

So, I know a bunch of guys who think ‘I think I might be the first guy to do X,’ and I’m like no, you’re not. You might be the first guy recently. No one knows the past is probably the right way to say it.

Then, in the food business, there is Joe Dunkel, with Mrs. Fields cookies. Right away, he got distribution down in Japan. Anyways, you can go through this list of people and find they did really well. How’d they do that? Some of it is market fit, some of it is, you know, just whatever worked. 

One point some entrepreneurs raise is that it’s a lot easier to start a business in services than products or manufacturing because you just do it. A product also takes upfront investment, design facilities, inventory. Isn’t that true everywhere? 

Yeah, sure, there’s a reason why there are a billion consultants! 

Actually, when I started my second company, I told people I was doing consulting. I gave them a business card and they said, ‘Oh, I’m sorry you lost your job.’ I’m not making this up. I’m like, no, this is an entity. This is a real thing. And they were like, ‘okay, you can say that.’ That was right after the dot-com bust of 2001. It’s kind of like a lot of people after 2008 after the global financial crisis. They were consultants while looking for work, but I was too deaf to notice that. [Note from 2024: One of my business acquaintances several years later was still coming to me with job offers trying to help me ‘get back on my feet’.]

So the comment is very true, but there are a lot of limits on how you can scale it. The way I think about it is—are you trying to build an enterprise or are you trying to build a lifestyle business? 

With the enterprise business, you can take the founder out at some point and the business exists. Now will it grow the same amount if it doesn’t have the same brilliant, wonderful things that happened to it? Who knows? You can even argue that for public companies. You can see how, when founders leave, it generally negatively affects them—not always, but generally. 

So you go through this process, and, in a consulting company, those folks typically enjoy doing it, and they get paid very well. They’ll get paid substantially more than what they were making inside after a few years. 

Here’s the way I used to describe it with a biblical allegory. Year one, I was just lost in the desert. I had no food, water, nothing. By the end of year two, I found Moses at least, and I didn’t have much, it wasn’t the land of milk and honey, but I at least had some manna and some water. The ability to go from nothing to covering your expenses is something that’s very doable in a consulting business. 

We actually viewed contracts in the lens of how many rents they were. Okay, my rent was ¥100,000 a month or whatever it was, so I’d say, that’s a 10-rent contract because rent was my biggest concern.

Then, eventually I added a couple employees, but they were relatively small costs. Once I started running an enterprise business, infrastructure in a data center, I had a customer support team, an engineering team, a sales team. 

I knew that it had gotten to be an enterprise to some degree when I could no longer cover payroll out of my own pocket. That’s one thing that anyone who’s building an enterprise or has a small business will tell you—about the times they’ve covered payroll out of their personal savings. It’s like, well this customer didn’t pay me on time, but my employees all have to pay rent, so I got to make sure they can pay their rent. Every time I’ve been with a bunch of entrepreneurs, that conversation comes up. It’s a very common thing. 

Our third and final installment of this interview will be out soon so join us again then.  If you have some topics you would like Jim to explore, feel free to reach out!