Japan is one of the most industrious societies in the world, but it has long been considered a land of contradictions. It changed from being a closed island nation nearly 100 years behind the times technology-wise by 1870 to one that defeated Russia, a major European power, just 35 years later in the Russo-Japanese war of 1905.

Despite the intense periods of change, Japan is remarkably slow to change its ways of business and politics. The nation is known for its technology industries, but is often accused of lacking true innovation. Japan is highly dependent the outside world for resources and trade, but is still very much closed off and hard to penetrate.

Among those contradictions is the “Japanese Startup Gap”: Japan, as all modern societies, has benefited greatly from the innovation and value creation of entrepreneurship, yet has a culture that is highly resistant, if not openly hostile, to startups.

While entrepreneurs are ubiquitous in Japan as shop owners and small business people focused on highly localized markets, “startup entrepreneurs” are rare. For the purpose of this analysis, “startups” are companies that form in search of as-yet-unproven business models — companies like Google and Yahoo.

Square and eBay

The difficulty for Japanese entrepreneurs comes when they attempt to create market geometries that reach beyond hyper-local “streetcorner” markets to national or global scale. Startup entrepreneurs are present, of course, but often seen as a breed apart.

The Language Barrier

Our first clue to the state of startup entrepreneurship in Japan comes from the Japanese language itself. When I first visited Japan almost 20 years ago, I was an entrepreneur (as I am now) and would introduce myself as such.

In Japanese there are not any specific words (that I was aware of) that convey the full meaning of the English/French word “entrepreneur.” The closest I could get was Kojin de bijinessu wo keiei shiteimasu. That means “I am running a business on my own (without the aid of an organization or external capital).”  This type of introduction immediately triggers a specific set of emotional reactions in Japan:

  1. You are practically unemployed.
  2. You must be an outsider, since you are not participating in a corporate business structure. Perhaps you are not good enough to be accepted in such a desirable institution, so you are doing something else.
  3. You are going to fail.

Social Costs of Failure

Beyond the language nuances, there are also very serious social implications for entrepreneurship in Japan. When Japanese take the leap and become entrepreneurs, they can inadvertently threaten the social assumptions of the people around them. Individuals in traditional roles in Japan must tow the line, subjugating themselves and their initiative, time, and ideas to the needs of their respective groups. This is accepted, though not relished by most Japanese. When group members successfully break out of the social norm and start their own businesses, it can cause a painful re-evaluation among those who chose to stick with the group and avoided such risk.

I spent over five years working for a large Japanese semiconductor manufacturer, and knew top executives who had seen one of their team members leave the company years before and found his own venture. That engineer is now a recognized success story, appearing on television and in publications. When talking about their entrepreneur friend, the company executives shook their heads, their body language and expressions (interpreted by me) showing regret at not having taken such risks themselves.

Japanese culture does celebrate the most successful entrepreneurs as legendary figures. The founders of companies like Honda, Toyota, and Panasonic have been elevated to a stratospheric level of regard reserved for very few. Despite the hero worship of these company founders, there is very little sense that such success can be achieved by people in the here and now.

Another difficulty in Japan for startup entrepreneurs is the high cost of failure. In Silicon Valley, startup failure is often regarded as a valuable credential. Without failure, it is improbable that entrepreneurs can gain the wisdom and experience to succeed. But starting a company and closing down would be extremely embarrassing and would likely result in a loss of social status in Japan. This high social cost is a clear impediment to innovation; you see fewer people taking chances.

More Barriers

In discussing this topic with a Japanese entrepreneur in Tokyo in February, it was pointed out that access to startup capital is another problem in Japan. The fact is that there are no established VC ecosystems or precedent for intersecting talent, ideas, and capital in structured ways as we commonly see in the U.S.
Beyond the psychological and purely financial barriers, business itself is resistant to entry of new startups. Established power and economic patterns reflexively protect themselves through network barriers and sometimes through legislation.

This resistance to entrepreneurs is, like many things in Japan, slowly changing. For one thing, as a manager from a major Japanese corporation pointed out to me, corporate lifetime employment is no longer a choice. That fact alone shifts workers more toward the entrepreneurship.

The Fall of Horie-mon

Takafumi Horie, founder of Japan’s popular Internet portal Livedoor, was the first Internet era entrepreneur to represent startups as a pathway to success. In some ways, he was the Mark Zuckerberg of Japan. He was ostentatiously rich, always on TV and in the news, and seemed to thrive on his self-styled and open rejection of “The Japanese System.”

It seemed the beginning of a sense that startup success was possible in Japan, but it was short lived. In 2006, Horie was arrested for securities fraud and spent two years in jail. Many observers had hoped that “Horie-mon,” as he is often called, would open the door to acceptance of the startup lifestyle, but the criminal proceedings brought that hope to an end. “He was successful because he was cheating. We knew it,” the naysayers concurred.

There are many successful entrepreneurs in Japan, but for now, an established path to startup success remains something of a mystery. While we wait for success stories to permeate the culture, and for norms to loosen up to embrace the uncertainty of startup culture, it would seem that Japan will continue to have challenges in the startup tech space. Those who choose the startup route in Japan face social and business obstacles that for now, ironically, only success itself can solve.

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