The World is Iterating on Silicon Valley

Examining Japan’s iteration on the startup ecosystem & why we can’t just clone the Valley — feat. Nulab’s CEO, Masanori Hashimoto

Photograph from Masanori Hashimoto’s Twitter

Silicon Valley has taken the world by storm. Google, Amazon, Apple, Uber, the titans of the Valley have been spread into every corner of the world, yielding the envy of foreign entrepreneurs and governments alike. And it’s not just foreign envy and ambition, but even domestic. New York City, Boston, cities in every state have been trying to incubate Valleys of their own as local governments realize that the next long-term drivers of economic growth are entrepreneurship and industry disruption.

But in the hubris of its success, Silicon Valley has stalled in its own innovation. Valley evangelists such as myself have been blinded by the roaring opportunity that the Valley presents, and we campaign relentlessly to distribute its elements in the name of human and technological progress.

Ironically, we forget the very tenet we shout the loudest — Change is good, never be satisfied, and things can always be better: even if it’s something working as amazingly as the Valley.

I myself am completely guilty of this. Catching the fever from my alma mater UC Berkeley and founding a startup in my senior year of college, I remained ever the evangelist for the beauty of the Valley. I thought it was the key to the future. Even after my return to the East Coast, the goal to spread the Valley became a mission in itself.

Image from The Registry

I met Masanori Hashimoto at the IF Conference, a US-Japan one-day event designed to boost entrepreneurial ties between the two communities and hosted in New York City’s Microsoft Building on April 11th. The CEO and founder of Nulab (an international collaborative service company with millions of users), Masanori is also respected as one of the Godfathers of Japan’s Fukuoka City’s startup movement. He is one of the starting founders of the annual Myojo Waraku convention (明星和楽), the first and largest creativity and technology event in Japan created to encourage a culture of makers and entrepreneurship.

Masanori Hashimoto of Nulab presenting during his panel about creating a startup community in Fukuoka. Photo Credits to Mayuku Inaba and the IF Conference 2016

A Distinct Difference

Sitting down with Masanori, my naivety and Silicon Valley lens had prompted me to start my interview by asking him what exactly he thought were the most important elements of a successful startup community. Surely I thought, this technological influencer even if from a different shore, would have the same answer as I did. After all, our end goal is the same Valley… right? But what he said surprised me:

“Culture. Market. Agility.” — Masanori

I was surprised not because of the things he mentioned, we agree on those. Rather it was what he didn’t: He did not mention education. He did not mention legislation. But most shockingly, he did not mention funding: a pale contrast to what I, our economists, our politicians, and even our technological prophets take as one of the most important golden pillars of Silicon Valley.

With part naivety and part arrogance, I asked him to elaborate, to make sure it was not excluded by accident:

Jasper (me): What about financial institutions? What are you doing to draw Venture Capital into Fukuoka?

Masanori: Nothing. This is my opinion, but I do not think that financial institutions need to be located in a startup community. I think they detract from what we want. Now, startups are facing VCs excessively. [When] actually, we should be facing users.

Upon seeing my shock, he continued with a line that seems obvious: but something that struck me as ironically alien:

“In [a] Startup community, the most important portions are the startups and users. Not VCs.” — Masanori

Japan is Iterating on Silicon Valley

With our crazed focus on funding rounds and IPOs, it’s become a norm for us to mistake speculated valuation for quality: So much so that we now measure entrepreneurial activity by the amount of private funding invested and IPOs per business quarter. Instead of envisioning Fukuoka as a breeding ground for angel projects and are-they-or-are-they-not unicorns, the founder who created Nulab bootstrapped wants Fukuoka’s focus to remain on the only two elements that should really matter: the users and the product.

Yet Masanori knows about the importance of investment. In asking for more detail, he reveals that he holds no ill will towards VCs. What he fears instead is the parasitical relationship that it has clasped onto in every startup community within the United States. What we’ve taken as a necessity: the inexplicable culture of founders turning into full-time fundraisers instead of focusing on company vision, the incessant funding rounds to broadcast valuation and the “raise more money than needed” cultural norm, the ever ongoing battle between investors and companies for equity and product goals, he studies from a distance with both interest and apprehension. He studies to avoid it.

Masanori: Fukuoka is a testing ground. Products come here to be tested, improved, and turned into a company — not for fundraising.

Fukuoka, Japan

And that’s exactly what they’re doing. Japanese venture capital has largely centralized in Tokyo, and they stay there. They’ve created their own cross-country ecosystem, where they send partners down to Fukuoka to scout potential investments: a stark contrast to the stand-alone communities we’ve scattered amongst our 50 states. Companies that do have funds, and even those without, move to test their wares in Fukuoka later due to both the city’s startup-friendly legislation and growing market, a rare gem for the country experiencing a declining population.

In purposefully driving this physical distance between the companies and their investors, Masanori is hoping to shape Fukuoka into a testing ground that remains focused on users and products: free from the influences of active investors.

An Agile Environment, not Just Development

The purposeful separation of financial institutions from the startups themselves is but one of the ways that Japan is distinguishing its startup scene from the Valley. For a culture and country steeped in tradition and notorious for bureaucracy and following the status quo, Fukuoka has emerged as one of Japan’s beacons for an agile government.

Mayor Takashima presenting an award at a promotional event for the virtual ward. Photo from the Fukuoka government website before it was discontinued in 2015

In addition to launching the “Startup Visa,” the current mayor Soichiro Takashima has set a precedence for quick government support and program iteration. A cynic may dismiss it as common political maneuvering, but the city really has changed dramatically in the blink of an eye. With speed an agile startup would be proud of, the city was designated as a Global Startup & Job Creation Special Economic Zone in May 2014, experimented with a creative immigration and branding campaign in its virtual Kawaii-ku ward, and set up a roadmap to become the entrepreneurial capital of Asia with its Fukuoka NEXT project.

Masanori: The advantage of Fukuoka is that everything is close. In Tokyo, institutions are too big. Too slow. If we want to contact the government or partner with a University, it will take a long time. In Fukuoka, even [the Mayor] Takashima is just a call away.

It’s this reaction and speed that has allowed the city to maintain its lead as the place for aspiring Japanese entrepreneurs to go. Such rapid iteration has carried on over to its culture, attracting the country’s young working demographic to move there in ever-increasing numbers.

Problems to Fix in Japan’s Next Iteration

That isn’t to say that Fukuoka has been flawless in its attempt to become Asia’s version of the next bigger and brighter Silicon Valley. Global venture investment numbers alone will quickly tell you that the vast majority of entrepreneurship growth still exists in the United States and that Japan has a long road to go before it. (There I go equating investment with startup activity.)

Photo and Research Credits to Raconteur.net

Education and retention of talent is another area of concern. The Japanese educational system is still working on its ability to incorporate creativity and innovation within its curriculum: bad news when compounded by the fact that Fukuoka still risks losing what talent does shine through when graduates mistakenly move to Tokyo with the misconception that therein lies greater opportunity. The fortunate news is that this is dramatically changing with the help of social and government initiatives, and young talent is now much more prone to staying in or moving to Fukuoka. Perhaps this is reflective in Myojo Waraku’s dramatic growth, going from a small gathering of 1250 people in its first year back in 2011 to over 35,000 in 2015.

“The biggest problem I am working on is young people leaving Fukuoka. They go to Tokyo because they think that is where the opportunities are, but that is no longer true. And we are looking for ways to tell them that.” — Masanori

Another problem is the ongoing difficulty that the country has with English fluency. Even though one of the premiere goals stated with the community has been to attract foreign businesses and investment, (as stated directly on the Startup Visa government webpage: it is “to incentivize foreigners to be business entrepreneurs in Fukuoka,”) there is an unfortunate lack of English in everything from the application papers to the accommodations for foreign businesses once they are let in. Any foreign business looking to succeed in the city, or rather in any part of Japan, must be realistic and realize that both the government and marketplace will require a tremendous investment in product localization: one much more intense and costly than for any other country.

Japan is infamous for its mandatory multi-year English instruction in public school, yet continued inability to gain a population that can speak it or use it in a business setting. If Fukuoka or any part of Japan is to become an international hub of entrepreneurship, it’s imperative that it becomes proficient in the international language of business. On the chance that it really does aim to become the Valley of Asia, it would still need to cater to the language needs of its much more populous neighbors in China and Korea.

Reflecting Back on The Valley

Current difficulties aside, it is interesting think about the different structure the startup community in Japan is taking up. But it would take decades of research and statistics to get any semblance of evidence to see which can be argued to be greater.

But the more poignant takeaway should not be a comparison. It is finding out that foreign countries have realized that our technological haven might have flaws in its very genetic structure. And that we should not just look to export our city-upon-a-hill to our friends abroad, but look simultaneously inward and see that it is but one social product capable of bringing innovation… one of what might be many.

We view Y-Combinator as a disruptor in the Valley. With its heft and influence, the innovations YC brings like its SAFE agreements are almost always met first with skepticism and drawback but then a gradual acceptance until it becomes an industry standard. Taking a further seat back however, it becomes clear that YC is hardly a disruptor at all: the changes it brings to our startup culture are more of a 1x to 2x benefit, giving us improvements but still keeping us in the culture of relentless fundraising and our own brand of traditional “SV” entrepreneurship.

We should ask ourselves then as our state and city governments continue trying their own hand at creating their own local startup communities: is imitating Silicon Valley really the best way to go? Perhaps the requirements for a startup community rests upon a country’s tradition and culture. But does the startup scene in Portland, Seattle really need 25 local incubators and its own venture groups when it can tap into the Valley’s just a day’s travel away? As tools to create agile products and revolutionize industries, our startup systems and networks themselves are stagnant.

Maybe it’s about time Silicon Valley itself gets disrupted.

Special Thanks:
Masanori Hashimoto and the Nulab staff for being awesome and agreeing an interview right after a 2 hour panel. You can follow his Twitter or learn more about Nulab.

The staff, volunteers, and sponsors of the IF Conference and Japan-NYC Startups MeetUp for creating the event and bringing together great people and companies. Shout outs to Masahito Okunishi, Yuu Imaoka, Hideyuki Gojima, and Toby Shorin for leading its organization and Takeshi Komoto for his involvement as JETRO’s executive director.

The amazing people I was able to meet and share thoughts with in the conference itself.

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