NY Times: Start-Up Spirit Emerges in Japan

TOKYO — The 20-somethings in jeans sipping espresso and tapping on laptops at this Tokyo business incubator would look more at home in Silicon Valley than in Japan, where for years the surest signs of success were the gray suits of its corporate salarymen.

But for those hoping the nation’s latest economic plan will drag Japan from its long malaise, the young men and women here at Samurai Startup Island represent a crucial component: a revival of entrepreneurship. The signs of that comeback are still new, and tentative enough thatthe statistics on start-ups and initial public offerings have not caught up. But analysts and investors report that hundreds of new Internetand technology-related companies have sprung up in the last two to three years, creating an ecosystem of incubators like Samurai Startup Island and so-called accelerator new venture investment funds, which invest in early-state start-ups in hopes of cashing in.

Some top universities — the same ones that have long defined success as a job in an established company or elite government ministry — have begun not only to create their own incubators and venture funds, but also to develop curriculums on birthing start-ups.

And while some young entrepreneurs say real progress will come only if Prime Minister Shinzo Abe acts as promised to shake up Japan’s hidebound corporate culture, they say the stock market rally and broader optimism created by the economic plan known as Abenomics are already making it easier to find investors and customers.

“This is the beginning of something that could rejuvenate Japan,” said Mitsuru Izumo, the founder of Euglena Corporation, a biotechnology start-up valued at $1 billion, and one of the country’s most prominent new entrepreneurs. “If we don’t unleash our youth, then Japan will become too weak to survive another blow like Fukushima. Entrepreneurship is Japan’s last chance.”

For years, sagging entrepreneurial spirit has been cited as a major reason for Japan’s inability to save itself from a devastating deflationary spiral. The nation that produced Sony, Toyota and Honda has created few successors. Although Japan has a long tradition of entrepreneurship in blue-collar trades like manufacturing, it has had only limited success in extending that to more knowledge-based industries like software or computing, at the forefront of the digital age and where competitors like South Korea have sped ahead.

A decade ago, under then-Prime Minister Junichiro Koizumi’s effort to revive the economy, Japan appeared to embrace young entrepreneurs. But the resurgence was mostly snuffed out when the most prominent of these newcomers, a brash young Internet mogul named Takafumi Horie who roared around Tokyo in Ferraris, was imprisoned for securities fraud. For other young entrepreneurs, his guilt or innocence was not the story. They saw his downfall as a cautionary tale of how Japan’s graying establishment would crush those who challenged its rules.

The Samurai Startup Island, in a low-rent office district built on a landfill on Tokyo Bay, is at the vanguard of what many hope is a new generation of innovators, and a world apart from Japan’s highly conformist corporate world. The most prominent of several start-up incubators that have sprung up in Tokyo, it offers a variety of services, including free legal advice, cheap office space, espresso machines and bunk beds for all-nighters. On a recent afternoon, dozens of young Japanese sat at long wooden tables in the airy loftlike space. Ceiling-high scrolls of scowling samurai warriors and paintings of pink cherry blossoms adorn the walls.

The eclecticism is intentional, said the Island’s creator, Kentaro Sakakibara. Entrepreneurs must seek inspiration in Japan’s historical figures, particularly bold, but selfless, samurai, he said. He advised avoiding the flashy consumption and public hubris of Mr. Horie to make entrepreneurship more palatable to Japan’s proudly egalitarian society. “The samurai spirit is about taking risks, but in a humble, low-key way that suits Japan,” said Mr. Sakakibara, 39, who has invested in many of the 60 start-up companies now at the Island. Still, Mr. Horie remains a revered figure among the new entrepreneurs, who view him as a pioneering, if flawed, figure: Mr. Sakakibara says he invites Mr. Horie, now out of prison, to give pep talks at the Island. When he started investing in new companies six years ago, Mr. Sakakibara was lucky if two would-be entrepreneurs approached him in a week to seek financing. Now he gets two such queries a day, he said. He and others closely watching start-ups attribute the increase in interest to cultural shifts that have slowly chipped away at Japan’s famously insular culture.

Having grown up immersed in an online world that stretches beyond national borders, young Japanese appear more willing to draw inspiration from foreign role models like Steve Jobs, the founder of Apple. And having seen Sony cede market share to South Korea’s Samsung, many no longer share their salarymen fathers’ belief in the permanence of established corporations or lifetime jobs. “In a world where everything is risky, it’s better to be your own boss, in charge of your own destiny,” said Yoshinori Fukushima, 25, whose year-old Internet company has grown to 14 employees. While seeking a master’s degree in software engineering, he founded his company, Gunosy, to sell an app he wrote that analyzes social media pages to find news stories of potential interest to users. He says he turned down job offers at established firms before starting his business.

Others were driven by the fear of becoming yet another “lost generation” like people who came of age during Japan’s long downturn in the 1990s and 2000s, when a dearth of new jobs and opportunities left many young people underemployed or unemployed, and downwardly mobile. “Japan has said enough to being depressed, time to unleash our animal spirits,” said Robert Eberhart, a professor of management at Santa Clara University in California who

has studied start-ups in Japan and Silicon Valley. “Now, I think there is more excitement

about entrepreneurship in Japan than in the U.S.”

Some warn that Japan has a way to go to become a hotbed of break-the-boundaries venture behavior. Noriyuki Takahashi, who specializes in entrepreneurship at Tokyo’s Musashi University, pointed to comparative global surveys that place Japan at the bottom among leading Western and Asian economies in social acceptance of entrepreneurs. For Silicon Valley-style venture capitalism to truly flourish, he and others said, deepseated

prejudices against entrepreneurs — who are seen as too greedy or self-promoting in a culture that abhors displays of unrestrained ego — must be overcome.

The biggest hurdle is the stigma the downfall of Mr. Horie placed on entrepreneurship, they said. One of those trying to find a new path — and create a more culturally acceptable version of the Japanese entrepreneur — is Mr. Izumo, the founder of the biotechnology start-up, who has become a fixture in local media. His company, Euglena, aims to turn plankton into a source of low-cost nutrition for the developing world and the raw material for a new type of biofuel for jets. While the company’s main product has been a bright green health drink, investors have been sufficiently impressed; in December, Euglena’s initial listing on the stock market valued the company at more than $1 billion, turning Mr. Izumo, 33, into an instant multimillionaire.

Still, Mr. Izumo is careful to eschew any sign of conspicuous consumption; he lives in a one-room apartment, owns neither a car nor a television set and says he wants his product to feed the poor in Bangladesh. “Horie gave entrepreneurship a negative image, as something too greedy,” said the

enthusiastic Mr. Izumo, who sported a bright green necktie. “Young entrepreneurs are out to change that mind-set.”

Perhaps the greatest sign of change is the number of elite university graduates — the type who can still get high-level corporate jobs if they want — among start-up founders. Mr. Izumo and Mr. Fukushima, the Internet entrepreneur, are graduates of the University of Tokyo, among Japan’s top colleges. The university says 25 companies are being incubated in what it calls its “entrepreneur plaza.” And Tokyo’s prestigious Waseda University, which this year introduced a program for supporting start-ups, says it has already produced five new businesses.

Those numbers might seem small, said Shigeo Kagami, a business professor who helps run the University of Tokyo incubator, “but the fact this is happening at all is a big chance for Japan. ” “As Steve Jobs showed,” he said, “it only takes one or two success stories to change the world.” © 2013 The New York Times Company