Tim Romero is the author of Disrupting Japan, that is considered the reference point for the Japanese start-up ecosystem and in this column, he wrote for Startupbusiness, explains how the Country is living a new season of big changes and why start-ups are so important for its future
Startups are already changing Japan. The country is being changed in ways in which the government doesn’t completely approve and in ways outside observers and sometimes even the Japanese themselves don’t completely understand.
I’ve started four startups in the 25 years I’ve been in Japan, and the changes I’ve seen in that time have been astounding, but the groundwork is now being laid for something much more transformative.
Because of my work in startups and Disrupting Japan, I’m lucky to be able to work with some of the most innovative and creative people in Japan as an investor, advisor, or often just a friend.
Japan is not exactly in the spotlight these days. China is bigger, more dynamic and growing faster. Singapore is simpler and more accessible. But Japan is more important and far more interesting.
Even the Japanese themselves sometimes view Japanese society as uncreative or inflexible, but this is wrong. That Japanese start-up scene is far richer and more dynamic than most images.
To understand the myth of Japanese inflexibility, we need to step back about 150 years; to the start of the Meiji Period. At this point, Japan had spent hundreds of years in isolation as a feudal economy almost completely closed to foreign influence. But the beginning of the end of this era came in 1853 with the arrival of Commodore Perry and four large American warships.
By 1868 the Japanese government understood their overwhelming economic and military disadvantage and made the decision to fundamentally transform everything about Japan in order to modernize. Japan reinvented herself, fundamentally transforming the education system, the legal system, the military, and the government. Even the Japanese language and Japanese history were revised and updated.
The next few decades saw rapid advances in economic, political, and military power. This resulted in Japan not only winning a steady stream of military victories over China but decisively defeating Russia under Czar Nicholas in 1905. A newly modernized Japan had defeated one of the world’s great powers.
Sadly, the militarism and nationalism that grew out of this economic expansion resulted in untold and unimaginable suffering. It’s something that nearly 100 years later, Japan and the rest of Asia still trying to come to grips with.
However, that expansion illustrates Japan’s amazing adaptability. In less than 40 years Japan transformed from a technological, diplomatic, and educational backwater; from a nation that was literally hundreds of years behind the times, into a nation that defeated one of the world’s superpowers.
This is not a culture incapable of change. A country completely reinventing itself and becoming a global superpower in a matter of decades had never happened before, but something very much like it would happen again.
Japan’s defeat in World War II was total. Several of the economists working with the American Occupation Forces thought Japan would never be able to recover. The economic devastation was too great and Japan’s experience with modern trade too limited to ever become a modern economy.
Today we know how ridiculously wrong those economists were. Japan turned away from militarism and focused on democracy and economic growth. Once again, in a period of only a few decades, Japan transformed itself from a country with almost no functioning infrastructure and no economic markets to speak of into the second-largest economy on the planet.
This is not a country unable to change.
The post-war period saw Japan’s first true global entrepreneurs. People like Soichiro Honda of Honda and Akio Morita of Sony. Japan was not supportive of startups in that era. The government decided economic policy and which companies received research funding, and to a large extent, they decided which companies would be allowed to compete in the domestic market.
So Honda and Sony realized they had to go global.
Younger readers might not realize what an innovative powerhouse these companies were.
Morita was every bit the visionary of Steve Jobs and every bit the strategic street fighter as Richard Branson, but a generation earlier. Sony was the company that first commercialized the transistor radio, that invented the Trinitron tube, the digital audio tape, the Walkman, and the 3.5” floppy disk.
These entrepreneurial companies became successful overseas before their huge successes in Japan, and by doing so they defined the blueprint for the generations of Japanese entrepreneurs who followed.
This brings us back to today. At the start of the 21st century, Japan finds itself in need of societal change every bit as extensive and sweeping as the post-war reconstruction of the 20th century and the Meiji restoration of the 19th century.
There is growing nationwide consensus that the future lies in small, innovative, independent companies and that large conglomerates are a thing of the past. However, in attempting her third economic miracle, Japan faces a challenge she didn’t have in the past two. Innovation, almost by definition, has to come from the bottom up.
Japan’s past two economic miracles were largely the result of top-down policies. They were designed by the central government and executed through an efficient social and industrial hierarchy. That strategy simply won’t work this time.
Of course, old habits and old hierarchies die hard. Many of the old guard doesn’t want to step out of the limelight. Just like the samurai 150 years ago, today’s executives, bureaucrats, and academics will not give up their power willingly. Many view these young, un-credentialed, poorly-funded, startup founders with extreme suspicion.
However, just like the samurai 150 years ago, these doubters are fighting a losing battle.
Japanese startup funding has increased over 800% in the past five years, and startup creation is at the highest level in history. Social attitudes are shifting as well. Not only are graduates from Japan’s top universities increasingly turning down offers from large companies in order to found or work at startups, but schools like the University of Tokyo have established substantial venture capital funds to accelerate this change.
The disruption has already begun. Japan has already started to change.