Starting Up in Japan vs China
Mikaal Abdulla5 min read·Just now--
“Scale” is perhaps the most overused word in the startup lexicon. It is splashed across tech media and ushered across every incubator, accelerator and plush venture capital office from Silicon Valley to Singapore. When I began my startup journey I admit that I had to look it up on Wikipedia. I had to make sure I was using “scale” in the correct context as I had splattered it across 99 pages of my 100-page pitch deck (90 pages longer than it should have been by the way). Scalability is fundamentally important to any startup. Your systems, operations, and sales need to be scalable to grow a healthy technology business. However, does your market give you unlimited potential to scale your users? If you are an ambitious startup founder in the Asia Pacific, you do not have to look further than China and Japan. With over $15 trillion in GDP, $13 trillion in domestic market capitalization and over $50 trillion in consumer wealth, these two geographies dwarf every other market in the Asia Pacific. Pick any metric that is important to your business such as the number of smartphones, mobile app installs, game penetration, e-commerce, etc and you will surely find these two geographies represent over 80% of the opportunity.
We can all agree they are both big markets but that is where the similarity stops. I have had both the good fortune and frustration of trying to build a business across these two geographies. At a macro level, China has the advantage of growth and long-term potential. Japan, on the other hand, is a market that is ready today. Virtually all consumers have buying power in Japan and the infrastructure is solid as a rock. Today, 70% of our revenues originate in Japan but I am certain it will reverse to 70% from China within 3 years. At a consumer level, my experience has shown me individuals in China value speed and cost above quality. In Japan, it’s the complete opposite. Consumers value quality above all else. If you have a quality product people will pay for it and they will give you their loyalty. The lifetime value of our customers in Japan are 3X higher than those of our China customers. However, our cost of acquisition in Japan is higher because it is more difficult to convince them to “switch” from another service to which they are loyal. In Japan, you won’t win on price alone. Finally, China has hyper-competition where Japan does not. In China, startups are viable challengers to incumbents. In Japan, consumers worship brands that exude size, stability, and history. I would rate Japan’s aversion to risk and conformity very high compared to China. Yes, Japanese consumers are very open to trying new technology but you better be able to show them sizable social proof that others are doing the same.
So how does one build and manage a business across these very different dimensions? I have not figured it out yet and probably never will. That said, I have learned a few things about the trade-off between speed and quality.
Our business was originally launched for Chinese customers. Our obsession with speed to market was a reflection of the frenetic pace of the environment, competition and consumers all around us. We were 100% invested in agile product development. The notion of waterfall product development where detailed requirements are largely planned in advance was for losers. Only our traditional competition could be so archaic and stupid to do this. Bugs? No problem. Speed was paramount and we needed immediate customer feedback. We had full knowledge that achieving our vision would be a marathon but we were in the mindset of running sprints in order to achieve traction (the second most overused word in the startup lexicon). Our Chinese customers are not patient people. Learn, iterate and release. Repeat over and over. We found that as long as we delivered speed and value, our Chinese customers were forgiving of the small imperfections. We wondered if these imperfections were even noticed. It was very simple, the competition moves at light speed and so do consumers. We had our formula and as far as we were concerned it worked.
Fast forward to our second office in Tokyo. We had our proven model and we were going to slay our competition in Japan with speed and value. Ummmm…not quite. The notion of “alpha” is not very Japanese. An alpha version may as well be a prototype that you tinker on at home after hours because you are too embarrassed someone might see it. The thought that this would be made public for customers is not only mortifying but a solid nail in your coffin. The Japanese mentality is to achieve very high-quality standards before a product is launched. As before mentioned, consumers want and expect flawless experiences. I found this difficult to reconcile because innovation requires iteration and iterations are naturally imperfect. One of my first contributions to the Tokyo team was “we can work out the bugs in the next iteration so lets just launch it and see what happens.” You could have heard a pin drop and waited 20 minutes to hear a second pin drop. I am an impatient and competitive American which is not the best cocktail for Japan. However, I have come to learn and appreciate that Japan simply requires very different thinking. Speed is relative. We may not launch products in Japan as rapidly as we do elsewhere, but we are still 10X faster than our competition. Quality matters in Japan and the price you have to pay is longer product cycles. Your understanding that first impressions and details matter to Japanese customers is loyalty if you get it right. Your tradeoff of speed for quality will likely result in a higher customer lifetime value.
In summary, in your search for scale don’t forget to scale your lateral thinking. Building and managing a global business is complicated. The best way to figure it out is to start with your consumer and work your way back. An attentive 30-minute walk, a trip to a grocery store and a train ride can teach you a lot about what people value. There are probably 1,000 good reasons not to run a startup in parallel in China and Japan but what fun would that be?
