Japan: To Fix Your Economy, Honor Your Failed Entrepreneurs(techcrunch.com)
techcrunch.com
Japan: To Fix Your Economy, Honor Your Failed Entrepreneurs
http://techcrunch.com/2010/10/17/japan-to-fix-your-economy-honor-your-failed-entrepreneurs/
36 comments
OK, but the distribution of company sizes is a only a good metric if you take a dictionary definition of "entrepreneurship". Yes, you can call a country which has a bunch of old-fashioned mom-and-pop book stores "entrepreneurial" in the sense that the risk/reward of the businesses are concentrated (high variance) because they are individually owned. But that's not the disruptive, innovative entrepreneurship that interests HNers. I think there's a broad range of HN-style entrepreneurship that shouldn't be characterized as shoot-for-the-moon but would not at all be measured by distribution of company size.
yeah, its disruption that creates wealth, not doing things the way they've always been done. Its not the scale of an enterprise or even growth in the number of employees.
I personally would find it much harder to start a company in Germany than the US for example. How does one deal with the "social" laws / customs? IIRC, the Germany company (40,000+ employees) I used to work for had the following rules/laws:
- 12 month maternity leave
- 32 vacation days per year
- 6 month paid after termination (so for example, if you fired someone you had to pay them for 6 months)
I'm not sure if these are government regulated or just were forced from the works council. Therefore I could foresee well-funded start-ups in Germany to be quite successful but I can't see bootstrapped-type organizations popping up as frequent as they do in the US.
I'm not sure if these are government regulated or just were forced from the works council. Therefore I could foresee well-funded start-ups in Germany to be quite successful but I can't see bootstrapped-type organizations popping up as frequent as they do in the US.
Japan has a lot of smart businessmen, but their problem is actually that the government has supported their businesses too much. Japan is in a horrible economic situation precisely because they've honored failed entrepreneurs (or at least their ventures) too much. They've honored them by preventing them from failing completely when they should have -- they've backed them with state funds and as a result have created zombie entities that have contributed to the prolonged deflationary cycle that Japanese citizens continue to experience.
It's a fine idea to honor peoples' attempts at entrepreneurship, but by propping up failed ventures instead of making room for new innovators sends the wrong message to their economy and is causing untold number of problems.
It's a fine idea to honor peoples' attempts at entrepreneurship, but by propping up failed ventures instead of making room for new innovators sends the wrong message to their economy and is causing untold number of problems.
The article is about honoring failed entrepreneurs in the sense of valuing people who start companies and fail (by correctly realizing that the success of a start-up is almost completely uncorrelated with the technical skill of it's employees and only weakly correlated with their future start-up success rate). It doesn't have anything to do with government subsidies.
Subsidies are highly relevant to startups.
When companies break up, the employees, assets, and consumers are freed to be used again. If that doesn't happen, the company's operations continue to serve the existing demand and tie up resources, but there are no productivity gains, or possibly even diminishing ones. A zombie company is a company that should be destroyed by disruptive innovators.
This is the situation in recorded music right now. The major labels have consistently succeeded in winning strong copyright protection, so instead of collapsing, they are now seeing their position eroded by the innovators at a very, very slow rate; if it were not for the government's protection enabling the "copyright mafia" scenario, this situation wouldn't have happened and we would not have an unending trainwreck of music startups that try to reinvent the distribution process, but end up getting destroyed with fees or legal battles. The situation is so bad that it hinders even the companies that try to eschew all major label music(e.g. Jamendo), because the existing trade groups get in the way of non-traditional licensing schemes.
When companies break up, the employees, assets, and consumers are freed to be used again. If that doesn't happen, the company's operations continue to serve the existing demand and tie up resources, but there are no productivity gains, or possibly even diminishing ones. A zombie company is a company that should be destroyed by disruptive innovators.
This is the situation in recorded music right now. The major labels have consistently succeeded in winning strong copyright protection, so instead of collapsing, they are now seeing their position eroded by the innovators at a very, very slow rate; if it were not for the government's protection enabling the "copyright mafia" scenario, this situation wouldn't have happened and we would not have an unending trainwreck of music startups that try to reinvent the distribution process, but end up getting destroyed with fees or legal battles. The situation is so bad that it hinders even the companies that try to eschew all major label music(e.g. Jamendo), because the existing trade groups get in the way of non-traditional licensing schemes.
I wasn't making a claim about subsidies. I was just saying I don't think your comment was relevant to the article because of a misunderstanding about the article's use of the word "honor".
If that is so, then perhaps they aren't honoring the concept of failure.
They are trying to hide from failure rather than using it to learn. You can't learn from a failure you can't afford to admit making.
There is also no shortage of experienced engineering talent.
Yes, but no. Japan has many, many, many talented engineers. Comparatively few of them work in web applications. Of those, most work on corporate IT apps serving the needs of Japan's multi-nationals.
To the extent that there is a coherent body of practice involved in the design, creation, operation, and evolution ofmodern web applications outside of the enterprise, that body is largely understudied here. Everything from modern web frameworks to metrics to split testing to making stuff pretty (many Japanese sites are stuck in early 2000 web design, partially a function of supporting obsolete mobile clients and partially of underuse of modern technologies) is underdone here.
My views are partially colored due to living in Japan's answer to Kansas. It may be better in the trendy Tokyo startup scene.
Yes, but no. Japan has many, many, many talented engineers. Comparatively few of them work in web applications. Of those, most work on corporate IT apps serving the needs of Japan's multi-nationals.
To the extent that there is a coherent body of practice involved in the design, creation, operation, and evolution ofmodern web applications outside of the enterprise, that body is largely understudied here. Everything from modern web frameworks to metrics to split testing to making stuff pretty (many Japanese sites are stuck in early 2000 web design, partially a function of supporting obsolete mobile clients and partially of underuse of modern technologies) is underdone here.
My views are partially colored due to living in Japan's answer to Kansas. It may be better in the trendy Tokyo startup scene.
That's rather ironic considering that the creator of Ruby is Japanese. I mean, sure, Merb was created by EY people; Sinatra was created by a bunch of folks working for Heroku; and Rails was spearheaded by a legendarily foul-mouthed Dane, but none of those "trendy" web frameworks would've been possible without Yukihiro Matsumoto.
And so again, we have really sharp engineers producing great work, but it's just not "sexy" enough for web 2.0 startups on its own.
I feel that this fear of failure is one of many issues with the lack of Entrepreneurs in Japan, but cannot by a long-shot be called the sole reason. And that is not to say that Entrepreneurs are non-existent in Japan, or even as rare as the article states.
I also see a lot of Entrepreneurs making it big in Japan (I live near a tech incubator that is now 30%(?) iphone application companies, and the companies there are doing very well. The largest web-design company in my tri-prefecture area was started by an Entrepreneur.
In addition, I think of companies like Gree, Mobage (which just got purchased by Yahoo) and other startups who are making it big right now.
Another thing to consider is the size of the market. The Japanese market is a fraction of the English-speaking market, so even if a start-up does hit it big, they are pulling from a smaller pool of possible income. This might be another reason (no big dividends) why the Japanese are less reluctant to become an Entrepreneur rather than work at a company and have (fairly) stable job security.
>>So if the business fails, they lose their house; their savings; practically everything they have. What’s worse: the Japanese and German entrepreneurs may also face criminal penalties and go to jail.
I'm curious about this. Someone I know was an entrepreneur who recently went under. He's now happily working on his next project, and has no criminal penalties, and other than losing the building and land for the offices he had built, suffered no life-altering penalties.
At the risk of sounding Wikipedian: [citation needed]
I also see a lot of Entrepreneurs making it big in Japan (I live near a tech incubator that is now 30%(?) iphone application companies, and the companies there are doing very well. The largest web-design company in my tri-prefecture area was started by an Entrepreneur.
In addition, I think of companies like Gree, Mobage (which just got purchased by Yahoo) and other startups who are making it big right now.
Another thing to consider is the size of the market. The Japanese market is a fraction of the English-speaking market, so even if a start-up does hit it big, they are pulling from a smaller pool of possible income. This might be another reason (no big dividends) why the Japanese are less reluctant to become an Entrepreneur rather than work at a company and have (fairly) stable job security.
>>So if the business fails, they lose their house; their savings; practically everything they have. What’s worse: the Japanese and German entrepreneurs may also face criminal penalties and go to jail.
I'm curious about this. Someone I know was an entrepreneur who recently went under. He's now happily working on his next project, and has no criminal penalties, and other than losing the building and land for the offices he had built, suffered no life-altering penalties.
At the risk of sounding Wikipedian: [citation needed]
http://www.gamasutra.com/view/news/30195/Yahoo_and_DeNA_Debu...
It's a joint project between DeNA and Yahoo, not an acquisition of DeNA's Mobage by Yahoo.
It's a joint project between DeNA and Yahoo, not an acquisition of DeNA's Mobage by Yahoo.
This has been a hot topic recently here in Japan. Very happy to see more attention being paid to the entrepreneurial environment in Japan.
However, it's important to point out that the web/high-tech entrepreneurial industry is still fairly young and seems to be in its infancy compared to areas referenced in another comment regarding government subsidies and whatnot.
For the past four years, I worked as a head-hunter recruiting Japanese talent for companies in the web space. I've met and spoken with over 3,000 industry professionals ranging from company owners, entrepreneurs, engineers and designers. Here's what I've learned:
1. Those most considered risk-takers, confident and willing to forgo the security and stability for more entrepreneur-driven opportunities are normally educated outside of Japan, or have spent a significant amount of time outside of Japan.
2. Start-ups created in Japan, in the web space or high-tech space are considered too risky. Even foreign companies that have been successful in other markets have a stigma attached to them and are not considered as attractive options.
In my experience, most Japanese like to see either a track record of success in Japan as well as a partnership with or backing from a major Japanese company in order for the start-up stigma to be removed.
3. Tokyo is beginning to have a great start-up and entrepreneur community in the high-tech space however, there is a language barrier that, in my opinion contributes to the slow growth of the community. For example, there was recently a conference title New Context Conference 2010, in which several companies from a new YC Clone seed accelerator (Open NetworkLab) were able to demo their start-ups. A part of the program is that companies receive mentoring from international and Japanese investors, founders and the like to help improve their start-ups. Watching the presentations, it's clear that the Japanese start-up founders for the most part were struggling most with presentation skills.
My point is, when your language ability is limited and you can only access resources in Japanese, it's tough to really push and challenge yourself, especially when a lot of the most exciting things happening in this space are in English. It's unfortunate, but Japanese is not the language of business outside of Japan.
4. Have you tried starting a company here? With the long set-up time at least 1 month, expensive office space, taxes, banking fees, not to mention the difficulty in closing a company down-- they don't make it easy to take a risk.
5. If you're a former founder of a failed start-up here, unless you have a great network it's highly likely that the only companies that will find your failed start-up experience highly attractive are foreign owned. Most domestic companies would be too blinded by your failure and/or the fact the founder is used to being independent and most senior in their company, and may not be able to adjust to a team environment again.
I could go on, but overall there's a lot that contributes to the current state of Japan's lagging entrepreneur state.
However, it's important to point out that the web/high-tech entrepreneurial industry is still fairly young and seems to be in its infancy compared to areas referenced in another comment regarding government subsidies and whatnot.
For the past four years, I worked as a head-hunter recruiting Japanese talent for companies in the web space. I've met and spoken with over 3,000 industry professionals ranging from company owners, entrepreneurs, engineers and designers. Here's what I've learned:
1. Those most considered risk-takers, confident and willing to forgo the security and stability for more entrepreneur-driven opportunities are normally educated outside of Japan, or have spent a significant amount of time outside of Japan.
2. Start-ups created in Japan, in the web space or high-tech space are considered too risky. Even foreign companies that have been successful in other markets have a stigma attached to them and are not considered as attractive options.
In my experience, most Japanese like to see either a track record of success in Japan as well as a partnership with or backing from a major Japanese company in order for the start-up stigma to be removed.
3. Tokyo is beginning to have a great start-up and entrepreneur community in the high-tech space however, there is a language barrier that, in my opinion contributes to the slow growth of the community. For example, there was recently a conference title New Context Conference 2010, in which several companies from a new YC Clone seed accelerator (Open NetworkLab) were able to demo their start-ups. A part of the program is that companies receive mentoring from international and Japanese investors, founders and the like to help improve their start-ups. Watching the presentations, it's clear that the Japanese start-up founders for the most part were struggling most with presentation skills.
My point is, when your language ability is limited and you can only access resources in Japanese, it's tough to really push and challenge yourself, especially when a lot of the most exciting things happening in this space are in English. It's unfortunate, but Japanese is not the language of business outside of Japan.
4. Have you tried starting a company here? With the long set-up time at least 1 month, expensive office space, taxes, banking fees, not to mention the difficulty in closing a company down-- they don't make it easy to take a risk.
5. If you're a former founder of a failed start-up here, unless you have a great network it's highly likely that the only companies that will find your failed start-up experience highly attractive are foreign owned. Most domestic companies would be too blinded by your failure and/or the fact the founder is used to being independent and most senior in their company, and may not be able to adjust to a team environment again.
I could go on, but overall there's a lot that contributes to the current state of Japan's lagging entrepreneur state.
I always thought that if corporate raiders were allowed to descend upon Japan, the companies could be kicked into action.
There just seems to be a lot of bloat, not only from conglomerates with tons of subsidiaries but also from their ballooning cash hordes and debt free balance sheets. It makes the corporate loan demand very very low in Japan which creates issues for their banks when it comes to acquiring good borrowers for loan income.
We had this happen in the 70s when raiders went after old school economy companies (think Asher Edelman). They really helped weed out the inefficient enterprises.
There just seems to be a lot of bloat, not only from conglomerates with tons of subsidiaries but also from their ballooning cash hordes and debt free balance sheets. It makes the corporate loan demand very very low in Japan which creates issues for their banks when it comes to acquiring good borrowers for loan income.
We had this happen in the 70s when raiders went after old school economy companies (think Asher Edelman). They really helped weed out the inefficient enterprises.
The article laments the lack of innovation, then introduces a groupon clone as an exemplar of how things should be. <eyeroll/>
I also wish that when they do these "The problem with Japan" articles, that they actually interview someone Japanese.
While I'm sure that Jeff Char is an amazing man, and has done great things for tech incubation in Japan -- I would like to know what problems the Japanese feel they have with Entrepreneurship.
While I'm sure that Jeff Char is an amazing man, and has done great things for tech incubation in Japan -- I would like to know what problems the Japanese feel they have with Entrepreneurship.
I agree that speaking with some "locals" is useful, but don't entirely discount foreigners who have lived there for a while - they tend to see the quirks more clearly.
I would somewhat agree. In Asian culture losing face is probably the biggest social fear there is. Americans for the most part don't have this fear. Americans love the comeback story, the rags to riches, etc. We also have government incentives in place that encourage you to keep trying even if you failed.
There are more significant issues than just losing face. Being at the head of a company is a huge responsibility because you have to deal with your employees welfare. Now, it may sound like anywhere else, but Japanese society takes responsibility very seriously. It goes both ways, but it means that the whole idea of having a small company for a couple of months and scrapping it if it does not work is not really doable if you need other people to work with you. You will look like a joke.
Also, being fired is still a significant stigma in Japan. Not just socially (which matters a lot), but also practically because most jobs openings in Japan happen twice a year, and because most big companies hate people who have "hole" in their career, even if that's only a few months.
Also, being fired is still a significant stigma in Japan. Not just socially (which matters a lot), but also practically because most jobs openings in Japan happen twice a year, and because most big companies hate people who have "hole" in their career, even if that's only a few months.
On the other hand, the Japanese fear is an opportunity for foreigners with more mercenary spirit.
The lack of biz contacts are daunting but if Softbank can make it with a Korean president, there is nothing stopping us. (or at least that's how I justify trying things here)
The lack of biz contacts are daunting but if Softbank can make it with a Korean president, there is nothing stopping us. (or at least that's how I justify trying things here)
If green Japanese entrepreneurs believe that you shouldn't take a risk with someone who's failed and thus can't learn from them and are more likely to fail themselves, isn't that their own fault?
Regardless of this, Japan's economy will begin to recover when the government stops interfering with interest rates.
If the market set rates, marginal businesses would fail, making room for new companies.
And savers would have more incentive to save, making more capital available for businesses that stand a better chance of generating returns that justify the higher rates.
More viable business mean more capital returned to investors and more capital for investment.
These low rates are really a subsidy for mediocre investments. And we all pay for this subsidy through inflation and dumb idea bubbles.
Regardless of this, Japan's economy will begin to recover when the government stops interfering with interest rates.
If the market set rates, marginal businesses would fail, making room for new companies.
And savers would have more incentive to save, making more capital available for businesses that stand a better chance of generating returns that justify the higher rates.
More viable business mean more capital returned to investors and more capital for investment.
These low rates are really a subsidy for mediocre investments. And we all pay for this subsidy through inflation and dumb idea bubbles.
True scientists celebrate failures.
> True scientists celebrate failures.
No.
Scientists try to produce knowledge. Scientists don't "celebrate" failing to produce knowledge.
Note that producing knowledge is not the same as producing other goods or services that may be related to said knowledge.
For example, learning why something that "should work" doesn't is a knowledge success. However, it's a failure to do whatever "should work" is supposed to do.
By the same token, just doing something that should work is a knowledge failure even as it's a success at doing whatever "should work" is supposed to do.
No.
Scientists try to produce knowledge. Scientists don't "celebrate" failing to produce knowledge.
Note that producing knowledge is not the same as producing other goods or services that may be related to said knowledge.
For example, learning why something that "should work" doesn't is a knowledge success. However, it's a failure to do whatever "should work" is supposed to do.
By the same token, just doing something that should work is a knowledge failure even as it's a success at doing whatever "should work" is supposed to do.
"I have not failed. I've just found 10,000 ways that won't work." --Edison
Given the parlous state of more liberal economies, perhaps the Japanese and the Germans have a point.
This is nonsense. According to the World Bank at http://data.worldbank.org, the total cumulative GDP growth of Japan between 1991 and 2009 was 18.15% while it was 59.47% for the United States. Even though measuring economic development with GDP growth has its problems, the difference is so enormous that it cannot be denied that the US economy did a lot better, even with all the recent developments.
Those numbers are somewhat arbitrary move it back 6 years and Japan grew faster from 1985 to now. The real story is Japan's growth from 1960 - 1995 was ridiculous. To the point where it's still grown more from 1960 to now than the US did. They had a significant collapse in 1995 which they are still recovering from.
Germany had no collapse in the nineties (although it had to deal with the reunification), still the same number for Germany is 29%, still very far from the US.
The same numbers for the 1984-2009 period are: Japan 61.7%, Germany 59.7%, United States 108.8%. A very large difference.
The same numbers for the 1984-2009 period are: Japan 61.7%, Germany 59.7%, United States 108.8%. A very large difference.
We are not looking at the same numbers (Not inflation adjusted but relative growth should work out).
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk...
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk...
JP 1.347T (1985) > 4.991T (2008) = 3.7x
USA 4.188T (1985) > 14.591T (2008) = 3.48xI think you could prove almost anything depending on the time period you take. Basically, since 1995, Japanese gdp has been very slow growing. In 2009, the GDP has decreased of 5 %, which is far worse than any other rich country of a significant size AFAIK in the last few years.
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk... (beware that 2009 is missing, I guess the definite numbers may not be there yet).
I think it is fair to say that Japanese economy is in a really bad shape, although the explanation is not as simplistic as the one given by techrunch, obviously. Paul Krugman has a few papers on this which are well know, although maybe not up to date anymore (http://web.mit.edu/krugman/www/japtrap.html).
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk... (beware that 2009 is missing, I guess the definite numbers may not be there yet).
I think it is fair to say that Japanese economy is in a really bad shape, although the explanation is not as simplistic as the one given by techrunch, obviously. Paul Krugman has a few papers on this which are well know, although maybe not up to date anymore (http://web.mit.edu/krugman/www/japtrap.html).
Not sure why the numbers are so different. I simply took the product of the yearly GDP growth rates, as reported by the World Bank.
My sources: http://data.worldbank.org/sites/default/files/countries/en/g...
http://data.worldbank.org/sites/default/files/countries/en/j...
http://data.worldbank.org/sites/default/files/countries/en/u...
My sources: http://data.worldbank.org/sites/default/files/countries/en/g...
http://data.worldbank.org/sites/default/files/countries/en/j...
http://data.worldbank.org/sites/default/files/countries/en/u...
I'm eagerly awaiting Patrick McKenzie to chime in...
Germany, like most rich countries, has various incorporation forms, some which limit liability and some which do not. The GmbH and AG (translated literally "company with limited liability" and "stock company") are the standard startup vehicles. Recently there was also a new simpler form created, the UG ("founders' company"), which is also limited liability and doesn't require the initial stock value to any particular amount, unlike the GmbH (€25k+) and AG (€50k+).
Furthermore, Germany is very much a country of entrepreneurs. 66% of Germans are employed at a company that has fewer than 250 employees [1]. Germany does not have nearly as much of the shoot-for-the-moon entrepreneurship that the US is famous for, but to claim that founding companies is an oddity is nowhere close to being factually correct.
In contrast, in the US, half of Americans work for companies of under 500 people [2].
[1] http://de.wikipedia.org/wiki/Kleine_und_mittlere_Unternehmen...
[2] http://www.ilr.cornell.edu/international/news/upload/BERLIN%...