Startup investing in Tokyo, with Coral Capital’s James Riney
I'm presently on vacation in Japan with my family, but couldn't resist the opportunity to record a few episodes while here. Today's is with James Riney here in Tokyo, to discuss venture activity in Japan.
Sponsor: Safebase.io
Leading companies use SafeBase to eliminate up to 98% of inbound security questionnaires, automate workflows, and accelerate pipeline. Go to safebase.io/podcast
[Patrick notes: Complex Systems now produces occasional video episodes! You can access them directly on YouTube: www.youtube.com/@patio11podcast. My kids inform me that I’m supposed to tell you to like and subscribe. The episode with James is audio only.]
Timestamps
(00:00) Intro
(01:57) The early days of Japanese startups
(04:08) The rise of Coin Check
(05:54) Challenges and opportunities in the Japanese startup ecosystem
(16:09) Cultural and structural differences in hiring
(19:47) Sponsor: Safebase
(21:22) The role of content and communication in Japanese startups
(31:29) LinkedIn vs. Facebook in Japanese work culture
(32:38) LinkedIn's social capital issues in Japan
(33:58) Cultural differences in asking for permission
(34:31) Navigating Japanese regulatory clarity
(36:49) The evolution of VC investment in Japan
(39:54) The rise of SaaS in Japan
(45:26) System integrators and software development in Japan
(50:39) Challenges in Japanese tech companies
(54:36) Opportunities for foreign companies in Japan
(55:03) The importance of commitment in the Japanese market
(57:08) Dev tools and viral adoption in Japan
(59:31) Japan's influence on global tech
(01:03:23) Wrap
Transcript
Patrick: Hideho everybody. My name is Patrick McKenzie, better known as patio11 on the internet. And I'm here with my buddy James Riney.
James Riney: Hey! Hello world.
Patrick: So, James is a partner here at Coral Capital, which is a VC fund in Tokyo. And we're just going to talk a little bit today about the Japanese startup ecosystem raising capital here both maybe from the startup side and from the fund side, if you want to talk about that, and then some observations.
But first can you give everyone a bit of a self introduction?
James: Yeah. So, Coral Capital, one of leading venture capital firms in Japan. We are basically investing anywhere from 500K to like 30 million. And anywhere from SaaS all the way to fusion. That's quite literally our catch line here in Japan. [Patrick notes: “Catch copy” is a bit of waseieigo—English developed in Japan. It means the type of slogan that is also an elevator pitch or unique selling proposition for you.]
On a personal level I'm a white guy in Japan, but I basically have lived in Japan for over 20 years now. So I spent a lot of my childhood in Japan, so I was on and off in Japan until I was 12 years old. I went to school in the US. I was in the US until I graduated from university, came back to Japan, went the very sort of drone-like route of working in an investment bank.
I was at JP Morgan initially. I didn't put a whole lot of thought on what I wanted to do, frankly, but seemed like all my friends basically wanted to do banking or consulting or whatever it was. And quite early on, basically as soon as I got there, I was very disenchanted with what I was experiencing. It didn't seem like it was very dynamic place. It was not at all what I had imagined, but I had the fortunate opportunity to meet someone in the technology department at JP Morgan that I got along with quite well. And basically on weekends and at nights, we would be hacking away at many different products.
And we had not had any exposure to any of this startup world. You know, I had grown up in Japan and then also on the East coast and not at all involved in any of the Silicon Valley excitement. And when I was working on projects with this particular person, that's when I had this aha moment and I started going down this rabbit hole of technology and startups and all this stuff.
And we had started participating in some events in Japan, which by the way, at the time was extremely nascent. So this is around 2010, 2011. And basically there was not that much capital invested in startups at all. It was less than a billion. In fact, I think when I started my company, it was about 700 million invested per year in the startup ecosystem.
Patrick: And just for a sense of scale, that's smaller than many individual funds in the US both the fund size and probably what they would deploy in a year, right?
[Patrick notes: The NVCA, an industry advocacy group, tracked $170.6 billion in U.S. VC in 2023.
To pick just a few examples for flavor, A16Z just announced a total of $7.2 billion across five fund vehicles. Divide that by about three for the deployment-per-year comparable. Sequoia’s fund, which is now evergreen (versus the traditional way to structure VC funds: spinning up a new entity deploying funds over typically 3 years with a typically 10 year time horizon, and stacking them), is about $19.6 billion per the SEC (thanks Bloomberg).
Many otherwise well informed people do not understand how large the Japanese economy is. It’s generally the world’s third largest economy with a GDP of about $4.2 trillion. The U.S., by comparison, is about 28 trillion. Both the US and China have pulled away from Japan in the course of the last few decades, but for the time being they’re a pretty solid lock on We’re Number Three.
If you do elementary school math on these numbers you might understand why I view speaking Japanese as being something of a tailwind for a very interesting convergence trade if one works in tech.]
James: Yes, exactly. So it's small and it's small relative to GDP, certainly. So it's nothing compared to what you saw in the US or in China.
And so at that time I joined one of the very few handful of startup events. It was called Startup Weekend. And at that startup weekend, there was about a hundred people. And four of them happened to be also JP Morgan participants and I was pitching a startup there, but basically we had no idea what we were doing at the time. Like, so 23 years old, just kind of figuring all this stuff out, but there's a VC that was interested in what we were doing and offered to invest that weekend. So that kind of gave us the courage to go, okay, let's go start something and figure this whole sort of Silicon Valley thing out.
And in the beginning we started out basically working on many different products and one of those was, it was in fact like a LinkedIn for Japan and we can talk about why LinkedIn hasn't worked in Japan, but that's kind of a sidebar. And eventually the first product that we launched that actually had traction was like a medium.com or Substack of Japan.
It did fairly well within the tech industry. And we were able to sort of piggyback off of Facebook's growth and we can kind of get into some of the things we did there, if you're interested. And at some point, growth kind of tapered off and we had tons of money in the bank still trying to figure out what to do.
And my CTO had the foresight to get into cryptocurrency. Which, you know, I didn't know this until recently. I was the one actually mentioned Bitcoin. I wasn't like, you know, my CTO was thinking, okay, MtGox has their issues. [Patrick notes: I didn’t want to derail James so I don’t jump in here. MtGox lost most of their customer assets due to a combination of hacks and mismanagement to conceal the hacks; see my notes on that presentation.]
Why don't we launch something that's in the crypto space.
Certainly interesting. I was definitely fascinated by it, but I wasn't the guy to run a crypto business. And so I actually stepped away from the company and that company became Coincheck. So Coincheck, for those that don't know, is essentially the Coinbase of Japan.
[Patrick notes: FYI: there are a few ways to read that statement, and if you asked me “Who is the Coinbase of Japan?” I’d say “It bounces around a bit but these days is Bitflyer.” That said, I put many more points into crypto skepticism than I put into following the market here.]
Patrick: Mm-hmm.
James: So, for those that really know the crypto space you probably also know that was a company that was hacked for like $500 million. But the company blew up and it was so big. In fact, we raised maybe a couple million dollars and never raised money after that. And everyone was paid back from the balance sheets after the hack. So that gives you just a perspective of how much money this company was making. [Patrick notes: I often wonder what crypto teams think of the JTB of their customers and what the rake represents, but that is another discussion.]
Can't take credit for a lot of it other than getting the team together. But I was thinking, okay, I'm going to start some other company, but I didn't know what that was.
And so I was kind of soul searching, trying to figure things out and I joined the investor side thinking, okay, this is where I can develop my network, research different areas. And around that time, the company that I had joined there was this company called DeNA was an LP in 500 Startups in the US. They [500 Startups] were launching regional funds, so they're launching country specific funds and regional funds. And they had asked me if I wanted to launch the Japan-focused fund. And fast forward a little bit, I mean, there was still very little capital invested into the Japanese market, but it was ticking up.
And any great investment opportunity comes when there is the dislocation between the narrative and the reality. And the narrative around Japan was basically most of the smart people, they go to Mitsubishi, they go to Sony, they go to the big companies, and they don't really go to startups. Like startups is the place for the rejects. But my partner Yohei and I, we were actually noticing that the smartest people that we knew were either going to startups or starting companies. So this was a very different, you could notice it viscerally if you're here.
Patrick: Mm-hmm.
James: And at the same time, money was ticking up, but most of that capital was coming from corporate investors or financial institutions with venture arms. And so you didn't really have Silicon Valley style VCs. And we can talk about what exactly that means, but it was very nascent. And so we felt like there was an opportunity to build that style firm in Japan right at the time when the market was inflecting up.
Patrick: And for a sense of timeline when was this?
James: So this was late 2015. And we closed our first fund in 2016. Had done fairly well on that fund. And from 2019 onward, we've branched out to Coral Capital. So from 2019 onward, we've been investing as Coral Capital. Now the market is like five to 10 billion depending on what the USD/JPY exchange rate is. [Patrick notes: This bounces around daily, and has been characteristically volatile due to, among other things, geopolitics. For much of my life in Japan 100 yen to the dollar was close enough to estimate; this is less true these days, and as of this writing it is approximately 150 to the dollar.]
And so, you know, certainly it's not as big as the US but among every other startup ecosystem, it's actually quite big. It's much more in a respectable position now.
Patrick: So, one of the things that I noticed in the early 2010s when I was also getting into the startup side of the tech industry we had two different salaryman experiences. You worked at a gaishikei (外資系）, which is the Japanese coinage for a foreign capitalized corporation.
[Patrick notes: In common usage in Tokyo this rounds to “a foreign bank or AppAmaGooBookSoft”, though if you asked people if e.g. Pepsi counted the answer would be trivially yes. But if you meet someone in Tokyo and they tell you they work for a gaishikei, they are in tech or finance with very high probability.]
I was at a Japanese domestic megacorp for a while. For similar reasons, I got tired of that life and then ended up reading some Paul Graham essays on the internet, as many people did. [Patrick notes: Measurement and leverage, specifically, changed my life.]
And then here we are.
Echoing something that you said earlier, I think people don't understand how regionalized the experience of working with startups is. The information, it's all free on the internet, but a lot of it travels at the speed of beer. And so if you don't have friends who are into it and you don't end up in the right watering holes, you could go an entire career in tech without ever realizing that this subset of the industry exists.
Anyhow, in the early 2010s, my feeling was that there wasn't much of an angel ecosystem in Japan for a few reasons. I've got my own theories there and I'm happy to advance them, but just to also share your read in the early 2010s.
[Patrick notes: I wrote Doing Business in Japan in 2014 capturing what I had learned/experienced in my first decade here. Parts remain true, parts are a time capsule, and parts are (probably) extremely specific to one specific life lived less conventionally.]
James: Yeah. Early 2010s. So there's a reason for this. So it wasn't until fairly recently, I would say in the past five to seven years or so, that employees would also be incentivized with equity in Japan. And in a way, this was a chicken and the egg problem where the management teams but a lot of the equity was basically concentrated into the founders and the VCs.
Patrick: Mm-hmm.
James: And it wasn't necessarily that the founders and the VCs didn't want to give equity, it's just that a lot of the talent would prefer to receive salary and not an equity based comp. And the reason for this is that they did not have any role models around them. They didn't know anyone that got rich off of stock options. So it was like, dude, just pay me cash.
Patrick: Yep!
James: And because there was no role models then they never accepted it. And it's just this vicious cycle. What I think kickstarted the whole stock option incentive sort of spiral is that Mercury was basically like a mobile based eBay, you could call it. And they grew from zero to five, 6 billion in market cap within five years. It was a great outcome. Went public minted millionaires and that company set up a 20% stock option plan, which is very unusual in Japan.
And because of that, there were a lot more role models and there were other companies that kind of followed suit. And because of that, now stock options plans are very normal in Japan. And so 10 to 20% is kind of the norm. There's still a bit of hesitation on taking equity versus cash, but you do have more angel investors now because more people have gotten rich off of startups, not just founders.
Patrick: Yep. I think there's a few structural adjacent reasons as well. You mentioned for people say the word “cultural” with respect to Japan a little too frequently, but culture does describe a thing in the world. [Patrick notes: My favorite articulation of this remains Making Common Sense of Japan, which is increasingly dated but one of the best general purpose English language introductions to Japanese culture. Pair it with Sugimoto’s Introduction to Japanese Society and you have the non-linguistic parts of my degree at approximately $200,000 off.]
There was a lack of cultural familiarity with options in particular with tail outcomes for options and why you would accept the trade off of working at a startup at a lower salary in return for getting the options. There was also for a long time continuing to the present day, although I think a little bit less, it was much easier to IPO in Japan than it was in, for example, the United States. And the United States was tending to get more difficult to IPO over the intervening years. And Japan got, if anything easier until recent history. And so companies might IPO at market capitalization of like $40 million.
And so you can do the math: if you have 10 basis points of $40 million, well, good for you. That is a thing that you'll notice at the end of the year when you're doing your taxes. But it isn't a thing that makes you independently wealthy and doesn't give you enough money to write 10 plus checks to startups.
[Patrick notes: Orthodox financial advice suggests that people should have no more than about 10% of their net worth in alternative investments and that an angel investor will need to write about 20 checks to be adequately diversified, and with the historical minimum check size of about $25,000, this implies one needs to have $5 million liquid wealth to do angel investing. Very many angel investors do not factually have this. In part this is because Silicon Valley valorizes angel investing and many comfortable but not particularly wealthy people take it up as a career-advancing hobby, in part recycling capital is pro-social behavior and undertaken as part of one’s obligations to one’s community, in in part many young professionals in tech rationally model themselves as “temporarily embarrassed millionaires” and begin constructing the portfolio they think they will grow into prior to their career obviously supporting it.
As a data point for people, I have approximately twenty angel investments in the 2010 through 2021 timeframe. I do not expect the ultimate returns from those vintages to be the most financially significant event that happened to me over the interval.]
James: I should push back on this. [Patrick notes: I eagerly welcome guests doing this! If there were no gains in trade in ideas, this program wouldn’t need to exist.]
So one of the common criticisms of the Japan market is that companies can go public much earlier, and a lot of times they do. That's fair enough. However this was actually the case before the 2000s, the .com boom, and the subsequent regulations like Sarbanes-Oxley, et cetera, that made it expensive to go public. That never really happened in Japan. So, why are stock option plans four years? Right? It's because typically companies would go public within those four years in the US. So Netscape, Amazon, et cetera, et cetera, all went public very quickly. [Patrick notes: Google IPOed in 2004 after being founded in 1999 and not figuring out AdWords until about 2002, etc.]
And so the situation in Japan is such that those hurdles that made it much more difficult to go public in the US never really came to Japan until, as you say, recently, we can talk about that as well. But even then, you can go public in the tens of millions, maybe a hundred million market cap. Now basically what that means is that a lot of companies would go public around series B and series C in terms of scale and both revenue and market cap.
But if you look at the timing of when they go public, let's say they're going public at year four, year five if you hold onto the company, it is really an IPO is basically a financing event. You hold it onto the company another five to seven years, which is basically what's going on in the US. You do actually have some multi-billion dollar outcomes. It's just a matter of not the time in market that you have. Whereas in the US. Companies continue to fundraise until, you know, maybe Airbnb some companies are not public yet. Stripe is one of them that you're obviously very familiar with.
[Patrick notes: James will now proceed to make an argument his firm has published before; see Uncovering Japan’s 41 Hidden Unicorns if you prefer reading the more formal version.]
And so we ran an analysis thinking, okay, well if a unicorn is a company that is valued over a billion dollars in the private markets, and Japan is a market where companies go public around series B and series C what does it look like when you actually expand the horizon or the definition of a unicorn to, let's say a hidden unicorn where it's a company that within 12 years of founding reaches a billion dollars in enterprise value in the public market. So, they go public. Still within founding, it's 12 years of founding, which is still, I think, reasonable. And what does that look like? And over a 10 year period, we counted 43 of them. So that tells you a very different story, right?
Patrick: Yep.
James: And so now, all of a sudden it seems like, okay, there's unicorns in Japan, but really what's happened is that there's more capital available into private markets. And so companies have not needed to go public as quickly. And the sort of mindset had changed where, okay, let's not go for the IPO, maybe we can, we won't do a small scale one, we can raise a hundred million, 200 million in private markets, and then we'll go public at a billion, 2 billion valuation, et cetera. So I don't think there's that much that's different actually. I think it's just it tells a very different story when you're looking at you know, instead of looking at private versus public, look at it in terms of how long it takes to get to a billion dollars in enterprise value.
Patrick: And I think one of the things that makes angel investors so critical for any ecosystem is that there's the capital, sure. But many people, their check will not buy all that many MacBooks at the end of the day.
[Patrick notes: While the historic minimum size for angel checks was $25,000, that has trended down to about $5,000 these days, depending on the deal and whether the startup is using improved technology like roll-up vehicles. Pip pip to AngelList for that one, by the way; they used to be bespoke creations of lawyers but clone stamping out specialized companies with a computer program and then turning them over to an operations team is an obviously better way. I breathe a sigh of relief every time a funder sends me a link to their RUV.
As we mention elsewhere in this conversation, Japan lags on a few infrastructural fronts relevant to startups, and in my experience this is one of them. The paperwork drag of my Japanese angel investments is substantially more than my U.S. angel investments, to say nothing of those that are done through RUVs.]
Patrick continues: But it's in some ways recycling know-how from within the ecosystem to firms and founders that wouldn't be able to hire that same know-how at the moment or to even orient them towards problems that are worth solving.
(I say this out of love for everyone because, I mean, my first company was doing bingo cards for elementary school teachers.)
There are a lot of young people who will, for whatever reason, even scope down to B2B SaaS apps that will not do a great job of picking a B2B SaaS app that could potentially be an outsized contribution to either the company value or to society versus just like, well, “Here's a problem that is amenable to solution with software. I can solve it with software.”
That might not be the best use of their time.
[Patrick notes: In addition to some amount of personal regret, I’ve had the experience of working with people who have a better orientation towards pointing themselves at problems which actually benefit from venture scale businesses, and which deserve the unicorn valuation if they successfully ship something the world needs. Given one thinks one is aiming for that track, aim high and then bite off the part of the problem which is tractable, versus aiming at something which seems clearly tractable and then hoping one can grow from that small base.]
Another factor on sort of the liquidity of knowhow I think that comes up in Japan is that for I think less so in the case of Mercari, but if you were to look at analogous companies, maybe one generation or two before them a number of the people who did very well at the company are still there due to the trailing edge of the Japanese lifetime employment culture.
[Patrick notes: Lifetime employment was only ever a thing for about 30% or so of the workforce but it was a thing for society’s winners and therefore exerted outsized internal and external influence. Compare it to, in the U.S., the peculiar fascinations of the American professional managerial class.]
Patrick continues: And so, you know, if you are trying to set up an AWS account or do a lifecycle email marketing campaign, or manage a team of engineers in San Francisco, you have many options for people and some will be leaving their job every six weeks and that's fine. In Japan the best people to do that are in a job that they've been pretty comfortable at for the last 20 years. And it's a bit difficult getting them to part ways with that and come join your new thing, which I think there are many extremely talented people here and extremely talented junior folks. But when you're looking for everyone from mid-level managers to subject matter experts, to senior executives, it's just a bit tough to find people.
James: So the lifetime employment thing is a historical artifact in Japan, I mean, increasingly so. [Patrick notes: Uncontroversially agree with this statement, as would virtually every observer, IMHO.]
Certainly Japanese tend to stay at companies longer than, for example, US counterparts. That is directionally true, but talent really has been on the rise and people are changing jobs more often now. And there's data to back that just don't have it handy right now. But directionally that is increasingly the case that people change jobs, you know, let's say every five years or so, and it's not necessarily looked down upon. Now with that said what I agree with you on is hiring can be challenging.
It's very hard to find talent. So hiring is challenging everywhere. [Patrick notes: Absolutely agree, at a U.S. CEO not spending 20% of their time on hiring is probably doing it wrong, but I would politely reject the notion that it is symmetrically challenging if someone were to hypothetically suggest that.]
James continues: Every geography will complain about hiring. You know, Silicon Valley, people complain about hiring but it's more like, it's not that you don't know where the talent is, it's just it's hard to hire them. You know, you have Meta in this case, recently spending a lot of money on this. [Patrick notes: It has been publicly reported that some pay packages are denominated in the 9 figure range, in dollars.]
But then you also have retention problems, which is a similar problem. In Japan it's very hard to find them, but much easier to retain them.
As an example: Japanese people don't really use LinkedIn and they're not really publicly out there.
So in, for example, SF, you could click Meta or click OpenAI or whatever it is on LinkedIn, and you could see pretty much everyone that works there. A lot of people have a profile. In Japan, people don't really have LinkedIn profiles. And so you just don't know where they are. So you can't click, you know, Sony or Hitachi or whatever it is and see literally everyone that works at that company. And so it's very hard to poach them. However, if you're able to find those people, they have much fewer shiny objects being thrown into their inbox, right? A lot of these offers and stuff. And so you're much more likely to keep them because you don't have as many distractions. So there's a cultural element, but I think there's also just the structural element as well.
Patrick: I think this is close to a core skill of salarymen. If you're in sales, you must be able to map out a target organization by meeting the right people and then getting invited into meetings with progressively different circles of people until you've figured out how your target company makes decisions. You collect business cards, but nobody ever hands you the book and says, okay, here's how, without loss of generality, this division of Mitsubishi makes decisions internally. You just have to discover that. And that is the job.
[Patrick notes: Sales is unfairly caricatured as steak dinners and alcohol budgets everywhere, but good Japanese enterprise sales reps are intelligence officers. Watching the best ones work is an amazing privilege.]
In a similar fashion, if you want to find people who are doing interesting things in Japan, you have to go out and find them. And that is the job. Versus just getting a list somewhere.
James: Because of this problem, we literally had to build our LinkedIn for portfolio companies. So, because we went really big on content and we have a big following here, we were able to funnel that readership, the audience into something we call Coral Careers, which is basically a 20,000 person database of people that have opted in to receive scout emails from our portfolio companies. And we had to do this because there's this problem that I mentioned. It's not that easy to even know where this talent is. And then similarly, we run the largest career fair within startups in Japan. So it's 3,000 people get together and they join the conference to learn about startups like a career in startup. So we have, you know, what it's like to be a CFO at a startup, what it's like to be a marketer, a startup, et cetera, et cetera. It's a very sort of accessible, non-committal way to just join this event, learn about the startup industry, talk to people in the industry. And so we call it Startup Aquarium because it's a way to just look behind the glass and just look at all the fish and then at some point maybe you want to jump in. But we've had to do that because of this sort of structural cultural difference in Japan.
Patrick: It's my generalized impression as someone who has orbited the Bay Area spiritually for a very long time, but hasn't spent all that much time there professionally, that in-person events are a much bigger part of the startup mix in Japan than they're in the Bay Area. Now granted, there's probably, you know, two things that one could do on any given Tuesday there, if you're in, I don't know, Rails, there's certainly a Rails meetup, et cetera, et cetera, et cetera. But there are, sort of online and through personal connection networks by which information flows in San Francisco where the in-person networks are nascent. And the online networks really, for a variety of reasons, do not have the scale that they do in the US.
And so, if you want to meet people that are interested in startups in Tokyo you get a face-to-face meeting with them because far and away, the most likely way that there will be an information exchange that matters.
We've both been here for 20 plus years, although I'm not here anymore and I'll acknowledge the a little bit of awkwardness in that. And to say explicitly an awkward thing and thereby make it more awkward: this conversation is two white guys talking about Japan.
But in defense of being explicit about awkward things: One, the language barrier is quite high, getting less high in recent years due to improved technology for teaching both languages and improved willingness on both sides of the Pacific to put an incredible amount of character points into that problem. But the information flow from the Japanese startup ecosystem to the US and vice versa often gets fragmented around the language.
And even in the Tokyo startup scene, it was always my perception that there were basically two startup communities, with some amount of crossover, where your working language essentially defined what community you would spend a lot of your time in.
James: As in English versus Japanese. Yeah, yeah, yeah. I mean, there are information bubbles I think anywhere. And for various reasons, and certainly in Japan, even with the paradigm shift that we're experiencing with AI is making it way more accessible. Still. There's a different, you know, you just have your echo chambers, so you know, these founders will follow these other founders and these, you know, startup people. And and then there's also the cultural part too. So, not everyone is reading the information. Not everyone is listening to your podcast about startups. So, that tends to happen. I think it may even happen in the US, right? There's, I feel like there's a lot of information silos where people are just kind of tend to talk to and be attracted to people with very similar ideologies. But that's just exacerbated in Japan because of the language barriers.
Patrick: Yeah. I sometimes get asked if I have a big following in Japan. I am comfortably anonymous in Japan, which works out great for me, but there are some pluses and minuses to the siloing there.
James: Okay. Now I've kind of been the opposite of that. I've gone all in on Japanese content and Twitter and all that stuff, and yeah, so I'm the opposite. So recently we haven't done any English stuff.
Patrick: I suppose we all have our reasons and I'll tell you mine if you want to hear them, but interested in what your experience has been like in publishing in Japanese given your background and similar. How has it been received by the market? Any interactions with Twitter trolls, et cetera?
[Patrick notes: Twitter is not the service primarily identified as the locus of it but Defense Against The Dark Arts for professionals working in Japan in the mid 2000s included an implicit warning that bringing your company to the attention of Those Crazy Online People would be a career limiting move, and also very personally stressful. I spent a few of my weirdness points with my employers on “By the way I’m going to be publicly visible”, and a thing they explicitly asked me to do was avoid being visible in the Japanese language to reduce their exposure.
I am of course no longer bound by that company’s expectations, but for related reasons, I intentionally keep a lower profile on this side of the Internet than I do on the English language side of the Internet.
James has a very different POV here, which he will shortly explain.]
James: I mean, it's been hugely beneficial, frankly, so the benefit that I have is because I've been here so long and then I speak native level Japanese. I understand the language, I understand the culture, I understand all the sort of faux pas. But I don't necessarily have to adhere to all the rules.
So I can, I have my gaijin card. Right.
[Patrick notes: In the community, that can either be an inappropriate name for the document one needs to carry at all times under penalty of law, or it can be the figurative usage James is using here. That usage implies that foreigners can flash their I’m Obviously A Foreigner card to get out of certain obligations that more central members of Japanese society would feel are binding.]
And what's great about that is that there were all kinds of things that were outdated in the startup market in Japan. And I was able to understand what was sort of happening in the Bay Area and point out all the issues in Japan from an outsider standpoint, but as an insider in the way.
Patrick: Mm-hmm.
James: So one of the things that we did early on is we basically invented the equivalent of the YC SAFE in Japan. And that was a very obvious thing that we noticed was like, why are we spending all this money on lawyers and back and forth? If we can just standardize these documents.
Patrick: That's the J-KISS, right?
James: Yeah. So that was a very obvious one, but there's many other examples where we just pointed out those things and to tie it back to what you asked, I started blogging very early and that was a new thing in Japan. So, believe it or not, pretty much no VCs were actively blogging and publishing information. And as a founder, I was searching things in English and seeing all this great information for startups, but in Japan, almost nothing. And so it seemed very obvious that basically we should be publishing all the time about our thoughts and observations and things that we think that should change in the market. And because I could use this sort of gaijin card, I could say things that were maybe sometimes slightly controversial to move the needle on changes here.
Patrick: I will totally acknowledge that the gaijin card is a bit of a thing and a thing known by that name among many people in this community of practice.
[Patrick notes: I will note that some in Japan, myself generally included, do not love the word gaijin. There is a long commentary on slurs, reclamation, and the influence of specifically American academic culture on the foreign community and Japanese people who interact with it which the margins of this essay cannot contain.
But the term of art is you will hear repeatedly in a lifetime in Tokyo for a repeatably exploitable social technology is, indeed, “gaijin card.”]
As a fun observation, it occasionally even deployed by Japanese companies. Perhaps you you are extremely aware of the fact that you have a, without loss of generality, an American employee, and you can occasionally direct to that American employee to say something that the company wants to say, but doesn't want the responsibility for having said.
This was explained to me by my boss way back in the day after he had directed me to let's see, be socially abusive disregard social proprieties with respect to a counterparty. We wanted a thing done and the counterparty was not doing the thing.
My managerment chain said, well, if you Patrick yell at them, they'll do it. They'll be annoyed, but they'll do it. I'm like, yes, but that would require me yelling at them. I'm not a very yelly kind of person. That would be rude. My managers explained that this was a business necessity and I would therefore yell at them. I told my managers the counterparty was not going to like that.
And my managers said: “Oh, they won't like that. But we'll explain that you're the American and you don't understand how things are done here. The work will get done because they don't want to piss you off anymore. And then we'll have the work done and that'll be great.”
So I still have complicated feelings on that, but…
[Patrick notes: As a proper Japanese salaryman, I followed almost all orders as a matter of routine, and there is a plausible business case here, and a salaryman’s employer is allowed to spend their personal reputational capital in many fashions, uncontroversially. And yet it did not exactly sit well with me that they were, to my mind, drawing on the collective account of All Foreigners in Japan for the private benefit of their business. I am extremely careful to not wantonly debit that account.
For related reasons, I make far less extensive use of the card than many extremely effective friends and professional aquaintances do, as a matter of considered personal moral and aesthetic choice.]
James: it does work. It does work. It does work. [Patrick notes: It does work.] And, and frankly, you know, I've written about things in Japan that were slightly controversial and I've had people talk to, who send me messages, call me, saying oh, thank God you said that. Because we were thinking the same thing. You know, someone had to say it. Right.
So, yeah, it's been hugely beneficial.
Patrick: Yeah. It's interesting in seeing the younger generations where, oh, there are so many things one could point to. Legendarily, Japanese business emails are a little bit verbose and the signal to noise ratio is not all that high.
Because there's a tradition about letter writing. The tradition is you start with an observation typically about Japan's idealized weather that week, and then you gradually wind your way to the actual point of the letter and then you close with a little bit of padding.
There are many young Japanese professionals of my acquaintance who hate this, absolutely hate it. But if you defect from it, you're the defector.
[Patrick notes: And if you are Japanese, you will be viewed as defective. This is understood to be a proof of work, much like understanding the Current Year’s dispensations is understood to be a proof of work in U.S. offices and the professional managerial class. One cannot simply opt out of this.]
Patrick continues: And so, a lot of product adoption stories in Japan have been around defecting from the business email without being obvious that you're defecting from the business email. And I think that's part of the reason why so much business gets transacted over Facebook Messenger. Which has different norms.
A huge use case for AI in Japan, if you ask the labs is: Ctrl-C Ctrl-V on an email. LLM, what is this actually asking? Okay. Here's my one sentence of actual content. Now blow it up into four paragraphs for me so that it doesn't look like I'm slacking.
James: I think that's an AI killer use case.
Patrick: That and generative content I hear is kind of big too, for all the reasons.
James: I mean, would it be helpful for the audience to understand why Facebook Messenger is the norm in Japan?
Patrick: Let's just establish that. If you're doing a tax return with your accountant, you might be debating that over Facebook Messenger. That is in no way an exaggeration. So when did this start and why? Because as I recall, Facebook had a rough couple of first months and years in the Japanese market.
James: Yeah, yeah, yeah. So it took a little bit to take off just like a lot of things in Japan. iPhone also to some extent, a lot of people were skeptical of it working.
Patrick: There were so many people that were saying that the iPhone you know, the foreign competitor will never triumph over Japanese phones. And everyone who wrote that essay, which there were several hundred, had clearly never been on a Tokyo subway and seen iPods around you know, every person's neck. But be that as it may, sorry, Facebook.
James: Yeah. Yeah. It's, I mean, that's exactly right. It's ridiculous. So, first and foremost, I mean, on the iPhone comment and the Facebook comment that, you know, just like a general trend in Japan, things happen slowly in Japan until they don't. So things can feel very slow, but then suddenly, there's all this change. So one of the comments about the iPhone for example, was that oh, we have our, we already have TVs on our phones. We already have this ecosystem. It's called I Mode with Docomo. And we already have all that, why would we, why would you use iPhone? That's, you know, it's kind of cool, I guess, kind of thing. It's very dismissive. And then just all of a sudden within, I think it was two, three years, you had over 50% penetration of iOS. So came out of nowhere, right. Or felt like it came out of nowhere. Similarly for Facebook the criticism was Japanese are never going to use the real names on a social network.
And so there was a local Facebook, it was called Mixi. And most people would use it pseudonymously.
Patrick: Mixi was incredibly frustrating because I had 25 friends from university that were all using Mixi. I could never figure out which picture of a kitten is that young lady. Et cetera.
[Patrick notes: At the risk of stating the obvious, the permission model technically and socially was that e.g. my classmates affirmatively wanted to publish things to me via Mixi, but that actually consuming this effectively was basically impossible without making Mixi a separate section of my brain. I did not sucessfully self-organize to do this, among many other failures of self-organization as a young salaryman with respect to non-work social ties.]
James: Yeah. Yeah. So, okay, so Facebook it, but it did actually pick up, it kind of busted the norm there where people were using it as they were using the real names, however. Okay. So let's rewind a little bit. So, why did people not use LinkedIn? Well, LinkedIn we go, going back to lifetime employment and loyalty and all that. If you are brushing up your LinkedIn profile, it looks all polished and you're writing all about your accomplishments. Your colleagues are not going to think, wow, this person's very ambitious and career oriented. They're going to think this guy is a tool and he is trying to change his job. And so it could be career suicide essentially, if you're doing that. And and then also the way that LinkedIn is designed, it's very much it has to be, it's constructing a way. You kind of have to be boastful. So you filling your profile, an American might write increased revenue by three X in the first year, whatever it was, you know? Whereas Japanese are much more subtle. And and so the reason that Facebook works really well is that it, you know, you can write your career background and they have where you worked, et cetera, but you are publishing as through a newsfeed essentially. And you can be much more subtle in the sense that you can say oh you know, I took a photo with so and so, and we talked about all these interesting things you know, something, something, this kind of thing. And it's, you can humble brag and it's much more intuitive, humble bragging platform for Japanese. And so it was the first place that, first of all, you use your real name and it's also a much more intuitive place to talk about work for the Japanese culture.
Patrick: Yeah, I also think that there are some, and this is the micro tactics of B2C-ish product design. But it matters how some of these things work out. And LinkedIn, in the Japanese context, spends the user's social capital quite frequently without, maybe without anyone at the mothership knowing that that's happening. So, you know, your default use of LinkedIn is going to ping everybody in your social network to ask them to endorse you for the various things that you have on your profile.
This might read to a product manager in the US says, oh, this is just clicking a button and we get richer data about who's good at the Ruby programming language. I'm surely no one is going to get annoyed that they're sending the senior engineer in their department an endorsement request with regards to the Ruby programming language. And that's a thing that causes some amount of conflict in the Japanese office and a much greater amount of fear of conflict in the Japanese office.
[Patrick notes: One indelible memory from my salaryman days was when the company made a social judgement to rerank a subset of its engineers. You might think formal evaluations and calibration committees and promotion packets were involved. No, we had things that rounded like that, but that paper was not the social truth.
There was a consensus that established the social truth. One day, two young office ladies were updating a highly visible in-office chart, and one took my name and a coworker’s name (printed on magnetic tiles) in their hands, and exchanged a significant glance with the other while saying “X-san is more senior but that last project…” and then physically stack ranked me above X-san.
Was changing that chart a promotion for me or a demotion for X-san? No. Was it totally up to those two OLs? No, they were surfing vibes, a key skill for OLs and salarymen alike. The chart is not reality; the chart is a lagging recognition of a change in social status that had already happened.
And when the chart didn’t get suddenly rejiggered in the next thirty minutes, everyone knew the new score, which was the exact same as the old score, because of course a proper Japanese salaryman would never suggest that the company is petty in a legible fashion.]
Patrick continues: One of the most terrifying moments in my late and unlamented career as a salaryman was when I found 12 people from my office circled around a laptop. Just picture this in your mind logistically. [Patrick notes: Sometimes my life feels like an anime character and you would have sworn this was a sight gag had you been there for it.]
But and my blog was on the laptop because someone had found it on hatena. Hatena is a Japanese product, commonly used by software engineers, which is a bit like Reddit and much more like delicious. That is how most of my coworkers learned that I'm something of a blogger. There wasn't a rule against that.
[Patrick notes: There might have been, but I had an explicit waiver. And if you think the terms of your employment in America are non-negotiable then please update that a Japanese megacorp will give an American twenty-something a waiver in writing from the work rules if he puts a lot of character points into that.]
And I wasn't in trouble, per se. Except insofar as: when 12 people in the company are considering your work in a great deal of detail, you’re not not in trouble.
James: Yeah. So, in that vein, I mean I think Americans will ask for forgiveness before asking for permission. Japanese is very much the opposite of that. And that difference is actually quite important, the startup context where I feel like, you know, in the US if it's not explicitly written in law that this is not okay, then it means it's okay. Whereas actually it's kind of the opposite in Japan. If it's not explicitly written in law, that means it's not okay. And that was kind of the default, essentially. Right. Which is counter to startups in a lot of ways.
Patrick: And a great deal of administrative procedure is not formally in the law and might not even be in the formal circulars from the relevant authority. It's just something that you sort of need to be a subject matter expert to know what...
James: Well, yeah, there's definitely an education process involved, that's for sure. So Japanese are very used to using system integrators. And this is actually quite relevant to the software companies that we back, because I think when you're building software in the US for US companies, there's kind of this assumption that there's someone technical on the other side, on the receiving end that is going to be able to do implementation and self-serve. And you know, you just give them the documentation, they kind of handle a lot of it themselves. So onboarding is much more straightforward, I think, whereas in Japan, because a lot of that technical talent is actually at the system integrators. You can't really make those assumptions, and so there's a lot more handholding.
And so one of the reasons that, for example, Palantir has done really well in Japan is because they have the forward deploy engineer thing already. That's kind of their thing. And so that fits so well within the Japanese context.
Patrick: So for the benefit of people who haven't spent six years of their life working in a system integrator, it's the Japanese term for a consultancy typically that would they will do everything from writing bespoke software for you to buying your Oracle licenses and tying them up with a bow to your app that uses the database to literally procuring Microsoft Word on your behalf.
And sometimes this is sold with additional operational labor too. So, it might be an entire business process outsourcing thing, or they might be setting up a system and giving you some amount of maintenance. But your team operates the system on a going forward basis. I was told recently that 60% of every yen spent on IT in Japan goes through system integrators, which is a shocking number, but doesn't surprise me at all. And many of the largest Japanese companies have a system integration arm like Fujitsu, for example.
And so, as we've mentioned, Japan Inc. largely doesn't consider software core competence in some of the best engineering firms in the world.
And I will try not to name it, but large automobile manufacturer, central Japan, there's a couple of them. Could be anybody.
[Patrick notes: I am writing this physically from summer vacation in my wife’s hometown, which is in Aichi Prefecture, between Nagoya and Toyota City. Salaryman politeness rituals are frequently not about preserving secrets. It is considered socially appropriate for me to make the effort, and socially appropriate for a fellow salaryman to not observe that any ten year old in town can name the car company.]
Very, very talented engineers there. But they institutionally believe that only the people who can't hack it go into software when they could be doing factory design. And so, the software largely gets written at the system integrator level. And that is a rough life. And I won't make this the complaint about being a salaryman at a systems integrator podcast episode, because the amount of time we have is finite today.
James: Do you want to know why even though Japan has amazing toilets, there isn't a software hardware play in the toilet space right now from Japan?
Patrick: I have never thought about the question of software/hardware toilet plays, but now I want to hear this thesis.
James: Okay. So, we're always thinking about where there could be opportunities in Japan. We talked about the time machine model, whereas, okay, let's look at what's working in the US, what could work in Japan. But there's also the opposite where it's like, okay, where is Japan already awesome? Right? What areas is Japan awesome at and already competing well globally? And what are the companies, the startups that are leveraging that? And so, you know, we made a number of deep tech investments. We've done fusion, fission, energy is a big topic in Japan. It's actually one of the triggers for World War II. And Japan has invested a lot into nuclear energy as a sort of energy source that doesn't depend on other parties.
But another area that we were looking at was toilets. Japan has the best toilets in the world. Let's be honest. What, that's one of the things I miss when I leave Japan is the washlet. I mean, you barbarians, you're walking around with dirty butts. I can't even imagine. But there's a really interesting play there where, okay, why couldn't you probably do some interesting healthcare solutions where you're continuously monitoring things that are going on in your toilet.
Patrick: And that isn't just science fiction. That's the thing that municipalities actually do at the municipality level for detecting pathogens. But yeah, please continue.
James: Exactly. There's all, yeah, you could do it individually, you could go that direction. You can go the Bryan Johnson direction. You know, there's many really interesting things they could possibly do. And I tweeted about this and it went viral and I got connected actually to two Toto engineers. So for those that don't know, Toto is the maker of these amazing Japanese toilets. And they invented the washlet. And we can talk about how they do that if you're interested. And so I zoomed with them and they're based in Kitakyushu, which is on the big island to the west of Tokyo.
And I asked, why isn't Toto working on this? And the answer I got was very interesting. So what they said was, well, Toto is based in Kitakyushu. And they don't have really any software companies around there. So in order to pull something like this off, you need to have hardware engineers and software engineers mingling. So talking to each other, jamming on it, et cetera, et cetera. And Toto, not only do they not have that many software engineers internally, but they also don't have them literally around them, in their city, you know, and so there's just never really an opportunity to start working on that because the talent isn't there. The sort of serendipity of brainstorming on that isn't there. So unfortunately I just don't think it's gonna come out of Toto. I wish it would. But yeah, interesting side story.
Patrick: I think the distinction between software and hardware engineers and the difficulty of various Japanese sort of hard tech companies employing software engineers is a real thing and under discussed.
I can't name them, but it's a name everybody knows: there is a famous Japanese hardware company that should probably do a bunch of things that are fairly obviously in the interest of the business, but they can't. [Patrick notes: A salaryman subtlety here: this is different from the last note, in that I actually am being vague here, to protect confidences while conveying market color.]
And when you ask why, it's like, well, there are, you know, a total of three engineers. Not on that project, but in this entire sub-organization that we could potentially deploy into that. And those three engineers will get to that never.
And if you say, well, okay, maybe three is not the right number of engineers to have, it's like, well, for various complicated institutional reasons, three is the number we've got for the next 10 years. So, we go to war, as it were, with the organization we have, not the one that we wish we had.
I think that also unfortunately becomes a bit of a vicious cycle in that the companies get increasingly dependent on the SIs because they have not developed internally the sense for what makes software good. This is thankfully starting to change, thankfully. And so without project leaders at the companies that can describe software that someone would actually want to use, you're going to get the standard principal agent problems that you get in say US government software contracting, which is its own legendarily broken ecosystem. And you know, the software that is delivered by the SI will hit the requirements that are in the requirements document, but still be terrible. [Patrick notes: Like all bid processes everywhere, delivering on everything in the requirements document is… aspirational.]
And then that, you know, the iterations of this game are can you get young Japanese people with burning fire in their eye to join an SI and ship not too great software to not great customers who don't think the software is that important. That's a rough sell. Can you get increased status for people who run software projects at the companies interfacing with SIs. That's also a hard sell. And we've been stuck in that equilibrium for a while.
I will say the iPhone changed quite a bit in Japan because partly there were foreign-designed apps being a larger portion of people's screen time for the first time ever, where it was like, wow, software can be actually kind of good.
[Patrick notes: The iPhone also minted several millionaires in my longtime residence of Ogaki, on the strength of several apps which indexed relatively highly on Japanese culture, which were popular both in Japan and frequently worldwide. My bank, doing KYC on international wire transfers, came to the conclusion (humorously) that there were two kinds of software in the world: iPhone apps, and the other kind. “Patrick does software, got it. No he’s not one of those iPhone app people, he’s The Other Software.”]
And partly just exposing a much larger portion of Japanese society to using software on a routine basis. I think underexplored in Japan being somewhat a laggard in many software subfields, is that the personal computer revolution hit Japan, but didn't quite hit a hundred percent of say, the university-bound class in Japan. And so there are some people who will literally learn typing in their first job in the workforce. And when you project it outwards, the number of people who have early in life programming experiences, it's relatively less here.
And pipelines, pipelines, pipelines.
James: So you heard the negative aspects, but actually a lot of the things that we describe, they're two sides of the same coin. [Patrick notes: I appreciate James explicitly dragging us in a positive direction. I’m quite bullish on Japan.]
So what that means is that you have much less competition. So in, for example, the Bay Area, you invest in an amazing team, you know, former Stripe engineers and the market opportunity that they're pursuing is possible. It seems like it's gonna be something, there's probably 20, 30, 40 other companies that are, you know, the teams are similar, similar caliber, the market they're chasing after is a similar market opportunity, so much harder to pick. And some of it is even luck, right? Of course there's skill and execution involved and all that. But at the end of the day, if you have so many strong people pursuing the same opportunity, it's very hard to pick.
In Japan, there's probably two, maybe three companies pursuing the same opportunity. Way easier to pick. And if you have a credible team pursuing that opportunity, you can actually compound for a very long time. And even though sales cycles might generally be longer in Japan, once you get them, churn is actually generally quite low. Right. So, in that sense, let's say that you're a foreign company interested in expanding into Japan, you have to be very dedicated to investing in Japan for the long haul, but you could just dominate here because there's just not that much competition. And again, even the sales cycles might be long. You do it the Japanese way, they might be with you for the next 20 years, maybe longer. So that's the positive side of it.
Patrick: One thing that I've attempted to emphasize to foreign companies when they come into the Japanese market with some mixed success is that the market really appreciates indications of stability and this being a major investment for the company.
This requires you to… pardon the following directness as it is distinctly non-salaryman. You just don't half-ass things. So, so for example, face time from senior executives, particularly the CEO, is treated as an important signal in a Japanese company.
<sardonic sidenote> As it is in no other company elsewhere.</sardonic sidenote>
There are firms that will open a Japanese office and then, you know, make a decision on sending the CEO over to do the office opening or not. And that choice should be pretty automatic. If it's worth doing, you want to succeed. If you want to succeed, send the CEO. If you don't want to succeed, don't send the CEO, but then don't open a Japanese office. Why are you doing it? Unless the third largest economy in the world is something motivational to you, right?
And similarly, I would broadly say to companies expanding from abroad: Japan is a very high difficulty market relative to other ones coming from an American perspective. It probably wouldn't be the first place that one would expand to internationally unless your users are really drawing you there. In which case, probably first place in Asia.
James: Yes. Right. Salesforce does over a billion in ARR just in Japan. Japan is Twitter's second or Twitter X now. Second largest market.
Patrick: It's probably the second largest market in almost every internationally active SaaS company. [Patrick notes: I was subconsciously scoping to “of sufficient scale.”]
And rumor has it that it got there extremely quickly for a number of AI labs due to bottom-up adoption without the long sales cycle. I think it's been an open secret in the AI community that the user numbers in Japan are off the charts. I am largely being told about this new motion, essentially where the AI products have just breathtaking user adoption curves. If you had product quality, the experience being somewhat magical and people just deciding, yep. More that in my life.
James: Let me drop an interesting insight there. We had an insight. So one area that we have not invested in Japan is dev tools. Because we think that even though there's a lot of revenue opportunity in Japan, it's not gonna be the local company that ultimately wins Japan. Because a lot of engineers in Japan, they already read English documentation. They follow all the obvious characters in the US. And are curious about the tools that they're using. And so, what's really interesting is that actually there have been a number of dev tools that have blown up in Japan. And one of the recent examples is Cursor, Devon, et cetera. These AI coding tools. And, you know, I've spoken to some of them and they're like, why the hell is Japan suddenly my second biggest market, or in some cases my largest market all of a sudden. There are YC companies for example, that suddenly they go viral on X and they're like, what the hell is going on?
Well, here's what's going on. A lot of the engineers in Japan are on X. And they use it all the time. They might use it pseudonymously, but they're following each other. And they use it pretty much how Jack Dorsey envisioned. It's like train of thought. So Jack Dorsey, you know, he envisioned, basically he would say a Japanese engineer, the way that they would describe it is they would say, okay just tried Cursor. And then five or six minutes later they'd be like, oh, wow, this is really cool. And they're all following each other and just basically tweeting thoughts like that. And so if you have a tool that some engineer shares and it can go viral very, very quickly. And so you have instant distribution. So you have the second largest market for X. Pretty much all the engineers are on there. They're following each other all the time. And so dev tools tend to do really well in Japan. And so yeah, at Coral, we're probably not gonna invest in a local startup that's doing DevTool, but we'd love to talk to any DevTool companies in the US that are interested in coming to Japan because it just seems like such an obvious opportunity.
Patrick: Yep. And similar story at the likes of GitHub and et cetera, Japan was the number two market very quickly, and they opened up a Tokyo office and did quite well.
And I was going to say, I wonder if there's ever going to be a Japanese dev tool company that just goes super large in other markets. And while it's not a company, many listeners have heard of <sarcasm warning>this obscure language called Ruby </sarcasm warning> which was developed in Japan. It became somewhat popular because of a truly globalization story, a person from Denmark living in the United States kind of liked it. And then the rest is history. But Ruby now powers 40-ish percent or so of Silicon Valley.
Still niche. Still early.
James: Still early. Still day one.
Patrick: Yeah. It is interesting. And what are the things that Japan does very well domestically that are exportable? There are some general factors of infrastructure that work very well here, but they're largely not the copy the bits, parts more of the, you know, hard atom bits and the hard atom bits are hard atom bits everywhere. Although that has been a substantial Japanese export market for a very long time in various fields.
I remember there was a Japanese company, Any Perk, that went through YC to copy paste a business process of Japanese companies to American companies where that business process is, there's this, all that and a bag of chips kind of perks that you give your employees where it might be discounted movie tickets or something. And since you don't want your HR department negotiating movie ticket showing times with employees, there were catalog companies in Japan that would, you know, make a business of doing that. And then you would just have to sign your company up for being a subscription to one of the catalogs. And they were like, oh, that's a good business model would work in a US context. Let's just copy paste it. But that's not fair. But you know, adoption of that business model should work. And there might be other interesting business models that would work.
James: Yeah. I was asking about business models that work in Japan that could work abroad. Yeah. Business models, I don't know. But Japan obviously has a lot of great tech culture innovations that have exported well, right? And in some cases it's very, probably half the engineers in our generation got into engineering due to Nintendo, Sega and others.
Patrick: Yeah, exactly. So the prominent examples would be, you know, those names that you named, but there's also a lot of critical supply chain in Japan where you have just no idea about that are actually so critical, right? So, there's Tokyo Electron for semiconductors. And you know, a lot of the iPhone, a lot of those components are sourced from Japanese companies.
James: I would say, dating myself a little bit, but when there was a lot of discussion about the iPhone BOM bill of materials, it's a term for people who haven't worked in hardware. So any device that you have has a bunch of sub components and you can sort of back out what the cost of a device is and then what the cost of each sub component is, and come up with the bill of materials, quote BOM for the device. And you might attribute that to various suppliers or various companies. And it was discussed in some places in Japan that particularly ways of attributing the BOM for an iPhone attributed a lot of it to China in ways that were interesting and might have been overused in these meetings. And some decision makers in those meetings remember the 1980s when there was a bit of a backlash in the United States against imports from Japan back in the day. And there were things like publicized on television destruction of Japanese cars. And these decision makers were thinking, hmm, there's the chance that history repeats itself. And the United States gets very up in arms about their important devices being manufactured in Asia. And if it came to be the case that the public or United States government were to understand that the iPhone was manufactured in China to a greater extent than it actually is, then maybe that wouldn't be the worst thing in the world. Without going into the supply chain there in too much detail, if you can imagine a Japanese bit of electronics being in a Chinese paper box and being marked down on the spreadsheet as being a Chinese bit of electronics. And yeah, there are some funny stories from back in the day.
Anyhow, well, I think we could go on for another seven hours, but you have a day full of meetings ahead of you and it's been great to have an opportunity to chat. So where can people find you on the internet?
James: Well, I am on X at James Riney and LinkedIn.
Patrick: Awesome. Well thanks very much for your time, James, and for the rest of you, we'll see you next week on Complex Systems.
James: All right, thank you.
