Advice on turning your big idea into a successful business as an expat

By Malcolm Foster

Starting a business anywhere is a demanding endeavor, but doing so in Japan presents its own particular set of hurdles and idiosyncrasies. For those who can navigate the process, however, there are many rewards to be had.

Although the dynamics can vary widely depending on the industry, the top challenges facing startups in Japan include simply breaking into the market, language and cultural differences, the time it takes to build a customer base, bureaucratic requirements, and difficulties raising money. It’s also hard to find staff suited to the brisk-paced, rough-and-tumble, uncertain world of startups. That is according to 10 entrepreneurs and venture capital (VC) investors interviewed for this story.

“This is definitely playing with the difficulty level turned up,” said Jim Weisser, co-founder and chief executive officer of e-signature service provider SignTime KK. Weisser has launched five companies in Japan, some of which have succeeded and one that he says was a “complete flop.”

Yet, Japan also offers many positives and rewards for entrepreneurs—from the loyalty of customers and employees to the high quality of infrastructure and a society that is much less litigious than the United States.

Michael Alfant, founder and CEO of software solutions provider Fusion Systems Group—one of about 25 companies he has started here as well as in mainland China, Hong Kong, Australia, and the United States—said that Japan is one of the most challenging markets to crack, but not that much harder than elsewhere. One big advantage is that Tokyo by itself is the most “target-rich environment” in the world, he told The ACCJ Journal.

“People sometimes lose sight of the density of economic activity in Tokyo, which is the highest anywhere. You’ve got the third-largest [gross domestic product] in the world, and 35 percent of that is accessible to us via the subway,” Alfant said. “In Tokyo, I can easily do four or five meetings a day with clients. If I wanted to do that in Los Angeles, I’d better have a helicopter.”

Sophie Meralli of Eight Roads, a VC fund backed by Fidelity Investment, pointed out that Japan shows strong potential for new businesses in part because it is still in the early stages of digital transformation. “Japan’s economy provides entrepreneurs with numerous opportunities to launch new businesses,” she said. “Due to their position in the adoption cycle of new technologies, entrepreneurs can continuously innovate by transforming the way services can be deployed in Japan.”

It’s a Marathon

Nearly all those interviewed—representing a collective 180 years living in this country—agreed that two key qualities needed for an entrepreneur to succeed in Japan are patience and perseverance. That’s true of any startup, but the more traditional nature of Japanese society and business, which deeply values relationships and trust built over time, requires extra stamina, they said.

“I can guarantee there will always be hard times,” said Terrie Lloyd, who has lived in Japan for 38 years and is the founder and CEO of full-service travel services provider Japan Travel K.K. “If you’re not prepared for those hard times, then maybe you’re not cut out to be an entrepreneur.”

Alfant noted that starting and running a business in Japan is like running a marathon, whereas in other markets where he’s done business—especially New York and Shanghai—it’s like being in a boxing match. “When the bell rings, you have to be on your toes, totally engaged from the first nanosecond, or somebody is going to knock your block off. It’s intense for a shorter period, and then you get a break.”

But in Japan, “you put your head down and you keep putting one foot in front of the other—and you don’t look up for the finish line,” because it’s still a long way off. When you get to the very end, “and you hear the crowd yelling, [then you say] ‘Okay, now I can see the finish line.’”

Start with a Hunch (and Test It)

So how do you start that marathon here? What are the first steps? What lessons can be learned from entrepreneurs who have succeeded and failed in Japan?

“Entrepreneurship is not one size fits all,” Alfant explained. “In fact, it’s the bespoke aspect of entrepreneurship that tends to create value for, and appeal to, a certain kind of person. So, it doesn’t surprise me that you get different answers from different people.”

Lloyd, who teaches classes for would-be entrepreneurs, said that often the kernel of a business idea is simply a hunch. Three of his companies began that way, and all three have done well; two he sold and the third is Japan Travel.

The quality of the hunch is, of course, what makes the difference, according to Lloyd. So, to test out your idea, he recommends finding a mentor, someone who already has entrepreneurial experience and can help you “sort of BS-check your idea.”

A lot of foreign businesses see things from their own country’s perspective … But do they have a really strong understanding of the Japanese players and market, and why their solution will be better?

Steve Bleistein, founder and CEO of consultancy Relansa, Inc., recommends doing something similar—talking about your idea with a lot of people who might become customers to validate whether it is a credible concept. Some entrepreneurs develop a business idea without really checking to see if there’s an interest in it. That, Bleistein said, is a big mistake. It is through those conversations that you gain valuable information about what exactly your potential customers want.

“This is a way you can mitigate risk,” he continued. “If you’re talking to 12 people who you think are likely buyers of your product, you understand exactly what it is that’s valuable to them. You find out that some of your assumptions were wrong, but some were right. Then you start to discover opportunities that you hadn’t realized existed.”

Some entrepreneurs worry that sharing too much information—even with a mentor—might lead to their idea getting stolen. If that’s the case, then ask them to sign a non-disclosure agreement (NDA), said Lloyd. He has signed NDAs with numerous people who have showed him business plans.

Already having business experience in Japan—and a deep knowledge of the target market—obviously helps with getting a hunch right. Seth Sulkin, who operates hotels and shopping malls and has lived in Japan for 27 years, came up with the idea for Food-e, the upscale food delivery service he started last year, as he was exchanging information about business conditions with struggling restaurant owners early in the pandemic.

But the idea didn’t come out of nowhere. He noticed a trend at his favorite restaurants during the pandemic: none of them delivered. When he began to ask about this, he found that higher-quality restaurants couldn’t rely on mass delivery services because the food couldn’t be reliably transported on time or without being shaken up.

“After talking with 20 restaurant owners, I could see there was a clear opportunity. And it wasn’t something I needed to test,” Sulkin said.

Compelling Idea vs. Fierce Execution

Lloyd explained that once you’ve tested and refined your idea, and it’s becoming a more realistic business concept, you need to ask yourself some key questions:

How powerful is this idea?
Does it engross you?
Do you dream about it?
Do you wake up thinking about it?

If not, maybe it’s not strong enough, he cautions.

“In years two and three, when things are getting tough, people give up. In fact, most new companies fail within the first three years,” Lloyd said. “But if you have something that’s akin to religion—and you can hold onto that dream—the idea will sustain you through the hard times.”

Alfant has a slightly different approach to this initial “hook,” as he calls it—an information advantage in the market segment he’s targeting. “That doesn’t mean inside information. It means I have access to knowledge and information that gives me an advantage over other entrants into the space.”

And while businesses do need a compelling concept, “ideas are a dime a dozen. Execution is what matters,” he added. “If the idea is so shallow that someone else can go and replicate it or beat me to the punch, God bless them. I view execution as the differentiating factor.”

This is a familiar debate in the world of startups, Weisser said. Some believe that the right idea can rule the world. Others hold the view that an idea doesn’t win without excellent execution, but execution can often lead to success even if the idea is not so good. “I’m firmly in the second camp,” he said, noting that this has been borne out in the US tech industry where “not-as-good” ideas executed fiercely and quickly usually beat out better ideas that take more time to take shape.

Timing Matters (But So Does Planning)

Sometimes, the biggest factor determining a business’s success is timing—particularly in something as fast evolving as technology, Weisser noted. In his case with SignTime, he had discussed the idea of creating a digital signature business for Japan a few years ago, believing that, at some point, Japan would give up its reliance on hanko (personal seals) and faxes. But he wasn’t convinced the timing was right. “A lot of companies have great ideas, but if it’s too early, they go bankrupt.”

When Covid-19 struck, and people were forced to work from home, he knew the moment had arrived. “We’d already laid the groundwork for the company, so getting it up and going, and doing some of our first pitches, was doable,” Weisser said.

The best time to start a business is at the bottom of the market, said Lloyd, who launched Japan Travel shortly after the Great East Japan Earthquake and Tsunami of March 11, 2011, and subsequent nuclear disaster, when foreigners left the country by the tens of thousands. “Thinking about how tourism was devastated after the disasters, I thought, well it’s a great industry to get into.”

Timing may be important, but not at the expense of careful planning, said Andrew Dunbar, who founded his wine importing business Iconic Wine Japan, Inc. about 10 years ago. He cautions against launching too quickly and without investing time in a well-thought-out, five-year business plan. He said having that gave him confidence when things got tough and helped him see the big picture.

“A lot of times, people jump into things quickly, thinking it’s going to work out. But it’s so much better if you have a full written plan and projections for how you’re going to build the business for the first five years,” he explained. “Make a good plan and be able to finance that plan in a credible way.”

Red Tape, No Tape

Once you’re ready to launch the business, the formality of incorporating the company with authorities is relatively easy. The task can be outsourced to a lawyer who can file the necessary papers for you, the entrepreneurs said. Getting approval takes anywhere from several days to three weeks, depending on the circumstances.

The two main options are registering as a kabushiki kaisha (KK), a stockholding company, or godo kaisha (GK), a limited liability company. Essentially, if you’re planning to bring in outside investors, you need to be a KK. If you don’t need a lot of money, you may want to be a GK. Most entrepreneurs in this story registered as the former.

For some businesses, such as consultancies, that’s all you need. But many other kinds of companies require various licenses and approvals specific to the products or services they aim to provide. Acquiring those can take a lot more time.

Ideas that involve the serving of alcohol will involve some rather complex licensing requirements.

Anything to do with food and beverages, for example, tends to be heavily regulated in Japan. Having run hotels and shopping malls, Sulkin was familiar with the regulations, but he was still surprised by the amount of red tape he encountered in setting up Food-e.

Since he was using cars and motorcycles, not bicycles, he discovered that if his company wanted to hire drivers directly he needed a difficult-to-obtain license that required him to have his own garage and maintenance staff. So instead, he outsourced the actual delivery part to another company, which required a different license.

Then he was told that alcohol served as part of a delivery service was taxed at a different rate than when served in a restaurant. Initially, authorities said this meant restaurants needed to purchase and store the alcohol for delivery separately. Untangling all this involved several trips to the tax office with lawyers.

“There were just insane layers of regulation,” he said. Before starting a business, “I would highly recommend getting help from lawyers to investigate whether there’s any aspect that is regulated.”

In Dunbar’s case, he had to get a liquor license to import wine, which took about three months, though now it can take up to six months, he said. And he found that waiting times for such licenses can vary by location. Getting permission in Kanagawa Prefecture, where he was initially based, took less time than in Tokyo, which has a reputation for being stricter.

Once Dunbar had the license, the regulatory side of his business was pretty straightforward. It was easier than in the United States, where alcohol regulations are more complex, differing by state and requiring some wineries to hire entire regulatory teams to handle the paperwork, he said. Dunbar has no such headaches here and hired a customs broker to handle his incoming shipment paperwork.

Other businesses—many providing services—are much less regulated. Consulting, for example, has little regulation and is easier to get into because it requires little upfront investment—not even an office. “You need a phone, a laptop … and that’s about it,” said Bleistein.

Given that ease of entry, first-time entrepreneurs should try independent consulting for starters, advised Jeff Crawford, founder and CEO of Zo Digital Japan, which provides digital marketing services-related advice to foreign companies entering the market. “Put together a nice website that basically advertises your services and demonstrates that you’re an expert in some field,” he said. “That’s what I did.”

The finances at a consultancy are also simpler. Once you provide the services, the client pays you. You don’t have to worry about suppliers, delivery costs, or other middlemen as you do in a product business, which tends to be much more capital-intensive and requires owners to handle inventory, production, safety, and delivery. “If you’re looking to start a business in Japan, look really hard at services,” Bleistein added.

On the flip side, that also means there are few barriers preventing competitors from jumping into the same market, Lloyd pointed out. “There is no safety in having a low hurdle to entry. Yes, products are harder and riskier, but if you get it right you have a much longer run before the competition shows up.”

Breaking In

Perhaps the most difficult step in starting a business is finding customers, most of the experts agreed. Clearing this wall is do-or-die for a startup, and it can be particularly hard in Japan, where business is driven so much by long-term relationships. So how do you break in?

Here is where a mentor or consultant with an established network can be a big help by introducing you to potential clients. When Dunbar started his wine importing business, he hired a Japanese consultant who knew the alcohol industry and introduced him to people in the business. “That was a very important step for me, because I was new to the industry.”

That was a start, but Dunbar still needed to make hundreds of cold calls and visit a slew of wholesalers and other related companies to drum up business. While at times the rejections got discouraging, he knew that, to survive, he had to get out there and make connections. And he enjoyed sales, so that wasn’t a problem. He later discovered that he had started his business during a seasonal year-end ebb.

“The sales portion was not something that was scary to me. I’d much rather go and visit customers than almost anything else,” he said. “And in this particular business, it’s all about meeting people. We have to go out and visit our customers—they don’t come to us.”

There is no capability more important than client acquisition. I don’t care what people say about delivery, expertise, or product ratings. You have to have the ability to acquire customers.

Similarly, after he set up his consultancy website, Crawford started “pressing the flesh”—going to meetups where he thought he might connect with potential clients. He also attended other relevant events, such as those presented by the American Chamber of Commerce in Japan (ACCJ). “I’m a big fan of going to meetups, introducing myself, and handing out a ton of business cards,” he said.

Crawford, who worked at Microsoft Japan Co., Ltd. and Adobe KK in Japan after having worked in Silicon Valley, also started hanging out at online sites where digital marketers and search engine optimization experts would gather. He would field any questions about Japan to establish his expertise in his niche, and started blogging and creating podcasts. He tried to snag public speaking opportunities and was thrilled to be invited to do so at the ACCJ. Writing and blogging also helped him become more widely known within that business circle and paved the way for better initial conversations with people, he explained.

“If people see you on stage talking about a topic, they view you as an expert,” he said. “It’s great when people come up to you afterwards and say, ‘Hey, we read your content. You sound like you know what you’re doing.’ They already assume you’re competent. They don’t ask questions like, ‘Tell me about your clients.’ They just jump right into their issues. It’s like a level of trust is already there.”

In Bleistein’s radically stripped-down view of starting a business, there really is only one step: finding a customer. Everything else is secondary. Many entrepreneurs mistakenly think they need to have all sorts of systems in place before they launch, he said, but that’s not true.

“At the start, you’re going to be serving one customer—that’s how you get started, that’s how you learn. Everything else will fall into place,” explained Bleistein, who is author of the book Rapid Organizational Change. “There is no capability more important than client acquisition. I don’t care what people say about delivery, expertise, or product ratings. You have to have the ability to acquire customers.”

Branding Yourself

Fariza Abidova said that a key step to gaining clients at her first company, SOPHYS Corporation, a human resources and training business, was to attend events that catered almost entirely to Japanese. This, of course, required language ability. “I was just showing up and talking to people and sharing what I do and my passion.”

Abidova also paid close attention to how she branded herself, stressing and repeating key words and phrases that she wanted people to remember and spread among their networks. For SOPHYS, that was “cross-cultural communication.” For her second company, Trusted Corporation, which was founded in 2016 and helps clients with technological innovation, she stressed the key words “global open innovation.”

One way to divide Japan’s business world is to split it into a business-to-customer (B2C) market and a business-to-business (B2B) market, said Lloyd. The first functions pretty much as it does elsewhere, so is easier to enter, although you need to understand the Japanese consumer psyche, he said. The B2B market is much more political and based on long-term relationships and brand loyalty, making it much harder to break into.

“If you’re a new entrepreneur, my recommendation is to go B2C,” Lloyd said. “But if your expertise is in B2B, then secure your first project before you launch, because it’s going to be a long, hard haul.”

Still, these days, one good way to get business if you’re a tech entrepreneur is to contact Japan’s big, established companies. They are struggling to digitally transform their business, have money to spend, and are looking for people to help them make that transition, according to Annie Chang, founder and president of IT recruiting company AC Global Solutions Ltd.

“The hottest market is now IT, so there are lots of opportunities there,” she noted. “And I think foreign entrepreneurs have an advantage because they generally have more skills and can move more quickly in the market.”

When starting a business, it’s also important not to be too narrowly fixated on your niche or specific business solution, because there simply may not be enough interest in that, Chang said. When she started her company 32 years ago, she needed to be more of a nandemo-monoya, or a shop that sells anything, and be willing to accept a wider range of projects just to get cash flow, she explained.

“Later, when you’re in a better position financially, you can focus more narrowly.”

Language can also be a barrier for doing business in Japan. For Dunbar, being able to speak Japanese was absolutely critical to selling wine. “You need to get in front of your target audience and get them interested in your product. If you have difficulty communicating, that’s going to be a major hurdle to success.”

But in other businesses, particularly IT, language is less of a problem. Early on, Abidova used Japanese to engage potential clients, but these days she communicates in English with most of her customers at Trusted.

Raising Money

In addition to acquiring customers, the other big hurdle is funding your business. If a startup can break even after two years, it’s doing very well—unless you’re a tiny consultancy with very few expenses. During that time, you need to keep spending money.

Nearly all startups are initially self-financed by the entrepreneur’s savings, with additional help from family and friends as the case may be, experts interviewed for this story said. Some service businesses may be able to survive on that plus income generated from the new business—especially if the founder has received a large severance package from their previous job and wants to stay small.

But most product businesses or companies that plan to grow even modestly will need financing help from investors or banks once they get up and running. “If your company is growing at a fairly high pace, you’re going to need more capital,” said Dunbar. “That was especially true for me in a physical goods business.”

Most of the experts said they didn’t borrow from the bank, partly because they found that banks in Japan generally won’t lend to startups, particularly in IT or services. “The bank is the worst place to start unless you have a lot of assets and you want to do a collateralized loan,” said Bleistein. “Banks do not make money on business plans. That’s not their model.”

But there can be benefits to pursuing that route. Dunbar said he obtained bank loans and worked to cultivate relationships with banks as much as possible, and that the Japan Finance Corporation (JFC) is a good place to begin if you are looking for debt financing. Once you establish some payment history with the JFC, it is easier to work with commercial or trust banks.

“I found that even if you don’t need money, if the bank offers it, you should take it,” he said. “This allows you to develop a payment history with them. When it comes time for you to ask for bigger loans, it’s a much easier conversation than if you don’t have a relationship.”

More entrepreneurs said they relied on VC funding, but even that was often hard to obtain. “I think the biggest challenge in growing a business is raising money,” said Sulkin, who first raised money from outside investors 10 months after founding Food-e.

In his experience, Sulkin found that venture capitalists in Japan—despite their name—are very risk averse. “If you’re an unknown entrepreneur, even with the greatest idea ever, you’re still going to have a lot of trouble raising money. And that’s a problem for Japan.”

Other businesses—many providing services—are much less regulated. Consulting, for example, has little regulation and is easier to get into because it requires little upfront investment—not even an office. “You need a phone, a laptop … and that’s about it,” said Bleistein.

Given that ease of entry, first-time entrepreneurs should try independent consulting for starters, advised Jeff Crawford, founder and CEO of Zo Digital Japan, which provides digital marketing services-related advice to foreign companies entering the market. “Put together a nice website that basically advertises your services and demonstrates that you’re an expert in some field,” he said. “That’s what I did.”

The finances at a consultancy are also simpler. Once you provide the services, the client pays you. You don’t have to worry about suppliers, delivery costs, or other middlemen as you do in a product business, which tends to be much more capital-intensive and requires owners to handle inventory, production, safety, and delivery. “If you’re looking to start a business in Japan, look really hard at services,” Bleistein added.

On the flip side, that also means there are few barriers preventing competitors from jumping into the same market, Lloyd pointed out. “There is no safety in having a low hurdle to entry. Yes, products are harder and riskier, but if you get it right you have a much longer run before the competition shows up.”

Breaking In

Perhaps the most difficult step in starting a business is finding customers, most of the experts agreed. Clearing this wall is do-or-die for a startup, and it can be particularly hard in Japan, where business is driven so much by long-term relationships. So how do you break in?

Here is where a mentor or consultant with an established network can be a big help by introducing you to potential clients. When Dunbar started his wine importing business, he hired a Japanese consultant who knew the alcohol industry and introduced him to people in the business. “That was a very important step for me, because I was new to the industry.”

That was a start, but Dunbar still needed to make hundreds of cold calls and visit a slew of wholesalers and other related companies to drum up business. While at times the rejections got discouraging, he knew that, to survive, he had to get out there and make connections. And he enjoyed sales, so that wasn’t a problem. He later discovered that he had started his business during a seasonal year-end ebb.

“The sales portion was not something that was scary to me. I’d much rather go and visit customers than almost anything else,” he said. “And in this particular business, it’s all about meeting people. We have to go out and visit our customers—they don’t come to us.”

Similarly, after he set up his consultancy website, Crawford started “pressing the flesh”—going to meetups where he thought he might connect with potential clients. He also attended other relevant events, such as those presented by the American Chamber of Commerce in Japan (ACCJ). “I’m a big fan of going to meetups, introducing myself, and handing out a ton of business cards,” he said.

Crawford, who worked at Microsoft Japan Co., Ltd. and Adobe KK in Japan after having worked in Silicon Valley, also started hanging out at online sites where digital marketers and search engine optimization experts would gather. He would field any questions about Japan to establish his expertise in his niche, and started blogging and creating podcasts. He tried to snag public speaking opportunities and was thrilled to be invited to do so at the ACCJ. Writing and blogging also helped him become more widely known within that business circle and paved the way for better initial conversations with people, he explained.

“If people see you on stage talking about a topic, they view you as an expert,” he said. “It’s great when people come up to you afterwards and say, ‘Hey, we read your content. You sound like you know what you’re doing.’ They already assume you’re competent. They don’t ask questions like, ‘Tell me about your clients.’ They just jump right into their issues. It’s like a level of trust is already there.”

Annie Chang spoke on a panel at the nano tech 2019 International Nanotechnology Exhibition & Conference, held January 31–February 1, 2019, at Tokyo Big Sight.