Terrie's Take 670 -- Now is Always a Good Time to Form a Company, ebiz news from Japan

Mon Jul 16 11:48:18 JST 2012

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, July 15, 2012, Issue No. 670

+++ INDEX

- What's New -- Now is Always a Good Time to Form a Company
- News -- In case of earthquake central government may move
- Upcoming Events
- Corrections/Feedback -- Comments on Consumption Tax
- News Credits

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+++ WHAT'S NEW

We always tell aspiring entrepreneurs that the best time to
establish a company is at the bottom of an economic cycle.
But what if that "bottom" is a long time -- as in years
long, as in the current Post-Lehman period? While it may be
counter-intuitive, we still believe that now is a good time
to start a firm, especially in a market as large and
diverse as Japan's. The reason is simple: the worse things
get for the incumbent population, the more likely they are
to find ways to improve their lot and to seek escape.
Either way, they are less hesitant about dealing with a
foreign-owned firm, or for that matter, one which is just a
few months old.

Key to getting a company off the ground is the quality of
the idea. We firmly believe in the philosophy of letting
the market teach you what it wants. We were reminded of the
value of this while putting together a new project
recently. On coming up with the basic idea, involving
online market research but with a foreign angle, we visited
a number of players in the online research field and found
it surprisingly easy to discover where the market gaps are
and who is doing what. Within a few short weeks we came
away with a deep understanding, several new relationships,
and lots of interest in our service by the existing
players, once we start it (hopefully in August).

How do you make yourself attractive to Japanese companies?
Whether you're a venture-funded firm or a foreign company
trying to set up in Japan, here is a check list of
compelling reasons for the Japanese to want to buy from
you or invest in you:

* Technology or resources to reduce the cost of doing
something they already do, by at least 20%

* You have an idea that will revolutionize the market AND
you have a patent pending

* You are able to do something they cannot (often, just
speaking English and having a foreign network is leverage
enough... ;-) )

* You have a patent or trademark or business relationship
they want

* You have something that helps them significantly
differentiate themselves from their competitors

* You have technical skills to give them a product they
have wanted to build but couldn't

[Continued below...]

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[...Article continues]

Once you're past selling an idea, and have absorbed the
market reaction so as to re-shape that idea, the
next step is funding it. Since the dotcom bust of 2001,
Japan has seen a dearth of venture capital, and those
start-ups formed in the last 10 years have typically
initially been funded through friends and family. This is
still somewhat the case, although as we noted in Terrie's
Take 654 http://bit.ly/NqfUya, there is a new breed of
Y Combinator type investor around who will fund a company
with JPY5m-JPY10m. For most start-ups this is not really
enough to get much past the drawing board stage, since
making products or creating technology is expensive, but at
least it does get the company on to the radar screen of
other more advanced VCs. Also, with judicious layering, it
may be possible to add the JPY10m from a microfund on to
JPY10m from a friends-and-family round, and thus get some
financial "runway" for a start-up to take off.

The microfunds continue to be in the news recently. Take
note of the names, because if you're looking for cash you
might want to contact them. Just yesterday, the Nikkei had
an article that Digital Garage, Transcosmos, Recruit, DeNA,
and Movida Japan are all making investments in a California
accelerator called 500 Startups. This accelerator invests
about JPY6m per company, times, we guess, 500 firms.
Japanese investors like this diversified "shot gun"
approach, although we are not convinced that it invites
quality businesses to get the funding. We believe that
companies with seriously good technology and ideas are not
going to be attracted by JPY6m. But what 500 Startups does
offer, though, and which isn't available in Japan yet, is a
platform to kickstart new companies so that a few months
later they can migrate to regular seed and angel round
investors. That's why JPY6m is enough, because it's only
supposed to last a few months.

Here in Japan, unfortunately beyond the microfunds there is
a noticeable gap before you can tap in to regular Venture
Capital funds, which are still around and which are still
making investments. That gap is fundamentally the period
between which you complete your product/technology and
start selling, and the point at which the company is just
starting to move to profit. You might wonder if by the time
you're making profits you want VC anyway, and sure enough a
lot of companies decide to simply hang on to their shares.
However, VCs have the business networks to generate new
business for you and their cash can be a welcome buffer if
you're growing quickly and struggling with cashflow -- a
common problem with successful start-ups.

VCs that we have heard are still making investments of
a more normal level (JPY30m-JPY150m or more)
include: Digital Garage, Softbank Investment (SBI), Gree,
DeNA, Transcosmos, Globis Capital (new fund in October),
Ant Capital, and Itochu Technology Ventures. Actually,
there are many more firms than this, including regular
Japanese companies who may be in the same sector as you and
simply want a strategic tie-up (and the right to sell your
product), but this list is a good starting point for
general funding and especially if you are not Japanese.

It is also a good idea to watch what the government is
doing to promote investment in new businesses. Recently the
government's Innovation Network Corporation (which we were
told also does advanced VC investments in the JPY500m+
range) formed a public-private partnership with Nifty
Corporation, in order to promote Japanese content overseas,
under the "Cool Japan" initiative. As their press release
points out, most Japanese content producers are smaller
firms with few resources to create foreign-language product
and thereafter export it. Therefore, the new partners will
help local firms with distribution and sales of content
that can be delivery by PC or smartphone, acting as a sales
agent. Although the partners are not using their entity to
make investments in the content suppliers (to our
knowledge), getting on their roster of suppliers would be a
very compelling story for any smaller firms trying to get
venture funding from one of the usual players.

Starting a company is never an easy process, and the
prospects of a dull economy may be daunting, but the fact
is that good ideas sell no matter what the status of the
economy. Certainly if we'd been in the English-teaching
game in the wake of the market collapse post-NOVA, we'd
have wanted to be the company that originally came up with
the idea of JPY500 20-minute lessons with operators in the
Philippines. Or to be the supplier of organic foreign
imported foods after Fukushima. Right now we think travel
and crowd-based software applications are looking good.

Then there is Teddy Jennings, who came up with the novel
idea of turning customer's dusty, unused Tokyo apartment
verandas into lush, green oases. Although you would think
that now is not the best time to invest in a company that
beautifies peoples' verandas, in fact, his Vacation Veranda
company is taking advantage of people's renewed awareness
of the value of green spaces to reduce heat and at the same
time makes home somewhere nicer to come back to each day.
The twin events of Fukushima and the economy have given
Teddy a media-friendly niche, resulting in his being flat
out with orders not only from foreign clientele, but also
Japanese who are starting to hear of his concept.
www.vacationveranda.com.

Another interesting niche business to follow is Abi
Komolafe's Demiko International, which is catering to the
South American and African Japan-residents market by
supplying plantain (a type of starchy banana) at reasonable
prices. Abi has come up with the idea of forming a
"Plantain in Japan community", based on the fact that
this staple food is so hard to find and yet is craved by
the South American and African cultures who grew up with
it. Importing container loads of plantain into a new market
is certainly adventurous, but with a 200,000+ target
audience (not including Japanese), it sounds like a great
niche business to us. http://www.demiko.com/en/

Both of these entrepreneurs go to show that good ideas are
can happen any time in the economic cycle, and that Tokyo
loves novelty and quality of execution.

**************
A reminder that our sister company Metropolis is listing
a wonderful wooded plot next to the 27-hole Enrei golf
course in Suwa, Nagano, for just JPY6,800,000 (about
US$80,000). The property is 1,032 square meters, and is
located right on the edge of the golf course, so that you
will never be built out. See photos and a full description
here. http://bit.ly/LzdHST. The owner is keen to sell
quickly, which is why the property is so competitively
priced.

...The information janitors/

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-----------------------------------------------------------

+++ NEWS

- In case of earthquake central government may move
- Itochu buys UK company for China Plus One strategy
- Radioactive materials disposal becomes safer and cheaper
- Floods and land slides kill 24

=> In case of earthquake central government may move

As part of its preparation for the "Big One" that may hit
Tokyo in the next 30 years, a government panel is
recommending that central government transfer its various
functions to five secondary cities, being Osaka, Nagoya,
Fukuoka, Sapporo, and Sendai. Right now, Tachikawa in
western Tokyo is supposed to be the back-up location in
case of earthquake, but officials have realized this may
not be far enough away, especially if power and traffic
congestion are a problem. Other topics addressed by the
panel included the set up of temporary housing for Greater
Tokyo's 35m population... ***Ed: Now, that might be a bit
more of a challenge!** (Source: TT commentary from
japantimes.co.jp, Jul 15, 2012)

http://bit.ly/O1y0nW

=> Itochu buys UK company for China Plus One strategy

Rising costs and fears of over-dependence on one economy
are driving Japanese firms to a China Plus One strategy,
which usually means setting up in Vietnam or other low-cost
locations in Asia. Trading house Itochu is saying this is
what is driving their purchase of UK apparel manufacturer,
Bramhope Group Holdings. Bramhope is apparently a major
supplier to Marks & Spencer, and is already producing
clothing in Cambodia, India, and Sri Lanka, quite apart
from China. The deal is reportedly worth JPY5bn, and will
help Itochu source low cost product for its own brands here
in Japan. (Source: TT commentary from e.nikkei.com, Jul 15,
2012)

http://e.nikkei.com/e/ac/tnks/Nni20120714D14JFF04.htm

=> Radioactive materials disposal becomes safer and cheaper

Osaka manufacturer, Unitika, has launched a new
polyester-based radiation shielding wrapping material that
can be used to cover or bag contaminated material to a
relatively high degree. The company says that using a
single sheet of the tear-resistant material can reduce
emissions from medical x-rays by 60%, and when 10 sheets
are layered on top of each other, the emissions are blocked
by 99.5%. ***Ed: No word on whether this will work for
Fukushima debris, although that seems to be the implication
in the Nikkei report.** (Source: TT commentary from
e.nikkei.com, Jul 14, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120713D1307A06.htm

=> Floods and land slides kill 24

It's hard to imagine, with the fine sunny weather in Tokyo
this weekend, that Southern Kyushu is copping some of the
worst floods in years. As of yesterday, 24 people were
confirmed killed and 8 were still missing. Aso City in
Kyushu had a record 50.75cm of rain on Saturday. The rain
destroyed 145 homes and flooded 800 others. The forecast
for coming days is for more localized rain, but not as
severe. (Source: TT commentary from bloomberg.com, Jul 15,
2012)

http://bloom.bg/O1wEtA

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
bilinguals.

** HIGHLIGHTED POSITION

BiOS is urgently looking for a Network Engineer to join a
global data center services provider in Tokyo. In this
position, you will be responsible for designing and
architecting network systems for both domestic and
international clients within data centers, leading 24/7
system monitoring teams and staff, including external IT
vendors, as well as providing vendor escort services to
clients. You will also be expected to participate in data
center facility expansion plans as a consultant, and work
with management in cost-reduction projects.

Due to the technical nature and demanding work environment,
this position is suitable for someone with more than two
years of network design and architect experience, and
experience within a data center is preferred. In addition,
since this role requires direct coordination with both
regional and global IT teams, native-level Japanese and
daily conversational English will be required.

Remunerations is JPY5M – JPY8M depending on your experience
and skill level.

** POSITIONS VACANT

- Support Engineer, IT company, JPY 4.8M – JPY5.4M
- Field Engr (DC Support), DC Service Co., JPY3M – JPY3.6M
- Network Engr, Global Telco, JPY3.5M – JPY4.5M
- Data Center Sales, DC co. in Tokyo, JPY5M – JPY8M
- Personal Assistant, Investment Firm, JPY3.6M – JPY5M

** BiOS Job Mail

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home page. Regardless of whether you are unemployed and
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to know if there is something out there that might suit you
better, the BiOS Job Mail newsletter is an easy and
convenient way for you to stay informed. If you would like
to register for the BiOS Job Mail, or to find out more,
please email toshisada.onishi at biosjp.com.

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***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 29th of September, 2012

If you have been considering setting up your own company,
find out what it takes to make it successful. Terrie Lloyd,
founder of over 17 start-up companies in Japan, will be
giving an English-language seminar and Q&A on starting up
a company in Japan.

This is an ideal opportunity to find out what is involved,
and to ask specific questions that are not normally
answered in business books. All materials are in English
and are Japan-focused.

For more details:
http://www.japaninc.com/entrepreneur_handbook_seminar
------------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

=> Reader's comment on last week's TT669 about social
insurance and consumption tax.

*** Reader: While I agree with much of what you wrote, I
don't think it's wholly accurate to state that the Japanese
consumption tax model "ignores the cost of people" when
calculating taxes payable. There are two ways one can
calculate consumption tax owed: 1) minus taxed expenses
from taxable revenue and pay on the difference or 2) divide
taxable revenue in half and pay on this amount. While not
allowing service providers to directly write off the 70%
some pay in personnel costs, allowing the option of an
immediate 50% reduction does tacitly acknowledge that
option one is not appropriate for all companies. In that
sense, I believe it's difficult to argue that service
companies are ignored. Any service provider who actually
pays a full 5% of their revenues in consumption taxes
should fire their accountant.

As an language school, we obviously use the second option
and ironically expect the consumption tax increase to
possibly increase our profits. The thinking process is: go
ahead and pass the 5% increase on to our students, but
due to the consumption tax calculation rules, our payment
to the government will only increase 2.5%, thus allowing us
to potentially receive a 2.5% increase in income.

Probably not what the government intended -- but everything
helps in the current economy. Not saying I'm a supporter of
the increase, but it could actually lead to increased
revenue and profit for those service providers who play the
situation to their advantage.

***------------------------****-------------------------***

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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