[Podcast］How to build a successful startup community ー Interview with Tim Rowe at Cambridge Innovation Center (Part 2)

Today we are going to sit down with an old friend.It was over seven years ago when I first had Tim Rowe on the podcast, and we mapped out what we saw as the future of startup innovation in Japan. In today’s short episode, we talk about what we got right. what surprised us, and what we think is next for Japanese startup innovation.

It’s a great conversation, and I think you’ll enjoy it. 

Welcome to Disrupting Japan, straight talk from Japan’s most innovative founders and VCs.

I’m Tim Romero, and thanks for joining me.

I’d like to share a special short in between episode with you.

Last month I had a fireside chat with Tim Rowe, the founder and CEO of the Cambridge Innovation Center at the Global Venture Cafe’s anniversary celebration in Tokyo. And I thought I would share it with you just as it happened.  I first had Tim on the show about eight years ago, just before CIC opened their Big Tokyo collaboration space.

This time Tim and I talk about the changes to the Japanese startup ecosystem since then, what we are likely to see in the future, and we also discuss what might be a new model for startup ecosystems. As startups have become more and more accepted and more and more common. The old community playbook may not be as effective as it once was.

But Tim tells that story much better than I can. So, let’s get right to the interview.

(Continuation of the previous article)

Romero: Alright, well, things have changed a lot, both from the 90s when you were first here and in the past seven years or so with the Venture Cafe and CIC experience. So, before we get into the future of Japan, what sticks out as some of the most significant changes you’ve seen in the startup ecosystem over the last, say seven years?

Rowe: Japan as a country, and many of Japanese institutions have really gotten serious about startups I would say the last decade. I think the first wave was a lot of the Japanese corporations starting to really embrace working with startups. Before that it was almost impossible to work with a Japanese company as a startup. If you remember back 15, 20 years doing business in Japan is typically about your experience, your reputation as a business. And startups kind of by definition have none. And there was an awakening to the fact that, well, that’s true. Startups are new and don’t have this experience. They can also move faster and be agile and sometimes introduce new technologies that the larger companies have trouble introducing. We see this story in the automotive industry where Honda and General Motors and others could make an electric car, but they could never quite figure out how to make a market for electric cars. And then it took a startup Tesla to come in and say, okay, we’re going to really seriously make a market. And that happened and later others followed. So, there’s this recognition that I think emerged that startups can do things that companies, 10,000 times their size can’t. And that’s exciting. And so the doors started to open.

A visual representation of Japan’s evolving startup landscape — where collaboration between corporations and agile startups is becoming the new norm     Source: EnvatoMore recently, I think the Japanese government started to really lean in and say, how can we support? What can we do? How can we support this part of the economy? Hey Michael, how are you? We have an expert in the room. Michael Cusumano, professor at MIT who has been writing and teaching about this for decades longer than I have. So, later you should get a chance to hear from him on this.

But, so that started to happen, but I really need to say here, Tim, that there’s a history before all this that I don’t want us to forget. If you go back to Japan in the post-war era, Japan was one of the most productive startup economies in the world. And if you look at the results of that today, all you need to do is look at the percentage of the Russell 2000, most successful companies in the world that are from Japan. And you’ll see that that percentage is roughly tied with the United States when you adjust for population. And all of those successful big companies were startups. These were companies like Sony and Honda and so forth. So, I just need to baseline this. There isn’t some difference really, in terms of Japan’s potential or capability to build world-leading startups than the United States. Yes, there’s a difference in where we are today. Yes, there’s a difference today in the amount of venture capital that’s flowing. Those are all true, but there isn’t some sort of fundamental reason why Japan shouldn’t be producing startups of the same size and impact as the ones coming out of the United States or the UK or other leading innovation countries.

So, the importance of this is that sometimes people think, well, maybe this is cultural. Maybe there’s something about the Japanese culture where it doesn’t produce as many startups. No, that’s BS I won’t say the full word because I’m in a public venue here. But that’s BS, there’s absolutely no cultural barrier here. There are structural barriers, there are differences. And I was pleased that Kihara-san talked about tax policy.

We have policies in the United States, for instance, that make it very attractive to invest in startups. We have policies for our pension funds that make it very attractive for them to invest in venture funds. These policies are not necessarily followed equally everywhere. I know the UK, for instance, doesn’t have that same policy, which has made it harder to get venture capital funds out of the pension and similar kinds of institutions. Those are policy changes, the policies, and they can be changed. And so I think what we’re seeing now in Japan is this sort of openness to really rethink the structural drivers of innovation and how to move things forward.

Romero: I agree. I think probably one of the most significant changes is the willingness of large enterprises to interact with startups. In the dotcom era, it was next to impossible. You get pushed down through four layers of subcontractors, and now almost every large organization to Japan has a team that’s dedicated to working with startups. But looking back, and I agree, cultural explanations are kind of hand wavy. So structurally, I mean, is there anything you can particular that you point to and say, ah, that was the triggering event, this was the most important policy, social change, anything that set the wheels in motion? Or do you think it was more of a gradual change of people realizing the opportunities that working with startups presented?

Rowe: Japan has a history of embracing things that have high level support. There’s a little bit of follow the leader kind of behavior. People say Japan is not a risk taking country, but that’s not true at all. Again, if you go back to World War II and look at Japan, there were a lot of risks taken. And if you look at modern, say, extreme sports, you have Japanese contestants that are just as capable as others, and they’re taking extreme risks. But what Japan culture, this is a cultural piece. There tends to be a sort of a need for kind of a stamp of approval from someone that it’s cool to take these risks.

So when the Prime Minister’s office launched its startup awards when METI and the cabinet office backed the J startup initiative, which you’re probably familiar with that said, here are some of the coolest startups in Japan, let’s support them. Let’s celebrate them. Let’s send them around the world. Let’s train them. I think that started to send a message that this was important. And so I think those are super helpful initiatives.

Behind that there’s also a lot of energy in motion to create venture capital resources to push into entrepreneurship within the leading universities. You have people at Kagami sensei at Tokyo University that have been kind of championing this for a long time. And now we actually had the president of Tokyo University at CIC in Cambridge just about I think it was in the last year, meeting people at MIT, promoting the venture fund that they have at Tokyo University. They actually have a person based in the Boston market looking to help their startups expand internationally. These are kind of the structural many little things that add up that make the system work better.

In Part 3, we explore the key elements necessary to build a successful community, as well as the importance of collaboration and interaction among diverse individuals such as researchers, entrepreneurs, and investors.

Top photo: Envato

Click here for the Japanese version of the article