U.S. Technology Start-Up Companies: Think of Japan

Posted by Administrator on September 29, 2009

Whether you are planning to found a technology start-up company or you are now in the early stage with sufficient capital fund, it would be advisable for you to include Japan as part of your global marketing strategy from the beginning and also start seeking investment money from Japan. Money runs out very quickly even if you try to use it wisely.

While we have seen many U.S. technology start-up companies becoming very successful in a global market, many other U.S. technology start-ups have gone out of business within one to two years after the inception of the company. The following case study explains the most common process in which many start-ups failed.

• Most U.S. start-up companies are engineering groups and do not have business strategies

A great engineer invented an epoch-making technology and raised capitals. In many cases, U.S. start-up companies are “technology and finance” companies in nature. The founder is the inventor – the owner of the technology and the president of the company. He hired an excellent chief financial officer who would manage the working capital that the president raised. They also hired VP of Sales & Marketing of the president’s choice, who has strong technical background. So, the company is basically technically-oriented group rather than operationally-oriented management.

The technology was finally productized and the first production would soon start. Everybody was very excited about the ambition of the company. The VP of Sales & Marketing was busy visiting the potential distributors in the U.S. and Europe to finalize the sales plan. The Director of Marketing did a very good job in handling media relations, creating marketing collaterals and implementing marketing programs. Many national newspapers, magazines and trade journals wrote good articles about their high-tech product. It looked tremendous amount of interest of this new product was generated and in fact the company had many successful trade shows. The VP of Sales & Marketing got all distribution channels laid down across the U.S. and Europe.

Orders began to roll in and delivery started. It was about two years after the inception of the company. In order to secure more money for overhead expenses and to buy more parts to build up the inventory for future orders, they went to the second round financing. They had no difficulty in getting additional money from the existing and new investors. Orders, although small, continued coming in.

Then, they were beginning to experience what they had never anticipated in the beginning.

• Orders stopped about six months after product launch

No body from this company visited their major retail customers to check the sell-through of the product. So, to their surprise, they found out later that those who initially purchased the product were mostly research and test institutions and their competitors. They also found that after they filled their pipeline, there was no actual sell-through to the consumers on the street. The management learned the lesson that great interest from the mass media was not orders.

So, before it was too late the management decided to spend more money to implement various kinds of marketing programs to motivate the retail stores to aggressively promote the product to the consumers. Then, the early adaptors began to buy in the U.S., but the orders were sporadic and far between. Meantime, having been concerned that he might not be able to get the real sales off the ground in the U.S. in the immediate future, the VP of Sales & Marketing began to think of Japan as a backup (not as business strategy). He knew Japan is a high-tech society, so he thought Japanese people must like their products. Once the product becomes salable in Japan, it is very likely that it will also be selling well in other major Asia-Pacific countries such as Korea, Taiwan, Hong Kong and Australia. So, the top management hired the Managing Director of Asia-Pacific Operations who would report to VP of Sales & Marketing. He was an English/Japanese bilingual, multi-cultural business development specialist in Asia-Pacific Region. He is respected in the Japanese business society and would work in the U.S. headquarters.

He strongly suggested to the VP of Sales and Marketing that the company pursue a strategic partnership with a major electric manufacturing giant in Japan to increase the awareness of the product and secure support to enhance the quality of their product to meet the Japanese quality standards and consumers’ expectations.

If one of such technology giants as Matsushita (owner of Panasonic), Sanyo, Hitachi, NEC, Toshiba, etc. sells your product successfully in Japan, the chances are that their relations would develop into either 1) joint sales venture in Japan, 2) their purchase of your technology for specific market or 3) their investment in your company to further expand the business jointly.

The technically-oriented VP of Sales & Marketing could not understand the significance and importance of this strategic partnership with the Japanese major companies that the Managing Director of Asia-Pacific Operations suggested, and insisted on just finding a master distributor in Japan who he hoped would be willing to sell the product in high volume to the consumers through retail stores.

Meantime, the U.S. domestic sales had not yet generated sales momentum and the company’s working capital was running short. So, the VP of Sales & Marketing, the Managing Director of Asia-Pacific Operations and the Chief Engineer flew to Japan and met several Japanese potential distributors and major electric manufacturing giants. The manufacturers evaluated the product

while the distributors conducted a pilot market research. To their surprise, both VP and Chief Engineer were told the following same comments on their product in practically every business meeting.

• Your quality is not up to the Japanese standards

They were told that the technology was very innovative and impressive but the final product does not reflect the high technology and high quality image     because of poor workmanship and inferior quality in performance. In fact, Japan is a manufacturing society, and extremely tough competition among the Japanese manufacturers has boosted the quality standards of Japan.

There are many world-class manufacturers in Japan such as Panasonic, Sony, Hitachi, Toshiba, Sanyo, Sharp, Mitsubishi, and NEC to mention a few. They all have their own retail stores selling their brands throughout Japan. So, the quality of practically any products made by most Japanese companies is extremely high and the Japanese consumers, whether children or adults, are so used to enjoying such high quality standard in their daily life. It was really painful to see the VP of Sales and Marketing repeatedly saying at the meetings that his product was the best in the world.

Although no distributors in Japan wanted to sell the product of this U.S. start-up company because it still needed lots of time-consuming refinement and enhancement to meet the needs and wants of the Japanese consumers, the Managing Director of Asia-Pacific Operations successfully negotiated with the largest electric manufacturing company in Japan to mutually explore the possibility of forming a joint venture in Japan, in which the Japanese company would enhance the quality of the product at their own expense and exclusively sell the product in Japan, while the U.S. company would sell the quality-enhanced product in the U.S. and outside of Japan. It seemed a win-win situation and would be an ideal arrangement for the U.S. company.

They signed the Letter of Intent (LOI) and Non Disclosure Agreement (NDA). There were lots of meetings both in the U.S. and Japan regarding the joint venture. In Japan, however, full approval by the board members for a joint venture or a strategic alliance usually takes as long as a year. So, the board members of the U.S. company were no longer patient and fired the founder and brought the president of their choice from outside. However, they did not receive any substantial orders and began to sell off parts of the company, while still negotiating with the Japanese company for strategic partnership. The Japanese company learned that the president of the U.S. company was fired in the middle of the joint venture negotiations, and was becoming to worry about business uncertainty with the U.S. company.

Meantime, the U.S. company finally filed for Chapter 11 and became debt-free. The management proudly informed the Japanese company that their financial obligations were much lessened. However, Chapter 11 is a death knell in Japan and unfortunately joint venture plan was canceled and the U.S. company went out of business several months after the filing.

We have seen many U.S. start-up technology companies that ended up with the similar story like this. Tremendous amount of time and money have been wasted both in the U.S. and Japan, and poor employees have suffered a lot.

Japan is a technology country and many Japanese companies are interested in both the new innovative technologies and products that are invented by the U.S. companies. It would be a good idea for U.S. start-up companies to consider the following suggestions.

• Include Japan as part of your global marketing strategy from the beginning.

- Show your final prototype of your product to the right Japanese?companies for comment. Do not be afraid of your new technology?product being copied.

- Start preliminary dialogs with potential Japanese companies regarding

Investment at an early stage (the sooner, the better)

- If you start selling your product through your distributors, make sure?to visit your retail customers within three months after you ship the order to your customers to see how much sell-through has been?achieved.

We are looking forward to your comment.

Peter H. Sakurai
Editor-in-chief
JapanBusinessConsultancy.com