Hiroshi Mikitani at Startup School 2012

Key Takeaways

Thank you for coming. Thank you very much for inviting so many people. There's a lot of people. Um so maybe to start you could just tell us a little bit about what Rocket is and how you got started. Okay. So um I founded Rockton in 1997. As a matter of fact, you know, I was trying to partner with uh uh one of your founder Paul Graham. Uh and uh you know uh my concept was to really create what we call internet shopping mall in Japan. uh and it was very very you know a arty days and uh we tried to do it with full for various reason it didn't go through uh so we started to hire uh you know young graduate school students uh started from initial capital of 200,000 uh USD uh never raised any money uh from any VC uh just hired uh young guys and went public in year 2000 and started to uh you know buy many companies. Uh now we are number one in e-commerce about uh 35 to 40% market share uh in terms of e-commerce. Uh number one in online travel, number one in online banking, uh number two in online brokerage and we do about uh 38 uh different uh businesses in Japan. Uh and in we started to globalize our business. So now we are in more than 13 countries. Um we bought um the second largest uh e-reader company called Coobo uh which is doing extremely uh well in Europe in Canada in uh and uh in Asia. So uh we we are a little bit different uh internet uh company in Japan uh and now trying to globalize our business. How is starting a company in Japan and and growing a company in Japan different than Silicon Valley? Well, you know, there is no really, you know, venture capital ecosystem. Not at all. There are venture capitals uh but but not like uh you know uh you know Silicon Valley type uh sort of fruit service VCs. they will invest but uh not much uh they will not get involved into the uh management that much so just kind of providing uh the capital so how did you learn the lessons that VCs in Silicon Valley tradition traditionally help entrepreneurs with how did you learn how to run a company and grow it I don't know how Silicon Valley VCs are helping VCs venture companies because I have never experienced uh but the way I again I found it uh reacting with my own uh you know the money uh initial capital was uh just 200,000 uh USD but uh since I knew that I'm not going to be funded uh a huge amount from VC I created sort of cash flow system so that I don't need to rely on on BC uh we asked our merchant uh to pay uh $500 per month but we asked them to pay us 6 months up front. So from the second month of our service uh my company was cash flow positive. You've been cash positive every month since the very impressive. [Applause] Is there any looking back to that first year uh you know when you were sort of becoming cash fl positive very quickly and figuring this out as you went um are there any things that stick out that you would do differently? Well, so again we never raised any money from outside. Uh we raised uh later on uh from uh friends and families. Just this is we didn't need any money but this was kind of just a you know for the friendship uh for sake. Uh because I want to make my family and my friends happy. Uh but how far along were you when you did that friends and family round? No. Uh that was like 6 months before we go public. Uh you know 2 days before we our IPO uh my friend Mason of Soft Bank called me and then asked me to let him in but I said it's too late. Uh but uh well we were very patient to be very honest. We were very patient for the first 3 years. Uh and uh try to re uh create the you know connell of our business model. Uh so we're not trying to copy the the model of Amazon.com or eBay. We are trying to really create a great system to support a medium to smalls size merchant to sell their product all over Japan. So uh we really try to create a extremely strong culture of the company uh because I knew that I'm going to uh be in this business for a long long time. So we didn't rush. We we were very patient. Did did you figure out that kernel on the first try? Did you get right the thing that made Rocket 10 what it is the first try? Did you have to iterate and evolve to get there? Well, one one thing we did differently from most of uh US-based e-commerce company is we try to facilitate uh the communication between the merchants and the consumers because uh the way I feel is of course you know buying products price is important uh the efficiency is important but more than that in my opinion I think you know should be fun and we need to create uh very rich experiments. Uh so we try to be a liasen uh between the consumer and the retailer instead of you know trying to compete against uh the retailer using the IT. We want to use our technology to help small to mediumsiz enterprise do business with consumer. So that was totally different idea and I was 100% confident uh my employees uh will really uh like the idea of helping small to mediumsiz companies rather than trying to destroy their business. So I mean as you said this is very different than anyone else was doing in e-commerce at the time and really still is. Did you know that uh that that was going to be the model you were going to go after before you started the company? Was that were were you convinced that this was what you were going to do differently? uh we didn't think about how we going to do it differently but we know what we wanted to do. I always don't think about our competitor that much because you know you cannot do too many things about it right you just need to focus on what you do uh to improve your uh you know service and improve customer satisfaction I think that's part of nature of uh of of Japanese uh companies keep improving improving improving right how did you grow in both in the early days when you were signing up these small and medium businesses that you wanted to help and then in the later days obviously you've uh made a lot of acquisitions um to help drive growth. Could you just talk about how you figured out growth all along the way? Well, of course, we have a organic growth and we buy many companies uh then domestically and internationally. The domestically uh we created three things. One great brand. Uh by the way, we have a professional baseball rack eagles. Uh and uh so everybody uh knows Rockton brand. Even if you don't use internet, they know Rockton brand. Uh we host ATB 500 tennis tournament. So we have extremely strong brand. Uh two uh we created uh the the strongest um mileage reward program called super points. So we can use those points to cross- sell our service. Uh and uh we also created uh the the sort of the consumer database to analyze consumer data. And now about uh 8 80 million so about uh 90% of internet populations are are member and then and we can use our currency our points to cross- sell various service to them. Uh back to the topic of acquisitions. What do you look for when you make an acquisition and and how do you integrate the the company into record 10 so that you're all one company together? Yeah. So there's two types of acquisitions we make. uh one is purely a geographic expansion to buy a time. So we bought a buy.com in the US, play.com uh in UK, uh price minister uh in France uh and we try to use their presence and brand name and uh uh the their presence uh and and convert their business model to lock model. The second type is uh addition to our uh ecosystem uh our value chain like cobalt uh which is not doing uh as uh well as in other countries but they're very strong they have number one market share and in Canada and uh in France and in Japan. Uh so the we need we knew that we need a a digital book uh service uh in our uh sort of a product lineup. Uh so and we know that we can use our membership to be uh facilitate the growth of coobbo business. So um uh so there is two types geographic expansion and to buy a time and also addition to our ecosystem. And then once you make these acquisitions, how do how do you integrate them into the culture of Rocket? Uh mission uh practice and value. So before buying a company uh we talk about our dream and our goal and our culture and talk over and over and over again before we make acquisitions. if they don't like our culture or our practice or mission, we are not we don't going to buy even if you like the service because it's it doesn't make sense to lose the you know founders and and management of of the company. So we we talk over before uh the closure of the deal uh we talk a lot about those kind of things. And what's your success rate for acquisitions in terms of good integration on those points? Oh, it's a difficult question. I don't know but uh they're still on our one uh you know only one failure we made uh was uh we went uh into China uh partnering with BU uh which is largest search engine company in China uh but it didn't work out well. So we all we discussed with them and agreed that we should shut the business down and we we withdrew from China year ago. So that's is the only uh you know uh uh the the big failure u uh I recognize at this moment even more than the sort of the three culture values you've talked about. Um you know one thing that I I've just heard again and again is that Rocket is known for having having a great culture. Could you talk about h how you've held that culture all the way through for the last 15 years as you said. um how how do you think about the culture the company needs to be to be success needs to have to be successful? So in my opinion uh you need to have two things. One is of of course innovation and the second part is operation and innovation is kind of not so difficult to really encourage people to be uh innovative but at the same time if you want to scale your business you need to have a very strong operation culture as well. Uh and in order to achieve strong operation culture uh you need to have sort of you know the shared practices uh and the uh you know the it's kind of a the framework uh for uh managing the company uh probably mainly using more numbers and KPIs but mo most likely uh the entrepreneurs don't like you know just running the numbers but I think uh you know uh being uh you know quantitative uh analytically quantitative is also very important. So so recently you invested in Pinterest. Um could you talk a little bit about how that came together and what you see in Pinterest and how you hope the relationship is going to evolve. Well I think Pinterest of course Ben spoke right I just had a phone call with him uh and I think I love Yeah. He was great. He's great. We like the company. uh and uh I think Pinterest is very different from other social networks. Uh it's very uh you know graphical uh and appeals to the heart of your interest. Uh and it has a strong influence over to uh buying behavior and buying decision of of the people. So as an e-commerce company I think the Pinterest is the best social network. So, we found Pinterest and I had a meeting with Ben uh had a drink and koke and u you know he liked me and he let us in. What? And I think uh maybe you should ask Ben, but u well he he saw I think he has seen something different in us uh you know compared with other uh US-based uh internet companies or VCs. I will ask him um what do you see as the big challenges uh and the opportunities in in in retail and e-commerce um coming down over the next few years. Of course, you know, I think uh this is still the stage stage one uh for e-commerce. Now we are seeing a lots of digital content sales. So the books, CDs, DVDs, uh games, everything will be digital and online. Uh definitely the uh the logistics will become more and more important. Uh uh and there are lots of uh innovative uh logistics companies uh you know using uh you know robots uh and automation uh to you know uh improve the the efficiency uh and also the devices uh the mobile phone, smartphones uh the tablet uh will become uh the major device to to buy products and maybe there will be sort of social uh I think The social shopping is uh still nobody really find the strong answer to it but I think in the future it will come for for social shopping or anything else. Are are there major ways you identified that Japanese consumers behave differently than consumers anywhere else in the world? Well, Laken is what I call very shop ccentric uh marketplace. uh meaning that we there every shop uh have a very different uh you know characters and also the design and the user experience and we provide all sorts of tools uh to for them to make fans around shop. So uh I think u rack was very social from the day one we try to create a fans around shops not around rock.co.jp JP but fans around shops and all these shops has what you know professional staff and they are the sort of curator of the wines or sports goods or you know groceries and so forth. So I think um my question is so if you want to buy some product do you want to ask your friend or do you want to ask the staff at pro shop? uh and my of course sometimes your your friend uh is can give you better advice than this staff at the pro shop but most time you know I think uh you know you should ask professionals uh so that was our approach and u I think um it worked extremely well in Japan and now we're testing in other countries and I think it's it's working very well as well and can you talk you talked a little bit about mobile and tablets But obviously uh in Japan that's become a huge way that people are interacting probably even bigger than here where it seems like everyone's on the phone all the time. H how much are you thinking about mobile and how are you thinking about mobile is sort of the future of the company? Well, already 25% of ractton transaction which is big. We do about uh 15 billion uh USD or or even more this year just for pure e-commerce in Japan and already 25% of uh transaction is coming from uh mobile devices including feature phone and smartphone and maybe 60% smartphone and 40% feature phone. uh and smartphone transaction is growing about uh 300 to 400% yearonear. So it will be soon more than uh 50% within a couple of years. It's it's huge. Yeah, that is huge. You said something earlier that uh was so interesting to me. I I made a note to go back to which is that you don't think a lot about competition because you can't do much about that. Um one thing that uh I I hear from startups all the time is fear about competition. So when you were starting the company and and Amazon and eBay were were huge, was that a problem for you? Did people ask you what are you going to do about Amazon and eBay? Uh you know, how are you going to beat them? How are you going to compete with them? And how did you think about uh sort of how did you stay focused on doing your own thing and ignoring competition? Well, let me put it. I learn from competitors, but I'm not afraid of competitors. Uh because even if you're afraid of, it doesn't be any good for you. So I learn what they're doing and then maybe uh you know uh try to match uh if I have to uh but I think the the way we um approach e-commerce is totally different from Amazon.com because again we are trying to facilitate the transaction uh with medium to small margins to the larger ones uh to the to the consumers. As a consequence uh uh you know we have big brands almost all department stores uh big big uh fashion brands um almost entire electronic companies are using our platform but but that and that's major portion of our business but our approach is to how to help small to mediumsiz merchants to do business with the consumers. So, but that's the uh I I think we have a philosophical difference between ourselves and Amazon.com. So, I'm not very afraid of them, but we I'm always thinking about how we can uh scale uh our business. How are we doing on time, by the way? Five. Um all right, let's see what's most interesting here. We were talking a little bit backstage about just sort of Japanese culture and and the differences between uh starting a startup here and we talked about investing. Could you talk about hiring um and how you hired the initial people and especially in a culture where joining a startup is not as cool as it was maybe now as it is in the valley. Well, now of course uh it's different from 15 years ago when I started a company. uh you know uh nobody really wanted to work for uh small startups but now they have seen many successes uh and there are so many young people uh who want to work for the uh you know startups and ventures and so forth. Uh I think the way I I have been hiring uh younger people and not not uh to hire uh the immed uh to uh you know upper age people as much as possible uh because I knew that uh we want to embrace our original corporal culture. Uh so that was very important for me to hire younger people and educate them especially in early days. After we went public, we started to hire many what we call gray gray hair people. Uh and uh you know we because we need that we need to have more uh professional expertise. uh and uh two and a half years ago uh we announced that we are going to convert uh internal communication language from Japanese to English and this was a big splash uh in the Japanese society and uh some CEOs you know you know explicitly announced that we are crazy company doesn't matter who we are but uh uh now u 70% of uh new engineers joinings are non-Japanese uh 30% % of new employees are non-Japanese. So, we are truly globalizing our, you know, recruitment. Mark Zuckerberg a few years ago made a comment about hiring young people uh preferentially and it was the all that the press talked about for two weeks. So, maybe you'll be featured a lot. Um, not now. I'm talking not now. Um, why did you make that decision to make English the official language of the company? Well, so the thing I have done uh in Japan is we try to create a open culture company. So we disclose almost all information to entire employees. So the people who is doing e-commerce know what's going on for our banking business and we cross share all these expertise and platforms as much as possible. you know web marketing uh you know engineering um and and so forth and so forth. So that was our strengths. How common is that for Japanese companies to do to share everything openly? Well, sharing the opening up is very common and we call this yokotan meaning horizontal how do you call it uh you know transfer of expertise uh and I think that is one of the strengths of Japanese company uh because you know it's not good or bad it's not so performanceoriented review system uh and uh I wanted to do this globally uh but I couldn't because most of the expertise is in Japan and our most of our staff cannot communicate in English. Uh so you know I I was kind of um lias between our global business and Japanese business and I was getting really really tired just you know talking with you know and being translated everything and uh so um one day I I woke up and um you know thought about doing everything in in English uh and so I stood in front of uh entire 7,000 employees and told them I am going to convert the uh official business language of Raken from Japanese to English and what was the reaction in that room when you very quiet very quiet but it has totally changed uh the uh toy score of our employees improved almost 200 points uh for the last two years what score sorry it's like a uh English test uh you know and uh most of of the staff can manage to communicate in English they're not afraid of you know going abroad to join into the international conference. Now we have so many uh people uh you know non-Japanese uh foreigners uh in our Tokyo office and uh now they started to benchmark uh international uh players instead of domestic players. So totally changed. That's great. One last question. Um we were talking backstage uh and the last time that Paul and Mickey met was uh 16 or 17 years ago when Paul was working on via web. Um, so Paul loves to ask people at these uh what was so and so like the first time you met them. So finally we get to ask what Paul Graham was like the first time you met him. So it's it's written in the Harvard Business School case. So I initially I when after I left my bank, I started sort of a you know uh business consulting firm and I was looking for something new to do and you know came up with the internet shopping um idea and one of my u classmate at Harvard's business school called me uh Mickey you need to look at this company it's called bio web and it's my friend's company so I went to bowe.com and took a look at it I really liked it uh next day I bought a air economy class airplane ticket and flew over to Boston and I went visit Paul and it was five people company and we kind of agreed that we're going to do things together uh and but the last minute uh you know Paul was supposed to come over to uh Japan but at the airport he found out his passport is expired so he couldn't come and somehow the deal didn't go through so But uh I feel that was a really uh the first moment I uh felt uh I met the uh the truly strong uh entrepreneur and I feel the excitement and the energy uh in Paul and in his team. That is great not to end on. Thank you very much. Thank you.