How To Start A Business In Japan

People start businesses all around the world for a multitude of reasons, and entrepreneurs in Japan are certainly no different. Perhaps they have had enough of the monotony of going in and out of the office each day just to receive a monthly paycheck. In this regard, Japan certainly has no shortage of salarymen and salarywomen, both foreign and domestic, who have found this dreary exercise has taken them to their limits. Setting off on their own is a way to break through the dreariness of following the boss’s orders day in and day out, while also having the potential to spend more time with their family. Some aspiring business owners have, while still in their job that they enjoy, instead come up with a unique idea that could revolutionize their specific market. Others may desire to engage in building an empire to amass significant wealth or influence, which they can also pass down to their family, or perhaps a combination of all of these things in different measure. One thing is certain: starting a business, especially in a foreign country, is not for the faint of heart.

The first step, as to be expected, is to develop your business plan. Everyone has a good idea, but these days a good idea is not worth much, if anything. The market has a vast surplus of good ideas, and as such does not monetarily reward those who come up with one. The market rewards execution of a good idea.  In other words, the market rewards a robust and adaptive business that houses the idea. From an engineer’s perspective, sure the widget you make is important, but the box that goes around the widget is equally, if not more, important. You will need to come up with answers to at the very least the following questions:

-What exactly is it that I’m selling?

-Who is buying it?

-Why are they buying it? What value does it give them?

-How do they buy it?

-How much is a reasonable price whereby they are happy and your costs are covered?

-How do they learn about this product or service?

-How much will it cost to set up the business?

-What are the costs of manufacturing the product or providing the service on a per-unit basis?

-What are the fixed monthly costs of running the business? (think salaries, benefits, rent, utilities,  advertising, administrative, etc.)

-How long will it take before you generate enough regular sales to cover all costs?

-Who are your competitors and how would they attempt to take you out? (ie. do you have a patent or a unique brand or other form of intellectual property? Or could they simply copy you? Could they outspend you on advertising? Etc…)

 

 

The good news, at least regarding the last question, is that for most entrepreneurs it will not necessarily be the David and Goliath story that it seems to be, and you likely do not need to fear a mega corporation being a brutal and intimidating opponent. More likely than not, in the beginning you are not large enough to be worth their time, and as such they do not consider you a competitor. This is one of the few unique advantages you will have as an entrepreneur. This does not however mean things will be easy. Whoever you believe will be your customer, many will turn out to never buy. Whatever you believe to be your startup and operating costs, double them. Then double them again.

After piecing together your business plan and mapping out your projected revenues and expenses, the next move is to take the big plunge. Few small businesses are able to achieve the necessary momentum so long as they remain a part time hobby. Sure, the garage is a great place to incubate an idea, but you will be hard pressed to find real success without putting real skin in the game. This usually involves quitting your day job to focus entirely on the business. From here it is necessary to also decide how to structure the business and how to set up your company in Japan. For example, will it be a kojin jigyo (sole proprietorship), godo gaisha (similar to the LLC, or limited liability company), or a kabushiki gaisha (similar to an S-Corporation)? This will also be a primary component to the other barrier to entry in getting a business off the ground: financing. A good rule of thumb is to have 1 to 2 years operating expenses up front in order to start a business (in other words, if a business model is going to be successful, it would need to be profitable or have considerable momentum within 1 to 2 years). The good news is that these days many ideas do not require heavy manufacturing or upfront costs. Accordingly, most of the expenses will come from your and any staff’s salary, and any monthly operating costs. If you determine these startup and operating costs to be on the lower end of the spectrum ($50,000 to $100,000), you would likely need to rely on your own savings or loans from friends and family; as it would be costly and difficult to solicit outside investment for a small and high-risk venture. For larger business ideas, with a compelling enough business plan and perhaps some financial collateral to provide, you may be able to get a small business loan from a bank, assistance from a chamber of commerce, or other governmental small business association. In addition, if your business in Japan happens to deal with international trade, you may be able to receive various kinds of assistance from JETRO (Japan External Trade Organization). Most, if not all, will want to see that you have skin in the game, so do not expect to be able to start a business without considerable personal savings to put on the line.

After having operated your business successfully for a number of years, the next decision is: what do I do with it? Some owners like to continue to expand their empire, growing their market share or product offering. Others prefer to further entrench themselves in whatever their niche happens to be, reinforcing their brand and as such their profitability and sustainability. At times, taking your business to the next level in terms of growth would require a substantial influx of cash investment. While this would be nearly impossible to solicit from day one, now that you have proven your idea successful and profitable for a number of years, you could have a compelling story to bring to a venture capital or angel investor firm to invest in your business. A similar option would be to sell your business either partially or entirely, also referred to as an exit. This could be done as a step towards retirement, or simply a way to cash out from your business and move on to the next challenge. Either way, an experienced financial advisorbusiness broker in Japan, or M&A professional would be instrumental in structuring and negotiating a favorable deal with any potential buyers of your business.

Although being your own boss certainly is liberating, this freedom does not come without its price. You will get to set your own schedule and be your own boss, but it will be up to you to figure out what set of actions and routines will be necessary to create and sustain a successful business that can sufficiently provide for yourself and your family. While small business owners experience failure on a weekly or sometimes daily basis, if you have the perseverance to see yourself through with determined attempts to make the appropriate sacrifices, eventually these periodic failures will begin to turn into victories, and you could find yourself at the head of successful business.

 

[ Sources ]

– Baumol, William J. “Entrepreneurship: Productive, unproductive, and destructive.” Journal of political economy 98.5, Part 1 (1990): 893-921

– Lewis, Virginia L. and Churchill, Neil C., The Five Stages of Small Business Growth (1983). Harvard Business Review, Vol. 61, Issue 3

– Carland, James W., et al. “Differentiating entrepreneurs from small business owners: A conceptualization.” Academy of management review 9.2 (1984): 354-359.

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How To Start A Business In Japan
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How To Start A Business In Japan
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Tips to get your new business off the ground in Japan
Tyton Capital Advisors
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