Entrepreneur Association of Tokyo
"Last Mover Advantage – Look, Listen and Learn Your Way to Success"

On October 2 at the Foreign Correspondents Club of Japan, Kei spoke to EA members about Venture Republic’s late but hugely successful entry into the ecommerce market and the last mover strategy that was key to that success.

The Real Situation in 2000/2001
In 2000, there were already a lot of players in the market, especially in the US; companies that included DealTime.com, mySimon.com and CNET.com. In Japan, the market was also getting crowded, with companies like Kakaku.com, Libra.ne.jp, WAAG, Soon after, DealTime, the largest player in States and perhaps in the world, entered into the Japanese market and all muscling in on the act and commanding market share. Looking around, Kei noticed, however, that while there were plenty of companies around trying to exploit the market, the market was not yet there to be exploited
 
*There was no broadband
*There was no fixed-rate Internet access
*Almost nobody was shopping online in Japan
*Looking at the US, the market was about to collapse
*Listening to clients, most potential clients were not ready to pay to be compared
*Financing was getting tough
 
What did Kei learn? The answer was that “ecommerce was not there for everyone yet.”
 
The Last Mover Strategy
After studying the competition and the state of the market both in Japan and the US, Kei and his partners came up with a strategy for entering the market. That strategy, the last mover strategy, can be summarised as follows.
 
Finance Big, Start Small
 
Raise as much capital as possible
- In Venture Republic’s case, $4 million from two investors
 
Keep burn rate as low as possible
- Not a penny for ads, but PR
- Minimum headcount with minimum budget. ‘Guerrilla Hiring’?
 
Focus, Focus, Focus
 
Business Development
- Not to worry on cash at bank
 
Limited products
- Started with nothing but PCs, wait for REAL ecommerce
 
Users
- Users are king. Enhance their experience.
 
The Result
Looking at the fate of the competition Venture Republic faced when entering the market in 2001 shows how well Kei and his partners have fared on the back of the last mover strategy.
 
Libra.ne.jp and WAAG were bought by Rakuten and CNET respectively, both for small fees DealTime, after spending $10 million (including $4 million on advertising) in just one year and three months in Japan, left the market, while Rakuten and CNET both decided to turn their attention elsewhere and focus on their core businesses as they shut down Libra.ne.jp and WAAG. This left Venture Republic, the latecomers, to march in to successfully fill the void.
 
Q&A
 
John Chambers, Wood Consulting Group:
“I understand your model and the logic of it, but it is a luxury that most people don’t have – having that much money before a market even exists. How did you get somebody to give you money before there was a market? Was it people that just knew you and were investing in you? Or was it people with just a lot of money to burn and really did see the idea down the road?”
 
Kei: Good question. First, when we were about to raise the money the Internet market was still there, so a lot of companies actually were still able to raise money with only a business plan, but the window was about to be shut. I always describe this situation as where you just slip in. That’s one thing – it’s a timing issue. Two, I was lucky to have major investors who were my former employer, so they trusted me and understood me.
 
 
Dan Stakoe, Entry Japan:
”How do you make money?”
 
Kei: We generate revenues from merchants in the form of advertisement. Let’s say you click on our websites to go to Yodobashi Camera’s website, we get money out of a single click or, if you buy through us from Yodobashi Camera, Yodobashi pays us based on the amount of the transaction. This is what’s called affiliate commission in our business.
 
Andrew Larson, Innosoft Japan
“One of the biggest challenges I think any start up B-to-C ecommerce firm faces is trying to drive traffic to the site initially. You mentioned that you didn’t spend any money on advertising but did a lot of PR, I’m wondering how in the face of your competition you were able to achieve the kind of traffic you needed to sustain your business, and I’m wondering if at some point during that growth in traffic you saw a kind of tipping point where your traffic just increased dramatically”
 
Kei: That’s a good question. Going back to my original slide, focus on the users. Unless you have a really great service you will never be able to get to that point first of all. Two, having that kind of great service, you need to think about the search engines. Are you guys familiar with search engine optimization (SEO)? SEO is probably by far the most efficient way to drive a product especially for the start-ups. That’s my understanding.
 
 
Maarten Molenar, Mastermind
“I think a lot of discussion is about directing traffic to your site which is of course very important to become big as a site, but the money generated comes from the paying customers, your clients. Is it actually very difficult to get such people as clients or since they pay just a percentage of the sales is it very easy to get those clients? And the second question, what is more difficult, getting traffic or getting clients?”
 
Kei: I think getting traffic is the biggest challenge. That’s because there is huge competition around, especially in the world where there is an oversupplying situation, this is my observation…Let’s say twenty years ago or so, it was a completely different world. People were buying something but suppliers were not there, or maybe suppliers were there but with a lack of supplies. But now, you guys probably get whatever you want as consumers, so consumers are very well spoiled. In other words, if you are a merchant, the customers are king. If we hold a customer base, the merchants always come – they always come. Getting traffic, getting eyeball, is the most difficult challenge for us.
 
Paul Anders Schwamm
 “I just wanted to say it was a great presentation because, by the way, I launched a shopping database in 1999 in Japan called Bargainuse.net. It wasn’t big enough to be on Kei’s presentation, but I was the antithesis of his success in being the last mover as I had the first or second shopping site in Japan and it was too early. To think about it, because of my work I get business plans everyday, every week and I think about all the books in America and Wall Street Journal articles about ‘first mover advantage,’ but who was the first PC maker in America? Who was the first search engine? Who was the first ISP? None of them exist anymore or they are number nine or ten now. All the guys that are now number one in those categories were probably the fourth or fifth or tenth in the market, so I think it was a great presentation because I have lived through both sides of it - being too early on some services but then launching some almost a decade later that have been successful. The other thing is you made a point about getting your money. You were willing to give up some equity because you wanted to get money and get on with your business. I advise ventures on raising financing and I can’t tell you how many times I hear ‘oh, we want to hold out and keep more equity. We want to get a better valuation.’ If you have got a halfway decent valuation offered and there is money on the table, take it, because financing can dry up tomorrow.”
 
Kei: Good point. Thank you very much.
 
By Rob Goss, (robgoss@tokyofreelance.com / www.tokyofreelance.com)