What are the key differences between starting a company in Japan and Silicon Valley?

Japan lacks a robust venture capital ecosystem like Silicon Valley. While VCs exist, they are less involved in management, requiring entrepreneurs to bootstrap and focus on cash flow.

How did Rakuten achieve cash flow positivity so quickly?

Rakuten implemented a system where merchants paid six months in advance for access to the platform, ensuring the company was cash flow positive from its second month of operation.

What makes Rakuten's e-commerce model different from competitors like Amazon?

Rakuten focuses on facilitating communication between merchants and consumers, using technology to help small and medium-sized businesses thrive, rather than competing directly with retailers.

How does Rakuten approach acquisitions and integrate new companies?

Rakuten categorizes acquisitions into geographic expansion or ecosystem additions. They prioritize cultural fit, discussing mission, practice, and values extensively before finalizing a deal.

What are the core components of Rakuten's strong company culture?

Rakuten emphasizes a balance between innovation and operation, fostering a strong operational culture through shared practices and a quantitative, number-driven management framework.

Why did Rakuten decide to make English its official internal communication language?

To truly globalize its operations and foster a more open culture, Rakuten transitioned to English to facilitate better communication between its diverse, international workforce and share expertise more effectively.

What is Rakuten's strategy for the future of e-commerce?

Rakuten anticipates growth in digital content sales, increasing importance of logistics with automation, and the rise of mobile devices and social shopping as key drivers.

Key Moments

Hiroshi Mikitani at Startup School 2012

Y Combinator

Science & Technology6 min read26 min video

Oct 25, 2013|30,690 views|199|4

Y Combinator Rakuten Hiroshi Mikitani Startup School 2012 YC

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Key Moments

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TL;DR

Rakuten founder Hiroshi Mikitani discusses building an e-commerce giant in Japan, focusing on culture, customer service, and global expansion.

Key Insights

Rakuten prioritized cash flow positivity from inception by requiring merchants to pay subscription fees upfront, avoiding reliance on venture capital.

The company culture emphasizes innovation and strong operations, with a unique approach to facilitating communication between merchants and consumers.

Rakuten's growth strategy includes both organic expansion, building strong brands and loyalty programs, and strategic acquisitions for geographic reach and ecosystem enhancement.

Global expansion was facilitated by acquiring local e-commerce players and integrating them into Rakuten's model, while integrating acquired companies involves meticulously aligning vision, mission, and culture.

Rakuten's success hinges on a shop-centric marketplace model that empowers merchants and builds customer loyalty around individual brands, rather than solely the platform.

A significant cultural shift involved transitioning the internal communication language to English to foster a more globalized and transparent work environment.

FOUNDING RAKUTEN AND THE PATH TO PROFITABILITY

Hiroshi Mikitani founded Rakuten in 1997 with the vision of creating an internet shopping mall in Japan. Initially, he attempted a partnership that did not materialize, leading him to start the company with young graduate students and an initial capital of $200,000 USD. Notably, Rakuten never raised money from venture capitalists in its early stages. Mikitani implemented a unique cash flow system from the second month of operation, requiring merchants to pay subscription fees six months in advance. This strategy ensured the company was cash flow positive every month, a critical factor in its sustained growth without external funding until much later.

UNIQUE BUSINESS MODEL AND CULTURE

Rakuten differentiated itself from competitors like Amazon by focusing on facilitating transactions for small and medium-sized merchants rather than competing directly with them. The core philosophy was to act as a liaison, using technology to help businesses connect with consumers. This approach fostered a rich customer experience, emphasizing that online shopping should be fun. Mikitani instilled a strong company culture from the outset, prioritizing the long-term vision over rapid, potentially unsustainable growth. This patient approach allowed them to refine their business model effectively.

GROWTH STRATEGIES: ORGANIC AND ACQUISITIONS

Rakuten's growth has been driven by a dual strategy of organic development and strategic acquisitions. Domestically, they built a strong brand presence through ventures like a professional baseball team (Rakuten Eagles) and hosting major tennis tournaments. A key element of organic growth is their powerful mileage reward program, 'Super Points,' which encourages cross-selling and fosters a vast consumer database. Internationally, Rakuten has expanded by acquiring established e-commerce companies in various countries, integrating their brands and market presence into the Rakuten ecosystem.

STRATEGIC ACQUISITIONS AND INTEGRATION

Mikitani categorizes acquisitions into two types: geographic expansion and ecosystem enhancement. For geographic expansion, they acquire existing players like Buy.com in the US or PriceMinister in France, converting their businesses to the Rakuten model. For ecosystem enhancement, they acquire companies that fill strategic gaps, such as e-reader company Kobo, crucial for their digital book service. Before any acquisition, Rakuten meticulously discusses its dream, goals, and culture with the target company to ensure alignment, as cultural fit is paramount for successful integration and retaining key talent.

FOSTERING INNOVATION AND OPERATIONAL EXCELLENCE

Rakuten's culture is built on balancing innovation with operational excellence. While encouraging creativity is essential, scaling requires a robust operational framework. Mikitani emphasizes the importance of being quantitatively analytical, using numbers and KPIs for management, even though entrepreneurs may initially shy away from them. This dual focus allows the company to adapt and grow effectively in a dynamic market, ensuring both new ideas and efficient execution.

MOBILE'S SURGE AND FUTURE OF E-COMMERCE

The rise of mobile devices is a significant driver in e-commerce, with Rakuten already seeing 25% of its transactions coming from mobile, a figure rapidly increasing. Smartphones are projected to dominate transactions within a few years. Mikitani views e-commerce as still being in its early stages, anticipating further digitization of content sales, increased importance of logistics, and the evolution of social shopping. He believes that innovative logistics solutions and mobile-first strategies will shape the future retail landscape.

DEALING WITH COMPETITION AND FOCUSING ON CORE VALUES

Mikitani advises against fearing competitors, suggesting instead to learn from them. Rakuten's philosophical difference from companies like Amazon lies in its commitment to empowering small and medium-sized merchants. This focus on service and facilitation, rather than direct competition with retailers, has allowed Rakuten to build strong relationships with major brands and a loyal customer base. The key is to stay focused on improving services and customer satisfaction, rather than obsessing over rivals. This approach has been fundamental to their sustained success.

GLOBALIZING RECRUITMENT AND THE ENGLISH LANGUAGE INITIATIVE

Initially, hiring young talent was crucial for maintaining Rakuten's original corporate culture. As the company matured, experienced professionals were also brought in. A bold move was the decision to convert the internal communication language from Japanese to English. This initiative aimed to create a more open, globalized culture, facilitating knowledge sharing across different business units and locations. It has led to increased international recruitment and a broader perspective among employees, enabling them to benchmark against global players.

THE POWER OF HORIZONTAL EXPERTISE SHARING

Rakuten champions 'yokotan,' a concept of horizontal expertise transfer, which is common in Japanese companies. This involves openly sharing information and knowledge across departments, fostering synergy between different business areas like e-commerce and banking. Mikitani found that this internal sharing was hampered by language barriers. By making English the official business language, he aimed to break down these silos globally, allowing for seamless communication and a more integrated approach to international business development and strategy.

INVESTING IN PINTEREST AND FUTURE RETAIL TRENDS

Rakuten's investment in Pinterest is driven by its unique visual appeal and its strong influence on consumer buying behavior, making it an ideal social network for an e-commerce company. Mikitani foresees significant shifts in retail, including the complete digitization of media sales, the growing importance of advanced logistics, and the eventual emergence of effective social shopping platforms. The proliferation of mobile devices as primary purchasing tools underscores the need for continuous adaptation and innovation in the e-commerce space.

THE SHOP-CENTRIC MARKETPLACE PHILOSOPHY

Rakuten's marketplace is fundamentally 'shop-centric,' meaning it empowers individual merchants to showcase their unique character, design, and user experience. The platform provides tools for shops to build their own fan base. This approach encourages consumers to seek advice from professional shop staff, akin to seeking recommendations from experts in specialized stores, rather than solely relying on the platform itself. This philosophy differentiates Rakuten by fostering loyalty around the merchants and their offerings, creating a richer, more personalized shopping environment.

EARLY ENCOUNTERS AND ENTREPRENEURIAL SPIRIT

Mikitani reflects on his initial meeting with Paul Graham, founder of Viaweb, as a pivotal moment. After exploring internet shopping ideas, a Harvard Business School classmate introduced him to Graham's company. Mikitani was so impressed that he immediately flew to visit Graham's five-person startup. Although a planned collaboration didn't materialize due to logistical issues, the experience left him with a strong impression of Graham's entrepreneurial energy and vision, hinting at the defining characteristic of successful founders he would come to recognize.

Mentioned in This Episode

●Products

●Companies

●Organizations

●People Referenced

Common Questions

Hiroshi Mikitani founded Rakuten in 1997 with the initial concept of creating an internet shopping mall in Japan, starting with a small initial capital and growing organically.

Topics

Business & Entrepreneurship Technology & Innovation Career & Skills Startup Strategy E-commerce Growth Company Culture International Business Venture Capital Hiring Practices Digital Transformation

Mentioned in this video

People

Paul Graham

Co-founder of Y Combinator, whom Hiroshi Mikitani initially tried to partner with for an internet shopping mall concept in Japan.

Ben Silbermann

Co-founder of Pinterest, with whom Hiroshi Mikitani had a positive meeting that led to Rakuten's investment.

Masayoshi Son

Executive at SoftBank who contacted Hiroshi Mikitani about investing in Rakuten before its IPO.

Companies

Play.com

An acquired company in the UK used for geographic expansion, whose business model was converted to Rakuten's model.

Kobo

An e-reader company acquired by Rakuten, strengthening their digital book service and leveraging Rakuten's membership for growth.

Rakuten

A Japanese e-commerce, online retail, and digital company founded in 1997, which has become number one in e-commerce and online travel in Japan, with businesses in banking, brokerage, and e-readers, and is actively globalizing.

SoftBank

A company whose executive, Masayoshi Son, considered investing in Rakuten shortly before its IPO.

Y Combinator

Accelebrator mentioned in the context of Paul Graham's work and Silicon Valley's entrepreneurial ecosystem.

Baidu

The largest search engine company in China, with whom Rakuten partnered for a venture that did not work out well and was eventually shut down.

eBay

A major e-commerce competitor whose business model Rakuten did not initially copy, focusing instead on supporting small to medium-sized merchants.

PriceMinister

An acquired company in France used for geographic expansion, whose business model was converted to Rakuten's model.

A social network company in which Rakuten invested, noted for its graphical nature, appeal to interests, and influence on buying behavior, making it ideal for an e-commerce company.

buy.com

An acquired company in the US used for geographic expansion, whose business model was converted to Rakuten's model.

Products

Super Points

Rakuten's mileage reward program, used for cross-selling services and building a strong consumer database.

Organizations

Rakuten Eagles

A professional baseball team owned by Rakuten, contributing to the company's strong brand recognition in Japan.