The catalyst (finally!) pulling industrial Japan into the digital age

Japanese business loves paper.

From fax machines, to business cards, to massive project binders. Paper processes are slow to die in Japan, especially in industrial facilities.

Today we talk with Jumpei Yoshida of Kaminashi who explains why that's finally changing and how foreign workers are driving the transformation.

It's a great conversation, and I think you'll enjoy it.

Listen to the Podcast

Transcript

Japan is unquestionably one of the most advanced nations in the world, and yet corporate Japan's love of paper processes and its resistance to going digital has become kind of a running joke even within Japan.

At the more traditional industries all over Japan, at corporate headquarters, regional offices and frontline facilities you'll still see people rushing about carrying thick three ring binders to prove to the rest of the office that they are busy and productive. It seems some things never change.

So, why?

Explaining this kind of thing is a cultural difference is a cop out. It doesn't actually explain anything. It ignores potentially valuable business opportunities. And more important, it overlooks the startups that are finally beginning to change things.

And so today we sit down with Jumpei Yoshida of Kaminashi - a name that literally means paperless - and he explains how Kaminashi is pulling factories, food processing, and other critical industrial processes into the digital age.

We talk frankly about why it's taken Japan so long to begin this transition and the recent trigger that has really kicked open the market. Jumpei also shares some great advice about how to sell innovation to conservative Japanese companies, the importance of foreign workforce to Japan's future prosperity and what to expect if you're a startup selling to SMBs in Japan.

But, you know, Jumpei tells that story much better than I can. So let's get right to the interview.

Interview

Tim: So, I'm sitting here with Jumpei Yoshida, the CFO of Kaminashi, who's digitizing frontline and field service work. So, thanks for sitting down.

Jumpei: Thank you for inviting me.

Tim: It's a pleasure to have you on. Now I gave a really high level explanation of what Kaminashi does, but I think you can explain it much better than I can.

Jumpei: Sure. Kaminashi is a company focused on providing SaaS solutions to empower frontline workers. Our main offering include tools that digitize and streamline paper-based workflows.

Tim: What is the primary focus? Is it mostly just checklists? Is it inspection comments, like approval, workflow? What kind of things does it cover?

Jumpei: The application itself is checklist, but there are so many variety of usage.

Tim: And what about the hardware runs on, is it iOS, Android, is it onsite terminals?

Jumpei: Initially it was only for iOS and iPad, but now our products can use any devices like Windows or Android. Now it's on the web-based software.

Tim: Now a bit later I want to get into more detail about the business model and the value you're providing beyond just the checklists. But tell me about your customers.

Jumpei: Regarding our flagship product Kaminashi report, it serves companies with large scale frontline operations across more than 30 industries. But we have a strong presence in food related industries like food manufacturers, restaurants, retail stores, and hotels where quality management is critical. So, they are using our checklist app for quality control of their food.

Tim: And actually Kaminashi is not a new company. Started back in 2016, but the current version of the products, the current incarnation was only launched in June of 2020. Early on it was very much focused on the food industry.

Jumpei: Yes, you were right.

Tim: What happened during those four years and why was the decision made to change things?

Jumpei: So, I've heard from our founders, like initially he was focusing on the food industry. The initial product was not only software, but they also have device. So just before we launched Kaminashi report, our product was mainly focusing on the quality management for food industry. But the quality management business is so small so he decided to expand their business into other area. That's the reason why we are still good presence in the core team management in the food industry.

Tim: Okay. Well, I mean, no that makes total sense of why that forms the core of the new business. So, kind of the lessons learned were you decided to move away from hardware and be pure software and to broaden the customer base beyond just food services and quality control.

Jumpei: Yes, that's right.

Tim: Just to get a sense of the potential user base. As I understand about 60% of Japan's workforce would be classified as frontline or blue collar work. So, that's a pretty big addressable market.

Jumpei: It is. It's about like 39 million people. But now most of our clients are in the food industry because in the food industry, quality control is crucial. But in other industries who has frontline operations, sometimes they don't have to have the application for core team management because paper is enough. Maybe Excel spreadsheet is enough for some industries. But now we have a lot more new products focusing on other operation in the front lines. For example, our facility maintenance product, the demand for the facility maintenance product is huge in the manufacturing industry.

Tim: Both Japan's food industries and its manufacturing industry has companies that range from the huge multinational brands that everyone knows down to lots and lots of four or five person companies who are supporting the supply chain. What's your ideal customer size?

Jumpei: Our clients are pretty much diverse. We have really large enterprises and also we have very small SMB clients, like 20 employees or something like that. So, we have both. We are welcome both clients but thinking about our revenue size, the larger clients pays a lot more than smaller ones. And also they have a lot of sites so that they can expand the usage of our products in many other locations.

Tim: Well, let's dig down a bit into the business model and the value proposition. So, obviously Kaminashi reports is more than just digital tech list, it's more than just Google Forms. So, what is the real value add for both Kaminashi reports and this kind of DX in general?

Jumpei: Kaminashi report, it's a basically simple checklist app. Before using combination report, our clients will use paper checklist or Excel spreadsheet. But if they write in a paper checklist, sometimes they write wrong things and sometimes they don't write. So, they have certification like ISO or they get audited by their suppliers. We have many clients in the supplier of 711, almost 90% of 711 food suppliers are our clients. So, 711 goes to their suppliers factory and check everything goes well. So, in a digital checklist app, if they write a wrong thing, then they can get allowed so they can write a right answer.

Tim: Are you considering doing kind of a supply chain integration where different parts of the supply chain, the quality assurance information that gets put into Kaminashi gets rolled up to the purchasers?

Jumpei: No, the quality management operation is pretty much independent from other operation in the factory. It's not related to supply chain of our clients, but the auditors sometime prefer to use Kaminashi if they go to their suppliers factory. So, sometime they decide to use our product and they ask their suppliers to use our products.

Tim: That makes a lot of sense. So, do you also support integrated workflows and approval processes as well as the data entry?

Jumpei: Yes. So the approval process is integrated in the checklist app. Before introducing our products, they need to check all the papers, but now they can do the approval from any other sites via internet. So that's a lot easier.

Tim: Right. Startups selling digital transformation tools, especially in Japan, it's a great business, but blue collar work, blue collar processes has always been hard. This is something that startups have been trying to do for the last 25 years in Japan. So why hasn't this problem been solved already? What makes it so hard?

Jumpei: That’s a good question. One of the biggest challenge we've seen is through adoption of IT frontline operations. A lot of companies are still using PayPal and Excel spreadsheet and yeah, there is often resistance of switching to digital tools.

Tim: Why do you think that resistance is there because the basic tools have been around for 20 years?

Jumpei: In many ways paper is an excellent UI, it's easy to use.

Tim: I mean, I've got my notes right here on paper, right? Yeah, that's true.

Jumpei: So, it's intuitive and physically visible, which makes it really simple to understand. Excel too has become so widespread and familiar for many people. So, these factors make traditional methods hard to replace. There is also a cultural element to this, like Japanese workers often seen as change adverse, maybe. And with an aging workforce, that perception can feel even stronger. I think an even bigger factor is the low job turnover rate in Japan. In places like the US higher turnover means employees bring tools from their old job to new job. So, that helping the spread of innovation. But the Japanese people don't change their job that much.

Tim: Well, I guess that would also mean that training costs are lower, right? Because if you can train a worker and they're going to be with you for 15 years, it doesn't matter that much if it's a complicated process because once that person knows how to do it, they're just going to keep doing it.

Jumpei: They don't have to think about the new things. They don't have to learn about the new things.

Tim: And they won't have this steady stream of new workers coming in. So, what's changing now? Why is this a good business now?

Jumpei: Yeah, that's starting to change a lot. Job turnover in Japan is increasing even our clients, there are some our clients who change their job, then they introduce our product to their new employers. So that's a good news. On top of that, the labor shortage in Japan is making it harder for companies to rely on traditional methods. They are now realizing it's no longer sustainable. And this is driving a safe toward adopting digital tools like ours.

Tim: Along with the labor shortage. I know that over the last 15 years or so, there's been this steady increase of non-Japanese workers. Of temporary workers working in these blue collar jobs. Has that also affected your sales cycle?

Jumpei: Yes. As you may know, traditionally Japan is famous for operational excellence like Kaizen or Toyota production system. But those things are really dependent on the Japanese business culture. Most of the employees are full-time Japanese employees who shared common cultural and educational background. This made it a lot easier to implement these improvements like Kaizen Links effectively. But now as you mentioned, we have so many foreign workers and temporary staff, like only one day workers we have. So of course they don't share same background or context, which makes it necessary to standardize even the most basic tasks.

Tim: There's going to be a lot of foreign workers that Japanese is not their first language, and especially I can imagine filling out written, I mean, I've been here 30 years and written Japanese is still challenging sometimes. So, does the language ability also play into this?

Jumpei: Yeah, language ability is also obstacle for many foreign employees, but our products are providing multilingual function so that they can write in their own language. Then it will automatically translate it in Japanese so that the Japanese managers can check.

Tim: Okay. So, a Thai worker would be seeing the checklist points in Thai.

Jumpei: They can read question in Thai, then they can just check.

Tim: Oh, okay, well I could see that really driving adoption right now the amount of foreign workers in Japan really is.

Jumpei: And also our newer product Kaminashi employee, it's a basically communication application for managers, general affair people, and foreign workers communication tool. They can chat, they can announce, and also they can exchange data like payslip, PDF. The good thing is that those communication will be automatically translated to their own language. So, it's a lot easier to communicate with foreign workers. So, sometimes our clients have employees who came from more than 10 different countries.

Tim: So, traditionally selling into manufacturing logistics, these kind of industries tend to be very low margin and very difficult to get them to adopt new technology. So, is there a single driver for them to make this investment? Is it the foreign workforce? Is it the labor shortage? Is it just a combination of things that's making these companies buy now where they've just been putting it off for the last 20 years?

Jumpei: Everything is related. The reason why they have many more foreign workers are labor shortage. They need to employ foreign workers because they don't have enough Japanese workers. So, I think the labor shortage is probably the single biggest reason why Japanese companies now try to digitize their operations in frontline.

Tim: So things have just finally gotten painful enough that they're…

Jumpei: That's right. Yeah. I think, yeah,

Tim: That's usually what it takes to get change to happen. So, what's the biggest challenge they have once they decide to adopt this? Is it training? Is it re-engineering workflows?

Jumpei: Most of our products doesn't require change in their operation, so they don't have to change their business operation. But for example, one of our user of our product, one 70 years old, who doesn't have smartphone, who doesn't have iPad, so we need to explain how to use iPad. Then we can explain how to use our products. So yes, those training things is their biggest hurdle for our clients.

Tim: So it really is just that the rest of the operations are very, very analog and this is like one of the very first digital steps they're making.

Jumpei: Sometimes our clients says, Kaminashi is a fast digital product. We introduced to our factory or because we…

Tim: It's almost 20, 25. Next week we're in 2025.

Jumpei: The other clients says, because we want to use Kaminashi, then we purchased iPad, things like that. Of course, they have some kind of ELP system for manufacturing process, but not for other ancillary operations.

Tim: So, do you or maybe your customers have to invest a lot in training?

Jumpei: Yes, but we offer very generous onboarding program. It's almost like one year program. The first three or four months, very intensive introducing process. Our customer success people have many meetings with our client after that, more than half year onboarding program that we guide our clients. What is the goal of this project? Then what milestone they need to have. Then every month we have meeting with our clients, then check the milestone is going well, or something like that.

Tim: So this is fascinating in a number of ways, but fundamentally, how can you scale a SaaS startup like Kaminashi when you're targeting very low margin industries and very low margin industries that require a lot of support and a lot of training and a lot of consulting and a lot of these expensive things that don't scale? How do the economics work?

Jumpei: So once our customers adopt our solutions, they tend to stick with us. So churn is very low and many customers expand usage to additional sites, which makes growth within existing accounts much more predictable and efficient. And also in the last six months, we launched three more products and then out all our existing customers decided to use. So cross selling is also a very good strategy for us.

Tim: Okay. I guess that makes sense. So even though the initial customer acquisition costs are extremely high, Kaminashi is sort of the first vendor that's helping them digitize. So the lifetime value of each customer can be extremely high, even though the industry margins themselves are very low.

Jumpei: Yeah, that's right. And also the market itself is largely untapped. So, there is also a lot of room for digital transformation in frontline operations.

Tim: Okay, that makes a lot of sense. So tell me a bit about your sales cycle and go to market. How do you reach your customers if your customers are just now digitizing or just buying iPads now so they can use your product? How do you reach them?

Jumpei: Most leads are coming from exhibitions in Japan, there are so many different types of exhibitions, like exhibition for food industry, exhibition for food digital transformation, exhibition for manufacturing old parts or something like that. So we go to that exhibition, then that's a lot easier to reach them.

Tim: Japanese trade shows are one of the things I recommend to all foreign startups who are trying to come into Japan. It's just unbelievably advantageous. So, once you generate leads from a trade show. What's the sales cycle like? There must be a lot of education involved. Are there seminars? Is it just lots and lots of customer meetings?

Jumpei: Sales cycle is a bit longer than the products for desk workers. For SMBs and mid-market clients, it's about two to three month. Tim

Tim: That’s not too bad.

Jumpei: Maybe the meeting is third time try or fourth time try. So the first time we met them could be like two or three years ago. Then we wait until they decide to digitize their operation. Once they decide to digitize their operation, two to three months for SMBs and mid-market and six months on the average for enterprise companies.

Tim: Even the Kaminashi website, I think it's fascinating in that it has a very Japanese sensibility. It really shows the difference between enterprise sales or corporate sales in Japan versus the west. So, the Kaminashi site has an incredible amount of information. Every single step of the process is explained in in huge detail. But most western SaaS companies, the objective is to provide just enough information to get someone to contact a salesperson and then have the salesperson drive it.

Jumpei: Maybe cultural thing that Japanese people are more conservative to change so that they want to be comfortable maybe. Do you have any…?

Tim: Yeah, I'm not sure. I've been selling software in Japan for a long time. The sales cycle is longer. Japanese enterprises tend to ask a lot more questions.

Jumpei: Yeah. That's true.

Tim: In a lot more detail. Yeah, I was wondering if that was just an attempt to answer some of these questions before those sales meetings.

Jumpei: Mm, yeah. True.

Tim: Do you have any advice for startups who are trying to sell to Japanese industry, particularly industrial or blue collar industries?

Jumpei: Wow. I think that's the worst choice. I mean it's pretty much, as you mentioned, the customer acquisition cost is really, really high, but the churn rate is low. And also we can do cross selling. So good thing and bad thing. I think one thing I can say that you need to really understand your clients, especially in the frontline area. Each sites are very different. Even in one company, each sites are very different. Maybe each line in the factory is very different. So, at Kaminashi, one of our core value is what we call frontline driven. This means we focus on gathering firsthand insights directly from the front lines where our customer operates. To give you an idea of how seriously we take this, as a company we conduct over 3000 site visits every year. This means more than 30 visits per employee, including back office staff. So our customer facing employees maybe visit more than 100 time per year. So we visit a lot, then we get many insights from our clients. So, that's the reason why we are doing well.

Tim: That's a really good point. I think you're right, particularly amongst startups, there are very few developers who have that kind of firsthand experience with the problems they're actually trying to solve, whereas they're much more comfortable with an office environment.

Jumpei: Right. And most of the software developers are basically office workers, so they don't have any insights about the frontline. So actually our founder, Morioka-san was a frontline manager and he worked for the company five years. So, they know about the frontline, but most of our employees don't know about frontline by themselves. So, we often visit our client site.

Tim: So, does Kaminashi have plans for global expansion or is this software suite something that's really specific and unique to the Japanese market?

Jumpei: Now we are almost entirely focused on Japan. However, many of our customers are expanding internationally and they have told us they'd like to use our solutions overseas. To support this we are researching local regulations and repairing to roll out our products in more countries. But our current focus is expanding our business in Japan.

Tim: So, the global expansion plan, the first steps would be just following the company's supply chain overseas or companies who have factories overseas?

Jumpei: Yes. Basically companies who has factories overseas or restaurants who has restaurants in overseas.

Tim: So, then it would most likely be to Vietnam via China and Indonesia.

Jumpei: Thai.

Tim: Thailand. The major supply chain. Excellent. So, looking more distantly into the future. So replacing paper with digital is good. It's great. Saves money. It's more efficient. But real innovation, real productivity gains come from reinventing the workflow. Not just swapping out paper for screens. So, do you have plans for things like integration with sensor data and maybe like robot AI enabled inspections? Are you thinking along those lines as well?

Jumpei: Yes. We actually have that kind of features in our Kaminashi machine report. So IOTA sensor that can sense the pH of water that sanitize the vegetables. So, every hour they need to check the pH and they use our Kaminashi report. But now we are providing IOTA sensor that can automatically measure the pH of the water integrated to chemistry report. That's makes our clients a lot easier to do the operation.

Tim: Yeah, it would seem to me, especially with the industry now just opening up to digitization and the fact that these are very old, very analog workflows. You're covering data approvals, evaluations, it seems like a really amazing opportunity.

Jumpei: In the frontline operations, as you mentioned, it's very untied. So most of the operations are did by hand and eyes. So both sensors and AI can help that make more efficient. So I think good combination with our SaaS products.

Tim: Well, how does remote work factor in? Does this open up the possibility for frontline remote work?

Jumpei: Yes, I think so. Yeah, that's a great question. So our clients approvals doesn't have to be there when they do approval, one of our client who is approval of the checklist, because of his job, he need to be on site because most of the checklists were paper and he has never go to visit trip. But after they introduced Kaminashi report, he can go to business trip. Then he was so happy about that.

Tim: I can imagine. Well, it really seems like an exciting opportunity long term to really re-engineer and rethink what these workflows are. So it'll be very exciting to watch how Kaminashi develops over the next few years.

Jumpei: Thank you very much.

Tim: Well, listen, Jumpei, thank you so much for sitting down with me. I really appreciate it.

Jumpei: Thank you very much.

Outtro

And we're back.

Everyone, both Japanese and foreign, are always surprised at the rapid pace of technology in some industries and the unbelievably slow pace of adoption in others in Japan. Jumpei's experience is perhaps the clearest explanation of why this is so, and what it really takes to get industry to embrace technological change.

Japanese industry will wholeheartedly and enthusiastically commit to a new technology immediately after they have exhausted every possible means of delay.

Once they start feeling enough pain — and in kaminashi's case, this has been the acute labor shortage and the influx of foreign workers that resulted from it — once the pain is strong enough, change can begin.

Both startups entering the Japanese market and those selling into underserved sectors can learn a lot from Kaminashi’s playbook. Customers are going to be extremely skeptical of your offering. You need to show that you understand their current processes and challenges.

You need to answer round, after round, after round of questions in excruciating detail. And you'll need to assure them that they can onboard at their own slow and steady pace.

Selling into this segment is hard. There are very few shortcuts, but those that can do it stand to make a great deal of money.

You know, foreign founders are particularly likely to make this mistake, but Japanese founders make it as well. They look at Japan and see a wide open market, one with no real competition to their offering.

Now why do you suppose that is? Has no one ever tried this before?

I mean, sure, that's possible. Somebody has to be first, it could be you.

Most often, however, there is a very real reason that market is unserved. It's often not a good reason, but it's a real one.

The Kaminashi story is also a great example of why the long Japanese sale cycle is not really a bad thing at all. But sure, I mean, it is long customer acquisition costs are very high in Japan, but that is balanced out with an almost mathematical equivalence by lower customer churn and higher lifetime value. I mean, think about it. It takes just as much work for a Japanese customer to decide to leave your product for competitors as it did for them to move to you in the first place.

If you deliver what you promise, your Japanese customers will be with you for a long time.

So, to succeed in these underserved markets, you'll need to build a lot of customer trust. So maybe follow Kaminashi's lead and tone down all that talk of disruption for now.

You'll still want to do it, of course. Just don't talk about those plans too loudly at first. Build relationships, generate trust, and when the time is right…

When disruption comes, it will be coming from inside the house.