REPORT

Large Enterprises Need to Jump on Startup Bandwagon andCreate Innovation
CEO and Founder of TomyK Ltd./Co-founder of ACCESS Co. Ltd.
Dr Tomy Kamada

Dr Tomy Kamada
CEO and Founder of TomyK Ltd./Co-founder of ACCESS Co. Ltd
Tomihisa Kamada gained his DSc degree from the Graduate School of Information Science and Technology, theUniversity of Tokyo. In 1984, whilst still studying, he co-founded the software startup ACCESS Co., Ltd. throughwhich he created the first mobile browser in the world and other innovative technologies in the field of mobileinternet. ACCESS was listed on the TSE’s Mothers market in 2001 and expanded its business globally. After leaving
ACCESS in 2011, Kamada founded a startup support company TomyK Ltd. through which he supported the startup
of robotic company SHAFT (acquired by Google) and is currently supporting many other technology startups in thefields such as IoT, robotics, AI, space, genomics, and medical care.

1.

The Dilemma Faced by the Large Enterprises

The “we wonʼt know until we try” argument does not hold water
There is no way of knowing whether a first-of-its-kind product or service will succeed without trying itout. However, this makes it difficult to produce a business plan, and any proposal for a business on asmall scale is likely to be rejected by senior management. In the eyes of the executives of a large
enterprise, if a business is not going to generate revenue of more than 10 billion yen, then there is no
point in pursuing it. However, even big waves that might turn into a major industry start with small
ripples. We have already experienced this on many occasions, with computers, the Internet, e-commerce,
cloud computing, and smartphones. Developing a new market involves risk.
Employees at large enterprises may well have felt frustrated sometimes when an idea developed at the
R&D stage ends up being scooped up by a rival company for commercialization. The transformation ofbusiness models into sharing or service-based models amid increased use of the Internet and smartphones
brings opportunities. However, large enterprises are no doubt often held back, worried that switchingbusiness models will destroy their existing businesses. The “innovation dilemma” prevents them fromtaking the plunge. This kind of situation is happening all over Japan.
Startups attach importance to speed
Conversely, startups are completely different from large enterprises. They can be described as the polar
opposite in many respects. The biggest difference is speed: “Just give it a try.” Startups start out with asmall team and quickly learn from their mistakes. They learn “on the go” and quickly improve theirproducts and services to meet customer needs. They know how to use open technology, use external
resources as much as possible, and put their energies into their core competence. They take full advantage

of social media and raise funds through crowdfunding; they pursue business with completely different
processes from the traditional large enterprises.
Figure 1: Differences between Startups and Large Enterprises

Startups

Large Enterprisesl Swift decisions
l Try & errorl Advanced technologiesl Learning “on the go”
l Open strategy
l Production outsourcing
l Internet-basedl Cautious, Consensus approvall Careful planningl Accumulated technologies
l Preliminary surveys, Qualityfocusedl Closed Innovationl Mass production lines
l Sales & distribution network

Implementation of high-risk projects
To address new issues, creating innovations and founding new businesses are important themes for all
enterprises, including large enterprises. It has become easier to found a startup, and I suspect that large
enterprises can also take advantage of this. With the shorter lifecycle of products, senior executives atlarge enterprises must also be wanting to create innovations in a way that is different from before inpreparation for an age of tumultuous change and uncertainty. Let’s think if it is possible for employees atlarge enterprises to create innovations in the manner of startups, in other words, to internalize theadvantages of startups such as speed, flexibility, and open strategy. There would be nothing for
researchers and engineers at large enterprises to complain about if they could quickly implement entire
projects, from the development of new products to their market launch, within the large enterprises thathave everything they need.
Then, what can they do to make this happen? If a large enterprise examines a new business within theorganizations optimized for its existing businesses, in many cases, the new business will turn out to be too
small to get approval. The pursuit of efficiency within the existing organizations takes all the fun out ofthe process, making employees reluctant to come up with new ideas. From the outset, a large enterprisewill not allow its core business that generates its current earnings to fail. High-risk projects do not fit
easily into the existing business models and the existing decision-making processes of a large enterprise.
Surely, as for such high-risk projects like “We won’t know till we try,” it would be better if large
enterprises created a framework of investment commensurate with the risk.
When the probability of success is two or three projects out of 10, with one project hopefully growing
into a major business, large enterprises cannot afford to make a large scale investment in a single projectin the early stage. Large enterprises also have high running costs and are also presumably unable to assign
a whole department to a project as they do in their existing businesses. In such a case, it would be betterto pursue the business as a special project, completely separating it from the existing process.

2.

Large Enterprises Jumping on the Startup Bandwagon

Large enterprises create their own special startup zones
Perhaps, the fastest way is to create a “special zone” in large enterprises with their own special rules. It
takes time to change existing rules and procedures, and when it comes to applying new rules to all theiroperations, large enterprises have no choice but to be very cautious about it. Instead, they should create
their own special startup zone to enable the projects to be implemented subject to the approval of senior
management. An enthusiastic small but highly skilled team assumes total responsibility for implementing
the project within an approved budget. It does not matter if the budget is not very big. The team members
can also take charge of raising funds themselves by using crowdfunding or acquiring customers upfront.
And there is no ringi consensus approval. It is important that this team is authorized to make all thedecisions. Indeed, this is a project implementation in the manner of a startup with an emphasis on speed.
Cutting-edge innovations will never be born through the reconciliation of differing reviews within a largeorganization.
Figure 2: Large Enterprises Create Their Own Special Startup Zones

Large enterprise

Product
development

Mass
production(Provision of
production lines)

Distribution
AdvertisingchannelFailure –not an option

Proper business plan – essential

Existing process (Optimized for existing businesses)

Special zone
Enterprise’s own
startup teaml Acceleration inenterprise’s own
special zone

Everything left to small teamComplete authority over project within budget constraints
Speed-focused
Active utilization of outside resources

StartupSocial media
Crowdfunding

Online sales
Partnering withother enterprises

20% “batting average” is a
success

In a special zone within a large enterprise, teams can prioritize speed and actively use outside services
and partners to implement projects. Startups make as much use as possible of the latest convenient cloudservices (for file sharing, chat, video conferencing, development tools, communication and so on). Large
enterprises are often unable to use these tools and services straight away as they are unable to determine
the risks involved. To facilitate business smoothly with startups, in special zones, it may be better tomanage their security separately from that of the parent organization and use different domains and email
addresses, which allow the teams to freely use cloud services for the project. This enables risks to belimited to the special zone. Large enterprises need to be careful because as soon as they decide to
examine a project seriously, they end up racking up costs for examination rather than investment in the
project itself. As stated above, many projects fail. It is important not to spend much money on every
single project. If a large enterprise is worried about its brand or quality, it can always develop the productunder a different brand.

After “0→1” development in special zone, graduated projects must achieve“10→100” development
A special zone is a framework for “0→1” development. Many swings are taken to hit the ball or score ahome run. However, in most cases, the bat will never hit the ball. Promising products and services areoften born through the experience of failure and numerous challenges. Then, once a business has grown
to a certain scale in the special zone, accelerated “10→100” development is required.
Figure 3: Special Zone is Framework for “0→1” Development

Large
enterprise

Existing businesses(including improvement of existing products
and new products in existing lineup)
BackupSpecial zone
Project
Project
Project
Project
A B C D

Incubation of new projects
for the future in“startup special zone”...

In the scale-up stage, all the resources necessary for mass production and sales expansion are on-handwithin the large enterprise. In contrast, this is the stage that independent startups find extremely difficult.
This is to say, as long as a startup within a large enterprise can get off the ground in the first half of therace, it has all it needs to win in the second half. Provided a project launched in the manner of a startup
gets on track and grows as a new core business of a large enterprise, it will be a huge success.
Alternatively, a startup within a large enterprise could be spun off as a separate company. Once it hasreached a certain size and its growth could be accelerated through the injection of outside capital, and thiswould be another possible success model for a startup created within a large enterprise.
Figure 4: Accelerated “10→100” Development of Startup
Within a Large Enterprise

Existing businesses(including improvement of existing products
and new products in existing lineup)Newbusiness

BackupSpecial zone
Project
Project
Project
Project
A B C D

Large
enterprise...

Project
Graduation

Clarification of growth plan for graduatedprojects within a given period→ Or Discontinuation

Independent
growthRaising of
external funds(VC, Partner)

At this point, it is important to clarify a growth plan for graduated projects within a given period,
deciding whether to develop projects grown in the special zone into core businesses internally or whether

to spin them off. The projects fit into neither case will be discontinued. Even in such cases, I think there
are enormous benefits in terms of the development of human resources. Projects which are spun off will
hopefully aim for high growth, raising funds from VC firms or business partners and aiming for listing.

A “startup” mentality is the key
So what kind of human resources are suited to such special zones? The highfliers in a large enterprise’s
existing businesses are not necessarily suited to this role. If anything, individuals who do not fit into theexisting organization may be more suited. The leaders of special zones need to have the resourcefulness
that draws in those around them with their enthusiasm. They need the skill to garner support from senior
management and support from employees within the large enterprise. For example, it would help if they
could seek advice on intellectual property or legal affairs from the specialist departments. If the leaders
increase the momentum of startup activities throughout the enterprise and every specialist department
comes to help freely or voluntarily, they can accelerate the projects. A large enterprise’s strength lies inthe equipment and know-how that it possesses. For example, it has expensive measuring devices,
inspection equipment and many other types of equipment and materials. The advantage of being able touse this equipment when it is free is enormous. Moreover, the evaluation criteria for the special zone
should be different from those for the main business. A large enterprise can hardly afford to fail in its
existing business, however, in case of a new business, the important thing is to identify the quickest routeto growth through frequent failures.
I believe that if large enterprises incorporate such kind of speedy startup methodologies and make aserious commitment to creating innovations, they will be a force to be reckoned with. Large enterprises
have many talented employees, while the outstanding technologies are sometimes overlooked in theirresearch laboratories. Surely, they must be able to use these human resources and research results togenerate innovation. They may also have accumulated useful data in their existing businesses. It may also
be interesting for large enterprises to select projects from among their special zone projects to exhibit atglobal events.
The approach of spinning off buried or languishing businesses from large enterprises to form
independent companies (also referred to as carve-out) is similar but, with this approach, large enterprises
usually end up dragging their conservative cultures along with them, unchanged. The success model
which I am proposing will not work if large enterprises have no “tech entrepreneurs” who take risks
themselves. In a sense, you need more driving force and energies to get things moving within a large
enterprise than to found a startup company independently. Even if the basis for a new business exists
within a large enterprise, the creation of a strong-minded team that can get a startup off the ground fromscratch is still essential. Although large enterprises are increasingly engaging in open innovation
activities, it is the level of commitment to commercialization and the drive of the teams that is important.
Unless they are engaged in business they really want to do, as opposed to business they are being made todo, teams will not succeed.

3.

A new Growth Model for Large Enterprises

Strategic use of startups
Large enterprises can invest in or have relationships with startups in various ways. One way is to invest
in existing venture capitalists (VC). Since VC firms invest in startups, this means that large enterprises
are investing in startups indirectly. By doing this, large enterprises can obtain information about startups
and use this as an opportunity for collaboration. Another way is to establish a VC firm themselves, as a
subsidiary (corporate venture capital or CVC). In this case, their investment will be in startups likely to be
more relevant to their business, with the parent company deciding on the area for investment, forexample. Another option is to hold a contest for startups or run an accelerator program to support startups.
Alternatively, large enterprises could increase interaction with startups by providing them with facilities.
Steps such as investment in a VC firm, establishment of a CVC, and a startup support program can besaid to give large enterprises a “tasting” of startups. The aim is to gain an understanding of how
pioneering startups take risks and to interact with them.
A further step of investment in a startup, which will complement their own business, can be likened toan “appetizer.” It also provides an opportunity to advance into a new field. In this ever-changing era, it isextremely difficult to predict the future of technology. At a stage where the future is still unclear,
supporting a startup through minor investment to prepare for future eventualities also seems to be a goodstrategy.
To fully exploit startups and quickly start up new businesses, large enterprises also need to opt for the“main dish” and acquire startups. It is sometimes strategically important for large enterprises to quickly
acquire startups that have the technologies and products they need, rather than to spend time doing R&Dfrom scratch. The use of startups is indeed an essential management strategy for large enterprises, interms of complementing their own R&D.

Engine for sustainable growth
Now that the hurdles to starting a business are lower, more and more startups, including startups
applying artificial intelligence to various fields and startups involved in hardware such as robots andmedical devices, are expected to spring up in the future. There is no reason that large enterprises do notincorporate them into their strategies. Creating frameworks for the generation of startups within large
enterprises would also be useful when large enterprises acquire startups. If a culture in which the existingorganization supports startup teams becomes firmly established, it will naturally be much easier tocollaborate with startups.

Figure 5: Engine for Sustainable Growth at Large Enterprises

Existing businesses

Streamliningof oldbusinesses

Creation of new businesses
NewNew
businessesbusinesses...

BackupSpecial zone
Project Project Project
B
A
C

...
StartupStartupSmallinvestment

Startupacquisition

Large enterprise

Large
investment

Collaboration with pioneering startups
Business collaboration, investment, acquisition

As for the startups, if they collaborate with a large enterprise, they will be able to enjoy rapid growth.
For example, if a startup also handles hardware products, when the business is on track to some extent,
they can further increase the scale of production or expand their business globally. Especially in Japan
where it is more difficult to raise large amounts of venture capital than in the U.S., the option of rapid
growth alongside a large enterprise appears to be a strong contender. It looks as if large enterprises will
provide a boost to startups in the business expansion phase. Let me stress once again that the key tosuccess, in this case, is whether large enterprises can be mindful of not impairing the sense of speed ofstartups when working with them. Large enterprises need to be careful not to foist their conservative
systems onto startups.
In the age of radical reform and transformation that we are now entering, large enterprises have toquickly incorporate new technologies and business models to create new businesses and grow further.
Thereby, as explained earlier, it is effective that they create frameworks such as internal special zones andutilize internal and external startups. At the same time, large enterprises should streamline their declining
old businesses and shift their internal resources into new businesses. If large enterprises firmly establish
such systems within their organization, they will be able to continuously create innovations and speed up
their metabolism. These systems are the engine for sustainable growth, so to speak.
Large enterprises need to create new industries by jumping on the startup bandwagon and cultivatinghigh levels of innovation. I firmly hope that this is a way to strengthen Japan’s competitiveness in the
global market.
References
Technology Startup Ga Mirai o Tsukuru – Tech Kigyoka o Mezase [Technology Startups Will Create the Future– Aim to be a Tech Entrepreneur], The University of Tokyo Press, Daikigyo Kara Startup o Umidasu [Creating
startups within Large Enterprises] p.132