Several weeks ago, one of our readers made the comment that while we have been commenting on firms doing IPO’s, it would be nice to hear about a firm that is still on the way. We thought it would be a good idea to interview some Japanese CEOs of promising companies, and try to understand some of the thinking and opportunities that lie before them in their rush to an IPO.

Our first interview is with Ryu Araki of, an online affiliate marketing company. We first met Araki while he was still an employee with an Internet firm, and thus have been able to follow his “apprenticeship” through to creating and building a successful internet business.

Like all good entreprenuers, Araki used the day job to pay the bills and the evening one to build his dreams. Starting the part-time business two years ago with LOHAS goods such as relaxation CDs, Araki is now running a rapidly growing online retail and SEO business called Awakers, Inc.

******************** AWAKERS INTERVIEW ********************

Terrie Lloyd: What does Awakers do?

Araki: We’re an affiliate marketing and SEO company. We’re into Electronic Commerce, selling relaxation CDs; Affiliate Marketing, which is fast becoming our core business; and SEO services for corporate clients.

Terrie Lloyd: You’re early-stage, but attracted our interest due to the amazing growth of your company.

Araki: Yes, I’ve been at this for about 2 years, so going full-time was really just the next step. We’re hoping to IPO in 2009, and so we plan to grow the business at a rate of at least 100% a year. So far, our sales have jumped from JPY3m a month in May 2006 to JPY5m a month in July. We’re expecting to do more than JPY100m by the end of our first year. Then in Year Two we’ll be at JPY250m, Year 3 at JPY500m, then an IPO.

Perhaps most importantly, we’re already profitable.

Terrie Lloyd: Most people would say that Internet business is already passe. Why do you think the industry will keep growing?

Araki: The Internet is still a very rich market place. Just ask yourself how in March this year a 19-person company called could make almost 50% operating profit on sales of JPY539m and do a JPY84.7bn (US$736m) IPO? All just
2 1/2 years after starting with a one yen company?! Many said that is just a knock-off of, but one look at their sales growth shows that they have something, AND it proves that there is plenty of juice left in building an Internet business.

Terrie Lloyd: But the stock has slumped since the IPO…

Araki: Yes, I heard last week that the market cap was about JPY16bn (US$139m) — a huge slump from the initial offering price. Still, they have a PER of 122 — which is not too bad.

Actually, I’m a bit of a search hound for individuals and small companies with Internet success stories, since I would like to glean some of their methods. I was interested to learn that a team of just 4 professional affiliators are earning more than US$1m a month, by being eBay affiliates.

Terrie Lloyd: What secrets have you learned, then?

Araki: Things are not so much different between the USA and Japan, other than culturally specific issues. I believe that there are two ways to make money on the internet, whether it’s e-commerce, affiliate marketing, or some kind of platform business. First, you have to draw in visitors, that is, increase the size of the pie, and second, you need to increase conversion rates. This is no different from being a salesperson in the physical world, where you have to do prospecting and make deals.

Terrie Lloyd: How do you prefer to draw in visitors?

Araki: It’s different for each product and website, but basically the best way to get visitors is to focus on SEO, not least of which because it is free. Following this, there is PPC (pay per click, not free), mutual links, banner ads, e-zine ads, etc.

Terrie Lloyd: And conversion rates?

Araki: Increasing customer connversion comes down to the layout/design of the initial “landing” page and other frequently used pages. There are certain layouts that work for Japanese, typically being information intensive and with easy navigation. Then other factors are the quality of copywriting, and implementing lessons learned from other successful sales models such as those used in the Direct Sales and Direct Marketing industry.

Just a word about copywriting, it’s probably the greatest point of difference between successful vendors and everyone else. It’s like saying, “How important is it to have a great salesman in off-line sales?” The answer is the same
— a great salesman can sell double or triple that of an average salesman, and usually, they can sell ANYTHING.
Indeed, I know of several fast-growing Internet companies who expect to go public on the strength of results from their copywriting skills.

Terrie Lloyd: We understand that you find interesting products from overseas and sell them online here. How is it that people buy from you rather than direct from the source?

Araki: Quite simply: language and service. You need to ask yourself why is it that all these imported zakka (household
knickknacks) shops can make money when people can go abroad and buy them, or do self import? The language barrier that Japanese consumers carry is IMMENSE — if people can find a Japanese source to buy the same product, they will do so without hesitation. Further, people aren’t just buying the product itself, they are also buying (and are picky about) safety — i.e., whether they can trust a particular vendor or not. Given all the negative press recently, many consumers feel insecure about buying online, let alone from vendors overseas. Overtime they will gain confidence, but right now they’re cautious.

Terrie Lloyd:What is your best selling product so far?

Araki: Right now it’s our meditative music albums at We created the site to appeal to women in their late 20’s and 30’s, but in fact we get a lot of men in their early 40’s buying from us. That’s pretty interesting…

Terrie Lloyd: Regarding SEO, do you eat your own dog food?

Araki: Absolutely. For the CDs, we’re right at the top of our game. For an investment of about 5 hours a month, we come in at number 1 on Google, and number 6 on Yahoo. We don’t do off-line advertising, because the ROI is so low for this type of product.

Terrie Lloyd:You mentioned doing SEO work for other clients. Isn’t it a crowded field?

Araki: The fact is that only a few SEO firms have their own sites selling products. It’s important to not only know the Search Engine tricks but also how the customer thinks. That way, the effects of both the SEO work and the design of the site contribute to a longer term affect in terms of high ranking on searches.

Terrie Lloyd:What do you think are the elements of success as a young Japanese entrepreneur?

Araki: Depends on how you measure success: IPO, “jika-sougaku” (market capitalization), buy-out, reaching 1-oku of sales, 10-oku of sales, etc.

I think the most important thing, especially is you’re still in the pre-launch stage, is to just do it. Many Japanese pre-entrepreneurs have excellent ideas, networks, and talent, but lack that “Just do it” mentality. I believe this is because of cultural conditioning. We’re taught all the way through our formative years to not be the odd man out.

Terrie Lloyd:You speak pretty good English, how important is it to have foreign connections and relationships? Do these give you much leverage?

Araki: The ability to connect with foreign companies and ideas is very important. In fact, if you look at the recent wave of entrepreneurs in Japan, many of those with fast-growing companies are either using foreign know-how or products to build their businesses.

My own company’s strategy is to import and sell unique foreign LOHAS products that have some recognition in Japan but aren’t here yet. This doesn’t include dietary and vitamin supplements, though, since the “Yakuji-hou,” the Pharmaceutical Affairs law, is a tough law to deal with, especially after the product kicks off.

Terrie Lloyd: Have you thought of selling information instead of products, so as to reduce inventory and logistics costs?

Araki: Yes, I tried for the first time last year, and it worked quite handsomely. However, the downside is that the info-product industry as a whole is in its formative stages and is quite chaotic. In reality, you couldn’t really call it an industry at all, and the products being offered are still very low in quality.

It kind of reminds me of the pachinko industry: very profitable, but it’s a business that you probably don’t want to tell your partner or children about. So, I plan to stay away from it.

Terrie Lloyd:But wasn’t there one guy who wrote a manual on how to pick good stocks, and who made millions of yen per month for virtually no cost?

Araki: In fact, I think he was making about JPY70m every 6 months. But again, it’s not a stable nor scalable business at this point.

Terrie Lloyd:Is there one individual entrepreneur that you either respect or hold up as your role model?

Araki: Mr. Son of Softbank. There are many rich and successful rising entrepreneurs, but he is one of the few that can negotiate successfully with foreign businesses. I think that playing domestically is fine and you can grow a business to a reasonable scale — JPY50bn or so. But to go beyond that and really be recognized as a global company, you need to be able to deal with foreign companies, especially financial firms. Mr. Son has proven his skills in this area.