THE BUSINESS DAY 02 Report: Kazuyuki Okudaira from the Nikkei interviews Mercari’s Fumiaki Koizumi about the Ups and Downs of Mercari’s First Five Years

THE BUSINESS DAY is a conference started by Mercari in 2016, where leaders in management and corporate fields come to learn, meet others in their field, and implement ideas. At this second hosting of the conference, key players on the front lines of business came together for discussions covering a wide variety of topics, including IPO, growth strategy, and organizational management.

The last session for the day, “The Path to Achieving Mercari’s Mission,” invited guest Kazuyuki Okudaira, senior staff writer for the Nikkei Inc, and Mercari COO Fumiaki Koizumi to the stage. Koizumi looked back at Mercari’s first five years, from founding to listing on the Tokyo Stock Exchange’s Mothers market, and spoke about Mercari’s major achievements and strategies.

Koizumi’s intent behind the Mercari mission and values

Okudaira: Mercari was able to go public on the Tokyo Stock Exchange’s Mothers market in only five years. Today I’d like to ask you about what you think marked some of the biggest turning points in those five years, and what lies in store for Mercari in the future. To start off, could you tell me what Mercari was like when you joined?

Koizumi: I joined Mercari in December 2013, as one of the first members of the Corporate Division. We had just reached one million downloads of the app. Led by founder Shintaro Yamada (CEO), we were gradually shifting from focusing on improving our product to firmly establishing our identity as a company.

Okudaira: The app was launched in July 2013, meaning you joined about five months after that. What kinds of problems did the Corporate Division face at the time?

Koizumi: It’s hard to pick out a few particular problems, because honestly we were in a state of chaos, with so many issues still left to tackle. Mercari didn’t really feel like a company; it was more like a project team brought together to create a good app. One thing I could definitely tell was a problem at the time was our lack of mission and values as a company. We decided to start from there, and so soon after I joined, the four members of the management team went for an overnight training to discuss our vision for Mercari. That’s where we established our single mission and three values.

Three values of Mercari

Okudaira Startups are always really busy, aren’t they? You have to improve the product, provide customer service, work on hiring… How did you justify dropping all of that to go for an overnight training and establish your mission? Isn’t that usually lower priority?

Koizumi: Personally speaking, my desire to define the company’s mission and values came from my time working at Mixi. At a company with such a strong product like Mixi, the growth of the product tends to carry the organization. In other words, the organization naturally becomes stronger even without a common mission or values. That does make the job easy in a certain sense, but looking back on it, I realized that by relying solely on the product, we were not fully engaging with one another or the organization itself.

Okudaira: In other words, if the performance of the product drops, the employees and the organization will fall apart.

Koizumi: Exactly. This trend can happen at any startup, not just Mixi. A product has a life cycle; there are good times and bad times. In the bad phases, employees begin to lose sight of their values and criteria for decision making. Without anything to guide them, each employee follows their own preferences and the organization falls apart. While at Mercari we were creating a strong product with Yamada taking the lead, I thought to a certain extent we needed to separate the product from the company.

Mercari COO Fumiaki Koizumi

Okudaira: What was Mercari like after defining its mission and values? The most important thing is making sure all employees really understand the mission and values, right?

Koizumi: Exactly. It’s pretty common to see employees get the general idea and think that’s all they need to do to avoid falling into this trap. What’s most important is that the management themselves embody these values and make them a part of regular conversation.

Okudaira: Meaning?

Koizumi: We put each member of the management in charge of the mission or a particular value. Yamada, as the leader of the company, took charge of our mission “Create value in a global marketplace where anyone can buy & sell.” Ishizuka (co-founder), who at the time was chosen to lead the US side, took on “Go Bold.” Tomishima (co-founder), the executive officer in charge of the product, took on “Be Professional.” I was put in charge of “All for One” as a member of the Corporate Division, which sets the tone for the whole company. We put each member of the management in charge of acting and thinking according to a particular phrase of our mission and values to raise awareness among employees. It takes a lot of commitment to make words sink in among people. We also made t-shirts with “Go Bold” on them, gave conference rooms names like “All” and “One,” and so on, creating a way for these values to be visible and said out loud between employees on a daily basis. Companies that make employees routinely chant their mission are kind of scary, aren’t they? We wanted to avoid that, and so we tried to make the mission and values a part of the office environment in the most natural way possible.

Okudaira: Once employees got the mission and values down, what do you think changed?

Koizumi: I would definitely say that our productivity increased, because these values provide a stable foundation for making decisions within one’s work.
Looking at projects or systems from the perspective of these values means that you can stick to one type of logic. It means being able to say “I don’t think that decision embodies Go Bold.” These words serve as a hook, or a sort of helping hand when employees feel lost or stuck. These are the positive effects I’ve noticed.

Why would a one-year-old startup invest 450 million yen in advertising fees?

Okudaira: Now let’s talk about how Mercari, which started out as such an unknown service, was able to achieve such rapid growth. If I remember correctly, a certain special report on marketplace apps published back in the day didn’t even bother mentioning Mercari, right? [laughs]

Koizumi: We got so little attention, we were just thrown in the “Other” category. [laughs] The Rakuten marketplace app Fril (now Rakuma) was launched about a year before Mercari, and at the time, there were over ten companies all fighting to take control of the marketplace app market. It was a “winner takes all” situation in which only one company would survive, so as a newcomer to the game, our only option was to make a bold play.

Okudaira: From March to May of 2014, Mercari took on quite a lot all at once, including acquiring a significant amount of funding, establishing a customer service center (the Sendai office), and putting out a TV commercial.

Senior staff writer for the Nikkei Inc.Kazuyuki Okudaira

Koizumi: It’s not just about making a good product—you must also be good at marketing. Products and marketing are like the wheels of a car, and financing is like the gasoline that makes both wheels turn properly. By March 2014 we were able to gather around 1.5 billion yen in funding, so in May of that year we launched our first TV commercial. However, we had actually started producing the commercial at the end of 2013, all while waiting for the funding to come in to cover the expenses.

Okudaira: You were making a commercial even though you didn’t have the money to do so?

Koizumi: Yes. It was quite the tight schedule. After confirming we had received the funds at the end of March, we officially placed the order for the commercial set to air in May.

Okudaira: Talk about going bold! I’d say it was pretty unheard of back then for a service like Mercari to put out a commercial. Although thinking about the ideas you see come out of the tech industry, for a lack of better words, I’d say it’s a pretty unorthodox approach! I would think that as long as the quality is there, any product would naturally develop a name for itself.

Koizumi: In terms of our TV commercials, I once received a piece of advice from a certain business executive. Once you’ve reached around two million downloads, you’ll have enough users that word of mouth will help a commercial be far more effective than you can imagine. We had just reached two million downloads at the end of April 2014, right before the commercial was scheduled to air. I knew that it was now or never. And with that, we decided to spend 300 million yen on commercials and 150 million yen on online advertising. We invested around one third of the 1.5 billion yen in funding we had gathered. Of course, we made this decision under the assumption that the commercial would achieve the intended results. We knew that if it did, the Tokyo customer service center wouldn’t be enough to handle the influx of users. So in April, before the commercial aired, we set up the Sendai office.

Okudaira: It was really all about coming out on top in Japan.

Koizumi: Precisely. When I was at Mixi, there were over 20 companies in the social media industry. However, most eventually withdrew from their social media businesses, and the only one that didn’t, GREE, ended up shifting to the game industry. I know firsthand just how frightening this “winner takes all” competition can be. We kept challenging ourselves, determined to never experience this fear again. We first proposed the idea of RakuRaku Mercari Shipping to Yamato Transport in February 2014. This was about six months after we had launched the app. In order to improve the quality of the user experience, I thought we needed to not only work on the app itself, but also improve the physical aspect of the service—specifically, shipping items. I reached out to my former boss from the securities company I used to work at right out of college, who introduced me to a high-up employee at Yamato Transport, and I made my proposal.

Downloads and measures

Okudaira: A startup with no funds, no record of success, and no name for itself. How were you able to persuade Yamato?

Koizumi: Many startups think you only need to express what you want to do, and that that’s enough, but of course that approach won’t achieve results. What I did is I read Yamato’s financial earnings results from the previous two years to make a proposal in line with their strategy. At the time, the increasingly widespread use of the internet was beginning to cause a decrease in B2B distribution, meaning that B2C distribution needed to grow to make up for it. I made a proposal that fit with Yamato’s strategy, explaining how this overall trend would change if Mercari were to come into the picture. It took some time, but through lots of careful discussion, the proposal became a reality.

Okudaira: So your proposal was not only about what Mercari wanted to do, but first looking into what Yamato was thinking, and working backwards from there.

Koizumi: I generally take this same approach whenever I make proposals to other companies. If it’s a big company, I put the documents together in a way that makes it easy to share and develop the idea internally. For example, making documents in Word instead of PowerPoint to make cutting and pasting easier—trying to keep in mind the proper etiquette.

Failure is a crucial process for success. How does Mercari see new businesses and hiring strategies?

Okudaira: Everyone talks about Mercari as this super successful, rapidly growing company, but that can’t be the whole picture, right? As a startup, did you run into any trouble or failures along the way?

Koizumi: We’ve had lots of failures, believe me. Just recently, we announced the closure of Mercari NOW, teacha, and Mercari Maisonz. It’s hard to get a new service off the ground—if one in ten succeed, you’re doing pretty well. The important thing is what you do with that failure. Do you beat yourself up for making a mistake? Or do you treat it like process of elimination and think, “well, that didn’t work, but now it’s more likely that the next one I choose will”? At Mercari, we choose the latter. It’s important to figure out what you can learn from your mistakes and how you can use that in your next attempt. It’s a lot of work, but I want to keep it that way. Failure is crucial to success.

Okudaira: You shouldn’t be afraid of failure, because you actually need it to keep moving forward. Right?

Koizumi: Our resources are limited, so as an executive, we have to keep two things in mind: “do we do it or not?” and “how can we allocate our resources to help the company grow?” Executives know more than anyone how hard it is to start a new business. That’s why it’s important to recognize the signs early—to stop when you don’t sense any response from your audience and use those resources somewhere else. To people that don’t have any experience managing or starting a business, the idea of shutting down a business is terrifying. But if you don’t, it will never get better. Make a rule—don’t drag it out when you know what you need to do. We make sure to maintain the appropriate distance between executives and those in charge of new businesses so they can have these tough conversations when necessary.

Okudaira: I think that’s one of the biggest problems Japanese companies face—once they’ve started something, they don’t know how to stop it. Even if they do decide to shut something down, they come up with some sort of excuse, or start thinking too much about other people’s feelings and end up changing their minds… On the other hand, there is also the worry that employees who have poured their heart and soul into a project only to have it shut down on them might end up quitting the company.

Koizumi: Whenever we shut down a project, we do so with the utmost care for the mental health of our employees. But we also have to think about whether employees are working for the company or for the product. Someone who doesn’t share Mercari’s mission and values might be working for the product, and if that’s the case, they would probably quit if their project shut down. But if you ask our employees whether they like their project or the company, I think they’ll say the company. I have faith that even if a project fails, our employees will be able to move on and focus on the next challenge.

Okudaira: Is that just for new businesses, or does it also apply to systems like benefits, HR, and recruiting? Mercari’s pretty well-known for its referral system.

Koizumi: The referral system is changing in phases. In the first phase, only executives refer people. I know a lot of companies recommend hiring people through employee referrals right away, but employees don’t actually know how to refer people. Executives need to show everyone how it’s done. So in the first year of a company, almost no one gets hired through employee referrals. But as more and more people get hired through referrals, we move to the stage where employees that joined through referrals refer people themselves. They know how the referral system works already, because they went through it themselves, and they have a deep understanding of Mercari.

Okudaira: Mercari also has a really active new graduate hiring program, right? Why focus so much on new graduates? Wouldn’t it be better to hire people with more experience?

Koizumi: When we first started new graduate hiring, the requirements section was only one line: “Please submit your email address and GitHub account.” And when you clicked on the link, it was just a Google Form… [laughs] We don’t need to look at anyone’s name or academic background, all we want to know is whether they have the skills. We’re looking for the kind of young talent that’s willing to Go Bold and apply to a company like that. But it’s not just new graduates; these days we’ve been focusing on internship programs too. In 2017, we ran a program that sent 100 students to the US.

Okudaira: That certainly fits Mercari’s message of going global. But there must be a lot of risks, too.

Koizumi: That’s where the phrase Go Bold comes in. Our mindset is that no matter what kind of tough challenges stand in our way, we’ll never run from them—we’ll face them head on. And the interns lived up to that perfectly. We’re hoping to run programs that embody the Go Bold mindset even more in the future.

The path to achieving Mercari’s mission—betting on people and technology

Okudaira: Mercari was listed on the Tokyo Stock Exchange’s Mothers market in June of this year. What did you talk about with investors?

Koizumi: I mostly explained Mercari’s strategies for growth in both our existing businesses and new businesses. For our existing businesses, there is still a lot of potential for growing the number of active users. I also talked about how we’re looking to boost categories outside of clothing. For new businesses, I explained our vision for Merpay, including the relationship between marketplaces and payment. On top of that, we’re looking to continue our expansion in in the US and UK. Succeeding overseas is part of achieving our mission, and so I showed investors the solid progress we’ve been making.

Okudaira: With a pitch like that, I’m not surprised you won investors over. Is there anything in particular that Mercari is looking to improve in the future?

Koizumi: As new services like Merpay launch, the overall Mercari worldview and systems will likely become more complex, so I think we’ll need a person or team to bring the whole company together. One step in that direction is the CXO (Chief Experience Officer) Office team we’re putting together. If we don’t have anyone watching over Mercari as a whole, our services will go off in separate directions, and we’ll lose our cohesive branding as a company. I’m hoping to focus on taking steps to avoid this in the future.

Okudaira: A lot of people here today are involved in managing startups. What do you think is the best prescription for solving organizational issues?

Koizumi: Even the best doctor in the world can’t write one prescription that solves everything. [laughs] But I think you can’t solve anything without trusting your employees. It all depends on how much responsibility and authority you can give them. If your organization has over a thousand people, the executives can’t be the ones making all the decisions. You have to strengthen the organization by focusing on the managers. Also, right now Mercari has employees of more than 25 nationalities, and that number just keeps getting bigger and bigger. We’re becoming more diverse at an incredibly rapid pace, and because of that, it’s more important than ever that we make sure everyone understands our mission and values. We want Mercari to be an organization where all employees can talk about the company values as if they were their own, just like the executives.

Okudaira Sounds like what you did when you first joined all over again—history repeats itself, doesn’t it? One last question: can you tell us about your goals for the future?

Koizumi: I have faith in the endless possibilities of technology. I want to get out there and try new things that will change our users’ lifestyles on a global level. What happens when you combine technology and globalization? It’s a complex problem, and the only way to find the answer is for all of our employees to work together to solve it. On the day of our IPO, the Nikkei published a message from Yamada along with a picture of Hideo Nomo. Players like Ichiro and Ohtani are so successful in America now because Nomo took the plunge and broke into the Major Leagues 23 years ago. Like Nomo, we need to be groundbreaking and pave the way for others to follow. We may face criticism, but we want people to talk about how Mercari changed the tech industry trends in Japan. We want to Go Bold and take on the world, bringing the next generation of technology with us.

Kazuyuki Okudaira

Okudaira is a senior staff writer for the Nikkei Inc. He worked in the industries department (currently known as the business reporting department), the Nagoya office, and the Silicon Valley Bureau before moving to his current position. He currently covers industries such as IT, automobiles, and startups.

Fumiaki Koizumi

Koizumi is the COO of Mercari, Inc. He joined Daiwa Securities SMBC (now Daiwa Securities) in 2003, where he handled the IPOs of various IT companies at the investment bank main office. He then joined Mixi in 2007 and assumed the position of CFO. After joining Mercari in December 2013, he became a Director in March 2014, and was named COO in April 2017.