Linda...WSJ on Hikari:
Weekend Journal.
April 28, 2000
Japanese Web Star Tumbles,
But Can He Shine Again?
By PETER LANDERS and YUMIKO ONO
Staff Reporters of THE WALL STREET JOURNAL
TOKYO -- Two months ago, Japan was buzzing about just how rich the hotshot entrepreneur Yasumitsu Shigeta could possibly become. Now, as his billions evaporate in one of the great share-price collapses of the Internet Age, the big question is: Did he really used to feed live rabbits to his pet snake?
Mr. Shigeta, the embattled founder of cell phone and Internet power Hikari Tsushin Inc., denies this rumor, which appeared in a Japanese magazine article last month. But the fact that the knives have come out for him in such a personal way points up the special tribulations of being an entrepreneur in the world's second-biggest economy.
In the land of salarymen and leaden corporate bureaucracies, Mr. Shigeta, along with Softbank Corp.'s Masayoshi Son, has come to personify Japan's awkward dance with the New Economy. Both are individualists who love to crow about their foresight in seeing the Internet's potential -- and both became multibillionaires in the space of a year or two. These days, Mr. Shigeta is getting a taste of another side of the New Economy: Since Hikari suffered a bout of ugly press and 'fessed up to a surprise operating loss, its stock has gone into a tailspin that would sicken even jaded Silicon Valley veterans.
Its shares have fallen by their maximum allowed limit on the Tokyo Stock Exchange for 20 straight days, and on many days no trading has taken place because of a surfeit of sell orders. Hikari, a mobile-phone distributor and Internet investor, had a market capitalization of about $70 billion in mid-February. Thursday, that figure was just $4 billion, down 94%. Mr. Shigeta once had a fortune worth $45 billion on paper. That's down to $2.5 billion.
There are two things Japan loathes in a businessman, and Mr. Shigeta, a 35-year-old tech mogul, embodies aspects of both. In a society that likes to see itself as both egalitarian and tasteful, most are turned off when a young turk becomes a swaggering success. Much worse is a business failure. Start up a company here, then flop, and you're probably finished.
Hikari remains a going concern. Unlike a lot of tech highfliers, it has a steady flow of cash coming in because it gets a cut of the monthly bills paid by mobile-phone owners who bought their phone at a Hikari shop. But precisely because Hikari does retain some promise, the visceral reaction to its troubles raises deeper questions than the one about Mr. Shigeta's snake: Can Japan cope with the inevitable failures among the high-tech start-ups popping up here? And if it can't, what does that portend for its economic future?
"If all these venture companies are cropping up, there are bound to be people who fail," says Yuichiro Itakura, founder of a pioneering Internet advertising company called Hyper Net. In America, entrepreneurs frequently fail, only to bound back up with a new brainstorm and new backing. "But there's absolutely no system here to recycle these people," Mr. Itakura says.
He should know. Mr. Itakura led the high life in the early to mid-1990s, winning a government award for outstanding entrepreneurs and riding in a red Ferrari. But in 1997 his Internet business turned south, and the company -- and Mr. Itakura -- filed for bankruptcy. The bankruptcy judge lashed out at him for not seeming more apologetic about causing trouble for his creditors. Mr. Itakura later became famous again by writing a book about his failure, something hardly anyone does in Japan.
Hikari Tsushin's Mr. Shigeta knows he has stumbled badly, and in proper Japanese fashion, he has begun apologizing all around for his mistakes -- poor supervision of mobile-phone franchise stores, misleading comments to the press and his tardiness in calling on outside help. Earlier this week, he said he would consider bringing in seasoned executives to help him run his company.
But he knows Japan isn't going to be kind to him. "In general, they say Japan is more severe than America [toward failures]. And I do think it's often said that the 'nail that sticks up gets hammered down,' " Mr. Shigeta says in an interview, though he adds that the recent opportunities for start-ups indicate change is afoot.
Mr. Shigeta has put his whole adult life into Hikari Tsushin, which means "light communications." He is the son of a former judge, and his older brother also became a lawyer. But from the start, he says, he wanted to run his own business. He entered Nihon University, a midranking college, but quickly dropped out and worked at odd jobs before founding Hikari Tsushin in 1988.
The company moved in and out of several lines of business, but two points always stood out in common: a high-tech focus and reliance on hyperaggressive sales tactics.
Masashi Kanematsu is a manager at a supermarket chain in southern Tokyo, precisely the sort of midsize business Hikari targets. Mr. Kanematsu says he was bombarded with calls from Hikari salesmen pitching long-distance phone service and Internet services. (Recently the calls have stopped.)
Unlike the U.S., where entrepreneurs typically get both financial and operational backing early on from experienced venture capitalists, Mr. Shigeta built his business on his own. He made a profit every year, and used that money to grow. When Japanese were first allowed to buy mobile phones in 1994, Mr. Shigeta jumped in and became a sales agent for upstart mobile-phone operators such as DDI Corp. that were challenging giant NTT DoCoMo Inc. Soon he was building a nationwide network of franchise stores, which he called "Hit Shops," to sell the phones.
His timing was perfect. Only a handful of Japanese had mobile phones in 1994. Today, there are 57 million mobile phones in a population of 127 million -- more than the number of fixed-line phones.
When the Internet began taking off in Japan last year, Mr. Shigeta was again among the first to jump into the market. He started a "Hit Mail" service for small businesses, renting them space on computers so they could use e-mail and have a company home page without making a huge investment. A year ago he set up a venture-capital company to pour money into Internet deals.
The growth potential electrified securities analysts, who lined up to issue "buy" recommendations. Thomas Rodes, the Internet analyst at Nikko Salomon Smith Barney in Tokyo, got to know Mr. Shigeta personally and was persuaded by Hikari's vision of combining high-value Internet services with the real-world presence of the Hit Shops. "A lot of companies need an alliance with Hikari Tsushin to bring value to their idea... . Hikari is going to become the digital convenience store," Mr. Rodes said in January. At the same time, though, he was fretting, "Like everyone else, they have both feet planted in midair."
By late last year, two of Mr. Shigeta's most attractive traits -- his aggressiveness and his self-confidence -- were beginning to turn against him. He set up contracts with mobile-phone operators that called for Hikari to get big bonuses, but only if the franchise-operated Hit Shops met ambitious sales targets -- a dangerous all-or-nothing bet. The mobile-phone market was beginning to mature by this point, except for NTT DoCoMo's phones with Internet access, which aren't sold at Hikari's Hit Shops.
Meanwhile, Mr. Shigeta was beginning to flaunt his wealth. In September 1997, he moved Hikari's headquarters to the top floors of a new tower in Japan's priciest business district, above the offices of long-established names such as Nomura Securities Co. and Daiwa Bank Ltd.
Then at the end of last year, he bought a clubhouse and grounds owned by Industrial Bank of Japan Ltd. -- a big lender to Old Economy companies in industries such as steel and construction. The bank had used the property, estimated by real-estate agents to be worth roughly two billion yen ($19 million), to entertain clients. Adding insult to injury, Mr. Shigeta did the Silicon Valley thing, opting for a teardown, according to neighbors and real-estate agents. He plans to build a mansion for himself there, though construction hasn't begun yet.
Mr. Shigeta's lieutenants inherited his hyperconfident attitude. On its home page, Hikari's venture-capital arm boasted of its speed. "The slightest delay in judgment or decision-making will outdate the idea itself, right then and there," it said.
Masahide Saito, a fresh-faced managing director in charge of investments at Hikari, says he decided to invest in Intranets.com, a Massachusetts start-up, in 10 minutes after chancing upon the Intranets.com home page. The investment was $16 million. (Intranets.com hasn't gone public.)
And Mr. Saito derided Old Economy giants such as Japan's trading companies that were trying to cash in on the Internet, saying they were clueless. "There's no way you can convince a guy who's trading shrimp all day that here's a promising company," Mr. Saito remarked in January.
So Hikari had few friends to back it up in the event of a crisis -- and one hit with full force in March. An influential monthly magazine, Bungei Shunju, ran a long article blasting Mr. Shigeta's sales practices and attacking him personally as ruthless and money-crazed. It quoted what it described as an unnamed high-school classmate as saying that Mr. Shigeta fed small rabbits to his pet python.
Mr. Shigeta says he loved animals as a kid and used to keep a beetle collection, and the story about the rabbits isn't true. He does have some sympathy for snakes, however. "In the world of animals, snakes are definitely not at the top. They're in a position where it's really easy for them to be eaten by birds and so forth. In a wider sense, snakes are precious animals," he says.
In the wake of the Bungei Shunju article, critics let loose on Mr. Shigeta. Various rumors spread suggesting that he was in jail or dead. One widespread rumor was particularly telling about Japanese attitudes: It claimed that Mr. Shigeta was actually of Korean descent, an ethnic minority that's often discriminated against here, and not a "pure" Japanese as his name suggests. (Softbank's Mr. Son, Japan's biggest Internet investor, is open about his Korean heritage, although he has taken Japanese citizenship. Softbank's shares have fallen about 75% in the past several weeks, though most observers believe its fundamentals are sounder than Hikari's.)
Mr. Shigeta's office calls the Korean-heritage rumor a "lie." There isn't any evidence to support it; the fact that his father was a judge -- a job not open to Korean citizens living in Japan -- also suggests that it isn't true.
Then Mr. Shigeta committed what he now concedes was a serious blunder. He held a news conference to deny the rumors and at the same time suggested Hikari's business was moving ahead in line with expectations. In fact, Hikari was heading for a large operating loss. Mr. Shigeta's go-for-broke bet on phone sales had failed. Hikari wasn't getting the bonuses expected from mobile-phone operators.
What happened? As Hikari undertook what Mr. Shigeta admits now was a heedlessly rapid expansion, problems emerged. Some franchisees booked bogus phone subscriptions in hopes of inflating their sales figures and commissions, Mr. Shigeta and other executives say. More important, real sales weren't materializing as expected, in part because old-line competitor NTT DoCoMo had a more attractive product line. Mr. Shigeta has tried in vain to enlist Hikari as an agent for DoCoMo phones. Making matters worse, Hikari had made loans to many of its franchisees and got stung when many couldn't meet payments. Mr. Shigeta says more than 40% of Hit Shop outlets are in the red.
Mr. Shigeta finally admitted the truth publicly on March 30. Investors reeled. Mr. Rodes, the analyst who believed in Hikari's story, says investors and analysts "feel betrayed." On Monday, Mr. Shigeta acknowledged that the operating loss would extend to the full fiscal year ending Aug. 31, contrary to his earlier predictions of a profit for the full year.
Hikari shares have gone into free-fall, and the Nasdaq tumult in the U.S. didn't help. The stock price now stands at 13,800 yen, a mere 6% of its intraday peak of 241,000 yen on Feb. 15.
Mr. Shigeta says he has lost none of his old drive. He believes that the company can sell more Internet services on its phones and keep profits rising. And its sales of Internet services to small businesses continue to grow fast.
Will he get a second chance? Mr. Shigeta breaks from the pained look he wears most of the time these days, and manages to smile broadly. "I think I'll be OK," he says.
Write to Peter Landers at peter.landers@wsj.com and Yumiko Ono at yumiko.ono@wsj.com
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