Building sustainable companies: The investor’s view
This article is an excerpt from our research publication SJ3: The pathway to regenerative business. A Japanese version is available on Note.
Eriko Suzuki is a social impact investor who focuses on sustainability and wellbeing. She is founder and CEO of Kind Capital and an independent board member at several Japanese startups. Her background at VC firms gives her a unique insight into how investors view purpose. We spoke with Suzuki-san about the business of building sustainable companies in Japan.
Many people know you as an investor in health and wellness startups. Tell us about the journey that led you into venture capital.
Thank you! It’s a long story, but I’ll try to simplify it. During my college days, I wanted to help tackle global poverty, which led me to study economics and development and then work in Africa. But I saw first-hand during my time in Kenya that the public sector and other large organisations can be very bureaucratic. I couldn’t see what impact one person could have as a cog in this machine. But I also saw the early signs of social entrepreneurship in Kenya, so I decided to study business as well.
My first job after graduation was at an investment bank. The career was great, but it was still very much at the centre of capitalism, so I had conflicting emotions. And then I had two children, so it was time to reevaluate how I work. This is how I ended up joining a startup, witnessing the impact that technology can have, and then transitioning into VC, which is really the combination of finance and tech.
And how did venture capital revive your interest in social impact?
The first VC firm I joined was run by Son Taizo, who wanted to distribute his wealth by investing in impactful startups that have a long-term vision to change the world for the better in terms of access to health, education or food. I’ve since been with several other VC firms, but they all have this impact mindset. I view the world through an investor lens of asking: will this solve problems, but in a way that’s sustainable in our capitalistic system?
Then, five years ago, I also started my personal journey around wellness and wellbeing because it was so important to me working in finance while trying to raise two children in Japan. We really need to think about how we are taking care of each other and the next generation.
What’s the current VC perspective on wellness and sustainability?
First of all, the time lag around Japan has gotten shorter. Before, it was five years until these trends or concepts emerged in Japan, but now it’s two years, because information is much easier to get. That said, it’s still quite different. The impact, sustainability and wellness space also has some differences globally. In Europe, it’s quite fundamental and touches every aspect of society, every age group. But in the US, it’s a little more partisan and it’s the younger generation who think about these things more. At the same time, the US still has that disruptive model of truly innovating things.
Obviously, the financial market is very challenging right now in the US. Maybe we feel it here in Japan as well, with rising inflation rates. Before, we had a nice run of ten years or so, with Allbirds and these other D2C companies that are doing good for the environment or for wellbeing. But the D2C business model is no longer as sustainable because it requires huge capital investment to reach a volume where it becomes profitable. D2C was supposed to be about lowering costs by eliminating retail shelf space, but the cost of acquiring customers online also runs to hundreds of millions of dollars. And we’re just not seeing that type of massive investment anymore.
Most VCs expect returns of five or ten times, which means that companies need to grow 30% to 50% per year at least. Some companies have actually had to go back to the brick-and-mortar model as D2C is not as economical as we thought. The lesson here is that not everyone can launch a sustainable fashion brand and succeed. But at least the concept has stuck in people’s minds, which is good. As consumers, we can vote with our dollars too.
Let’s go back to those differences between Japan and the West you mentioned. How do they play out in terms of acceptance of new ideas?
First, I think language is so important. Having words to use is so empowering. In Western countries, we’re starting to have a vocabulary of words we can use to express a lifestyle focused around sustainability and wellbeing. We can say ‘I do yoga’ or ‘I compost’ or ‘I think about regenerative’ or ‘I’m going to therapy’. And with TikTok and Instagram, that kind of literacy becomes widely accessible. It accelerates the collective mindset and builds community around these ideas. But in Japan, we don’t have those words in the collective jargon yet.
The way in which communities are formed is also very different. In the West, community-building is easier in some respects. Society is more diverse, so you need to build those community-connecting muscles, otherwise you wouldn’t have anyone to connect with. People are used to joining communities and taking on new roles. But in Japan, it’s more homogeneous. You belonged to your company or your club, and joining another community wasn’t really necessary. One theory that resonates with me attributes this to our rice-farming culture. Growing rice is something you do generationally and you pool resources with your immediate neighbours. It’s not something you can suddenly move to another place and start.
Stakeholder capitalism is an established concept in Japan, even a source of strength. What should the blueprint be for new startups that want to build on that strength but in a more impactful way?
As an investor in early-stage startups, I’m always thinking about this. Right now we see great startups like ‘mymizu’ and other impactful startups in the education or health access space. But what’s missing is the long-term capital investment. Social ventures in Japan often have a long-term perspective, but the current VC model of funding is too short-term. I’m really hoping that there’s more capital pulled into this space. In the meantime, companies starting from scratch should target huge opportunities rather than marginal betterments. If companies are solving huge problems like the ageing society and gender-related issues we see in Japan, then we can fund them with these types of capital.
There are historical precedents for this in Japan. This very purpose-driven company did emerge at key moments, for example during the Meiji transition or the immediate post-war period. When there was a very clear and aligned need such as feeding the population or providing affordable housing and clothing, new companies were formed to serve that purpose. We also needed a cohesive community, and companies were able to become that. But right now, for whatever reason, companies are not able to be that community of collectively learning and collectively thriving.
Is there anything that employees themselves can do to create that sense of community? Or is that the responsibility of leadership?
I think it really needs to change from the top. The level of commitment to this new purpose-driven management is so important. It trickles down to everything. I’m sure you see that too in the sustainable transformation projects you’re doing with clients. I have never seen companies have success with a purely bottom-up approach. A combination of both would obviously be the best.
For employees, I think job mobility is also important. They don’t want to be stuck in these large corporations where they’re not acquiring tangible skills and there’s no motivating purpose. So people are switching jobs much more than before. In the last year, ‘reskilling’ has become a huge buzzword in Japan, but it needs to be combined with purpose, not done on a surface level such as teaching mid-level employees how to code. Companies should be telling their employees what skills they need to learn and how they can apply those skills to achieve a great purpose at the company.
Job mobility will also be a great incentive for companies to think about dismantling the traditional ‘jinjibu’, or HR function, which has a relatively black box way of assessing and promoting people, perhaps based on how obedient they are rather than their actual performance. Removing age-based seniority and the rotational system will also help, even if that’s scary for some Japanese companies. I do see large corporations introducing non-new-hire tracks, so slowly those two systems are merging. Other companies are still stuck because they don’t know what to do. But they can still get started with small initiatives and by involving outside perspectives. That’s what I would advise.
In short, creating a sustainable, purpose-driven company requires clear alignment from top to bottom. This is easier for startups, but more difficult in large organisations, especially when mid-level employees feel they aren’t learning or thriving.
We heard from Suzuki-san that startups should think big in order to attract investment. Should big companies think like startups? This kind of transformation doesn’t come easily to large organisations, especially when mid-level employees feel they aren’t learning or thriving. At Fabric, we believe innovation is the best way to accelerate learning, self-actualisation, and even purpose, as it creates a collective, focused environment that can be a more effective learning experience than many L&D courses. We’re already finding that innovation programmes can be a tool for change on many levels.
Fabric is a Strategic Design and Sustainability consultancy helping businesses move towards more innovative, sustainable futures. Based in Tokyo, we’ve been consulting with global and local companies since 2004. We have extensive experience bringing together design thinking, sustainability, and human insight to deliver good strategy for clients.
