The New Wave of Startups Pioneered by Cerevo, Creator of Connected Hardware: Interview with Cerevo's Takuma Iwasa - Part 1

For the seventh installment of this series, we spoke with Takuma Iwasa of Cerevo, a company developing connected hardware. This time, we present a two-part discussion with Tomonori Kagaya, a new business development planner who developed the brainwave-controlled cat ears "necomimi" for the neurowear project. Together, they explore how hardware startups create compelling products, Cerevo's vision for connected hardware, and strategies for global business expansion. Mr. Iwasa will share insights from his own experience, covering mechanisms for selling hardware worldwide and how major shifts in societal trends have impacted the industry.

(From left) Dentsu Inc.'s Mr. Nakajima, Cerevo's Mr. Iwasa, Mr. Kagaya

The mechanisms for showcasing products globally, facilitating payments, and distributing them are becoming simpler.

Nakajima: Cerevo exhibited its sensor-equipped snowboard binding "SNOW-1" at the 2015 International CES (the world's largest international consumer electronics show) and won the "Top Tech of CES" award. You're competing on equal footing or better at CES, where the world's top manufacturers gather. What's the background behind such products emerging, and where does the strength to compete globally with connected hardware come from?

Iwasa: For us, it became inevitable to compete internationally using the few industrial sectors and technologies Japan can be proud of.

　While we held that conviction, internally we discussed how the initial leap into overseas markets presented a high hurdle. In industries producing conventional goods, the typical path for a startup is to secure a domestic market share before expanding abroad. I shared that view, believing it was the standard approach. With only five founding members, focusing maximum resources on a specific niche felt like common sense.

　However, when we launched our first product, a camera, in 2010 after founding the company, it didn't sell as well as we'd hoped. So, somewhat on a whim, we decided to try selling subsequent products in the US and created an English website. Once we did that, we started getting a significant number of inquiries from overseas. This made us think, "Maybe this could work," and shifting our strategy became the catalyst for our overseas expansion.

　Selling 10,000 units domestically is tough. But we reasoned that finding 100 enthusiasts worldwide would be easier. We calculated that selling 100 units per country across 100 countries would reach 10,000 units. There are actually quite a lot of people with many hobbies, strong preferences, or who buy anything through international shopping. We hypothesized that so-called hobbyists exist worldwide, and if we could just manage the English, they would respond and buy. From there, we inevitably ramped up overseas sales immediately, realizing we couldn't sell otherwise. That's when we set our company strategy as "Selling niche products globally."

Nakajima: It must have coincided with a major shift in distribution, right? When Cerevo was founded in 2008, worldwide shipping was still quite challenging. It feels like we aligned with the trend where shipping products globally became relatively easier.

Iwasa: Exactly. When we started, PayPal wasn't that mainstream, and the entire process—showing the product, processing payment, shipping the item—wasn't well-established.

　Even looking at eBay, far more items were being traded between people of many nationalities compared to Japanese auction services. Also, Alibaba originally focused on B2B. We source most of our parts from manufacturers found through Alibaba, and those manufacturers also seem to have clients all over the world.

Strategy for Competing in Connected Hardware

Nakajima: Given that you've managed to attract users who find your product interesting and have the infrastructure in place to sell globally and source parts, what kind of products are you planning to launch?

Iwasa: We're taking a hit-or-miss approach there. I'm not particularly fond of the term "IoT" (Internet of Things) because it originally referred to internet-connected devices but now includes non-connected items like wearables. However, I envisioned a future akin to "Doraemon" or "Back to the Future," where various everyday objects around us start integrating with the internet or smartphones. ...For example, imagine digitizing the slippers you use every day in the bathroom. They could automatically measure and record your weight and body fat, becoming a very useful item. You can buy bathroom slippers at a dollar store, but if you add sensors, you could sell them for about 100 times more—around 10,000 yen. Even if we developed slippers with built-in scales, the top slipper manufacturers couldn't follow suit. They lack circuit designers, can't source electronic components, and don't have the sales channels to reach electronics retailers. Adding unprecedented value to industries unrelated to electronics and storming into them is the new theme since SNOW-1. We plan to continue launching products based on this theme.

　Furthermore, while selling something that used to cost 1,000 yen for 10,000 yen is normally unthinkable, I believe people are more willing to spend in areas where users compete against each other. Sports like golf are a good example. People are willing to pay 5 to 10 times the price to beat that guy or impress the girl they like. That's why we decided to try products in the competition & sports field.

Kagaya: With sports equipment, the higher the specs, the more people are willing to pay, right?

Iwasa: Take golf balls—they're essentially just rubber, yet some cost 10,000 yen each. But manufacturers can justify that price as development costs. Selling those high-tech slippers for 100 yen would require immense effort; we couldn't compete. But with golf balls, we thought we could make a reasonably good product at a ¥10,000 price point. We targeted sports with competitive elements and professional players, rather than educational ones. Even within that, we couldn't tackle huge categories like golf or tennis. Dozens of IoT devices for golf clubs already exist, and major electronics manufacturers have entered the tennis racket market. After eliminating other uncompetitive categories, we arrived at snowboarding.

　Unlike those fighting in the app world, I believe the hardware world is much easier to compete in. Even within sports alone, if tennis and golf have strong competitors, you can easily shift to other sports markets. In the smartphone app world, if you decide to quit social games because monetization is too competitive, there's nowhere else to run. Even if you switch to another app category like accounting, competitors are everywhere globally. Hardware still offers opportunities for blue ocean strategies; there are huge markets full of products that haven't been digitized or integrated with smartphones.

Doing business overseas isn't that big of a deal; the barriers aren't high.

Nakajima: In sports, besides the competition itself, the cool factor is also a reason people spend money, right? Adding connectivity and expandability instantly creates new value, allowing you to target global niches.

Iwasa: Talking with people in Europe and the US, that "I bought the new one because I want to beat that guy" mentality is universal. When inquiries started coming in on our English site, I initially imagined foreigners had completely different tastes, buying behaviors, and mindsets than Japanese people. But I realized, "Oh, we're all just human after all." To me, the difference feels about as big as between Kansai and Kanto people (laughs).

　We get hundreds of user support inquiries every month, and people often ask, "Surely it's different by country?" But most can be handled by copying and pasting responses from Japanese inquiries. The timing and phrasing are the same, even down to the pattern where someone says "It's defective, replace it!" only to find they'd set it up wrong. It's the same at trade shows – we get asked the exact same questions in every country.

Kagaya: When we launched necomimi, the questions converged in a similar way too. It makes you wonder if the buyers aren't just the same cluster of people.

Nakajima: Hearing stories like this really encourages younger people, I think.

Iwasa: One thing I can say for sure is that you should completely forget about the idea that going overseas is a huge hurdle. That era is over.

Kagaya: Is your overseas base in the US?

Iwasa: While we do have a rented office in Seattle, you can think of it as operating with virtually no overseas base.

Nakajima: Design and basic operations seem to be handled solely in Japan, with procurement in Japan and Asia. Where is the assembly (the process of putting the product together) done?

Iwasa: It varies by product, but the main location is Shenzhen, China. We also do some in Manila, Philippines, Ho Chi Minh City, Vietnam, and a portion in Taiwan.

Kagaya: Do you ship directly from the production sites to consumers?

Iwasa: Products from China are consolidated at a warehouse in Hong Kong and then shipped from there to distributors worldwide. It's not direct shipping to individual customers, though.

Nakajima: In that case, Seattle doesn't really serve much purpose, does it?

Iwasa: Seattle does have a purpose. Since North America has high shipment volumes, we use it as the return destination for defective products under RMA (Return Merchandise Authorization). Returning items to Japan would incur extremely high shipping costs. In the EU, distributors handle the RMA function, and returns go to a warehouse in the Netherlands. Additionally, for individual users within the US, we first store items in a warehouse we rent in Seattle and ship from there.

Kagaya: So you're fully equipped for global operations.

Iwasa: I think there's always been this narrative in Japan that doing business overseas is impressive. But we don't see ourselves as doing anything extraordinary, and we're not actually doing anything extraordinary. We're just running a small business. I think running a large business domestically is more impressive. It's just about showing there's this new form. Whether it's domestic or overseas is like the difference in hairstyles. It's just a difference in approach, like whether you go short, get a bob, or wear a ponytail (laughs).

Nakajima: But that hairstyle difference has the strategic elements you mentioned earlier, right?

Iwasa: For example, a ponytail pulls your hair a bit and hurts, but it's cool. There are several inevitabilities to it, like attracting guys who like sporty girls (laughs). We're just using the budget other companies spend on promotion for our overseas expansion, handling RMA and global shipping.

　Japan is a small country with many manufacturers, so I think competitors emerge easily for us. By decentralizing like an amoeba organization, we make it harder for these competitors to damage us, even if they have momentum. Also, while manufacturers' procurement is basically dollar-denominated, our business model has the advantage of not being affected by yen exchange rates. Overseas sales are about half now, but we want to grow that even more going forward.