Reflection on the multi-business strategy of Raksul
The 5 years Raksul, my previous company, went public and the decision to change CEO
In this issue, I would like to talk about the five years that followed taking my first company, Raksul, public in 2018. Since going public, we tried to expand along two lines. The first was developing new business lines such as Hacobell, Novasell, and Josys.
The other was mergers and acquisitions. We acquired companies in the peripheral areas of Raksul, such as a corrugated cardboard company called Cardboard One, an easy website creation service called Peraichi, and most recently a company specializing in the production of seals used for signing personal and business documents.
How did these multi-product growth attempts work out as a result? I would like to share with you our reflections. I would also like to tell you about my decision to step down as the CEO of Raksul in 2023 in order to focus on Josys as an independent company.
Can we revolutionize the logistics industry?
After Raksul, the first business we developed internally was Hacobell. Simply put, Hacobell is an app for small and medium-sized transportation companies and truck drivers. We receive job requests online, and then post the information to our network. Drivers can look at the offers and work in their spare time. It is truly an "Uber for trucks" business.
We actually started Hacobell two or three years before we went public. Raksul’s vision is "Better System Better World.” The company wants to change the structure of various industries, not just printing, to make the world a better place. When we were looking for a BtoB space where a sharing model could be established in the same way as printing, we found that the logistics industry was very close.
The size of the printing industry was approximately US$24 billion, with the top two companies accounting for 50% of the market and another 30,000 companies taking up the rest. On the other hand, the Japanese logistics industry has a market size of approximately US$14 billion, with the top 10 companies accounting for 50% of the market and 60,000 small and medium-sized transportation companies competing for the rest. Both printing and logistics had a similar industry structure in that there were many subcontractors.
We thought we could create a huge transportation company by building a network of these small transportation companies in the industry. Then, if we could create a service that would let end users directly benefit from that network’s overall capacity, we would be able to revolutionize the structure of the industry in the same way as we had the printing industry. With this in mind, we started Hacobell at the end of 2015.
In the early stages of the Hacobell business, we struggled on-the-ground, just like at Raksul. I went to the information sessions of the transportation companies myself to understand how the industry was structured. I even got to ride in the passenger seat of a truck to see the driver's work up close.
My investment for the first two years or so was not that large, but after the company went public, we began to increase our commitment. At the point of our IPO, 95% of our sales were from Raksul and 5% from Hacobell.
Switching to a Joint Venture
After Hacobell was launched in December 2015, it spent 2016 just getting off the ground, and then it operated on its own for about six and a half years. But eventually we made the decision to stop growing it just by ourselves. That was because it was difficult to create more profitability than we had envisioned.
Hacobell is a marketplace commission business, but the average gross margin in the logistics industry is less than 10%. We took various measures to increase the gross margin, but it was not getting beyond about 15%. In the case of printing, we were able to achieve overwhelming cost reductions through economies of scale. That is why we were able to provide added value to our customers. On the other hand, using technology to match transport companies with jobs did not create enough significant added value.
Although we continued to make large investments, it was difficult to increase profitability. From the customer's perspective they would say, "What is the difference between using Hacobell and the local transportation company I always use? It's convenient to use an app, but why not call like I usually do?” Because we couldn't offer a more convenient way of setting up shipping it took us a very long time to grow our business.
As a result, in August 2022, we decided to switch to a joint venture with Seino Transport. Seino Transport is one of the top five transportation companies in Japan. We decided to have 51% of the shares held by Seino Transport and 49% by Raksul. By joining a major group, Hacobell has been able to grow significantly.
Revolutionizing TV Commercials
After Hacobell, we started Novasell. Simply put, Novacel is a DX for TV commercials. Aiming to become "TV Commercial 2.0," Novacel is a one-stop provider of services ranging from the production and airing of TV commercials to measuring and improving their effectiveness.
Why did we start the TV commercial business? We started by considering that many of Raksul’s customers are SMBs, and they order flyers from within their promotional budgets.
This was the foundation of our growth, but we realized something along the way. Is what the customer wants most really "ink on paper"? No, it is not. What they want most is to increase the number of their own customers. They just happen to do that by distributing flyers. We thought that we might be able to increase the number of customers for these SMBs if we could help them use TV commercials.
We came up with this idea precisely because we ourselves had been able to grow our business by using TV commercials. We were able to measure the effectiveness of our TV commercials completely digitally, and we were able to improve the efficiency of our TV commercials. There are many people, even among listed companies, who think that TV commercials are too expensive and the effects are difficult to see. We thought that if we could offer our know-how to our clients, we could provide them with a new channel to attract customers.
In 2017, the idea was born and, in 2018, the CMO of Raksul at the time launched it from scratch as a product within the company. From 2020, it was carved out and began providing services as an independent company under the brand Novasell. The first two years were very successful, with sales of about US$100 million.
Our initial customers were mainly start-ups. Startups that have raised funds want to grow efficiently through TV commercials. Since we had invested in TV commercials as a startup, we were able to provide our clients with the know-how to grow successfully in a similar situation, and we were able to grow together. However, when interest rates in the U.S. rose in 2021 and it became more difficult for startups to raise funds, the purse strings tightened. Sales dropped to less than half at one point, but we shifted our client base to mid-sized and large companies, and now we are back to near our original sales level.
The third business is a service called Josys, which was started in the pandemic disaster. It launched in 2021 and I took it independent in 2022. Since then we have raised $125M in venture capital and are now expanding globally. Check out the full story here.
Growth through M&A
Next, I would like to talk about M&A.
One very successful M&A was the acquisition of a company called Cardboard One. Simply put, it is a corrugated cardboard version of Raksul. Cardboard One does not print or assemble corrugated boxes on its own, but rather provides a network of corrugated box printing and assembly plants in Japan. They take orders online and have the corrugated boxes sent from each assembly plant. We acquired a half stake in Corrugated One in 2020, and then went through M&A the following year. The company's sales in August and September 2020 were about US$20M but were over US$70M by 2023.
We also did M&A of a company called Peraichi. This is a service that allows users to create a website with a single click, similar to Squarespace. After acquiring it in September 2020, its sales have increased fourfold in three years. Finally, we acquired a different sort of printing company - this one produces the official seals used for many documents like contracts in Japan.
Trial and Error in Building an Organization for an In-House Business
Unlike M&A, which was smooth from the start, the TV commercial, logistics, and IT management businesses, which were launched internally, involved a great deal of trial and error.
The new businesses were completely off the beaten path. This had the disadvantage of making it difficult to use existing know-how, but as a new business, there were great opportunities lying ahead. I was determined to make it work.
Trial and error is a particularly important aspect of organizational development.
When we promote a new business, we rarely transfer people from the Raksul business. Hacobell and Novacel did not transfer members from the Raksul business, but hired core members from outside.
This approach of having newly hired members assume leadership had both positive and negative aspects. The good side was that core personnel were concentrated in one place. On the other hand, the bad side was that it was difficult to create synergy. I have strong regrets about this. We have created a situation where we are the same company, but we don't know each other's businesses. This is a situation where synergies cannot be created.
Novasell is now a growing business within Raksul, but it also developed its own center of gravity. It exists within a single company, but it operates independently. In other words, it was in a decentralized state. When decentralized, each organization has to keep making breakthroughs on their own. It is difficult to reproduce. We could no longer share the customer base we had built up, and each business had to search for customers from scratch. That is why it was not efficient.
At that time, I often told my leadership, “Let’s centralize”. As our portfolio of businesses grew, we began to say, "Let's create our own centers.” However, I think this became a kind of decentralization. I thought that if we first let the Raksul business centralize, and then let each business centralize, we would be able to create a kind of platform, but this did not work out very well. There is still a need to "centralize" the business. Now we are back to a strategy of concentrating on making a common core.
Entrepreneurial qualities may be a special ability
Another area of trial and error was leadership.
In the beginning, I thought that if a good leader had the passion for the business, it would be successful. If they had a portion of the equity and were incentivized by the equity, the business would succeed. In reality, however, things did not go as smoothly as I had hoped.
Entrepreneurs who create something from zero to one are faced with all kinds of difficulties on a daily basis. Stress is high. Even though there are difficulties, they manage to overcome them with ingenuity. You have to do this not once a year, but about three times a day. If you keep doing that, you can make a big change.
When I speak in interviews, I often tell a beautiful story, but in reality, I go up and down, jaggedly and jaggedly, every day. I feel like I am "going down and down and down all the time." But when I take a step back and look at it, I often find that it is rising at a tremendous pace. I think that is the lifestyle of an entrepreneur.
You need to manage well what goes down and up. Ride through the roller coaster of going down and up again. Lots of moves, lots of corrections. At first, I thought that if the right people were given the right place, they would be able to manage these things. In reality, however, I was not so naive. I realized that the qualities of an entrepreneur may be a kind of special ability.
It is very difficult to create a business from scratch without a foundation. It is truly up to the individual, and reproducibility is low. Therefore, from a business perspective, it is inefficient. I am passionate about building something from zero to one, and although zero to one is a hard thing to do, I love it. So I thought others could do it, but I guess it is not for everyone.
In that regard, the reason why the M&A worked so well was because we sent the Raksul team to a place that already had millions of dollars in sales, value to offer, and a value chain in place. Cardboard One also sent dozens of people from Raksul, and as a result, sales more than tripled.
If we can make the Cardboard On" business grow and become a part of our company, and if we can create a state in which we can provide services to our customers, we will create great value. If this is the case, I began to think that it would be better for the company to take the approach of "turning 1 into 10 or 100," which is more reproducible, rather than "starting 1 from 0," which is less reproducible. This would increase the value we can offer not only to our customers, but also to our partners and shareholders.
After achieving zero to one, another ability is needed to further increase the value of the company. Therefore, if companies that are struggling in this area of growth or struggling with team management were to join Raksul, everyone would be able to grow happily. This is what I came to think.
Why did you hand over the CEO position of Raksul to your successor?
In fact, I used to dislike M&A.
Nagami, who was CFO at the time, was the one who pushed for M&A. But when I opened the door to M&A, I realized that I had made the right decision and that Raksul grew very much through M&A. I don’t dislike it anymore.
However, what I am passionate about and good at is the part of starting up from scratch. For the future of Raksul, we need to maintain a balance between firmly promoting M&A" and establishing internal businesses. In other words, it is necessary to shift from management that creates one from zero to management with a high degree of maturity by utilizing a larger balance sheet. Under such circumstances, I began to wonder if I was really the right person to take the helm of Raksul.
Raksul is now a company of a certain size that will generate about US$400 million in sales and US$30 million in free cash flow by 2023. It is also tasked with 30% growth every year. Under such circumstances, continuing to pursue a strategy of launching all businesses by ourselves would be a bottleneck to the company's growth. It would be better to utilize M&A more for businesses close to existing businesses. Instead of doing various things, it would be better to focus more on Raksul’s business and switch to growth in the form of increasing various commercial products by ourselves or having them grouped in through M&A.
Also, behind the scenes, the company I started, Josys, was growing rapidly; we started in September 2021 and raised US$32 million in Series A funding in September 2022. The team was also expanding globally." I felt that it would be difficult, both in terms of time and ability, for me to complete both launching one from zero on a global scale and changing Raksul’s direction.
Therefore, I decided to have CFO Nagami take the helm of Raksul and concentrate on Josys, which I had established myself as a subsidiary of Raksul. Now Josys has become an independent company, has received outside capital, and continues to grow steadily as a global company.
All for the Realization of a Vision
It is interesting to note that Nagami and I decided at about the same time that we thought it would be a good idea to replace the CEO of Raksul. I think it was because we were both looking at the same view.
We are both managers of publicly traded companies. Basically, our responsibility to our customers, employees, shareholders, and partners is to increase the value of the company. Our mission is to maximize the value of our stakeholders. When I thought about it, it was not the best for Raksul to have my passion and time devoted to Josys. The most important thing in Raksul is the Raksul business. In order to maximize the value of each, we both thought it would be better to change. We were able to talk at the same time because we had the same responsibilities as managers. In this sense, I feel once again that Raksul is truly a group of professionals.
My passion is to build a business on the ground. At the same time, as a management professional, I make rational decisions. In order to realize our vision of "Better system, Better world," I will centrally raise my hand when I have to, and pull back when I don't. Everything I do is to realize our vision. I will take myself where I can apply my passion to realize our vision.
If you look around at the many serial entrepreneurs around the world, not many of them have been the CEO of a publicly traded company for five years. Confronting shareholders, multiple businesses, and organizations, they ask, "How can we scale this company?" How can we create a business that realizes our mission?" I have had many failures and successes. Based on these questions, I am now ready to take on the challenge of changing the world on a global scale. A new chapter begins here.