Masaru Tange is president and CEO of SHIFT Inc., which does business in the software testing market that is worth five trillion yen. With major systems integrators as clients, SHIFT is growing rapidly and increasing its sales by 150% thanks to its great expertise in this field. Toshio Motoya spoke with Tange, who is also the founder of SHIFT, about his secrets to success and the company’s stance as a start-up.
(M) Thank you for joining me on Big Talk today. I invited you after seeing a photo of a SHIFT Inc. party. I wanted to talk to you because I was impressed by the huge number of people and the company’s vitality.
(T) Thank you for inviting me. Today our Group has 4,000 employees, 1,200 of whom work at SHIFT itself.
(M) You are known as a businessperson who achieved great success at a young age. I heard you started the company when you were just 31. It’s amazing that you’ve surpassed annual sales of 20 billion yen in just 14 years.
(T) Our consolidated sales forecast for this year is 28 billion yen.
(M) That’s amazingly fast growth, even more so than the APA Group. Of course our companies are different, and it takes time to build hotels and condominiums in my industry. I hope you will tell us about the keys to your success today. How did you get into your current business?
(T) Today I hope to start our discussions from a fundamental perspective. I founded SHIFT Inc. 14 years ago in 2005 by myself, and my office was my apartment in Tomigaya, Shibuya City. I launched SHIFT because I’ve dreamed of being president of a company since my sixth year of elementary school. I grew up in Jinsekikogen, a small town of 9,000 people in the northern part of Fukuyama City, Hiroshima Prefecture. Both my parents were civil servants. When I was in my fourth year of elementary school, they asked me how I intended to support myself in the future. Maybe because I was so young, the concept that my mother wouldn’t always cook for me was frightening. Back then the Hiroshima Toyo Carp were hugely successful, with Koji Yamamoto and Sachio Kinugasa playing under Coach Takeshi Koba. Even an elementary student knew Yamamoto earned 80 million yen a year, and my childlike assumption was that my mother would cook for me if I paid her about 30 million. That’s why my response was, “I want to be a pro baseball player!”
(M) That’s a cute line of reasoning.
(T) I kept playing baseball in hopes of becoming a professional athlete, but my team suffered a crushing defeat in a regional competition in my sixth year of elementary school. I realized for the first time that going pro isn’t so easy, and I thought I had no chance of succeeding. As an elementary student, the only other professions I knew were celebrity, politician, doctor, or company president. The boy seated next to me at school was the son of a company president, and he always had fancy lunches like rice bowls with beef, even though his grades weren’t very good. I thought I could do better than him, and my future dream from grade six was becoming a company president.
(M) My father was a businessman, and I decided I wanted to become one too at a fairly young age. It sounds like your dream was unrelated to your parents’ jobs.
(T) Yes. I entered Doshisha University’s Faculty of Engineering because I wanted to invent robots to care for my bedridden grandmother. However, I didn’t study very much and my grades were bad. I graduated into an extremely poor job market and was turned down by all 11 companies I applied to, including Honda and Toyota.
(M) Were all of those major companies?
(T) They were. That’s why I ended up in a master’s program at Kyoto University to take another look at myself.
(M) Kyoto University is a great school.
(T) It was my last chance to do something with myself, so I studied extremely hard. Two years later, I got a job at INCS (currently SOLIZE), a consulting firm in the manufacturing industry. I also considered major systems integrators and consulting firms, but INCS was the only company that had its own factory. INCS was known for helping companies increase metal mold efficiency to manufacture various product components, and it did business by selling the expertise put in practice at its own factory.
(M) So you chose INCS because it worked with real products, rather than just doing consulting.
(T) That’s right.
(T) INCS was a small company with around 60 employees when I started in 2000, but five years later it grew rapidly to a scale of 1,700 employees, and it was even covered by The Nikkei on New Year’s Day. The key to this fast growth was that it developed a process for making mobile phone precision molds in two days – something that used to take two months. I created the mechanism that was needed to transform craftsmen’s skills from tacit knowledge into explicit knowledge, which was used for standardized, automated manufacturing.
(M) That reduced time frame is a major asset in the manufacturing industry. It makes sense that led to fast-paced growth.
(T) Through that process, I improved my know-how about how to standardize the techniques of highly skilled technicians. I offered consulting on applying this to enhance productivity at major automotive manufacturers like Toyota and Nissan. Consulting fees are calculated monthly, and top consulting firms like McKinsey charge around eight million yen per person per month. I asked for 15 million yen by myself, and I achieved annual sales of 200 million yen on my own. I decided to launch my own business by the age of 30, and felt I had to meet three requirements to do so. First, I had to make money on my own. Once I could do this, I had to master management skills. Finally, I had to learn about money. I decided I could do that after I started my company, so I quit at the age of 30, when I had met the first two criteria. That’s when I established SHIFT.
(M) Most new companies go bankrupt in their first year. I think only one out of 10,000 grows like yours. It’s a simple thing to become president of a company, but many companies go under. What type of business did you do initially?
(T) I’m embarrassed to say this, but first I just wanted the title of “president.” We had no business model when starting out, and I hadn’t even decided what to sell. The only thing I had determined was the name “SHIFT.”
(M) Is that like the gear shifter of an automobile?
(T) The company name refers to “conversion” or “transfer.” I was born in 1974 during the second Baby Boom, and 2.2 million people graduated the year I did. It was difficult to get into college and there were no jobs when we graduated – around 600,000 of my peers couldn’t find employment. Still, my generation earned roughly the same as our parents, and we made enough money to live. Unlike our parents’ generation, money alone isn’t enough to motivate us. I don’t believe in socialism, but I’m also not totally comfortable with capitalism. I named the company “SHIFT” because I thought some type of shift would take place to a third option in terms of doctrines and values, and I wanted to help accomplish this. I also preferred a short name. There was already a company in Shibuya named “Shift” that wrote its name in katakana characters, so I went with the alphabet. I asked a designer friend to make the logo, and I spent about 100,000 yen including the website and business cards (laughs).
(M) APA’s corporate identity cost hundreds of millions of yen (laughs).
(T) That might be true if we were starting out today. Our logo is red because that’s the color used by all major Japanese companies like Honda and Toyota. The letters are slightly tilted to evoke a sense of progress and speed. Our logo expresses that we are a company that helps shift to new values. You can’t hire talented employees just by talking about money – you have to get them interested at a higher conceptual level.
(M) Did you launch the company by yourself?
(T) Yes, I was all alone during the first year. I worked in my home office by visiting company websites, offering my services, and then being hired to consult. Things were unstable during the first five years. I also got involved in businesses like mobile phones and new advertising models, but none of those were successful.
(M) Did you start out with a five-year business plan?
(T) Not at all. My vague goal was to be frequently covered by The Nikkei within five years and to make our initial public offering after 10.
(M) You were actually listed on the Tokyo Stock Exchange Mothers Section after nine years and on the First Section in October 2019.
(T) Yes, I’m happy to say that’s true.
(M) When did you become involved with software testing?
(T) The full-on start was 10 years ago in 2009. Two years before that in 2007, a major e-commerce site operator asked us to consult about software checking. That company outsourced all of its checking back then at the cost of 700 million yen, but the results were of poor quality. Testing was outside of our wheelhouse, but I did some research and learned the client’s three contractors lacked expertise. The client paid the asking prices and didn’t receive any competitive bids, which was like a type of exploitation. We standardized the work tasks, created an exam to choose testers, and built tools to develop testing know-how. After one year, the client’s testing costs fell from 700 million to 100 million yen.
(M) It must have been thrilled!
(T) It was. We are skilled at B to B work between companies, like my previous position. I realized this business involves standardizing and automating technicians’ tacit knowledge. I did this in the manufacturing industry during my 20s, and I decided to move into the IT industry.
(M) It must have helped that your first job was from a major company.
(T) Of course. That job came from my former boss at INCS, who was working at the client company. INCS had many superbly talented employees, and those who quit are doing great things in different fields. Former INCS employees include Google developers and the president of YUKI Precision, which was visited by the crown prince. Half of the 80 graduates hired in my year had doctorates from the University of Tokyo.
(M) That’s remarkable. Just like INCS of the past, you are achieving rapid growth while expanding your staff and earning profit.
(T) The software testing market is said to total roughly five trillion yen. Only 1% of this is outsourced. The remaining 99% is performed by major systems integrators that do actual software development, at about twice the price SHIFT charges. SHIFT receives orders because we are an expert group that costs half the standard price. We hire 1,000 employees each year and have become the number-one Japanese company in this industry.
(M) Becoming number one in your industry is of premium importance, because that position brings tangible things and information. First you become number one, then you grow from there. Everyone says Mt. Fuji is the tallest mountain in Japan, but no one knows which is the second highest.
(T) I agree. Testing comprises 40% of software development work, but developers fundamentally dislike this work because it’s tedious.
(M) It does sound like testing involves little creativity.
(T) We pay testers high salaries, but we also give them a sense of motivation. When developing software, the costs often swell from 1 billion to 1.5 or 2 billion, and delivery is often delayed. There are two major reasons for this. The first is that customers repeatedly change their specifications. The second is that defects crop up frequently. It’s hard to stop customers from making changes, but we can certainly keep down the number of defects. Using our expertise as a type of quality control to reduce defects in programs is a more challenging mission, but I advocate that this should be the final career path for software developers. We have actually shifted the awareness in the industry, and testing is now seen as a more highly paid and worthwhile job than development. This reformed awareness is why we can hire 1,000 employees every year.
(M) How many clients do you have?
(T) As of now, our past clients number more than 1,200. We’ve tested over 3,000 products.
(M) It sounds like there is still major potential for growth. Last September, APA Hotel opened APA Hotel & Resort Yokohama Bay Tower, which is one of the largest hotels in Japan at 2,311 rooms. We will open a hotel with 2,023 rooms in Nanba, Osaka – one of the biggest in western Japan – in 2023. APA Hotel & Resort Ryogoku Eki Tower, with 1,111 rooms, will be opened as one of the largest hotels in Tokyo in spring 2020. We are currently designing and building 53 hotels with 17,000 rooms, which is something I think only APA is capable of.
(T) Yes, it seems like you’re opening new hotels every week.
(M) We’ve been increasing our hotels before the Tokyo Olympics, but we will keep opening many new ones from 2020 on. APA Hotel is finally recognized as Japan’s top hotel chain, which helps draw customers. The biggest reason is our membership system that was launched when we entered the hotel market. I’m the first member and the president of APA Hotel is number two. Today we have 17 million members, which is of course the largest number in Japan. APA Group started out with order-made housing, and we shifted our business while striving to maintain the number-one position in that field. I imagine SHIFT’s number-one position also attracts clients and employees, allowing for highly profitable management. I once saw a SHIFT TV commercial that wasn’t aimed at customers.
(T) Yes, it was for potential new hires. It’s said there are one million IT engineers in Japan, of which around 30,000 change jobs and 970,000 don’t leave their positions. Three thousand are searching for new jobs every month, and 1,000 of these – the equivalent of one third – contact us each month. We hire 1,000 employees every year, but we want to hire even more, so we are trying to motivate the other 970,000 IT engineers and invigorate the job-change market to get more applicants.
(M) You must need a huge office to accommodate this increasing number.
(T) We often test customer software for unreleased services, a job that requires strict security and can only be done at the office, which has to be spacious. We currently rent six floors of a Mori Trust building in Tokyo near the Iikura intersection for about 2,000 workers. I think we will have to move into a bigger building in a more convenient area going forward.
(M) It’s good to be in a convenient location, even if it costs a bit more.
(T) Yes, I want to keep that balance in mind.
(M) I expended into Tokyo for the first time during the asset bubble, and got an office on the eight floor of Ark Hills because I heard it was the most luxurious office building in Tokyo. But we returned quickly to Kanazawa after Black Monday in 1987. Other companies in the industry thought things would improve if they just hung on, so they missed the right timing and went bankrupt when the bubble burst. Companies run by so-called “salaried workers” went under, but I could decide to withdraw at an early stage because I am the sole owner. Determination is crucial.
(T) I’ve had a similar experience. As I mentioned before, the order from a major e-commerce company was one of our turning points. We tried to make a full-on entry into the testing market in 2009, but that company didn’t want to let go of the most talented consultants and test engineers at SHIFT, so we couldn’t do projects for other clients. I had no choice but to end the contract. Our sales fell by half and we had no work for the following year. However, we built a track record thanks to an order from a company in Iwate Prefecture, and our sales have grown favorably.
(M) Your courageous decision led to falling sales on a temporary basis, but it also brought the great success you enjoy today. Thank you for sharing such a fascinating conversation with me. At the end of the interview, I always ask for a “word for the youth.”
(T) Being an entrepreneur is hard, and repeated, steady efforts account for 99% of your work. However, you feel joy when creating new things, contributing to society, and working with more people. I hope young people will persevere and do all they can to achieve what they’ve set their minds to.
(M) I believe a businessperson’s success depends on his or her personality. You will do even greater things, and I look forward to seeing your future efforts. Thank you for joining me today.
(T) Thank you.
Born in Hiroshima Prefecture in 1974. Graduated from the Department of Mechanical Engineering and Science, Kyoto University in 2000. Tange started working at INCS Inc. (currently SOLIZE Corporation), where he grew the Consulting Division from three employees to a staff of 140 and sales of five billion yen in just five years. He was appointed manager of the Consulting Division in September 2005, then founded SHIFT Inc. and became its president and CEO. The company was moved from the Tokyo Stock Exchange Mothers Index to the First Section in October 2019. Based on the concept of aiming to “realize a smart society” and becoming a social infrastructure company, Tange drives the SHIFT Group’s rapid progress while building greater value for the company and moving it into new phases.