Digital subsidiary advisory board makes full use of outside knowhow to accelerate growth of inhouse startups

SMBC has launched a string of digital subsidiaries out of the “Producing new CEOs” initiative started by our late CEO Jun Ohta. Some of these are growing exponentially with an IPO within sight—but others are not going according to plan. While partnering with Group companies makes it easy for our digital subsidiaries to achieve a good growth curve in their first two or three years, they can also hit a ceiling after that because of the difficulty of developing their own sales channels and so on.

On top of that, as the parent company and shareholder, the Group should be able to advise these digital subsidiaries at critical junctures, but the fact is that we have few personnel with practical experience in startup management. We addressed this gap by setting up an advisory board of external startup experts to give us practical advice.

There are two broad categories. One is getting advice for the Digital Strategy Department, which handles digital subsidiary management, so as to upgrade inhouse startup management. The other is seeking board members’ views on daily business and management problems that our subsidiaries are struggling with.

I already had the sense that SMBC Group is really proactive on change and serious about its inhouse startups, and the idea of using an advisory board to actively absorb external knowhow to help those startups grow feels very fresh and interesting.

When I was handling the management buyout (MBO) for part of the business of a listed company, I borrowed the funds from SMBC. Although an unsecured bank loan was the only option at the time, I was still very grateful to have had that opportunity. Our company for Startups also has multiple points of connection with SMBC Group, including providing the Group with access to our startup database, having SMBC Group become the anchor investor for a for Startups fund, and also entering into a business alliance in 2020 to accelerate startup growth.

There’s no one within SMBC Group—even the executive officers—who has built a listed company from scratch. We learned a lot from our experience of carving out a new business via a company split and conducting an MBO to go public in the shortest possible time, so I thought it would be helpful to talk about that experience and give advice. I also believe that getting involved in this initiative will benefit the whole startup ecosystem.

Being a Group startup imposes a certain amount of control, so the key issues become how much independence the subsidiary can secure within that and how quickly it can address not only growth but also the establishment of its own internal governance system. The company president has a huge role in realizing this.

When I was at the Carlyle Group (a multinational private equity company), I would get carve-outs from investment to exit in five years. Growing a subsidiary as an independent company requires providing it with the necessary capital of people, goods, and money and building the necessary mechanisms to do so. To ensure that the company can focus on the actual business, I think it’s important to effectively utilize SMBC Group capital, appoint a CEO with a mindset geared for success, and work out how to build both expectations and the mutual trust that encourages the effort to live up to them between the subsidiary and the Group as shareholder.

Japan still has a strong tendency to lionize big companies, but globally these days, innovation is king. Startups launched by big companies might run counter to that trend, but conversely they could be regarded as a challenge to which Japan is uniquely suited and could even end up having a global impact. A bold approach to strategic support and incentive design will be critical in optimizing the use of SMBC Group assets and creating high-growth companies.

Recently too, the conversation is shifting from creating spaces to setting a high bar for growth. I think that the advisory board could set the stage for newly-created companies to become even stronger at the point of exit by focusing on how high we can get them to fly.

The risk and return for a startup is entirely different from the kind of business bankers normally handle. When cases of people leaving their comfort zone to take up the startup challenge begin to emerge, we’ll see a more interesting level of commitment and evolution.

That’s true. Once people see someone else’s success at first hand and think that they want to be that person or follow them, the game should also change.

Until now, there was no one inhouse like SMBC Legal X CEO Hideki Mishima who has planted his flag on taking his company public. It’s inspiring working with strong leaders like Mishima and SMBC Wevox CEO Hidekazu Sugimoto, and you feel like you want to be part of their growth story.

I have a lot of experience negotiating with shareholders and other stakeholders as a business owner, so I want to use that in the advisory board context to think as though I was the SMBC Group CSO.

The various subsidiary CEOs will have their own views as to whether their company should remain part of SMBC Group or go public, but in both cases, I stress the importance of clarifying their strategy and position. I also make a point of asking them about their vision for their companies.

In the end, it comes down to the commitment of the person at the top. It’s probably hard to suddenly steel yourself for the task, but most startup leaders have already done that before they set up their businesses. How quickly a leader makes up their mind to take ownership has the greatest impact on the company’s expansion and sense of speed, because people only follow committed leaders.

It’s something that should happen naturally when you find yourself directly involved with employees, partners, and customers, but if you don’t take ownership at the point, it’s better that you aren’t put in charge of a startup business. Businesses just don’t scale without that mindset and that resolve.

Internationally, half the graduates from top universities set up companies. The SMBC Group digital subsidiaries are headed not so much by entrepreneurs as intrepreneurs, but that’s not a bad thing. Management means making the right choice from among the various options—whether to launch your own business, for example, or whether to maintain and enhance your current infrastructure and partners.

When someone looks at their current customers, partners, market, and timing and decides to develop their company into the best team in Japan, a new management story will emerge. Given that this is all tied to the “Producing new CEOs” initiative, I’d like to focus less on what to do with the subsidiaries and more on how to produce CEOs.

There’s no doubt that the kind of opinions that you and Mr. Yabuuchi put forward would never have come out of SMBC Group alone—which is why they provide so many insights. Receiving hard feedback also gives us the confidence that we really can increase these subsidiaries’ growth potential. In fact, Kazuki Tanaka, president of the subsidiary BPORTUS, has said that he found enormous value in the views of the very experienced and knowledgeable advisory board members, making him eager to soak up everything he could.

The Digital Strategy Department has led the transformation of SMBC Group’s corporate culture to date, but I want to go a step further and become the best possible partner in realizing our digital subsidiary CEOs’ dreams of changing Japan and changing society. There are still not many cases of startups within big companies achieving success. I want to create a model for success within SMBC Group so that we become a standout presence in Japan and the world, enabling us to provide immense value to our customers.