Gaiax: A Japanese Start-up Studio That Puts the Free Will of the Individual First

What makes Gaiax special?

As the ways of working around the world are more diverse than ever, the ways in which companies are perceived are also changing. Gaiax is a company that embodies this in an extremely unique way.

Numerous companies are exploring ways to inspire their employees to initiate new businesses and accelerate their growth. So, what sets Gaiax apart? They have mastered the art of fostering business growth among their employees by cultivating an environment rich in structure and culture.

The company uses a "carve-out option system," which is a mechanism that enables leaders and members from all business units to independently establish their own businesses and make equity and capital policy decisions. Simultaneously, an "in-house sideline" allows employees to work on an outsourced basis. Before COVID-19, the company's headquarters, Nagatacho GRiD, was designed in a free address style, so it was common not to recognize the person sitting across from you.

I was keen on understanding the policy's backstory and its conception. To shed light on this, we interviewed Tomohiro Kimura, who joined the company before it was publicly listed, to learn about the business's evolution and underlying values.

Background to the founding of the company

The founding of Gaiax can be traced back to a relationship that the company's representative, Mr. Ueda, had at his previous job. Ueda, who had worked in various trades since his student days, joined a company called Venture Link as a new graduate. There, he met Mr. Yamane, who was also his classmate, and the idea of doing business together began. The company was founded in 1999.

"Ueda-san had been writing down his ideas for a long time, said Kimura. “When he thought about what kind of business he wanted to start, what emerged from his notes was “connecting people with people.'"

This insight gave Ueda a strong impression of mobile phones before the internet became widespread.

On the other hand, it was Yamane, who founded the company with him, who became the godfather of the company name Gaiax. Yamane was impressed by the film Gaia Symphony and added an 'X' to the Gaia Theory mentioned in the film, giving the company the name 'Gaiax' (more details here, in Japanese).

Kimura says that when Gaiax was first founded, "we were working in the way of student club activities,” which was reminiscent of their days as students pursuing their degrees.

Business transition

Just five years after its founding in 1999, Gaiax went public in 2004. This was before the widespread adoption of smartphones, as the iPhone was only launched in 2007. It was a time when Japan's first social networking services, mixi, and GREE, were just beginning to surface, and blogs were starting to gain traction. While many companies were developing their portal sites, Gaiax enhanced these portals with features such as diaries and avatars that fostered community building.

1. Community website

Later, around 2007, in response to the growing societal issue of cyberbullying, Gaiax initiated an 'anti-cyberbullying business' (which has since been spun off and is known as Adish Corporation, which went public in 2020). It also launched a 'social networking business for unofficial job offers,' catering to companies hiring new graduates (now a separate entity known as EDGE Corporation, which went public in 2021). Moreover, it was involved in other internet-related communication ventures, garnering pre-Series B round funding in 2021.

2. Social media

The turning point came around 2010 when social media giants such as Facebook began to really take off, driven in part by the spread of the iPhone. Gaiax, which had been actively disseminating information on 'how to utilize Facebook' in its business up to that point, gained a position as a specialist in social media.

This was also the time when the focus shifted from the previous era of system development and provision to social media operational support, as the internet was being used to "connect people to people." This area of business remains a core area for Gaiax to this day.

3. Sharing economy

Another turning point came around 2015 when the company began working on the sharing economy.

Kimura:

"Originally, Ueda-san was active as a host on Couchsurfing.com. This was common in Europe, the US, and other countries, where travelers were invited to their homes and entertained for free. It is typical of Ueda-san, who thinks it is inefficient and strange to occupy one's own home alone.“

Ueda:

"This is a personal memory, but when the Fukushima nuclear accident happened in 2011, the number of foreign tourists suddenly stopped due to radiation. At that time, a friend from Canada whom I met through Couchsurfing.com contacted me on Facebook and asked me, ‘Are you OK? If not, come over here.’ Of course, I had work to do, so I declined the offer, but I was so moved.”

Ueda saw tremendous potential in these kinds of relationships that transcended location.

Also, Takashi Sabetto, who later launched the nationwide home-sharing service, ADDress, in 2018, turned his home into a shared house around that time and often talked about how interesting it was within the company. In 2015, Sabetto participated in the launch of the Sharing Economy Association, of which Ueda also became a representative director. (In this context, the launch of Nagatacho GRiD in 2017 and our own office move are symbolic events from the perspective of Gaiax's organizational management.)

Kimura:

"When we launched Nagatacho GRiD, we wanted to create a model-sharing place ourselves, so it was like there were no barriers between the inside and outside of the company. It became a place where you don't really know who the people sitting in front of you are, and then you eat lunch and socialize with them. That's what we've achieved."

4. web3/DAO

In 2022, Gaiax began expanding its business toward initiatives related to web3/DAO. This is highly compatible with the Gaiax culture (free, flat, and open), which is described below. The company feels that it is "very close to our atmosphere and what we want to do."

Although the company has only just started working on this project and has yet to see how it will take shape as a business, they feel that if it is viewed as “co-creation with users,” there is potential to utilize the knowledge they have gained from their previous involvement in social media and turn it into more success.

Philosophy and culture

These business transitions strongly reflect the values and organizational culture shared by Gaiax. And this relationship becomes even easier to see by looking at two areas in particular: the company’s philosophy and culture.

Philosophy as a statement of entrepreneurship

When the company moved to Nagatacho GRiD in 2017, it undertook a rebranding of Gaiax as a whole. At that time, their core concept was reorganized into two main categories: mission and philosophy.

• Mission: connecting people to people - Empowering the people to connect

• Philosophy: moving with mission - Igniting responsibility

The mission is exactly what Ueda emphasized when he founded the company, as mentioned earlier. Still, I want to add more about the philosophy aspect.

Gaiax has placed great importance on entrepreneurship since the company was founded. This includes taking risks to start up a business, but what is even stronger is the fact that the company is thoroughly committed to "deciding our own lives." (Incidentally, this way of thinking is said to have been greatly influenced by Masanobu Fukushima, an author and lecturer who wrote the book Entrepreneurship.)

This 'deciding one's own life' is symbolized by the unique system of “milestone sessions.”

In milestone sessions, each person begins by asking, "What do I want to do with my life?" once every quarter. Based on this question, each person creates their own plan for what they will do in the next quarter, and the salary level according to the level of achievement. At the end of the quarter, they reconcile this with their supervisor.

Kimura:

"A similar system was already in place when I joined the company in 2004. I remember it well: I thought this was great. We frequently held camps where we all wrote our life plans and had dialogues based on them."

Incidentally, the vision is 'blank.' This is because the company does not set out where it wants to go but instead wants "each person to draw their own vision according to their own passion.”

This is another clear expression of Gaiax's emphasis on entrepreneurship.

Culture: free, flat, and open

As mentioned above, Gaiax places the highest importance on 'acting on one's own initiative.' The culture of the corporate website even begins with the sentence, "The most important management resource of Gaiax is the passion of each and every one of our employees."

The phrase 'free, flat, and open' has been used since around 2010 to describe the organizational culture that supports this. However, this has not been defined by the company, and no one really knows who came up with the phrase. Nevertheless, it has become so well established that some workers misunderstood it as Gaiax's mission, and it is something that now "feels like us" and fits well with the company.

These three keywords are also embodied in various internal systems, which I’ll go into later.

Start-up studios: connecting entrepreneurship and business models

The entrepreneurial spirit that has been valued since the company's inception continues to be demonstrated both within each individual worker and the organization. This helps to drive the growth of the business as a whole.

Still, this was not necessarily fully connected to the business strategy of Gaiax as a whole. The turning point came around 2012 when AppBank started to grow as a social media-related business.

Kimura:

"When AppBank started to grow, there was a lot of discussion among the management team about whether to grow it as an in-house business or to carve it out and give it more freedom and challenge. If we chose to carve it out, the centrifugal force would only increase, so we wondered whether that was really the right thing for Gaiax to do. Opinions were divided.”

In the end, Ueda considered it a winning strategy that suited the company, thus making a pioneering case for the carve-out growth companies that followed, such as Adish, TRUSTDOCK, EDGE, and Sairu.

The decisions made at that time led to the current start-up studio business model of the entire Gaiax company. This is best described as a hybrid of an operating company and an investment company—a structure whereby new businesses are created from within the company. They are incorporated to provide more freedom, and investment is made in start-ups by those outside the group.

The carve-out option system

Perhaps the most unique mechanism of Gaiax is the “carve-out option” system. This is a system that allows existing businesses within the company to "incorporate their business at their own will."

Generally speaking, when corporate executives incorporate a new business, they incorporate it as a company decision, with management also holding a certain percentage of shares in the new company. The management team then buys up (or all) of the shares in the new company.

However, Gaiax's system is slightly different. Here’s how it works:

• Gaiax holds two-thirds of the shares in the new company, and the management and members of the new company hold one-third.

• Despite this amount of ownership, Gaiax does not exercise two-thirds of the voting rights. In other words, the management team/members of the new company make all decisions.

• The management and members of the new company can acquire up to 50% of the shares in the new company in the form of ordinary shares, including stock options.

• Additional funding can be obtained either from Gaiax or third parties (of course, Gaiax has the right to refuse the investment).

If viewed as a business strategy for Gaiax, the invested funds can be recovered if the carved-out company exits through an IPO or buy-out. Even if the company does not exit, it is good if the business continues to generate profits and dividends. Conversely, if it is part of a large portfolio of businesses that "does not grow," the impact on overall management is minimal.

Above all, what underpins the start-up studio business model is the commitment to entrepreneurship that has appeared repeatedly.

Ueda says the following in a video introducing the system:

"What we emphasize is that the business management team has full authority and responsibility for the business. We don't say, 'When should you exit?' or 'When should you go public?’ You are free to expand your business or not. We would like everyone to proceed with their own business with the mindset of 'What do I want to do?’"

Organizational management

Having looked at the transition of Gaiax with a focus on its business and culture, we now look at the organization's specific management that makes this all happen. Basically, the entrepreneurial spirit embedded in the philosophy and the culture of 'free, flat, and open' have consistently flowed to the core.

Milestone sessions (evaluation and reward system)

As mentioned earlier, once a quarter, the employees decide on their own "work content for the quarter" and "remuneration level" after drawing up their own life plan. Ueda makes several points in a video explaining the system:

• Start with 'what you want to do,' not 'what you can do,’ as this expresses what you want to do without any reservations about who you are.

• However, it is better to make a plan for its realization, so talk about the long-term of your life first and then decide on a goal broken down into quarters.

Note that with regard to remuneration, an employee does not decide the specific amount by themselves. They simply present their own salary table and then discuss it with their boss at the end of the quarter.

At first glance, this may seem like a supervisor evaluation, but this is not the intention of the system. The system recommends that at the outset, "targets should be made with such clarity that there is no need to evaluate them—and no wrangling." This approach means there is no need for different people to have different evaluations or be evaluated by their bosses.

Independently-funded business system

At Gaiax, each business is managed by an independent company. This embodies "freely deciding who, where, and when to work in order to realize the life you want to live" (i.e., free) and "creating an environment where each member can promote the business from the perspective of a manager" (i.e., flat).

Information sharing

As an embodiment of openness, the minutes of all meetings, various KPIs, and financial figures are all made public within the company. This is regardless of the form of contract with the company (e.g., employment or outsourcing). In addition, as a mechanism to support the independent accounting system mentioned earlier, a management accounting system is in place that visualizes the management status of each business in real-time.

This environment has been thoroughly developed so that it is not difficult to demonstrate entrepreneurial spirit due to differences in the information available.

Remote working

At Gaiax, it is commonplace for people to be able to work from any location. What is somewhat unique is that, as a company working in the area of the sharing economy, services such as ADDress and Otell are also available.

Diversity of working styles

Just as the boundaries between internal and external business are blurred, there are also gradations in the way people work. This is clearly shown in the two cases of 'in-house side jobs' and 'switching from employment to outsourcing.'

In-house second jobs

In-house side jobs involve being an employee working under an employment contract but also undertaking other in-house work under an outsourcing contract. It is an innovative way of working in which you are both an employee and an outsourcer.

The original impetus for this was apparently a staff shortage to run the Nagatacho GRiD event space when it was rented out to external parties. The 'in-house side job' was created as a mechanism to make this happen without difficulty.

At first, it was a small start in the sense of utilizing spare time, like the event management mentioned above. However, as in-house side jobs gradually became more commonplace, the company evolved to embrace it and utilize its strengths.

In line with this, some division heads were initially opposed to the idea, saying they wanted their division members to take on something other than in-house side jobs. However, as more and more orders were placed for in-house side jobs in their own divisions, their opposition gradually waned (which is certainly understandable!).

As a beneficial side effect of sorts, this has also been useful for information sharing within the company.

Kimura:

"When in-house side jobs become the norm, people naturally become motivated to learn about other departments. ‘Do you see any other opportunities to utilize your strengths? Look within the company.’ In a way, the company is like a new job or a sales destination.

Recruitment costs go down, and you can also use your strengths to increase your remuneration and career progression. When I was in charge of a new business before, we were able to grow the business with all the members working on the sidelines within the company."

From employment contracts to outsourcing contracts

Since this system was implemented, numerous members have switched from employment contracts to outsourcing contracts and continue to work. Incidentally, Kimura also joined Gaiax in 2004 as a new graduate but switched to an outsourcing contract in 2021.

Recruitment

In terms of recruitment, it may not be unusual compared to the various individualized measures taken by Gaiax. However, Kimura says that "new graduates who join through student internships are important for fostering culture." This is despite the fact that there are many mid-career hires and, in terms of the current employee composition, the proportion of new graduates is somewhat low.

Even student interns are asked questions like, "What do you want to do in life?", “What kind of work will you do?", and "What tasks will you take on in your life?” The cycle of these interns joining the company, playing an active role, and then eventually training the next interns contributes greatly to fostering a healthy culture.

The values of the company's president, Mr. Ueda, are also strongly reflected here.

Kimura:

"Ueda has a very strong feeling that young people have potential. We often talk about learned helplessness within the company. It becomes difficult for students to say things like ‘I'm going to be an entrepreneur who surpasses Elon Musk’ when they reach our age. But unless you really mean it, it will never happen. That's the kind of thing I see potential in."

Future challenges

The values that have been important to the company since its founding (entrepreneurship, free, flat and open, etc.) have led to a unique management style in which it is both a business and an investment company. However, the current situation is, of course, not perfect, and there are still difficulties. At the top of the list is the importance of relationship building—something Kimura is especially concerned with.

Kimura:

"We want people with an entrepreneurial spirit to gather at Gaiax, but if they simply think, 'Let's make good use of this place,' they will fall apart. The basis is still relationships. I think it's important to build relationships where people appreciate each other.

People working on new projects have limited opportunities to build relationships with people from various departments. At this point, my conclusion is that it would be good if, after joining the company, relationships are fostered through work, and in the process, the entrepreneurial spirit is ignited, and the person's unique style of work gradually accelerates.

Especially with telework since Covid-19, it's become very difficult to build relationships. For example, after going to a meeting together, you can ask true feelings and opinions of each other or have a casual conversation because you are sitting next to each other. I feel that these things are important again.

That's why we have active training camps and workcation initiatives. In addition, many members, including Mr. Ueda, open their homes to the public. Members stay and work at the homes of our representatives and other members."

The contours of an organization

In hearing about Gaiax from a variety of perspectives, including the business and organization level, I wondered, once again, what the boundaries of a company or organization even are. And admittedly, I still remain perplexed.

In the more than 20 years since its founding, Gaiax has been (and continues to be) searching for ways to maintain a sense of distance from time to time. And as areas such as web3/DAO, which Gaiax is also beginning to work on and expand, this question should become increasingly important.

What I personally felt during this in-depth study of Gaiax was how each and every one of us is aware of the fact that we are a party to the organization. This is something that I have felt during the five years of my own activities as a member of the Jinnen Management Study Group.

Rather than drawing a clear line of 'belonging' to an organization by means of a contract, etc., the vague contours of this belonging can only emerge through the collective awareness of actually being involved in a meaningful, tangible way.

At Gaiax, I felt that this is strongly supported by the underlying culture.