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Friday, Sept. 7, 2007
TAKING A CHANCE
USE YOUR NOODLE
Ramen shop boss inherits, sheds recipe for disaster
Monday, May 26, 1997, is a day forever etched in the memory of Naoki Kusano.
That was when Kusano, 27 at the time, filed for his company's bankruptcy at the Tokyo District Court under the corporation reorganization law — and not the bankruptcy law.
It was also Kusano's last day as president of his family business — a ramen restaurant chain with 660 outlets nationwide.
Kusano could not have chosen a worse time to take over his father's company than in 1997, when the economy hit rock bottom. It was the year Yamaichi Securities Co., the nation's fourth-biggest brokerage, collapsed and businesses were in the throes of a nationwide credit crunch.
Kusano was among those who suffered, but he managed to survive even though he didn't know that his main bank, which he thought was on his side, was absorbed with its own problems.
The bitter experience made the young Kusano a cautious entrepreneur, learning not to rely on banks and to move forward only if he was sure he would succeed.
"I only go into a fight (now) when I know I will win," said Kusano, who is now president of Hanaken Co., which has 35 ramen outlets nationwide.
Two months before he filed for bankruptcy, Kusano was suddenly asked to replace his father as president of Sakae Shoji K.K., operator of the popular Kurumaya ramen chain, so the elder Kusano would have to take the fall for the company's snowballing debt.
Before that happened, however, Sakae Shoji's financial condition appeared stable. While it had been borrowing money from Long-Term Credit Bank of Japan, to open 200 more stores over a two-year period, the company was paying off its loans without delay.
But LTCB suddenly said it wanted to look over the books, and sent an accounting firm affiliated with the bank. Although Sakae Shoji had planned to depreciate assets purchased for the 200 new outlets over five years, the accounting firm revised that figure downward to a year, instantly putting the company in the red.
It was all downhill from there.
Rumors soon spread about Sakae Shoji's "precarious" financial situation, and companies the ramen chain did business with began to ask for deposits. It was not long before Kusano's company ran out of cash.
"That was when LTCB told me to file for bankruptcy," Kusano said.
In retrospect, Kusano believes it was all part of an LTCB plan to replace Kusano's father with his son, who had little knowledge of accounting, and force the company into filing for bankruptcy in the hope of earning a big profit later on.
Filing for bankruptcy under the corporation reorganization law allowed LTCB, Sakae Shoji's main bank, to become its top shareholder. If the company were to become financially healthy later on, LTCB would stand to make a fortune, Kusano said.
"If I had known better, I would have filed for bankruptcy under the bankruptcy law" and immediately be exempted from company debt, allowing a fresh start, he said.
But the 27-year-old Kusano was too naive to realize this.
At the time, LTCB was suffering from its own financial woes, with rumors of snowballing nonperforming loans. Following its bankruptcy, the bank was nationalized in 1998 and sold to a consortium led by the U.S. investment firm Ripplewood Holdings LLC in March 2000. It was later renamed Shinsei Bank.
Meanwhile, Kusano not only lost his job but had to personally shoulder about ¥5 billion in debt. His assets, including bank deposits, were frozen. The court also ordered him to stay at home so he would always be available for questions, which prevented him from getting a job.
Left with virtually nothing, Kusano said the only thing he could think of was how to make a living by opening up a new ramen restaurant.
"I didn't think I could start a new business I knew nothing about," he said. "But ramen was something I was familiar with."
Kusano started to devise a new ramen soup recipe at home, trying over and over to come up with the perfect flavor.
But what was truly fortunate for him was that a landowner in Tokyo's Ikebukuro district, whom he had been acquainted with through his father, offered to rent a building to Kusano near JR Ikebukuro Station for a noodle restaurant.
"When I told him the whole story I went through, he told me I could rent it for whatever amount I could offer," Kusano said. "I told him I could pay ¥1 million a month, and he said yes."
In February 1998, only nine months after filing for bankruptcy, he used what was left of his and his mother's secret nest egg to open his first Bankara Ramen outlet.
Even though he was running the restaurant, he could not officially be company president, or even the outlet's manager, because of the court order. If he had, the store would have been considered his asset and confiscated by the court to repay his debt.
"So I was just a guy helping out at a ramen restaurant," Kusano chuckled.
Bankara Ramen, thanks to its pork-bone broth, gradually became a hit. In the first month it raked in ¥7.2 million, but within half a year the take had doubled to ¥15 million a month.
The charade of Kusano secretly running the business came to an end when Sakae Shoji filed in October 2002 to force Kusano into bankruptcy because he could not repay money he owed the company.
But the good news was that Kusano was exempted from his previous ¥5 billion debt. He therefore no longer had to fear that his ramen restaurant would be confiscated.
More than four years after he opened that first restaurant, Kusano was at last able to become president of his company, Hanaken, the operator of Bankara Ramen.
Kusano now owns 35 directly managed and franchise outlets nationwide, with 10 more new franchises waiting to be opened. He also started a broiled innards restaurant in August 2006. It now has five outlets.
Despite his success, the trauma he experienced a decade ago is not forgotten.
"The lesson I learned was to run a business without borrowing money," Kusano said. "I don't ever (again) want to be twisted around" the little finger of bank officials.
In this occasional series, we interview entrepreneurs whose spirit may hold the key to a more competitive Japan.