Dan Singer - Start-up Nation

So what is the answer to the central question of this book: What makes Israel so innovative and entrepreneurial? The most obvious explanation lies in a classic cluster of the type Harvard professor Michael Porter has championed, Silicon Valley embodies, and Dubai has tried to create. It consists of the tight proximity of great universities, large companies, start-ups, and the ecosystem that connects them—including everything from suppliers, an engineering talent pool, and venture capital. Part of this more visible part of the cluster is the role of the military in pumping R&D funds into cutting-edge systems and elite technological units, and the spillover from this substantial investment, both in technologies and human resources, into the civilian economy.

But this outside layer does not fully explain Israel’s success. Singapore has a strong educational system. Korea has conscription and has been facing a massive security threat for its entire existence. Finland, Sweden, Denmark, and Ireland are relatively small countries with advanced technology and excellent infrastructure; they have produced lots of patents and reaped robust economic growth. Some of these countries have grown faster for longer than Israel has and enjoy higher standards of living, but none of them have produced anywhere near the number of start-ups or have attracted similarly high levels of venture capital investments.

Antti Vilpponen is a Finnish entrepreneur who helped found a “start-up movement” called ArcticStartup. Finland is home to one of the great technology companies of the world, Nokia, the cell phone maker. Israelis often look to Finland and ask themselves, “Where’s our Nokia?” They want to know why Israel hasn’t produced a technology company as large and successful as Nokia. But when we asked Vilpponen about the start-up scene in Finland, he lamented, “Finns produce lots of technology patents but we have failed to capitalize on them in the form of start-ups. The initial investment in Finland into a start-up is around three hundred thousand euros, while it’s almost ten times higher in Israel. Israel also produces ten times more start-ups than Finland and the turnover of these start-ups is shorter and faster. I’m sure we’ll see a lot of growth, but so far we’re way behind Israel and the U.S. in developing a start-up culture.” 2

While the high turnover of start-ups concerns Israelis, Vilpponen sees them as an asset. What is clear is that Israel has something that’s sought by other countries—even countries that are considered on the forefront of global competitiveness. In addition to the institutional elements that make up clusters—which Finland, Singapore, and Korea already possess—what’s missing in these other countries is a cultural core built on a rich stew of aggressiveness and team orientation, on isolation and connectedness, and on being small and aiming big.

Quantifying that hidden, cultural part of an economy is no easy feat, but a study by professors comparing the cultures of fifty-three countries captured part of it. The study tried to categorize countries according to three parameters that particularly affect the workplace: Are they more hierarchical or more egalitarian, more assertive or more nurturing, more individualist or more collectivist? 3

The study found in Israel a relatively unusual combination of cultural attributes. One might expect that a country like Israel, where people are considered individualistic, would accordingly be less nurturing. Personal ambition might be expected to conflict with teamwork. And one would also anticipate that such a type A–driven society would be more hierarchical. In fact, Israel scored high on egalitarianism, nurturing, and individualism. If Israelis are competitive and aggressive, how can they be “nurturing”? If they are so individualistic, how does that reconcile with the lack of hierarchies and “flatness”?

In Israel, the seemingly contradictory attributes of being both driven and “flat,” both ambitious and collectivist make sense when you throw in the experience that so many Israelis go through in the military. There they learn that you must complete your mission, but that the only way to do that is as a team. The battle cry is “After me”: there is no leadership without personal example and without inspiring your team to charge together and with you. There is no leaving anyone behind. You have minimal guidance from the top and are expected to improvise, even if this means breaking some rules. If you’re a junior officer, you call your higher-ups by their first names, and if you see them doing something wrong, you say so.

If you stood out in high school for your leadership skills, scientific test scores, or both, you will be snapped up by one of the IDF’s elite units, which will turbocharge your skills with intensive training and the most challenging possible on-the-job experience. In combat, you will be given command of dozens of people and millions of dollars’ worth of equipment and be expected to make split-second life-and-death decisions. In the elite technology units, you will be put in charge of development projects for cutting-edge systems, giving you experience that someone twice your age in the private sector might not have.

And when you complete your military service, everything you need to launch a start-up will be a phone call away, if you have the right idea. Everyone knows someone in his or her family, university, or army orbit who is an entrepreneur or understands how to help. Everyone is reachable by cell phone or e-mail. Cold-calling is acceptable but almost never fully cold; almost everyone can find some connection to whomever he or she needs to contact to get started. As Yossi Vardi told us, “Everybody knows everybody.”

Most importantly, launching a start-up or going into high tech has become the most respected and “normal” thing for an ambitious young Israeli to do. Like the stereotypical Jewish mother, an Israeli mother might be satisfied with a child who becomes a doctor or a lawyer, but she will be at least as proud of her son or daughter “the entrepreneur.” What in most countries is somewhat exceptional in Israel has become an almost standard career track, despite the fact that everyone knows that, even in Israel, the chances of success for start-ups are low. It’s okay to try and to fail. Success is best, but failure is not a stigma; it’s an important experience for your résumé.

The secret, then, of Israel’s success is the combination of classic elements of technology clusters with some unique Israeli elements that enhance the skills and experience of individuals, make them work together more effectively as teams, and provide tight and readily available connections within an established and growing community. For outside observers, this raises a question: If the Israeli “secret sauce” is so unique to Israel, what can other countries learn from it?

Luckily, while innovation is scarce, it is also a renewable resource. Unlike finite natural resources, ideas can spread and benefit whichever countries are best positioned to take advantage of them, regardless of where they were invented. George Bernard Shaw wrote, “If you have an apple and I have an apple and we exchange apples, then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.” 4

While innovation is in principle an unlimited resource, and one that spreads on its own, almost every company wants to obtain the maximum benefit from this process. The world’s major companies learned long ago that the simplest way to benefit from Israeli innovations is to buy an Israeli start-up, set up an Israeli R&D center, or both. With our increasingly global world and the movement toward open sourcing, there is little need for multinational companies to try to duplicate the business environments of countries that have a comparative advantage in manufacturing, innovation, or regional market access.