Why Israel’s tech ecosystem became a world leader.
Downtown Tel Aviv on a Friday evening. The restaurants and bars are packed, the streets thick with people. Cars are circling the city looking for somewhere, anywhere, to park. For those used to the orderly parking of American cities or in Western Europe, Israeli car-parks are an eye-opener; a study in creative chaos. Sidewalks are rammed with vehicles. Pairs of cars wedged into single spaces. Wheels on kerbs, everywhere you look.
According to Gilad Japhet, Founder and CEO of MyHeritage – with 75m registered users, the most popular family network on the Internet – they also serve as the best way to explain the sheer density of startups in the country. “There is something in the Israeli character best defined by the term ‘chutzpah’,” he says, speaking at his office in Or Yehuda, near Tel Aviv.
“Chutzpah in Hebrew and Yiddish is that feeling that I can do something, even if you tell me that I can’t. Israelis are very creative problem-solvers, and the best way to look at it is in an average parking-lot. Go to a parking-lot in the U.S. and see how the cars are parked. They are all same distance from the dividing line and their tyres are usually straight. Then visit an Israeli parking-lot. It’s a big mess. Everyone improvises, people will go into spaces diagonally, and over the sidewalk and into patches of mud.
“Israelis just improvise and break the rules, and breaking the rules means you don’t follow protocol. If the standards and norms are blocking your growth you invent new ones. Chutzpah, I think, really characterises Israeli entrepreneurs. They never take ‘no’ for an answer. If something seems impossible, they just find a loophole and solve it that way.”
The highest density
Whatever the theory (and there are a bunch of them) behind Israel’s astonishing success at tech startups and high-tech more generally, 2013 was a standout year, with highlights including Google’s $1bn acquisition of mapping service Waze, website builder Wix’s IPO and Moovit raising $28m, in a round led by Sequoia, to revolutionise the way we use public transport.
A tiny country with a population of just 7.9m, Israel — which has more companies listed on the NASDAQ than Europe, Japan, Korea, India and China combined — was ranked in 14th place (out of 142 countries) by Cornell University’s Global Innovation Index 2013, and in second spot, behind Silicon Valley, as a startup ecosystem. Meanwhile, Tel Aviv was ranked #2 in the world for startups by Startup Genome, with the city believed to have the highest density of such companies anywhere in the world.
In his acclaimed 2009 book Start-up Nation, Saul Singer, (and co-author Dan Senor), pinpointed a number of key factors behind Israel’s startup phenomenon, including the lack of hierarchy and emphasis on problem-solving in Israel’s (conscription) military and the ‘nothing to lose’ immigrant mind-set of many of its population.
Sitting at the dining-room table in his Jerusalem apartment, Singer reflects on the five years since his book’s publication and says the underlying reasons for Israel’s unmatched success at innovation hold equally true today. There’s no evidence that Israel is any better at generating great ideas than anywhere else, he argues, but what there seems to be “a bit more of” are the added extras which transform ideas into innovation and, ultimately, businesses.
Echoing Japhet’s analysis, Singer says the first of these are copious amounts of drive and determination. “We talk about chutzpah, audacity and a whole basket of things which lead Israelis to be very driven, not to give up and take on very large problems,” he says. “The other thing is a willingness to take risks.
“If you don’t have those two extra ingredients to add to ideas, then they won’t turn into startups and innovation. So really what the book ends up being about is ‘Where did Israel get a bit more of those two things?’ From there, we talk about how the whole country is a startup and how it took a lot of drive and determination, and willingness to take risks, for it to come into existence.”
21st century skills
The second major factor that is still true today is the military, says Singer. Not so much as a source of technology or even of immersive technological training, though both of those are significant, but rather for the way military service imbues young Israelis with what has come to be known in the education world as ‘21st century skills’, he explains.
“People are realising there’s a huge mismatch between education and work. Schools aren’t really producing people with the skills that companies are looking for. So what are companies looking for? It turns out they want things like leadership, teamwork, strategic thinking, decision-making, emotional intelligence and all these things we don’t teach in school.
“But Israelis ended up picking this stuff up in the army. Not all those things, but particularly those things around leadership, teamwork and sacrifice. I think sacrifice is actually an important value for startups and entrepreneurship, because there’s usually an easier way to make a living than to do something as difficult and risky as starting your own business.”
But the single most important skill learned during national service is ‘mission orientation’, continues Singer. “The main thing the military tries to teach you is what a mission is. How do you balance the need for success with the need to take risks? This turns out to be absolutely critical for startups.”
The final and oft-quoted ‘X factor’ is that Israel is a country of immigrants, who by definition were driven enough to move from one place to another, taking risks to life and limb along the way. Japhet points to his grandparents on both sides of his family, who emigrated from Europe to Israel before the Holocaust.
“I’ve been bred by these four grandparents and a lot of Israelis living today have a similar background to them,” he says. “Israel is the startup nation because its founders were risk-takers which is exactly the characteristic of entrepreneurs.”