Startup Nation firsthand: a visit to Israel
From the outset, Israel did not seem tourist-friendly. Airport security control personnel are brash, unfriendly, negative and even arrogant. First impressions do not improve much outside the airport. Signs, menus and instructions are dominated by Hebrew writing. However, over the course of nine days in Israel, I grew respectful of and even enthralled by the Israeli way. I had the opportunity to meet with many prominent Israeli individuals, permitting an extraordinary depth of insight into this ancient yet cutting edge country.
This was our travelling INSEAD MBA group's full schedule:
A couple of extra days either side of these meetings ensured some relaxed fun and tourism :-).
Military culture influencing business culture
Conscription is mandatory for Israelis — normally three years for men and two for women. The military actively encourages disrespect and challenge of hierarchy. To the extent possible, Israel Defense Forces (IDF) are organised as generalists rather than specialists. This allows for greater improvisation when needed. The IDF has a slogan that “every plan is the basis of change”. All of these contribute to developing entrepreneurial traits at a young age.
This same military culture also helps explain why Israel has few large global companies. It’s typical for an Israeli startup to grow until orderly structured management is needed, after which it is sold to a foreign global company. Netafim and Teva are the main exceptions to this tendency. Netafim — the global leader in smart drip and micro-irrigation solutions — dominates this market globally, with ~70% market share. As an ex-private equity analyst focused on the agribusiness sector, I enjoyed Itzik Inbar’s charismatic anecdotes, not least about Netafim’s private equity fund owners and their incessant desire for faster growth in a fundamentally slow-moving sector.
One Thursday afternoon driving back from a meeting, our Israeli friends nonchalantly informed us that a couple of rockets had just been lobbed over the border by Hezbollah from Lebanon into northern Israel. Such nerve reminded me of Dov Frohmann, legendary Intel Israel leader. He was similarly unfazed by the threat of military attack by Iraq in 1991 and he resolved to keep Intel’s fabs open and maintain production (despite the civil defense authority having instructed all nonessential businesses to shut down). What chutzpah!
The presentation by an Israeli Air Force officer on an active IAF military base was very impressive. The officer was younger than most of us in our travelling group, yet he spoke with an outstanding level of maturity about the psychology of life and death decisions and high-pressure situations. His movements within the airbase are restricted to within a certain radius such that he can always hop on a fighter plane within 7 minutes. As future prime minister candidate Yair Lapid put it, the entire nation is always “on alert” — this flexibility and edginess is consistent with startup culture where quick pivoting is essential.
Musings on selected meetings
Microsoft Ventures is one of the most sought-after and successful incubators in Israel, with numerous successful alumni. Given Microsoft’s image nowadays as a slow-moving dinosaur with uncool products, I was quite surprised to hear this… until our host Natalie Barnet told us that they don’t take an equity stake in the companies they incubate. It’s essentially a pro-bono operation. Natalie explained that Microsoft Ventures foregoes tens of millions of dollars in profit that it could have realised from successful fundraising rounds by its alumni companies in order to simply be more ‘present’ in the startup ecosystem. More concretely, this helps Microsoft (i) be approached if entrepreneurs are thinking of exiting their startup that may be of acquisition interest to Microsoft and (ii) change Microsoft’s image to something cooler (they gave us stickers with the slogan “do epic shit”!). I was quite awed by this pure strategic play — Microsoft really have fallen out of favour with millennials and have an incredible amount of work to do on their brand image.
Consumer Physics produce a molecular sensor device called Scio for mass consumption. In theory, this sounds amazing — you scan any substance with your handheld Scio, and within seconds you have a readout on your phone of the molecular constituents of your scanned item. They had a very successful Kickstarter campaign in 2014 and their secret sauce is having produced an accurate but tiny form-factor spectrometer. We were so blown away by this technology and the demo by employee Oren Buskila that some of us were wanting to put down US$250 on the spot to be able to take the prototype device home! No luck on that one…
Beyond Verbal is a software company that analyses human intonation to read customers emotions in real time. Their vision is strikingly sci-fi, but trying out their software during the presentation left me utterly unconvinced whether they actually got anywhere during their last 20 years’ research and development.
We learnt from an impromptu visit to a local legal firm that foreigners wanting to incorporate a company face little or zero legal barriers vis-a-vis nationals. Culturally though, it felt as if it would be difficult to progress as a foreigner without speaking Hebrew fluently.
Startup culture
The focus of our trip was to get to know Israel’s startup ecosystem. From our 20 meetings, it became clear that the main factors that contribute to Israel’s success as a startup nation are:
- Immigration and diversity: Jews from all over the world emigrated to Israel. Diversity encourages differing opinions and out-of-the-box ideas.
- Military and risk taking at an early stage: tough decision-making and leadership in the face of uncertainty is learnt at a young age.
- Necessity of self-reliance and survival: creative, efficient and radical solutions are needed in contexts with limited resources, high-pressure environments and constant security threats.
- Disregard for hierarchy, rules and protocol: Israelis do not queue, do not follow rules nor established protocols. This counter-culture fosters the desire to do things differently, to disrupt.
Everyday life in Tel Aviv
Temperatures broke all-time records as a heatwave hit Israel during our week there. Our group, as a riposte, hit the beach. And what a beach it was. A previous home, Rio de Janeiro, served as my benchmark for central urban beaches. Here in Tel Aviv, the sand seemed finer and the people more beautiful. No wonder so many French people choose Israel as their August holiday destination! Local friends inform me of a recent trend of French-Jews not just holidaying but permanently relocating to Israel, at least partially due to rising anti-Semitism in France.
As a result of having taken a long course of malaria prophylaxis tablets for my recent internship in Uganda, I developed gastritis in Israel. Hence beyond missing Tuesday’s meetings, I regrettably could not fully enjoy Israel’s excellent gastronomic scene either; but I certainly did enjoy the debate between locals about which establishment makes the best hummus, in none other than the famous Arab-run Abu Hassan hummus restaurant in Jaffa. Israelis can argue about anything!
Treatment for gastritis at the local Ichilov hospital treated me (excuse the pun) to a wonderful and amusing ethnographic experience. The scene at the A&E ward was one of utter chaos. There were competitive shouting matches between patients and nurses as patients skipped disorganised queues. My IV therapy was interrupted to make way for a vociferous debate between two nurses about whether it’s with Yair Lapid or Bibi they’d prefer to have sex. On learning that I prefer to avoid looking directly at blood, the nurse Neta deliberately and jokingly waved a tubeful of my blood in front of my face. She was on a roll and it barely surprised me when, with a playful wink, Neta stated how she could “improve” my unusually low blood pressure… Like a microcosm of Israeli culture, in this episode I witnessed strong personalities, complete disregard for protocol and rules, achievement of results amidst chaos and brash humour.
The future
Dr Nadine Baudot-Trajtenberg, the central bank deputy governor, highlighted the main challenges Israel faces today: (i) the integration of ultra-Orthodox Jewish men and Arab women into the workforce and (ii) high living especially housing costs. Yair Lapid opined that the cultural conflict between Ashkenazic and Sephardic Jews is Israel’s biggest problem. I find it mind-blowing that national security was considered less important. Israelis have become immune to this — the national security issue has been a constant backdrop since the very founding of the state of Israel. A few years ago the main threat was Syria; now they opine it may potentially be Iran following the July 2015 nuclear deal. One feels confident IDF will continue to adapt to its evolving enemies as necessary. A foe the Israeli military judge to have performed particularly poorly against is public relations on the Arab-Israeli conflict. We may expect greater efforts by Israel to put forward their views on the conflict to global audiences.
On the business side, Avi Zeevi of Carmel Ventures opined that Israel as a “startup nation is not good enough — we need to aim for gross-up nation”, referring to the desire for a greater number of large global Israeli companies. This is a logical objective but it seems to be mostly incompatible with Israel’s culture. Maintaining Israel’s unparalleled startup ecosystem will continue to be a great achievement.