Israeli Culture Spawns Innovation for the World

One of the starkest memories I have of coming to Israel for the first time in the ’70s and moving here in 1981 was the seeming absence of any urban planning in the cities or in the national transportation grid. Growing up in Portland, going to university in Seattle, working in San Francisco and having traveled throughout the West and much of the eastern United States, I was accustomed to cities whereby residential, commercial and industrial areas were well delineated, created with at least some future demands in mind and with a certain degree of thought given to aesthetic factors. I grew up with the interstate system that took you great distances between cities and also solved transportation problems within many large urban areas.

Israel was a complete shock. As a child, we had spent several months living in Guadalajara, Mexico, where I was exposed to third-world poverty and an absence of infrastructure in the poorer sections of town. I knew Israel was not a third-world country, so I expected the infrastructure to more closely resemble what I knew in the States.

I remember my first experience at the old Tel Aviv central bus “station,” which was a rambling, disorganized collection of bus stops spread out through the Neve Sha’anan neighborhood. Shops, falafel stands and small factories on the ground floors of residential apartment buildings, all suffocating under a blanket of exhaust fumes from the buses navigating the maze of small streets and alleyways, exacerbated by stifling heat and humidity much of the year. Once you finally got on a bus, routes to cities other than Haifa were slow, frequently on narrow two-lane roads or directly through the clogged roads of towns or villages.

As a student and then as an immigrant, I eventually came to understand the basic reality here. Governor Moonbeam, aka Jerry Brown, in one of his more understandable statements, once said: “The reason that everybody likes planning is that nobody has to do anything.” Well, unfortunately for planning, Israelis are doers. From day one of the Jewish return to the land, Israelis have been understandably preoccupied by survival, and when you literally don’t know what tomorrow will bring, you do what needs to be done – today. This explained why things looked this way, and at the same time illustrates why Israelis are such skilled improvisers, which ironically is one of the more positive and successful things about Israel.

However, since the late Yitzhak Rabin implemented a large-scale public works program to upgrade the transportation infrastructure 20 years ago, urban planning has improved too. New industrial parks have been established to distance light industry from residential areas. Blights like the old Tel Aviv central station have been replaced, and monstrosities built due to weak building codes overseen by corrupt officials have been exposed. The recent conviction of Former Prime Minister Ehud Olmert and 12 others in the “Holyland” Project scandal when he was Mayor of Jerusalem reflects this.

Yet the survival-based philosophy of “get it done now” without considering the ramifications is still the dominant strain in our DNA. With our improvisational skills and our more recent emphasis on planning, we might be onto something. Israel’s greatest success, outside of our physical survival, has been the creation of a robust economy against all odds, spearheaded by the science and high tech that gave us the moniker “Startup Nation.” Improvising is the key to innovation, and we innovate because we have been dealt a bad hand in terms of geography and natural resources. The land is arid, so we excel at water and agricultural technology. We have little oil, so we find alternatives. We are surrounded by enemies, so our military technology has to be superb, and it is, creating lucrative spin-offs, especially in communications. The relationships forged during mandatory military service foster networking in civilian life. A flood of immigrants in the 1990s gave national brainpower a mighty boost. The results are the envy of almost everyone outside Silicon Valley.

Saul Singer and Dan Senor, who coined the term “Startup Nation” in their outstanding 2009 book Startup Nation, the Story of Israel’s Economic Miracle, describe this confluence of circumstances that enabled a 65-year-old nation with a population of 8 million to reach a level of economic growth that “at the start of 2009, saw some 63 Israeli companies listed on the NASDAQ, more than those of any other foreign country” at the time. Today only China, a nation of some 1.3 billion people, exceeds Israel.

Their premise is that Israel is the startup nation because it is a county of immigrants with compulsory military service. They write that immigrants must think outside the box, be creative and improvise to survive and succeed in a new country where one starts from scratch and has nothing to lose. IDF service provides potential entrepreneurs with opportunities to develop a wide array of skills and contacts. They also believe that IDF service provides experience exerting responsibility in a high-pressure, life-and-death, relatively unhierarchical environment where creativity and intelligence are highly valued. IDF soldiers “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.”

The vaunted 8200 unit is the IDF’s cyber intelligence unit. Responsible for many technology advances employed by the IDF to keep Israelis safe, the soldiers of Unit 8200 take their skills with them when they leave the army and go on to develop technologies that have changed the world. For high- tech companies, 8200 is a special number for firms seeking top talent in engineering, communications or other areas of technology. Alumni of 8200 established Check Point, ICQ, Palo Alto Networks, NICE, AudioCodes, Gilat, Leadspace and Ezchip, to name just a few companies.

Sanjena Sathian of OZY.com writes, “The military is a powerful networking tool. Especially when it’s mandatory. Compared with the U.S., where less than 1% of the population serves in the military, or even India, where only around 3% join the military, about 50% of Israel’s population joins up, and they find an organization that prides itself on being tech- driven. The experience delivers all the obvious byproducts: loyalty; a tough-as-nails attitude, instilled at a young age; a strong alumni network; and future partnerships aplenty which creates a lot of founding teams coming out of the same army unit.”

Even a partial list of Israeli inventions and innovations is mind boggling. In chemistry Israel has won three Nobel Prizes in recent years. Israel creations include: in optics, the world’s smallest video camera as well as the PillCam for nonintrusive digestive tract procedures; in biotech, the nanowire, thinner than human hair; in computing, the USB flash drive and laser keyboard; in software, ICQ, Babylon, Viber (recently sold to Japanese mobile operator Rakuten) and Waze (recently acquired by Google). These software successes were created by partners who met in the IDF. More world-changing Israeli innovations can be found in physics, agriculture, economics, theoretical computer science, energy, consumer goods and, of course, defense – including the Iron Dome missile defense system, the Protector unmanned surface vehicle, the MUSIC system that introduces countermeasures against surface-to-air missiles and the Injured Personnel Carrier, which allows an injured soldier to be carried on the back of another soldier.

Israel’s startup success continues unabated. Israel is among the world’s leading patent producers and is ranked number one in the western world. The UN’s Intellectual Property Organization awarded Israel the status of a World Patent Center, which includes only 15 nations.

There is not a cell phone on the planet that does not contain at least some components conceived and/or developed in Israel. At March’s World Mobile Congress in Barcelona, almost 200 of the 1,700 exhibiting companies were Israeli, so this trend of Israeli mobile technology will continue into the distant future.

Israel has 30 startups in the running for Red Herring magazine’s top 100 pre-exit tech companies. This is the third highest of any other nation in Europe (where Israel competes), after England and France. Ventures that make it on the list are on the fast track to success, either through IPOs or exits as more than 200 have done in the last five years, including Israel’s AdapTV, Peer39, Vigilant Technology and Waze.
As further evidence of Israel’s success, Israel generates far more venture capital per person than any other country in the world – a whopping $170 as opposed to the second-place U.S. with $70 per person in 2012.

So what does this mean for the future of the startup nation? With nine out of 10 Israelis descending from immigrants, and with compulsory military service here for the foreseeable future, Israelis will continue to improvise and innovate. The ecosystem necessary for sustaining and further developing this amazing environment continues to grow. Incubators and accelerators have sprung up in Israel as well as Silicon Valley and are multiplying. Recently, graduates of Unit 8200 who have enjoyed great financial success established EISP, a new accelerator for startups of more recent 8200 graduates and others.

For all of Israel’s startup success, industry veterans and financial observers point out the difficulty in turning tech startups into big companies. For all the comparisons with Silicon Valley, Israel has not given birth to an Intel or a Google. Its best companies are often bought by American giants while still in their infancy. The biggest homegrown technology company is Teva, a drug maker, which is listed on NASDAQ at a value of $43 billion. In technology the biggest is Check Point, a security specialist founded by 8200 veterans. Also on NASDAQ, it is valued at $11 billion – “no minnow, but no whale,” according to one expert. Building a business requires more than money and technology. Companies need customers, and a country of 8 million people doesn’t have many. So Israeli firms are often global virtually from the start, putting them on the buyout or IPO radar early on.

Now that young Israeli companies are applying their technical brilliance to consumer products as much as to designing semiconductors or security software, broader skills matter more. In a blog post last July, Adam Fisher of Bessemer Venture Partners encouraged them to think about their entire business model, including product design and marketing, from the outset. Some startups, he wrote, had made this mental leap, but the “tech crutch,” a model of focusing on technology alone and then selling to foreign multinationals, was “increasingly unsustainable” in the face of competition from China, South Korea and Taiwan.

Building businesses also requires people willing to be the 50th employee in someone else’s firm. But in a nation of startups, most want to be their own boss. The common theory is that after their stint in the army, many young Israelis have had enough of being told what to do, and they grow up thinking they know best anyway. About three- quarters of Israeli startups have fewer than 10 employees.

And making a business into something not merely big but enormous means resisting those tempting offers of a few million dollars – or even a few hundred million dollars – from bigger companies. Given a certain payoff for selling and an uncertain future going it alone, many people take the money. Several companies have rejected offers of hundreds of millions of dollars only to fail a few years later. So leaving the task of building a company to someone else may not be such a bad idea. Maybe this is our place in the technology innovation food chain. It’s not that bad. Most countries cannot even fantasize about such a status.

When you visit Israel and feel exasperated by the “balagan” (roughly translated as chaos or mess) in daily life, think of it as if you have entered the house of a creative genius who has no time to organize, clean or remodel, but only to succeed through work and create to pay the rent. The truth is I am not sure the creative genius really wants it any other way. So I don’t get too upset when I trip over the laundry in the hallway or slip on a wet kitchen floor. It’s OK with me. It’s worth it, and in any case, it’s getting better.

Mylan Tanzer is an American native who moved to Israel in 1981. He was the founding CEO of the first Israeli cable and satellite sports channel. Since 2005, he has launched, managed and consulted for channels and companies in Israel and Europe. Tanzer lives in Tel Aviv with his wife and five children. He can be reached at mylantanz@ gmail.com.

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