How to create a nation of start-ups: the inside guide to Israel’s economic miracle

By Roger Trapp 

Thanks to the ongoing hostilities with its Middle East neighbours, Israel is one of the most reported on countries in the world. Indeed, there is such extensive coverage of the almost continuous unrest in the region, and the associated political machinations, that it is sometimes hard to imagine that there is anything like ordinary life there. However, not only is there ordinary life, there is an extraordinary economic miracle taking place amid the turmoil.

The story of how this came about is told in “Start-up Nation” (TwelveBooks) by Dan Senor and Saul Singer. Since the book appeared two years ago, it has attracted great interest around the world and is being translated into a host of languages. It has not been lost on the authors that Startup Britain and Startup America campaigns have been launched by those countries’ governments in the past year or so.

Such imitation is not a problem for Senor and Singer who spoke to Future of Business whilst on a visit to London to speak at London Business School and the London School of Economics and Political Science. Part of the purpose of the book is to provide lessons on what other countries can do to encourage the innovation and entrepreneurship that most commentators agree are essential for economic growth.

START-UP COUNTRY BECOMES  COUNTRY OF START-UPS

The statistics are staggering. Israel, a country with a population of a little over 7 million, has more start-ups than anywhere in the world outside America’s Silicon Valley. It has about 500 a year, compared with 700 to 800 across the whole of Europe. Certainly, some of these businesses fail – but it is not for want of capital. Per capital venture capital investment is about 2.5 times that of the United States and more than 30 times that of Europe. Israel is second only to the United States in the number of companies listed on the NASDAQ index of technology stocks and is the world leader in the percentage of its economy that it spends on research and development. And that economy has grown faster than those of most of its developed-country rivals in most years since 1995. Even the many wars it has fought have not really slowed it down.

Dan Senor and Saul Singer

Singer says that this success can largely be put down to “culture and history”. Pointing out that most people think that innovation is about ideas, he says “there are great ideas everywhere, there are a lot of smart people, there are a lot of great universities” and many countries file as many patents as Israel does. What makes the difference, he believes, is the presence of two key ingredients – drive and determination, and a willingness to take risks.

Such factors are often cited as crucial attributes for individuals seeking to become successful entrepreneurs. But what makes Israel different is that they can be said to characterise the whole country. As Singer explains, Israel is itself a start-up (barely 60 years old) and a big risk. Moreover, it is constantly dealing with all kinds of adversity. And it turns that adversity into creativity.

Much has been made of the drive of immigrants in countries such as America and Britain. But Israel is such a young country that everybody is either an immigrant or a close relation of one. It is often remarked that Israel is one of the few countries where politicians campaign on plans to increase immigration rather than curb it. Immigrants are prized because they are “naturally driven and naturally risk takers”.

Military life as preparation for business combat

Another important factor is the military. Singer and Senor do not mean this in the usual way of the armed forces sponsoring high-tech developments, although this does happen. More influential is the part the military plays in the life of the country. “It’s a stage of life that almost everybody goes through between school and work,” explains Singer. “You get leadership, teamwork, a certain level of maturity, you get a mission orientation and the concept of sacrifice for something bigger than yourself. That is very important for start-ups.”

All of this has helped to create an environment that is conducive to enterprise. Singer calls it an atmosphere that is almost palpable in Tel Aviv, in particular, but also across what is essentially a very small country. Significantly, it has had little to do with government action. Just about the only initiative ministers and officials have taken is to jumpstart the venture capital sector in the early years.

THE SILICON VALLEY FOR THE REST OF THE WORLD

But extraordinary as its development has been, Israel’s economy cannot prosper in isolation. Among the stories of start-ups that pepper the book there are descriptions of deals done with overseas companies – largely American ones that seem to recognise more than their European counterparts the riches to be found in Israel’s innovation centres.

Sign of the times? (From Business Insider)

Israel’s embracing of entrepreneurship is similar to that of the United States, which is also, of course, a comparatively young nation where immigrants play an important part. But, despite the links with the likes of Microsoft, Intel and Apple, the Israelis draw a distinction between their approach and that of America. For a start, American companies have a vast home market in which to start, while Israel is not only a small country it is also unable to trade with most of its close neighbours. As a result, it has to take a more international approach. As part of this, it is setting out to be the Silicon Valley “of the rest of the world”.

But perhaps the most striking example of the country’s willingness to take risks is the plan to lead the world in moving away from oil-powered cars through the Better Place initiative. Clearly, Israel has more interest than most in ending its dependence on a product largely associated with unstable Middle Eastern countries. It is also small enough to be an appropriate place to test a concept. Most important, though, it is packed with smart engineers and technologists with the ability to dream up the sort of infrastructure required to move to an electric car system. Hitherto, plans for electric cars have foundered on the high cost and low range of electric engines. Better Place – headed by an Israeli who was previously a senior executive with the software company SAP – is seeking to answer this by taking ownership of the car battery (the expensive element) away from the driver so that electric cars cost the same as traditional ones.

Singer’s point is that, although Israel’s story is in many ways unique, it still has many lessons for the world. Better Place has attracted interest from Denmark, Australia, the San Francisco Bay Area, Hawaii and Ontario.

Index B correlates long term business trends with the way companies actually operate. We track the behaviour of thousands of firms each year and advise clients about how to engage business audiences more effectively. 

Comments

  1. should send this to Obama

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