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| Israeli Consul Gili Ovadia |
Technology success has helped drive Israel’s economic
growth. According to this
report, technology goods and services accounts for about 12.5% of Israel’s
GDP, probably double the level in the U.S.
This blog is about “soft” cultural factors and not hard statistics, but
I cannot resist one more quick look at the data. As Table 2 shows, Israel’s GDP
growth between 1999 and 2014 was 28%, roughly double the growth rate of U.S.
GDP, and higher than most other developed nations.
A few weeks ago, I had an opportunity to discuss the secrets
of Israel’s economic and business success with Israelis at a “showcase” of
small Israeli companies organized by the Israeli Economic Mission for the RSA
Conference in San Francisco, the U.S.’s premiere industry conference on
cybersecurity. The showcase included representatives from 36 Israeli
companies, most of them showing hardware or software products aimed at
defending corporate networks from hacking, spying, theft, and other Internet
dangers. In a discussion I had with Israeli Consul for Economic Affairs in San Francisco Gili Ovadia (above) and several Israeli
corporate executives, there emerged three reasons for Israel’s success in
technology: the focus of Israel’s military on technology, Israel’s
non-hierarchical business culture, and the maturity of Israel’s young people.
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| Table 1: European Tech Acquisitions 2015 |
Israel’s intelligence agencies are important training grounds for future leaders of tech companies. Agencies include not just the well-known Mossad, but lesser-known technology-oriented agencies like Unit 8200, a data-gathering agency analogous to the U.S.’s National Security Agency, and Hatsav, which collects intelligence from public sources. Every Israeli, male and female, is required to serve three years in the army, known as the Israeli Defense Force or IDF and some of them apply to go into one of the intelligence agencies instead. Military service normally begins at the age of 18. Founders of many of Israel’s best-known tech companies —including Check Point Technologies and Palo Alto Networks (both now on the stock market) came out of intelligence agencies. “These guys tend to finish their service, sometimes do two or three years more, and then go into business and take their expertise and develop it into technology that has value in the private sector,” Ovadia said. Some go onto college after the military to get an engineering degree. Some don’t bother, because they’ve learned enough in the military and often have an idea for a way to apply what they’ve learned in the military to solve a problem in the civilian world. For many, says Ovadia, college is unnecessary, because “on the job training is more important.”
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| Table 2: Israel and Major World Economies, Real GDP Growth 1999-2014 |
Doron Davidson, founder of a young security company named Secbi, said that Israel’s government has invested in the private sector to build a high-tech ecosystem to support private tech companies. This ecosystem receives funding from multiple government agencies, including the military and Israel’s Chief Scientist. “Israel is successful because of the ecosystem,” said Davidson. Ovadia said: “The Chief Scientist drives innovation in Israel. To get grant money, you just need to have an innovative technology. He doesn’t care about the market or the people, just the technology.” In the past, many technological innovations in the U.S. were made possible by government support, or the work of blue-sky research centers like Bell Labs. The Internet itself was developed by Pentagon agency DARPA. Today government-backed funding on research is much declined from years ago. While we have lots of market-driven innovation in areas like advertising and consumer services, there seems to be less fundamental innovation than before. (As Peter Thiel expressed it so memorably: “We wanted flying cars, instead we got 140 characters.”)
Sense of Mission
Ovadia told me that Israelis are by their nature
non-hierarchical. “Compared to the U.S.,
Israelis are different. In Israel, people step up and say what they think and
what they believe. That leads to creative thinking and disruption.” The non-hierarchical, even argumentative,
nature of Israelis is perhaps partly a cultural inheritance from the European
Jews who founded the country, compounded by the intense pressure of war and
enemies on all sides, which has led the country to have to fight on all sides for the last 68 years.
Of course, Americans like to think of themselves as
non-hierarchical. But I’ve worked at three tech startups, two of which could be
termed failures and one a rip-roaring success. In each of them, the company was
effectively a dictatorship of either the CEO or the man plotting to replace
him. Hierarchy, secrecy, and eventually disaffection and dissatisfaction are
the byproducts of companies where the sole mission is to achieve a “liquidity
event,” i.e. sell the company, and everybody has little choice but to trust
that the CEO knows the best way to achieve the hallowed liquidity event. In the
early stages of a company’s life, when it is engineering-driven, the mission and
challenge of building a working product can create a sense of unity and eliminate
hierarchy. But as the company shifts from development mode to business mode, the
sense of mission fades, and management secrecy and abrupt strategic shifts
imposed by a hierarchical senior management take over. Venture capitalists in
Silicon Valley are of course aware of this problem. Ben Horowitz, of venture
firm Andreessen Horowitz, wrote an entire book (The Hard Thing About Hard Things) which is essentially a meditation
on how to find and train a startup CEO who can lead and manage through this
growth process.
Finally, Ovadia argued that the constant threat of enemy attack, as well as Israel's compulsory military service, provides young people
with a sense of discipline, responsibility, and maturity that one doesn’t see in
most developed economies. Ovadia described to me an Israeli soldier's experiences in the IDF in
2001 in what Israel called Operation Defensive Shield. The IDF defended the
country against the “Second Intifada,” a wave of Palestinian bombing and
shooting attacks which ultimately killed more than 1,000 Israelis. “By the age
of 19, they've taken part in combat, and been face-to-face with the enemy, with
bullets flying over my head. They learn to
have a lot of responsibility and self-discipline.” Ovadia, who trained to
become a lawyer before deciding to join the Israeli diplomatic service, said
the army changed him as a human being, “I was more self-disciplined, I knew
what hard work was. The resilience I had was an order of magnitude greater than
the typical young person of my age.”
Another Israeli at the showcase, Yaniv Sulkes of Allot
Communications, told us a similar story: “One of the secrets of Israel’s
success is that the army takes people when they are young and motivated and
puts them in front of significant challenges. You have a big problem, you have what
seems like unlimited resources, and you can work on this problem day and night.
For an 18-year-old, that inspires creativity and innovation and an
entrepreneurial spirit. It’s like
finding yourself in the middle of the desert—you have to be innovative to
survive. And that’s life.”
Here in the U.S., we seem to be going in a different direction,
encouraging our college students to be less, not more, mature, and more
dependent on their professors or college administrators instead of thinking for
themselves. Drinking, partying, and college sports seem increasingly to
dominate life on campus at many of our institutions of higher education. A recent Bloomberg News report
noted that more than half of the new off-campus housing buildings under construction
include tanning salons! A swimming pool is considered old hat by today’s
students, who can always find time for their beauty regimen it would appear.
And as this University of Miami sorority
video shows, many of them are quite successful in that pursuit. Compounding
the problem of many young people thinking of college as a four-year,
parent-funded vacation is the propensity of students, often encouraged by
faculty, to focus on acting out their “political” objections to social issues
that achieve great importance on campus, although often ignored by the rest of
the world. So for instance, a lecturer chose to leave Yale University last year
after she was criticized for speaking up in defense of freedom of choice for
Halloween costumes, after Yale, pressured by student activists, had banned
costumes of Mulan or Pocahontas, because of some alleged slight those Disney
characters represented to Chinese or Native American people. The right
Halloween costume is a very important choice for a child of four to six years
old. Children of 18 to 21 ought perhaps to focus on slightly more demanding
challenges, such as their own future.
It is ironic that hostility, terrorist attacks, and constant
threat of war are what has helped make Israel’s economy the success it is. The
challenge for us in the U.S. is to learn some lessons from countries like
Israel, to help us avoid the economic decline which is a real threat, and
certainly perceived as such by a record number of voters this election year.
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