Miracle of a start-up nation

This is a money story that is actually worth starting with some figures. Per capita venture capital investment in this one country in recent years has been about 2.5 times greater than in the whole of continental Europe, 80 times greater than in China and 350 times greater than in India. After the US, this country has more companies listed on the NASDAQ than any other in the world. On the eve of the 2008 global financial crisis, this was the only country that registered a meaningful growth in venture capital. So, who are we talking about? Is it fast-growing Brazil, competitive Norway, Asian powerhouse Singapore or maybe European giant Germany? None of the above, actually.

The answer is tiny Israel.

Unbelievable but true, Israel today is home to a huge number of start-up companies that attract a staggering amount in venture capital from around the world, and effectively represent the world’s greatest concentration of innovation and entrepreneurship. The trillion dollar question here is: How does “a country of 7.1 million people, only 60 years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources produce more start up companies than large, peaceful and stable nations like Japan, China, India, Korea, Canada and the United Kingdom.” Geopolitical experts Dan Senor and Saul Singer explain exactly this in their new and exciting book, Start-Up Nation: The Story of Israel’s Economic Miracle.

The book opens with a description of a 2007 meeting between the legendary CEO of Renault and Nissan, Mr Carlos Ghosn, and a young Israeli entrepreneur, Mr Shai Agassi. The meeting had been orchestrated by a man no less than Mr Shimon Peres who was then waiting to become the President of Israel. The introductory chapter then goes on to describe how the meeting would eventually lead to a ground-breaking partnership between Mr Ghosn’s corporate automobile giant Renault and Mr Agassi’s little known start-up company Better Place that aims to develop the electric car as a feasible alternative to conventional automobiles. If successful in its mission, the joint venture, which has the blessings of the Israeli Government, will have a tremendous impact on modern day business, politics and environment. And much of that would be attributed to a twenty-something entrepreneur from Israel who, clichéd as this might sound, was inspired to make the world a better place.

Through out the course of the book, the authors draw upon such examples to describe how Israel became the world’s “start-up nation.” As Mr Singer explained in an exclusive interview to The Pioneer, Israel has more start-ups than any other country its size because it has successfully leveraged its adversity-driven culture into a source of creative energy that supports innovation and high levels of entrepreneurial activity. “An entrepreneur takes adversities and converts them into opportunity. That’s what Israel has done,” said Mr Singer.

One of the most telling examples of how Israel has turned around its adversities into opportunities for economic growth and development is the manner its entrepreneurs have leveraged their unique military training. Because of the fact that the tiny Jewish state is surrounded by sworn enemies, some of which are opposed to its very existence, Israel has always had an effective defence force as well as a system of conscription which means that every citizen must enlist in the military. Yet, as Mr Singer points out, “the Israeli military is a very different kind of military. It can’t rely on either a large number of weapons or soldiers. Early in the day, the country’s founding father Ben Gurion had realised that the only way for Israel to survive was better technology and more innovation.”

Hence, the Israeli military routinely bestows upon its young recruits, especially those selected to elite units, the best of the training facilities available and exposes them to state-of-the-art infrastructure and technology. This in turns allows them to make the best of their abilities. More importantly though, it is the manner in which the Israeli military prepares even its foot soldiers to face unpredictable situations by coming up with individual, out-of-the-box responses — unlike traditional militaries which focus on conformity — that later serves as a huge impetus to their entrepreneurial spirit. As Mr Singer puts it, “The Israeli military teaches you to take initiative, to improvise — do things that entrepreneurs do. Mostly, you learn what a mission is — something that needs to get done, no matter what.”

In other words, compulsory military training in Israel has helped create an environment where every individual is forced to develop an entrepreneurial spirit. Start-Up Nation lists several such ‘cultural factors’ that have helped build Israel into a ‘cluster’ for start-ups, much like Silicon Valley in the US or even Bangalore here in India. Primary among them would be the Jewish emphasis on education, believes Mr Singer. “Great universities were started early on in the 1920s when there were nothing but swamps in Israel and the country was still fighting for existence. But that investment paid off much later,” he notes. Similarly, the Jews as a community have a penchant for debate — the Talmud after all is one big debate, says Mr Singer. This allows for a more questioning mind, an open approach to problems as well as converts into lack of social (or, even professional) hierarchy which again frees up space for innovation and individual thought.

Start-Up Nation is particularly timely because, as Mr Singer puts it, “the book puts the focus back on what’s real and what’s not. The housing bubble and the financial bubble were unreal, so they popped. Increase in productivity, on the other hand, is what is real.” And increase in productivity comes from innovation which happens best at small start-up companies. In the aftermath of the global financial crisis, a lot of countries, including the US, are asking key questions like how can we innovate more, how can we be more entrepreneurial. It seems like Israel has some of the answers. The world, particularly India, should take note.

(This article was published in the Op-ed section of The Pioneer on September 29, 2011.)