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Secrets to Startup Success


Secrets to Startup Success


Why was Google willing to spend US$1.5 billion on a tiny five year-old Israeli startup? Why did Intel locate its largest overseas R&D center in Israel? The answer is simple: Israelis have little to offer, except their smarts.



Secrets to Startup Success

By Yuan Chou
From CommonWealth Magazine (vol. 549 )

Uri Levine, a 49 year-old with a shock of white hair, drives back and forth along an unfamiliar road. This is part of a test for the app he invented, Waze.

Like the proverbial David defeating Goliath with a rock, Levine was determined to take on search engine giant Google. "A Google user travels an hour and ten minutes from Los Angeles airport into the city. With the new Google (following the Waze acquisition), the drive will be 23 minutes," he says, asserting his product's superior capacity for finding the best routes.

The secret to Waze is that it integrates social media site functions to compile users' travel conditions and calculate the quickest course in real time. When it discovers a new shortcut, the app shows a steamroller icon, urging the driver to blaze a trail for everyone. "It's kind of like fulfilling a childhood dream," Levine says.

Developed in 2008, Waze quickly replaced Google Maps in Israel, until Google acquired Waze in June 2013 for US$1.5 billion in its effort to thwart the efforts of rivals Apple and Facebook in the navigation realm.

The Fight for Survival Breeds Innovation

Stories like Waze's are common across Israel, the "startup nation," where one out of every 1800 people is an entrepreneur. Last year 650 new startups were successfully funded to the tune of US$2.2 billion. Big global brands like Intel and Google compete to set up R&D centers here to tap into Israel's brainpower.

"It's the man or woman who has an idea – sometimes a child almost, young men and women – who have an idea. And that idea takes science and technology and turns it into a workable plan that can actually profit and grow," stated Israeli Prime Minister Binyamin Netanyahu at this year's Davos World Economic Forum. "So Israel is the epicenter of world innovation right now. And people have tried to crack the code of Israel," he added.

Israel's ingenuity can be said to come out of its fight for survival.

"Sometimes I think, maybe we should thank the Arabs. The Jewish people in the diaspora contributed to the culture of innovation and improvisation. We move ahead due to adversity," says Aaron Ciechanover, 66, winner of the 2004 Nobel Prize for Chemistry.

Comparatively speaking, "The Chinese are nicer neighbors (to Taiwan) than what we have. They want you to be part of them; they (the Arab world) want us to drown in the sea," he contends.

With only sixty percent of Taiwan's geographical area, "we have no natural resources," says Ruth Arnon, director of the Israel Academy of Sciences and Humanities. "What we do have are human resources."

From Battlefield to Business

All Israelis serve in the military and are essentially on permanent reserve duty. At US$17 billion, the country's military budget accounts for 20 percent of the national budget. Over the course of its 66-year history as a state, Israel has been involved in a major war an average of once every decade.

"I have been in many schools. I changed my address 25 times before I settled down, like a nomad," relates Ehud Keinan, president of the Israel Chemistry Society. However, he adds, "If I look back at those schools, the most influential school, the one that changed my personality, was military service."

Israelis learn to be independent, self-reliant, and confident in the military. Before their twentieth birthday they are made responsible for the hundreds of lives of their fellow soldiers on base, or for piloting a tank capable of flattening a town.

"When you are commanding 250 people in the special forces, after that everything is easy," one entrepreneur who has retired from the Special Forces asserts.

Military service makes Israeli society more cohesive. Comrades in arms from the military often become partners in new businesses.

A veteran of three wars himself, Keinan has more war stories than he can recount. "One time a brother had been hit in the neck, and his trachea was blocked. In order to save him, a comrade stuck the barrel of a ballpoint pen in his throat." It almost seems as if every soldier is MacGyver, capable of using their ingenuity in all sorts of ways to resolve life and death crises.

Resourcefulness on the battlefield extends to Israel's military industry. "We purchase American weapon systems and modify them to ours. We never tell them," says Nachman Shai, Israeli Knesset member (Labor) and chair of the Israel-Taiwan Friendship Group. "We are never satisfied. People are looking all the time for ways to improve everything, because of this terrible situation."

Unit 8200, the Intelligence Corps, is the largest single unit of the Israeli military, responsible for signal intelligence (SIGINT). The first choice of soldiers entering the military, 8200's intelligence gathering capabilities strike fear in enemies, and it is said that not a word spoken in the Arab world escapes the ears of the Israeli state.

Veterans of Unit 8200 are internationally prized talents.

CommonWealth Magazine encountered Yehuda Yehudai on the streets of Tel Aviv. In his early thirties, he has worked at Intel, Texas Instruments, and Broadcom, and can even speak some Chinese. Drawing on his accumulated know-how, he established DOVe, a company that uses ultrasound signals instead of mobile payment QR Codes, attracting interest from the likes of Coca-Cola and Orange S.A. (formerly France Télécom).

First Step: Go Global

Jon Medved, an entrepreneur and investor returned from living in the United States, relates that given the miniscule size of Israel's domestic demands, local entrepreneurs simply pass it by.

"An Israeli, no matter how wild their ideas are, they feel they can dominate the world, they want to go from here and go global," he says.

The newest product to attract attention on Chinese social media site Renren combines QR Codes with color images and animation. It comes from Israel.

Chinese netizens are accustomed to using QR Codes to direct friends to their photo galleries and blogs. Ordinarily, QR codes are just black-and-white splotches, unintelligible to the naked eye. But in a major departure from the norm, introduced "visual QR codes," profile pictures or cartoon animations that also work as QR Codes, delighting Renren's 200 million users to no end.

The inventor of this breakthrough technology is Visualead, an Israeli company founded two years ago that employs a staff of 15 today. Not only does the company have a Chinese teacher come in to teach Mandarin twice each week, but it has even moved its headquarters to Shanghai.

Oded Israeli, VP of marketing at Visualead, says his company is placing its focus on China now, as QR Codes are commonly used there. "We focus on APEC, and the West will follow," he confidently states.

Public-Private Symbiosis

Entrepreneurs are attuned to international trends, and so is government policy.

Israel's R&D and educational spending accounts for 3.32 and 7.95 percent of the GDP, respectively, placing it atop the Lausanne International Institute for Management Development (IMD)'s annual national competitiveness rankings. The Office of the Chief Scientist at the Israel Ministry of Economy is responsible for handing out extensive grants and matching funds, making it a major funding source for startups.

The government is another source for technical know-how. The Weizmann Institute of Science and the Israel Institute of Technology (Technion) are two world-famous repositories of thinking. After developing the multiple sclerosis drug Copaxone, the Weizmann Institute transferred the rights to Teva Pharmaceuticals.

Mudi Sheves, vice president for technology transfer at the Weizmann Institute, believes that the key to success is isolating scientists from the market to allow them to focus on fundamental scientific research.

"We give them (scientists) complete academic freedom. We give them the best infrastructure, and most importantly, no pressure to complete any application, only do good basic science. We believe if you do good basic science, you can find applications from it," Sheves asserts.

The task of finding commercial applications for scientific achievements is handed over to the independent professional institution, Yeda. Many Israeli universities follow this approach, establishing technology transfer centers on campus to promote cooperation between academia and industry.

Eager Participant in FailCon

Another characteristic of many Israelis has contributed to making it a nation of startup companies.

"What you define as chutzpah, I would define as no respect to authority," states Ehud Keinan flatly.

In Israeli an old joke goes that the country's first female prime minister, Golda Meir, was once talking to US president Richard Nixon, who said, "I'm the president of 200 million people." Golda Meir replied, "Yes, but I'm the prime minister of three million prime ministers."

Taking on adversity has made Israelis wary and critical of authorities of all stripes. Not afraid of friction, or to offend people in higher positions, they keep leaders feeling uneasy, and intent on making improvements.

"We don't care about harmony like you. We enjoy dialogue and debate," says Minister of Education Shai Piron.

Another side of the Jews' chutzpah is their courage to face failure, which can even manifest as pride in failure. Failed entrepreneurs actively take part in events like FailCon, sharing invaluable lessons and discussing the secrets of coming up on top.

"The best baseball players, especially those that hit home runs, they strike out. You can't hit a home run on every pitch," says Medved. Likewise, "The odds of a successful investment behind a second-time entrepreneur who has failed once are much better than those of a first-time entrepreneur. It's significantly better odds to invest in somebody who has failed and tried again, than someone that's never tried before."

Translated from the Chinese by David Toman