Book Reviews

Start-Up Nation by Dan Senor -Book Notes, Summary, and Review

Start-Up Nation - Dan Senor

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Rating: 7/10

Date of reading: 21st – 24th of March, 2017

Description: Why is Israel a start-up nation, with one of the highest numbers of start-up per capita. How the bottom-up culture helps with this, what is the role of the military and the concept of chutzpah which makes this a breeding ground for start-ups.

 

My notes:

 

Introduction

 

“Third, Israelis are natural early adopters—they were recently number one in the world in time spent on the Internet and have a cell phone penetration of 125 percent, meaning lots of people have more than one.” ( :14)

“couldn’t Renault-Nissan build cars there? Ghosn’s response was that it would work only if they could produce at least fifty thousand cars a year. Peres didn’t blink, and committed to an annual production of one hundred thousand cars. Ghosn was on board, provided Peres could make good on his promise.” ( :14)

“If it succeeds, the global impact of Better Place on economics, politics, and the environment might well transcend that of the most important technology companies in the world. And the idea will have spread from Israel throughout the world. Companies like Better Place and entrepreneurs” ( :15)

“(a total of 3,850 start-ups, one for every 1,844 Israelis),” ( :15)

“stagnant economy. “Everything was rationed,” 9 complained one new arrival. “We had coupon books, one egg a week, long lines.” The average 10 standard of living for Israelis was comparable to that of Americans in the 1800s. How, then, did this “start-up” state not only survive but morph from a besieged backwater to a high-tech powerhouse that has achieved fiftyfold economic growth in sixty years? How did a community of penniless refugees transform a land that Mark Twain described as a “desolate country . . . a silent, mournful 11 expanse,” into one of the most dynamic entrepreneurial economies in the world?” ( :18)

“The fact that this question has been treated only in piecemeal fashion is unbelievable to Israeli political economist Gidi Grinstein: “Look, we doubled our economic situation relative to America while multiplying our population fivefold and fighting three wars. This is totally unmatched in the economic history of the world.” And, he told us, the Israeli entrepreneur continues to perform in 12 unimaginable ways.” ( :18)

“explanation is that adversity, like necessity, breeds inventiveness. Other small and threatened countries, such as South Korea, Singapore, and Taiwan, can also boast growth records that are as impressive as Israel’s. But none of them have produced an entrepreneurial culture—not to mention an array of start-ups—that compares with Israel’s.” ( :19)

“McWilliams explains, “Israel is quite the opposite of a uni-dimensional, Jewish country. . . . It is a monotheistic melting pot of a diaspora that 18 brought back with it the culture, language and customs of the four corners of the earth.” While a common prayer book and a shared legacy of persecution count for something,” ( :19)

“But Israel specializes in high-growth entrepreneurship—start-ups that wind up transforming entire global industries. High-growth entrepreneurship is distinct in that it uses specialized talent—from engineers and scientists to business managers and marketers—to commercialize a radically innovative idea.” ( :20)

 

PART I
The Little Nation That Could

 

“The American says: What’s a shortage? The Russian says: What’s meat? The Chinese man says: What’s an opinion? The Israeli says: What’s “Excuse me”?” ( :23)

“”Sounds good,” Thompson said, not without restraint. “How do you do that?” “Good people leave traces of themselves on the Internet—digital footprints—because they have nothing to hide,” Shvat continued in his accented English. “Bad people don’t, because they try to hide themselves. All we do is look for footprints. If you can find them, you can minimize risk to an acceptable level and underwrite it. It really is that simple.”” ( :24)

“”Yes,” Shaked said with quiet self-assurance. “We’ve tried it on thousands of transactions, and we were right about all of them but four.”” ( :24)

“Thompson gave the transaction data to Shvat on a Thursday. “I figured I was off the hook with Benchmark,” he recalled. “We’d never hear from Shvat again. Or at least not for months.” So he was surprised when he received an e-mail from Israel on Sunday. It said, “We’re done.” Thompson didn’t believe it. First thing Monday morning, he handed Fraud Sciences’ work over to his team of PhDs for analysis; it took them a week to match the results up against PayPal’s. But by Wednesday, Thompson’s engineers were amazed at what they had seen so far. Shaked and his small team produced more accurate results than PayPal had, in a shorter amount of time, and with incomplete data. The difference was particularly” ( :25)

“Thompson went back to Meg: “We need to make a decision. They’re here.” She gave him the goahead: “Let’s buy it.” After some valuation work, they offered $79 million. Shaked declined. The Fraud Sciences board, which included the Israeli venture firm BRM Capital, believed the company was worth at least $200 million. Eli Barkat, one of the founding” ( :26)

“”You’ve got to understand the Israeli mentality,” he said. “When you’ve been developing technology to find terrorists—when lots of innocent lives hang in the balance —then finding thieves is pretty simple.”” ( :26)

“The next thing that struck Thompson was the demeanor of the Fraud Sciences employees during the all-hands meeting at which he spoke. Each face was turned raptly to him. No one was texting,” ( :26)

“surfing, or dozing off.” ( :27)

“The intensity only increased when he opened the discussion period: “Every question was penetrating. I actually started to get nervous up there. I’d never before heard so many unconventional observations—one after the other. And these weren’t peers or supervisors, these were junior employees. And they had no inhibition about challenging the logic behind the way we at PayPal had been doing things for years. I’d never seen this kind of completely unvarnished, unintimidated, and undistracted attitude. I found myself thinking, Who works for whom?”” ( :27)

“Leo Rosten’s description of Yiddish—the all-but-vanished German-Slavic language from which modern Hebrew borrowed the word—chutzpah is “gall, brazen nerve, effrontery, incredible ‘guts,'” ( :27)

“guts,’ presumption plus arrogance such as no other word and no other language can do justice to.”” ( :27)

“2 ” An outsider would see chutzpah everywhere in Israel: in the way university students speak with their professors, employees challenge their bosses, sergeants question their generals, and clerks second-guess government ministers. To Israelis, however, this isn’t chutzpah, it’s the normal mode of being. Somewhere along the way—either at home, in school, or in the army—Israelis learn that assertiveness is the norm, reticence something that risks your being left behind.” ( :27)

“Israel, likes to cite what he calls the “nickname barometer”: “You can tell a lot about a society based on how [its members] refer to their elites. Israel is the only place in the world where everybody in a position of power—including prime ministers and army generals—has a nickname used by all, including the masses.”” ( :27)

“informality flow also from a cultural tolerance for what some Israelis call “constructive failures” or “intelligent failures.” Most local investors believe that without tolerating a large number of these failures, it is impossible to achieve true innovation. In the Israeli military, there is a tendency to treat all performance—both successful and unsuccessful—in training and simulations, and sometimes even in battle, as value-neutral. So long as the risk was taken intelligently, and not recklessly, there is something to be learned.” ( :27)

“this also contributes to a sense that Israelis are always hustling, pushing, and looking for the next opportunity.” ( :28)

“But until the 1970s, computers were used predominantly by rocket scientists and big universities. Some computers took up whole rooms or even buildings. The idea of a computer on your office desk or in your home was the stuff of science fiction. All that began to change in 1980, when Intel’s Haifa team designed the 8088 chip, whose transistors could flip almost five million times per second (4.77 megahertz), and were small enough to allow for the creation of computers that would fit in homes and offices. IBM” ( :28)

“ubbed “Moore’s law,” and the chip industry was built around this challenge to deliver faster and faster chips. IBM, Wall Street, and the business press all caught on, too—clock speed and size was how they measured the value of new chips. This was proceeding well until about 2000, when” ( :29)

“When Intel’s Israel team euphorically introduced its innovation to headquarters in Santa Clara, the engineers thought their bosses would be thrilled. What could be better than a car that goes faster without overheating? Yet what the Israeli team saw as an asset—that the engine turned more slowly— headquarters saw as a big problem. After all, the entire industry measured the power of chips by how fast the engine turned: clock speed.” ( :29)

“The “seminar” is part of a culture that Israelis know well, going back to the founding of the state. From the end of March to the end of May 1947, David Ben-Gurion—Israel’s George Washington— conducted an inquiry into the military readiness of Jewish Palestine, in anticipation of the war he knew would come when Israel declared independence.” ( :30)

“Frohman had long tried to cultivate a culture of disagreement and debate at Intel Israel, and he had hoped this ethos would infect Santa Clara. “The goal of a leader,” he said, “should be to maximize resistance—in the sense of encouraging disagreement and dissent. When an organization is in crisis, lack of resistance can itself be a big problem. It can mean that the change you are trying to create isn’t radical enough . . . or that the opposition has gone underground. If you aren’t even aware that the people in the organization disagree with you, then you are in trouble.”” ( :30)

“The switch to the Israeli-designed approach came to be known in Intel and the industry as the “right turn,” since it was a sharp change in approach from simply going for higher and higher clock speeds without regard to heat output or power needs. Intel began to apply the “right turn” paradigm not just to chips for laptops but to chips for desktops, as well. Looking back, the striking thing about Intel Israel’s campaign for the new architecture was that the engineers were really just doing their jobs. They cared about the future of the whole company; the fight wasn’t about winning a battle within Intel, it was about winning the war with the competition.” ( :31)

“”It’s unbelievable that, just a few years ago, we were designing something that no one wanted,” says Friedman, who is still based in Haifa but now leads development teams for Intel around the world. “Now we’re doing processors that should carry most of Intel’s revenue—we can’t screw up.”” ( :31)

“Dadi Perlmutter recalls the shock of an American colleague when he witnessed Israeli corporate culture for the first time. “When we all emerged [from our meeting], red faced after shouting, he asked me what was wrong. I told him, ‘Nothing. We reached some good conclusions.’ “” ( :32)

“Perlmutter later moved to Santa Clara and became Intel’s executive vice president in charge of mobile computing. His division produces nearly half of the company’s revenues. He says, “When I go back to Israel, it’s like going back to the old culture of Intel. It’s easier in a country where politeness gets less of a premium.”” ( :32)

“Israelis do not have a very disciplined culture. From the age of zero we are educated to challenge the obvious, ask questions, debate everything, innovate,” says Mooly Eden, who ran these seminars.” ( :32)

“Israel simultaneously defeated the Egyptian, Jordanian, and Syrian forces and expanded its borders by taking the Golan Heights from Syria, the West Bank and East Jerusalem from Jordan, and the Gaza Strip and Sinai Peninsula from Egypt.” ( :33)

“At first he thought the tanks were being hit by rocket-propelled grenades (RPGs), the classic handheld antitank weapon used by infantry forces. Reshef and his men pulled back a bit, as they had” ( :33)

“been trained, so as to be out of the short range of the RPGs. But the tanks kept exploding. The Israelis realized they were being hit by something else—something seemingly invisible.” ( :34)

“1 ten times that of an RPG. The Sagger was also far more powerful. Each shooter could work alone and did not even need a bush to hide behind—a shallow depression in the desert sand would do. A shooter had only to fire in the direction of a tank and use a joystick to guide the red light at the back of the missile. So long as the soldier could see the red light, the wire that remained connected to the missile would allow him to guide it accurately and at great 2 distance into the target. Israeli intelligence knew” ( :34)

“The dust kicked up by the moving tanks would obscure the shooter’s line of sight to the missile’s deadly red light, and the return fire might also prevent the shooter from keeping his eye on the light. This brand-new doctrine proved successful, and after the war it was eventually adopted by NATO forces. It had not been honed over years of gaming exercises in war colleges or prescribed out of an operations manual; it had been improvised by soldiers at the front.” ( :34)

“As usual in the Israeli military, the tactical innovation came from the bottom up—from individual tank commanders and their officers. It probably never occurred to these soldiers that they should ask their higher-ups to solve the problem, or that they might not have the authority to act on their own. Nor did they see anything strange in their taking responsibility for inventing, adopting, and disseminating new tactics in real time, on the fly.” ( :34)

“Yet what these soldiers were doing was strange. If they had been working in a multinational” ( :34)

“company or in any number of other armies, they might not have done such things, at least not on their own. As historian Michael Oren, who served in the IDF as a liaison to other militaries, put it, “The Israeli lieutenant probably has greater command decision latitude than his counterpart in any army in 3 the world.”” ( :35)

“”The IDF is deliberately understaffed at senior levels. It means that there are fewer senior officers to issue commands,”” ( :35)

“tely understaffed at senior levels. It means that there are fewer senior officers to issue commands,” says Luttwak. “Fewer senior officials means more individual initiative at the lower ranks.”” ( :35)

“”The most interesting people here are the company commanders,” Farhi told us. “They are absolutely amazing people. These are kids—the company commanders are twenty-three. Each of them” ( :35)

“is in charge of one hundred soldiers and twenty officers and sergeants, three vehicles. Add it up and that means a hundred and twenty rifles, machine guns, bombs, grenades, mines, whatever. Everything. Tremendous responsibility.”” ( :36)

“Throughout much of the standoff, the company commander was on his own. Farhi could have tried to take charge from afar, but he knew he had to give his subordinate latitude: “There were an infinite number of dilemmas there for the commander. And there wasn’t a textbook solution.” The soldiers managed to rescue the injured soldier, but the terrorist remained inside. The commander knew that the school staff was afraid to evacuate the school, despite the danger, because they did not want to be branded “collaborators” by the terrorists. And he knew that the journalists would not leave the roof of the school, because they didn’t want to miss breaking news. The commander’s solution: empty the school using smoke grenades. Once the students, teachers, and journalists had been safely evacuated, the commander decided it was safe to send in the bulldozer to drive the terrorist out of the adjacent building. Once the bulldozer began biting into the house, the commander unleashed the dog to neutralize the terrorist. But while the bulldozer was knocking down the house, another terrorist the Israelis didn’t know about came out of the school next door. The soldiers outside shot and killed this second terrorist. The entire operation took four hours. “This twenty-three-year-old commander was alone for most of the four hours until I got there,” Farhi told us.” ( :36)

“”And he himself is different. He is on the line—responsible for the lives of a lot of people: his soldiers, Palestinian schoolchildren, journalists. Look, he didn’t conquer Eastern Europe, but he had to come up with a creative solution to a very complex situation. And he is only twenty-three years old.”” ( :36)

“Speaking of the company commanders who served under him, Farhi asked, “How many of their peers in their junior year in colleges have been tested in such a way? . . . How do you train and mature a twenty-year-old to shoulder such responsibility?”” ( :37)

“”So I told him, ‘Mr. Prime Minister, this individual sergeant is not alone. It was not a mistake. All the soldiers in Unit 8200 must know these things because if we limited such information to officers, we simply would not have enough people to get the work done—we don’t have enough officers.’ And in fact, the system was not changed, because it’s 7 impossible for us, given the manpower constraints, to build a different system.”” ( :37)

“Nati Ron is a lawyer in his civilian life and a lieutenant colonel who commands an army unit in the reserves. “Rank is almost meaningless in the reserves,” he told us, as if this were the most natural thing in the world. “A private will tell a general in an exercise, ‘You are doing this wrong, you should 9 do it this way.’ “” ( :38)

“Orders are given and obeyed in the spirit of men who have a job to do and mean to do it, but the hierarchy of rank is of small importance, especially since it often cuts across sharp differences in age and social status.”” ( :38)

“As Israeli author Amos Oz has said, Judaism and Israel have always cultivated “a culture of doubt and argument, an open-ended game of interpretations, counter-interpretations, reinterpretations, opposing interpretations. From the very beginning of the existence of the Jewish civilization, it was 11 recognized by its argumentativeness.”” ( :38)

“ary liaison unit: “You would sit around with a bunch of Israeli generals, and we all wanted coffee. Whoever was closest to the coffee pot would go make it. It didn’t matter who—it was common for generals to be serving coffee to their soldiers or vice versa. There is no protocol about these things.” ( :38)

“We don’t want you. You’re not good.’ I mean, everyone’s on a first-name basis. . . . You go to the person above him and say, ‘That guy’s got to go.’ . . . It’s much more performance-oriented than it is about rank.” Retired IDF” ( :39)

“If you don’t trust him, if you’re not confident in him, you can’t follow him.” ( :39)

“imagine, to the Continental Army of 1776 than it is to the American army of 2008. . . . And by the way, George Washington knew that his ‘general’ rank didn’t mean very much— that he had to be a great general, and that basically people were there out of volition.”” ( :39)

 

PART II
Seeding a Culture of Innovation

 

“”The polyglot entries were random, frustrating, and beautiful, a carnival of ideas, pleas, boasts, and obsolete phone numbers,” Outside magazine reported on the venerable 1989 volume.” ( :42)

“. A hotelkeeper sees a guest present an Israeli passport and asks, “By the way, how many are you?” When the young Israeli answers, “Seven million,” the hotelkeeper presses, “And how many are still back in Israel?”” ( :43)

“Lebanon forbade the showing of the Walt Disney production Sleeping Beauty 5 because the horse in the film bears the Hebrew name Samson.” ( :44)

“Orna Berry told us, “Hightech telecommunications became a national sport to help us fend against the claustrophobia that is life 6 in a small country surrounded by enemies.”” ( :44)

“What is the value of the attributes that Israelis have developed as a result of the constant efforts to crush their nation’s development?” ( :44)

“Netafim was pioneering not just because it developed an innovative way to increase crop yields by up to 50 percent while using 40 percent less water, but because it was one of the first kibbutzbased industries. Until then the kibbutzim—collective communities—were agriculture-based. The idea of a kibbutz factory that exported to the world was a novelty.” ( :45)

“”The reason that Israel is inside almost everything we touch is because almost every company we touch is inside Israel. Are you?” he asks, peering into the audience.” ( :46)

“Alex Vieux, CEO of Red Herring magazine, told us that he has been to “a million high-tech conferences, on multiple continents. I see Israelis like Medved give presentations all the time, alongside their peers from other countries. The others are always making a pitch for their specific company. The Israelis are always making a pitch for Israel.”” ( :47)

“While it’s difficult to get into the top Israeli universities, the nation’s equivalent of Harvard, Princeton, and Yale are the IDF’s elite units. The unit in which an applicant served tells prospective employers what kind of selection process he or she navigated, and what skills and relevant experience he or she may already possess.” ( :49)

“The war was a costly reminder that Israel must compensate for its small size and population by maintaining a qualitative and technological edge. The professors approached then IDF chief of staff Rafael “Raful” Eitan with a simple idea: take a handful of Israel’s most talented young people and give them the most intensive technology training that the universities and the military had to offer.” ( :49)

“Rather, it is to transform them into mission-oriented leaders and problem solvers.” ( :50)

“650 graduates in thirty years, they have become some of Israel’s top academics and founders of the country’s most successful companies.” ( :50)

“the interservice competition for Talpions within the IDF—which at times has had to be settled by the prime minister—speaks for itself. Second, they claim that the Talpions easily pay back the investment during their required six years of service. Third, and perhaps most importantly, the twothirds of Talpiot graduates who end up either in academia or in technology companies continue to make a tremendous contribution to the economy and society, thereby strengthening the country in different ways.” ( :51)

“innovative, adaptive problem solving—is evident throughout much of the military and seems to be part of the Israeli ethos: to teach people how to be very good at a lot of things, rather than excellent at one thing.” ( :51)

“”There is something about the DNA of Israeli innovation that is unexplainable,” Shainberg said. But he did have the beginnings of a theory. “I think it comes down to maturity. That’s because nowhere else in the world where people work in a center of technology innovation do they also have 3 to do national service.” At eighteen, Israelis go into the army for a minimum of two to three years. If they don’t reenlist, they typically enroll at a university. “There’s a massive percentage of Israelis who go to university out of the army compared to anywhere else in the world,” said Shainberg.” ( :51)

“aelis are university-educated, which is among the highest percentages in the world.” ( :51)

“”university education meets the needs of a competitive 4 economy.”” ( :51)

“Shainberg reasoned. “They’re much more mature; they’ve got more life experience. Innovation is all about finding ideas.” Innovation often depends on having a different perspective. Perspective comes from experience. Real experience also typically comes with age or maturity. But in Israel, you get experience, perspective, and maturity at a younger age, because the society jams so many transformative experiences into Israelis when they’re barely out of high school. By the time they get to college, their heads are in a different place than those of their American counterparts.” ( :51)

“This maturity is especially powerful when mixed with an almost childish impatience.” ( :52)

“American entrepreneur who has invested in several Israeli start-ups, described it, “When an Israeli man wants to date a woman, he asks her out that night. When an Israeli entrepreneur has a business idea, he will start it that week. The notion that one should accumulate credentials before launching a venture simply does not exist. This is actually good in business. Too much time can only teach you 5 what can go wrong, not what could be transformative.”” ( :52)

“says Tal Keinan, an Israeli HBS grad. “It’s fun. It helps keep your network intact. We spend two days visiting with classmates, sitting in lectures. But imagine a reunion every year, and that it lasts for two to four weeks. And it’s with the unit you had spent three years with in the army. And instead of sitting in lectures, you’re doing security patrols along the border. It nourishes an entirely different kind of lifelong bond.”” ( :52)

“The social graph is very simple here. Everybody knows everybody; everybody was serving in the army with the brother of everybody; the mother of everybody was the teacher in their school; the uncle was the commander of somebody else’s unit. Nobody can hide. If you don’t behave, you cannot disappear to Wyoming or California. There is a very high degree of 7 transparency.” The benefits of this kind of interconnectedness are not limited to Israel, although in Israel they are unusually intense and widespread.” ( :52)

“”The military gets you at a young age and teaches you that when you are in charge of something, you are responsible for everything that happens . . . and everything that does not happen,”” ( :53)

“phrase ‘It was not my fault’ does not exist in the military culture.”” ( :53)

“thousand miles from Stanford’s campus, he couldn’t meet the school’s requirement for an in-person interview. So the admissions department scheduled one over the phone, which he did between sniper operations and raids, while standing in an open expanse of desert. Tice asked the admissions officer to excuse the” ( :56)

“Al Chase told us that a number of the vets he’s worked with have walked a business interviewer through all their leadership experiences from the battlefield, including case studies in high-stakes decision making and management of large numbers of people and equipment in a war zone, and at the end of it the interviewer has said something along the lines of “That’s very interesting, but have you ever had a real job?”” ( :56)

“Israel, South Korea, and Singapore. Not surprisingly, all three face long-standing existential threats or have fought wars for survival in recent” ( :57)

“Mordechai Kidron, the” ( :57)

“”Singaporeans of all strata of society would train shoulder to shoulder in the rain and hot sun, run up hills together, and learn to fight as a team in jungles and built-up areas. Their common experience in National Service would bond them, and shape the Singapore identity and character,” Prime Minister Goh said on the Singaporean military’s thirty-fifth anniversary.” ( :58)

“Today the alarm bells are being sounded even by Singapore’s founding father, Lee Kuan Yew, who served as prime minister for three decades. “It’s time for a new burst of creativity in business,” he says. “We need many new tries, many start-ups.”” ( :58)

“”The fear of losing face, and the bursting of the Internet bubble in 2000,” he told us. “In Korea, one should not be exposed while failing. Yet in early 2000, many entrepreneurs jumped on the bandwagon of the new economy. When the bubble burst, their public failure left a scar on entrepreneurship.”” ( :59)

“They don’t care about the social price of failure and they develop their projects regardless of the economic or political situation.”” ( :59)

“”I’ll give you an analogy from an entirely different perspective,” Tal Riesenfeld told us matter-offactly. “If you want to know how we teach improvisation, just look at Apollo. What Gene Kranz did at NASA—which American historians hold up as model leadership—is an example of what’s expected from many Israeli commanders in the battlefield.” His response to our question about Israeli innovation seemed completely out of context, but he was speaking from experience. During his second year at Harvard Business School, Riesenfeld launched a start-up with one of his fellow Israeli commandos. They presented their proposal at the Harvard business plan competition and beat out the seventy other teams for first place.” ( :59)

“Three days into the crisis, Kranz and his teams had managed to figure out creative ways to get Apollo back to earth while consuming a fraction of the power that would typically be needed. As the New York Times editorialized, the crisis would have been fatal had it not been for the “NASA network whose teams of experts performed miracles of emergency improvisation.”” ( :60)

“structured under one of two models: a standardized model, where routine and systems govern everything, including strict compliance with timelines and budgets, or an experimental model, where every day, every exercise, and every piece of new information is evaluated and debated in a culture that resembles an R&D laboratory.” ( :61)

“a rosh gadol—literally, a “big head”—and those who operate with a rosh katan, or “little head.” Rosh katan behavior, which is shunned, means interpreting orders as narrowly as possible to avoid taking on responsibility or extra work. Rosh gadol thinking means following orders but doing so in the best possible way, using judgment, and investing whatever effort is necessary.” ( :61)

“Tidiness extends to the government, too. Lee Kuan Yew’s People’s Action Party has basically” ( :61)

“been in uninterrupted power since Singaporean independence. This is just the way Lee wants it. He has always believed that a vibrant political opposition would undermine his vision for an orderly and efficient Singapore. Public dissent has been discouraged, if not suppressed outright. This attitude is taken for granted in Singapore, but in Israel it’s foreign.” ( :62)

“”The debrief is as important as the drill or live battle,” he told us. Each flight exercise, simulation, and real operation is treated like laboratory work “to be examined and reexamined, and reexamined again, open to new information, and subjected to rich—and heated —debate. That’s how we are trained.”” ( :62)

“In these group debriefs, emphasis is put not only on unrestrained candor but on self-criticism as a means of having everyone—peers, subordinates, and superiors—learn from every mistake. “It’s usually ninety minutes. It’s with everybody. It’s very personal. It’s a very tough experience,” Dotan said, recalling the most sweat-inducing debriefings of his military career. “The guys that got ‘killed’ [in the simulations], for them it’s very tough. But for those who survive a battle—even a daily training exercise—the next-toughest part is the debriefing.”” ( :62)

“Nor is the purpose of debriefings simply to admit mistakes. Rather, the effect of the debriefing system is that pilots learn that mistakes are acceptable, provided they are used as opportunities to improve individual and group performance. This emphasis on useful, applicable lessons over creating new formal doctrines is typical of the IDF. The entire Israeli military tradition is to be traditionless. Commanders and soldiers are not to become wedded to any idea or solution just because it worked in the past.” ( :62)

“And yet, even in victory, the same thing happened: self-examination followed by an overhaul of the IDF. Senior officials have actually been fired after a successful war.” ( :63)

“The Israelis, on the other hand, have been so dogmatic about their commissions that one was even set up in the midst of an existential war. In July 1948, in what Eliot Cohen described as “one of the truly astonishing episodes” of Israel’s War of Independence, the government established a commission staffed by leaders from across the political spectrum while the war was still going on. The commission stepped back for three days to hear testimony from angry army officers about the government and the military’s conduct during the war and what they believed to be Ben-Gurion’s 17 micromanagement. Setting up a commission amid the fighting of a war was a questionable decision, given the distraction it would impose on the leadership. But, as Yuval Dotan told us earlier, in Israel the debrief is as important as the fighting itself.” ( :63)

“Six companies of troops (roughly six hundred soldiers) were able to kill some four hundred Hezbollah fighters in face-to-face combat while suffering only thirty casualties, but the war was considered a failure of Israeli strategy and training, and seemed to signal to the public a dangerous departure from the IDF’s core ethos.” ( :64)

“the chief of staff’s decisions. There is no question that the final word rests with the chief of staff, and once decisions have been made, all must demonstrate complete commitment to their implementation. However, it is the senior officers’ job to argue with the chief of staff when they feel he is wrong, and this should be done assertively on the basis of professional truth as they see it” (emphasis added).” ( :64)

“Fluidity, according to a new school of economists studying key ingredients for entrepreneurialism, is produced when people can cross boundaries, turn societal norms upside down, and agitate in a free-market economy, all to catalyze radical ideas. Or as Harvard psychologist Howard Gardner puts it, different types of “asynchrony . . . [such as] a lack of fit, an unusual pattern, or an irregularity” have the power to stimulate economic creativity.” ( :65)

“They define that edge as “the estuary region where rigid order and random 20 chaos meet and generate high levels of adaptation, complexity, and creativity.” This is precisely the environment in which Israeli entrepreneurs thrive. They benefit from the stable institutions and rule of law that exist in an advanced democracy. Yet they also benefit from Israel’s nonhierarchical culture, where everyone in business belongs to overlapping networks produced by small communities, common army service, geographic proximity, and informality.” ( :65)

 

PART III
Beginnings

 

“from 1948 to 1970, a period during which per capita GDP almost 1 quadrupled and the population tripled, even amidst Israel’s engagement in three major wars. The second was from 1990 until today, during which time the country was transformed from a sleepy backwater into a leading center of global innovation. Dramatically different—almost opposite— means were employed: the first period of expansion was achieved through an entrepreneurial government that dominated a small, primitive private sector; the second period through a thriving entrepreneurial private sector that was initially catalyzed by government action.” ( :67)

“policy—economic, political, military, or social—” ( :69)

“Today, at less than 2 percent of Israel’s population, kibbutzniks produce 12 percent of the nation’s exports.” ( :70)

“Kibbutzim were both hypercollective and hyperdemocratic. Every question of self-governance, from what crop to grow to whether members would have televisions, was endlessly debated. Shimon Peres told us, “In the kibbutzim, there were no police. There was no court. When I was a member, there was no private money. Before I came, there wasn’t even private mail. The mail came and everyone could read it.”” ( :70)

“But the community decided to stick it out since it became clear that the problems of soil salinity affected not only Hatzerim but also most of the lands in the Negev. Two years later, the Hatzerim kibbutzniks managed to flush the soil enough so that they were able to start growing crops. Yet this was just the beginning of Hatzerim’s breakthroughs for itself and the country. In 1965 a water engineer named Simcha Blass approached Hatzerim with an idea for an invention that he wanted to commercialize: drip irrigation. This was the beginning of what ultimately became Netafim, the global drip irrigation company.” ( :71)

“Kibbutz Mashabbe Sade, in the Negev Desert, went even further: the kibbutzniks found a way to use water deemed useless not once, but twice. They dug a well as deep as ten football fields are long —almost half a mile—only to discover water that was warm and salty. This did not seem like a great find until they consulted Professor Samuel Appelbaum of nearby Ben-Gurion University of the Negev. He realized that the water would be perfect for raising warm-water fish. “It was not simple to convince people that growing fish in the desert makes sense,” said Appelbaum, a fish biologist. “But it’s important to debunk the idea that arid land is infertile, useless land.”” ( :71)

“In 1932, Yosef Weitz became the top forestry official in the Jewish National Fund, a pre-state organization dedicated to buying land and planting trees in what was to become the Jewish state. It took Weitz more than thirty years to convince his own organization and the government to start planting a forest on hills at the edge of the Negev Desert. Most thought it couldn’t be done. Now there are about four million trees there. Satellite pictures show the forest sticking out like a visual typo, surrounded by desert and drylands in a place where it should not exist. FluxNet, a NASA-coordinated global environmental research project, collects data from over a hundred observation towers around the world. Only one tower is in a forest in a semi-arid zone: Yatir.” ( :72)

“In December 2008, Ben-Gurion University hosted a United Nations-sponsored conference on combating desertification, the world’s largest ever. Experts from forty countries came, interested to see with their own eyes why Israel is the only country whose desert is receding.” ( :72)

“the Six-Day War. Within one week of June 6, 1967, Israel had captured the West Bank, Gaza Strip, Sinai Peninsula, and Golan Heights. Collectively, the territory was equal to more than three times the size of Israel.” ( :73)

“Prime Minister Golda Meir took responsibility for what was seen as a fiasco and resigned a month after the release of the commission’s report. But her successor, Yitzhak Rabin, was forced to resign from his first stint as prime minister when, in 1977, it was revealed that his wife had a foreign bank account.” ( :75)

“The second-phase turnaround began after 1990. Up to that point, the economy had a limited capacity to capitalize on the entrepreneurial talent that the culture and the military had inculcated. And further stifling the private sector was the extended period of hyperinflation, which was not addressed until 1985, when then finance minister Shimon Peres led a stabilization plan developed by U.S. Secretary of State George Shultz and IMF economist Stanley Fischer. The plan dramatically cut public debt, limited spending, began privatizations, and reformed the government’s role in the capital markets. But this didn’t yet generate for Israel a private and dynamic entrepreneurial economy. For the economy to truly take off, it required three additional factors: a new wave of immigration, a new war, and a new venture capital industry.” ( :76)

“bound, tortured, and thrown in jail. After ninetyone days, they were released to the Gedaref refugee camp in Sudan, where Molla was approached by a white man who spoke crypti-cally but clearly seemed well-informed. “I know who you are and I know where you want to go,” he told the teenager. “I am here to help.” This was only the second time in Molla’s life that he had seen a white person. The man returned the next day, loaded the boys onto a truck, and drove across the desert for five hours, until they reached a remote airstrip.” ( :77)

“Today Molla is an elected member of Israel’s parliament, the Knesset; he is only the second Ethiopian to be elected to this office. “While it was just a four-hour flight, it felt like there was a gap of four hundred years between Ethiopia and Israel,” Molla told us.” ( :78)

“Another flight from Ethiopia set a world record: 1,122 passengers on a single El Al 747. Planners had expected to fill the aircraft with 760 passengers, but because the passengers were so thin, hundreds more were squeezed in. Two babies were born during the flight. Many of the passengers arrived barefoot and with no belongings. By the end of the decade, Israel had absorbed some forty thousand Ethiopian immigrants.” ( :78)

“Sergey Brin spoke. “Ladies and gentlemen, girls and boys,” he said in Russian, his choice of language prompting spontaneous applause. “I emigrated from Russia when I” ( :78)

“was six,” Brin continued. “I went to the United States. Similar to you, I have standard Russian-Jewish parents. My dad is a math professor. They have a certain attitude about studies. And I think I can relate that here, because I was told that your school recently got seven out of the top ten places in a math competition throughout all Israel.”” ( :79)

“guard. This was typical in those years: Russians with PhDs and engineering degrees were arriving in such overwhelming numbers that they could not find jobs in their fields, especially while they were still learning Hebrew.” ( :79)

“Israel is now home to more than seventy different nationalities and cultures. But the students Sergey Brin was addressing were from the single largest immigration wave in Israel’s history. Between 1990 and 2000, eight hundred thousand citizens of the former Soviet Union immigrated to Israel; the first half million poured in over the course of just a three-year period. All together, it amounted to adding about a fifth of Israel’s population by the end of the 1990s. The U.S. equivalent would be a flood of sixty-two million immigrants and refugees coming to America over the next decade.” ( :80)

“”we received with our mothers’ milk the knowledge that because you are a Jew—which had no positive meaning to us then, only that we were victims of anti-Semitism—you had to be exceptional in your profession, whether it was chess, music, mathematics, medicine, or ballet. . . . That was the only way to build some kind of protection for yourself, because you would always be starting from behind.”” ( :80)

“The result was that though Jews made up only about 2 percent of the Soviet population, they counted for “some thirty percent of the doctors, twenty percent of the engineers, and so on,” Sharansky told us.” ( :80)

“”Ask yourself, why is it happening here?” he said of the Israeli tech boom. We were sitting in a trendy Jerusalem restaurant he owns, next to a complex he built that houses his venture fund and a stable of start-ups. “Why is it happening on the East Coast or the West Coast of the United States? A lot of it has to do with immigrant societies. In France, if you are from a very established family, and you work in an established pharmaceutical company, for example, and you have a big office and perks and a secretary and all that, would you get up and leave and risk everything to create something new? You wouldn’t. You’re too comfortable. But if you’re an immigrant in a new place, and you’re poor,” Margalit continued, “or you were once rich and your family was stripped of its wealth—then you have drive. You don’t see what you’ve got to lose; you see what you could win. That’s the attitude we have here—across the entire population.”” ( :81)

“ut as racial theories started to influence U.S. immigration policy, this liberal approach began to tighten. The U.S. House Judiciary Committee employed a eugenics consultant, Dr. Harry H. Laughlin, who asserted that certain races were inferior. Another leader of the eugenics movement, author Madison Grant, argued in a widely selling book that Jews, Italians, and others were inferior because of their supposedly different skull size.” ( :81)

“Nicolae Ceaus ̧escu demanded hard cash to allow Jews to leave the country. Between 1968 and 1989, the Israeli government paid Ceaus ̧escu $112,498,800 for the freedom of 40,577 Jews. That comes out to $2,772 per person.” ( :83)

“The tera in terabit means “trillion,” so one terabit is a million megabits. According to Cisco, the CRS-1 has the capacity to download the entire printed collection of the U.S. Library of Congress in 4.6 seconds. Doing this with a dial-up modem would take about eighty-two years.” ( :85)

“along with those in India and China. “But,” he notes, “whereas in China and in India there is quite a bit of engineering work done, when it comes to pure innovation and acquisition activity, Israel is still holding the front line.”” ( :86)

“It was somewhat ambitious, then, for Google Israel to take on a project that went right to the heart of the company, to the search box. The Israeli team took a small experimental idea that had been sitting untouched for two years—Google Suggest—and made it something that millions of people see and use every day. For those who have not noticed it, Google Suggest is that list of suggestions that pop down as you type in a search request. The suggestions update as you type in each letter of the request, just about as fast as you can type.” ( :91)

“During the 2006 Lebanon war, just two months after Buffett acquired Iscar, 4,228 missiles landed 6 in Israel’s north. Located less than eight miles from the Lebanese border, Iscar was a prime target for rocket fire. Eitan Wertheimer, chairman of Iscar, who’d made the sale to Buffett, told us that he called his new boss on the first day of the war. “Our sole concern was for the welfare of our people, since wrecked machines and shattered windows can always be replaced,” Wertheimer recalled of his conversation with Buffett. ” ‘But I am not sure that you understand our mind-set,’ I told him. ‘We’re going to carry on with half the workforce, but we will ensure that all the customers get their orders on time or even earlier.”” ( :94)

“half of the shift; 75 percent showed up.” ( :98)

“Following a second Iraqi missile attack the next night, turnout at Intel’s Haifa design center increased to 80 percent. The more brazen the attacks, the larger the turnout. Welcome to Israel’s “new normal.”” ( :98)

“As Eitan Wertheimer told Warren Buffett at the start of the 2006 Lebanon war, “We’re going to determine which side has won this war by ramping up factory production to an all-time high, while the missiles are falling on us.”” ( :98)

“To date, BIRD has invested over $250 million in 780 projects, which has resulted in $8 billion in direct and indirect sales.” ( :101)

“The big idea is not to attract only U.S. capital and commercial know-how, but to suck in entrepreneurs from all over Europe. At the moment, Europe has huge reservoirs of scientific talent, but a very poor record at creating start-ups. The question many investors ask is: where is the European Google? It’s a fair question. In the next ten years, what if that European Google” ( :104)

“was set up here using Irish and European brains and U.S. capital? That is the prize.”” ( :105)

 

PART IV
Country with a Motive

 

“THROUGHOUT we’ve pointed to the ways the IDF’s improvisational and antihierarchical THIS BOOK, culture follows Israelis into their start-ups and has shaped Israel’s economy. This culture, when combined with the technological wizardry Israelis acquire in elite military units and from the staterun defense industry, forms a potent mixture. But there was nothing normal about the birth of Israel’s defense industry.” ( :108)

“The multitasking mentality produces an environment in which job titles—and the compartmentalization that goes along with them—don’t mean much. This is something that Doug Wood noticed in making the transition from Hollywood to Jerusalem: “This is great because conventional Hollywood studios say you need a ‘projection major’ and you need a ‘production” ( :113)

“coordinator ‘ or you need a ‘layout head.’ But in Israel the titles are kind of arbitrary, really, because they are interchangeable in some ways and people do work on more than one thing.” ( :114)

“The other qualitative elements—such as tight-knit communities whose members are committed to living and working and raising families in the cluster—are what contribute to sustainable growth. Crucially, a cluster’s sense of shared commitment and destiny, which transcends day-to-day business rivalries, is not easy to manufacture.” ( :122)

“When the crisis of 2008 hit, Warren Buffett seemed to play a similar role, pumping $8 billion into Goldman Sachs and General Electric over just two weeks. As the panic deepened, Buffett knew that his decision to make massive investments might signal to the market that he, America’s most respected investor, was not waiting for shares to plunge further and believed that the economy was not going to collapse.” ( :123)

“In the best-selling book Built to Last, business guru James Collins identifies several enduring business successes that all have one thing in common: a core purpose articulated in one or two sentences. “Core purpose,” Collins writes, “is the organization’s fundamental reason for being. [It] reflects the importance people attach to the company’s work . . . beyond just making money.”” ( :123)

“But even with all the differences, the unifying economic challenge for the Arab Muslim world is its own demographic time bomb: approximately 70 percent of the population is under twenty-five years old. Employing all of these people will require the creation of eighty million new jobs by 2020, 10 as al-Allawi told us. Meeting this goal means generating employment at twice the U.S. job growth rate during the boom decade of the 1990s. “The public sector isn’t going to create these jobs; big companies aren’t going to create these jobs,” says Fadi Ghandour, a successful Jordanian entrepreneur. “The stability and future of the region is going to depend on our teaching our young people how to go out and create companies.”” ( :124)

“But the Arab world’s oil economy has stymied high-growth entrepreneurship. Distributing oil wealth largesse to the masses has insulated governments in the Persian Gulf from pressure to reform politically and economically. Oil wealth has cemented the power of autocratic governments, which do not have to collect taxes from their citizens and therefore do not need to be terribly responsive to their complaints. As historians of the Muslim world have put it, in Arab countries “the converse of a familiar dictum is true: No representation without taxation.”” ( :125)

“the Persion Gulf governments have stifled it. This is what political scientist Samuel Huntington once called the “king’s dilemma”: all modernizing monarchs ultimately try to balance economic modernization with limits on liberalization, since liberalization challenges the monarch’s power. In the Arab world, British journalist Chris Davidson, author of Dubai: The Vulnerability of Success, calls this the “sheikh’s dilemma.”” ( :125)

“Silicon Valley famously got its start in 1939 when William Hewlett and David Packard, two Stanford University engineering graduates, pooled their funds of $538 and founded HewlettPackard. Their mentor was a former Stanford professor, and they set up shop in a garage in nearby Palo Alto.” ( :126)

“The number of patents registered between 1980 and 2000 from Saudi Arabia was 171; from Egypt, 77; from Kuwait, 52; from the United Arab Emirates, 32; from Syria, 20; and from Jordan, 15—compared with 7,652 from Israel.” ( :126)

“But the Arab world’s cultural and social institutions, as was reported by a U.N.-sanctioned committee of Arab intellectuals, are chronically underdeveloped. The United Nations’ Arab Human Development Report, which presented the organization’s research from 2002 through 2005, found that the number of books translated annually into Arabic in all Arab countries combined was one-fifth the number translated into Greek in Greece. The number of patents registered between 1980 and 2000 from Saudi Arabia was 171; from Egypt, 77; from Kuwait, 52; from the United Arab Emirates, 32; from Syria, 20; and from Jordan, 15—compared with 7,652 from Israel. The Arab world has the highest illiteracy rates globally and one of the lowest numbers of active research scientists with frequently cited articles. In 2003, China published a list of the five hundred best universities in the world; it did not include a single mention of the more than two hundred universities in the Arab world.” ( :126)

“Today, Israel has eight universities and twenty-seven colleges. Four of them are in the top 150 worldwide universities and seven are in the top 100 Asia Pacific universities. None of them are satellite campuses from abroad. Israeli research institutions were also the first in the world to commercialize academic discoveries.” ( :127)

“One of the major challenges to a high-growth entrepreneurial culture elsewhere in the Arab world —beyond just the gulf—is that the teaching models in primary and secondary schools and even the universities are focused on rote memorization. According to Hassan Bealaway, an adviser to the Egyptian Ministry of Education, learning is more about systems, standards, and deference rather than experimentation. It is much more the Columbia model than the Apollo.” ( :128)

“infrastructure—buildings and now computers—in hopes of improving their students’ performance. But the results of the recent Trends in International Mathematics and Science Study ranked Saudi students forty-third out of forty-five (Saudi Arabia was even behind Botswana, which was forty-second).” ( :128)

“the GCC is 12 to 1—one of the world’s lowest, comparing favorably with an average of 17 to 1 in OECD countries—it has had no real positive effect. Unfortunately, international evidence suggests that low student-teacher ratios correlate poorly with strong student performance and are far less important than the quality of the teachers. But the education ministries in most Arab countries do not measure teacher performance. Inputs are easier to measure, through a methodology of standardization.” ( :128)

“Harvard University’s David Landes, author of the seminal book The Wealth and Poverty of Nations, argues that the best barometer of an economy’s growth potential lies in the legal rights and status of its women.” ( :128)

“Landes believes that nothing is more dilutive to drive and ambition than a sense of entitlement.” ( :128)

“That said, the breakdown in international finance has infected almost every nation’s banking system, with two notable exceptions: neither Canada nor Israel has faced a single bank failure.” ( :131)

“Economist Dan Ben-David pointed us to a study by two French academics that ranks nations outside the United States according to publications in top economic journals between 1971 and 2000. The United Kingdom—including the London School of Economics, Oxford, and Cambridge—came in at number two. Germany had fewer than half as many publications per faculty member as the British had. And Israel was number one. “Not five or ten percent more, but seven times more—in a league of our own,”” ( :132)

“hundred students, it has since ballooned to tens of thousands who go to yeshiva instead of the army. The result of this has been triply harmful to the economy. Haredim are socially isolated from the workforce because of their lack of army experience; plus, since they are not allowed to work if they want a military exemption—they have to be studying—as young adults they receive neither privatesector nor military (entrepreneurial) experience; and thus haredi society becomes increasingly dependent on government welfare payments for survival.” ( :133)

“There are two primary reasons why Israeli Arabs have low participation rates in the economy. First, because they are not drafted into the army, they, like the haredim, are less likely to develop the entrepreneurial and improvisational skills that the IDF inculcates. Second, they also do not develop the business networks that young Israeli Jews build while serving in the military, a disparity that exacerbates an already long-standing cultural divide between the country’s Jewish and Arab communities.” ( :133)

“As the New York Times’ Thomas Friedman put it, “I would much rather have Israel’s problems, which are mostly financial, mostly about governance, and mostly about infrastructure, rather than Singapore’s problem because Singapore’s problem is culturebound.”” ( :134)

 

Conclusion

 

“Indeed, what makes the current Israeli blend so powerful is that it is a mashup of the founders’ patriotism, drive, and constant consciousness of scarcity and adversity and the curiosity and restlessness that have deep roots in Israeli and Jewish history. “The greatest contribution of the Jewish people in history is dissatisfaction,” Peres explained. “That’s poor for politics but good for science.” ( :136)

“what’s missing in these other countries is a cultural core built on a rich stew of aggressiveness and team orientation, on isolation and connectedness, and on being small and aiming big.” ( :138)

“In Israel, the seemingly contradictory attributes of being both driven and “flat,” both ambitious and collectivist make sense when you throw in the experience that so many Israelis go through in the military. There they learn that you must complete your mission, but that the only way to do that is as a team. The battle cry is “After me”: there is no leadership without personal example and without inspiring your team to charge together and with you. There is no leaving anyone behind. You 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.” ( :138)

“George Bernard Shaw wrote, “If you have an apple and I have an apple and we exchange apples, then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.”” ( :139)

“something like the leadership, teamwork, and mission-oriented skills and experience Israelis receive through military service.” ( :139)

“We are indebted to many people who have helped us along the way. The greatest compliment we can pay to Jonathan Karp, the founder and force behind Twelve, is that he is a true innovator in the book world. Publishing only twelve books each year, he is the quintessential undiversified investor. Jon taught us many things, most important among them was to do less arguing and more storytelling.” ( :141)

 


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