Why Israel merits ranking as top 'Start-Up Nation'

  • Article by: HARVEY MACKAY
  • Updated: September 26, 2010 - 2:45 PM

Not long ago, a young Israeli entrepreneur named Shvat Shaked from an outfit named Fraud Sciences got his foot in the door at PayPal, the giant among Internet payment systems. Shvat's elevator pitch: His team had an incredibly simple way to unearth "online payment scams, credit card fraud and electronic identity theft."

PayPal was polite, but you could guess what they thought: "Sure, buddy, dream on!" Then its techno mavens tested Fraud Sciences' system and were shocked to find it really worked. PayPal didn't just buy the idea. In 2008, it bought Fraud Sciences. How did these start-up whizzes concoct this brainstorm? Using the same principle that Israel banked on to track down terrorists.

"When you've been developing technology to find terrorists," as one expert put it, "then finding thieves is pretty simple."

The Fraud Sciences episode is just one of a fistful of innovation lightning bolts you'll find in the book "Start-Up Nation" by Dan Senor and Saul Singer. It's my hands-down pick as the No. 1 instruction manual for Entrepreneurship 101.

Senor and Singer document why "Israel represents the greatest concentration of innovation and entrepreneurship in the world today." What's the link to Israel having "the highest density of start-ups in the world?" Bottom-line: "In 2008, per capita venture capital investments in Israel were 2.5 times greater than in the United States."

Israel's defense requirements play no small part in shaping the country's business culture. Much of Israel's front-end entrepreneurial zing comes from the nuts-and-bolts pragmatism of its battle-tested military elite:

•"If most air forces are designed like a Formula One race car, the Israeli Air Force is a beat-up jeep with lots of tools in it," says an Israeli air force pilot. "The race car is just not going to work in our environment."

•In Israel, the "military pyramid is exceptionally narrow at the top" and "the Israeli army has very few colonels and an abundance of lieutenants."

•In-the-trenches leaders taste risk at a tender age: "Company commanders are 23," notes an Israeli major.

•"While students in other countries are preoccupied with deciding which college to attend, Israelis are weighing the merits of different military units."

•Decades ago, Israel decided to give its "most talented young people ... the most intensive technology training that the universities and the military had to offer."

•In Israel, "the battle cry is 'After me': there is no leadership without personal example and without inspiring your team to charge together and with you." Little time is wasted on formality: "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."

Israel's resourceful economy has also focused on little things that make a difference:

•Like the "drip irrigation" systems that have helped 240 million trees bloom in a once-barren desert.

•An "aversion to large, readily identifiable manufactured goods with high shipping costs, and an attraction to small, anonymous components and software."

•Harnessing the determination of Israel's dynamic immigrant population: "Immigrants are not averse to starting over," says one political economist. "They are, by definition, risk takers."

•Resilience under stress, so that the Intel civilian subsidiary in Israel "never missed a beat" as the Gulf War raged.

•In the informal and sometimes rough-elbowed workplace, there's a tolerance for "constructive failures."

•And the attitude toward hierarchy -- cultivated in the military -- can be rough-and-tumble. Employees aren't timid about challenging bosses to prove they're worth their leadership stripes.

Jump-start, high-tech communities have been launched the world over, but Senor and Singer show what's been missing in other initiatives, even the best. Dubai's remarkable Internet City has "spread innovations made elsewhere" instead of hatching "thriving innovative clusters." Often impressive Singapore lacks the sharp attitudinal edge of "initiative, risk-taking and agility."

It's pointed out that American industry titans like Bill Gates and Warren Buffett have become fans of Israel's buzzing technological beehive. "Israel's economy has also grown faster than the average for the developed economies of the world in most years since 1995 ...," Maybe it's time to learn a dance step or two from our little buddy.

Mackay's Moral: If you want to think big and win, put boxing gloves on a proven idea that can really throw a punch.

Harvey Mackay is a Minneapolis businessman and author. Contact him at 612-378-6202 or send e-mail to harvey@mackay.com. His column is distributed by United Feature Syndicate.

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