Friday, November 11, 2005

Israeli startups

The Economist discusses the disproportionate impact of Israeli startups in the tech industry. Israelis are especially prominent in computer security, often due to their training in the military. One of the public companies that almost acquired my last startup (since merged/acquired by Juniper) had an extremely bright Israeli CTO who had come aboard from a previous acquisition. Like many other Israeli technologists, he was an alumnus of the IDF (Israel Defense Forces) signal corps training program, which takes in the brightest recruits for intensive IT training. Membership in that unit is sort of equivalent to having a Caltech or MIT degree. At least, the screening process is pretty tough. Of course, there might be other reasons for Israeli success in high tech :-)

Red Herring: Talpiot is a special army training program that puts the best high school graduates through a rigorous curriculum of computer science, physics, and math, then places them in key assignments in, say, intelligence units.

...The selection process for Israel's army-trained technology elite starts when teenagers apply to programs, usually in their last two years of high school. Only volunteers are eligible to be chosen for the army's training programs. The most selective program, Talpiot, accepts only 30 applicants, or 1 in 10, a year. Officers say the army doesn't look for fuzzy traits like creativity and leadership; it focuses on measurable qualities. Extremely high aptitude in math and science, along with success in rigorous exams, are the key qualifications.


Talpiot's M.O. is total immersion, whether the subject is software coding or the Arabic language. The programming course is just six months long, but classes run from 8 a.m. to 10 p.m., five and a half days a week. Although many soldiers say that the program's immersion approach is an effective way to learn, Col. Tregar says it's simply the only way to cram a lot of information into a very short period of time. There's little time to spend on theory and skills that won't directly relate to the students' army postings later on. "In an academic setting, you'll learn about models for parallel processors and the structure of compilers -- those kinds of things," Col. Tregar says. "It's true it gives you a much broader understanding, but on a practical level, you won't have to deal with them in your first job. People with academic degrees that come to the IDF need to undergo considerable training before being put into practical assignments."

Economist: In 2003, 55% of Israel's exports were high technology, compared with the OECD average of 26%. Tech giants such as IBM, Motorola and Cisco have research centres in Israel, which is also where Intel developed its Centrino chip. Not bad for a country with a population of 6.9m.

Why is Israel—sometimes called the “second Silicon Valley”—so strong in technology? For several reasons, says Mr Mlavsky. First, the pump was primed by government grants in the 1970s, by the BIRD Foundation (a joint American-Israeli initiative that supported many start-ups before VC money was widely available), and by government schemes to encourage Russian immigrants who arrived after the collapse of the Soviet Union.

The second big factor is the army. “The army gets hold of everybody at age 18, and if they have a glimmer of potential, it catalyses their transformation into engineers or scientists,” says Mr Mlavsky. The technically minded are given projects to develop and run, and are allowed to keep any intellectual property that they develop, which results in many spin-outs. It also means that once they get to university, trainee engineers already have practical experience and a problem-solving mentality. Israel has 135 engineers per 10,000 employees, compared with 70 in America, 65 in Japan, and 28 in Britain (see chart).

The small size of Israel's home market is also, paradoxically, an advantage. While a British start-up, say, will look to its home market to get started, Israeli firms cannot. Accordingly, they look to America for customers, so that Israeli start-ups function as “mini-multinationals” from the off—and are instantly exposed to the world's most competitive high-tech market. Similarly, Israel's relative lack of land and resources serves to steer entrepreneurs towards high technology instead.

Naturally, cultural factors play a part too. Around 5% of start-ups in America are headed by repeat entrepreneurs, says Mr Mlavsky, compared with around 30% in Israel. “The whole culture, we're like junkies, and the real kick is success, not the fruits of success, so we want to do it again,” he argues. Israeli entrepreneurs are often workaholics who tend not to change their lifestyles much after becoming successful, he says. Gil Shwed, the boss of Check Point and one of Israel's richest men, still has a regular DJ slot at a Tel Aviv restaurant on Wednesday nights, for example.

The bad news for other countries that wish to encourage the development of their technology industries is that few of these factors can be replicated. Singapore's attempt to establish itself as a biotechnology centre faces the challenge of encouraging risk-taking and entrepreneurialism in a highly conformist society. And Britain is hardly likely to introduce conscription in order to boost the fortunes of the technology cluster around Cambridge University. In technology, as in so many other ways, Israel is a special case.


Alex said...

As an alumnus of IT unit in IDF, I think you might overestimate the quality of the professional education/experience that IDF provides (it still falls behind of an average US university).
That's not to say that IDF plays insignificant role. But it's more about soft skills - team work, maturity, and the sense of responsibility.

Steve Hsu said...

Alex, were you in Talpiot? My impression is they filter pretty hard to get their 30 recruits each year, but you would know better than I.

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