Sunday, February 21, 2010

Start-Up Nation: The Story of Israel's Economic Miracle is a remarkable book by Dan Senor and Saul Singer. It details what has allowed Israel, a besieged nation with few natural resources and under political and military pressure from birth, to become an incubator for a hugely disproportionate number of successful entrepreneurial enterprises compared to any other nation. It also asks what other nations could learn from Israel's success.

Senor and Singer describe how Israeli engineers literally saved Intel by badgering its executives incessantly to change how they create their chips. The book details how a tiny Israeli firm showed PayPal a completely new method of fraud detection that did in a week what PayPal couldn't do with thousands of analysts in years. It reveals little known items such as the fact that Google Suggest, where probable search requests are shown in real time as you type into the Google Search box, was using Israeli ingenuity.

The book uncovers many factors that contribute to Israeli success in creating startups as well as being crucial to the continued success of giants like Microsoft, Cisco and Berkshire-Hathaway.

One major reason is the Israeli army. The IDF gives its soldiers an instant network across different parts of Israeli society, it actively pursues high-achieving students to join its most challenging programs, it provides cross-disciplinary training, it forces young soldiers to take responsibility for split-second, life-or-death decisions, and it does not punish failure as long as everyone can learn from mistakes. The IDF rewards creativity and frowns upon the rigid hierarchical structure that other armies make mandatory. Soldiers are expected to question everything they are told, and not to rely on the attitude that "this is the way it has always been done." Even more importantly, the IDF resume is critical to getting a job in Israel (something that hurts Israeli Arabs and haredim, a topic discussed briefly.)

All of these factors translate into a successful entrepreneurial spirit. While American companies often do not know what to make of a resume that mentions military service, Israeli companies know exactly how the skills learned on a battlefield translate into the business world. And while corporate America tends to punish people who fail in any new venture, Israelis do not look at failure as a negative; rather it is essential experience.

The army is not the only factor behind Israeli success. Other factors include Israel's embrace of immigration as a catalyst for growth, noting that immigrants are natural risk-takers, as well as government encouragement of the nation's start-ups. It took a group of forward-thinking people to create Israel's venture capital industry. The authors even mention that Jews, from centuries of studying the Talmud, naturally ask questions and challenge their teachers.

One factor that permeates the book, that would be more difficult to reproduce in other nations, is a deep-seated patriotism. Israelis don't just want to succeed, they want to davka succeed - they want to succeed despite, and in spite of, the obstacles that the world puts in their way. Israel's defense industries sprung up partially because Charles de Gaulle stopped sending French jet planes to Israel on the eve of the Six Day War. When Saddam Hussein showered Scud missiles on Israel, Intel Israel employees kept all their manufacturing deadlines at a critical time for Intel - even though the government asked people to stay home and employees all came voluntarily. They knew that for Israel to be taken seriously as a major player, it had to be perceived as a reliable partner for major corporations and divorce the reality of war from meeting commitments.

When Warren Buffett invested in Iscar, he didn't think that the possibility of the factory being destroyed by Katyusha rockets was a catastrophic risk: factories could always be rebuilt; his main investment was in the people.

Even back before the state was born, Palestinian Jews turned the Arab boycott against them into an advantage, as they opened up export markets and ended up doing better than before the boycott.

When Israelis think about how to solve a problem, they aren't only thinking about how it would help their careers - they are thinking about how it would help Israel itself, how it would help their companies, and, often, how it would help the world.

For Zionists, this is an exhilarating book to read; it shows how Israelis turn adversity into advantage. For businesspeople, it gives insight into how to reward risk-takers and innovators.

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