Wednesday, February 10, 2010

What Houston can learn from the Israeli model to boost entrepreneurship

While Houston is not a Silicon Valley, or even an Austin, it has come a long way in cultivating a small but vibrant entrepreneurial scene in the last decade. But there's always room for improvement, and we might be able to learn some lessons from Israel, of all places. First, there is this conclusion from an Economist article on the mostly-sad story of government strategies for cultivating entrepreneurship:

The country that has led the world in promoting entrepreneurship has also done the most to plug itself into global markets. The Israeli government’s venture-capital fund, which was founded in 1992 with $100m of public money, was designed to attract foreign venture capital and, just as importantly, expertise. The government let foreigners decide what to invest in, and then stumped up a hefty share of the money required. Foreign venture capital poured into the country, high-tech companies boomed, domestic venture capitalists learned from their foreign counterparts and the government felt able to sell off the fund after just five years.

Last year Israel, a country of just over 7m people, attracted as much venture capital as France and Germany combined. Israel has more start-ups per head than any other country (a total of 3,850, or one for every 1,844 Israelis), and more companies listed on the NASDAQ exchange, a hub for fledgling technology firms, than China and India combined. It may not have the same comforting ring as “the Swedish model” or “the polder model”, but when it comes to promoting entrepreneurship, “the Israeli model” is the one to emulate.

What's Israel's 'secret sauce'? This book review from Newsweek lays it out:

How does Israel—with fewer people than the state of New Jersey, no natural resources, and hostile nations all around—produce more tech companies listed on the NASDAQ than all of Europe, Japan, South Korea, India, and China combined? How does Israel attract, per person, 30 times as much venture capital as Europe and more than twice the flow to American companies? How does it produce, for its size, the most cutting-edge technology startups in the world?

There are many components to the answer, but one of the most central and surprising is the Israeli military's role in breaking down hierarchies and—serendipitously—becoming a boot camp for new tech entrepreneurs.

While students in other countries are preoccupied with deciding which college to attend, Israeli high-school seniors are readying themselves for military service—three years for men, two for women—and jockeying to be chosen by elite units in the Israeli military, known as the Israel Defense Forces, or IDF.

I goes on to detail the elements of the military culture there that carry over into the entrepreneurial world: innovation, improvisation, flat, anti-hierarchical, informal, flexible, multi-disciplinary, diversity, challenging, meritocratic, and intense 'crucible leadership experiences' to forge deep social bonds and networks that are later leveraged to create startups.

Now obviously Houston (or Texas or the U.S.) won't be instituting mandatory military service anytime soon. But could we form a local civilian corps of high school and pre-college youth to create a similar environment, focused on tough social problems and charitable work. If we modeled the corps on Israel's military culture, and made sure to craft the experience to be very attractive to college admissions departments, there's a lot of potential here to attract youth, work on some of the city's toughest problems, and cultivate a generation of entrepreneurs to add economic vibrancy to our city for decades to come. Oh, and we could match them up with older philanthropists and retirees to provide both funding and mentorship.

Combine that with new sources of local venture capital, and we could really turbocharge the local startup scene. I'd love to hear your thoughts on how we might structure such a corps and the problems it might work on in the comments.

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At 8:08 AM, February 11, 2010, Anonymous kjb434 said...

I don't agree with mandatory military service, but it's obvious the discipline that military training brings to youth is invaluable.

There are other activities that do this well. Sports such as gymnastics and martial arts can do this quite well. Common sports such as baseball, football, basketball, and soccer really depend on the quality of the coach to instill discipline.

We have a culture now that doesn't push children to excel and instead tries to teach the lie that everyone is equal. Achievement is punished and mediocrity is held high. You don't see this in Israel.

At 11:30 AM, February 11, 2010, Blogger Jardinero1 said...

This is about the dumbest thing I ever read on this blog.

Before I looked to the IDF as the reason for Israeli entrepeurship, I might consider other cultural and educational reasons first. The Israeli populace is probably the most literate, numerate and technically proficient in the world. Israeli's are generally well traveled and usually speak three to four languages. Jewish culture values, ethics, rules and fair play. Jewish culture also promotes self sufficiency and personal self improvement. Those are the reasons that Israel has a successful entrepeneurial-high tech culture.

A good question is why does Israel not exhibit a high degree of entrepeneurship in other sectors as well? The reason capital flows to high tech in Israel is because the economy is largely state controlled. Tech is one of the few areas where one can operate unconstrained. Free capital tends to flow to tech in Israel because there are few other outlets in the Israeli economy for it.

Yes, Houston is not Austin or Silicon Valley. I pray every day it stays that way. I would rather be part of a broadly diversified, entrepenerial city with a port; than part of a city singly dependent on one industry whose time will end, like every other industry.

At 1:55 PM, February 11, 2010, Blogger Alon Levy said...

Okay, coming from Israel, I can say that none of you guys knows the slightest bit of what happens there. Newsweek is even worse, because it's supposed to have a fact-checking department.

First, achievement is punished in Israel every bit as in the US. Israeli social hierarchy is based on where you served in the military, where the most prestigious units are those involving combat duty. If you've killed Arabs, then all the better to you. The types of people who start multi-million companies are those who got beaten up at high school and went to uncool intelligence units.

Second, Israelis aren't that smart. They don't speak 3 languages; Jews speak 1.5, Arabs 2. School achievement in Israel is among the lowest in the OECD. And while Jewish American culture may encourage learning, Jewish Israeli one encourages going to the military and killing Arabs.

Third, the Israeli economy is not state controlled. It used to be, but nowadays Israel's adopting the Anglo-American model of government incompetence and private sector innovation. As in the US and the UK, there's hi-tech enterprise because traditional engineering is horrific and anything involving the government is toxic.

And fourth, the reason there are so many Israeli companies on the NASDAQ is a cultural cringe issue. French and German companies are happy to list themselves on the local stock exchanges; Israeli ones shun the Tel Aviv stock exchange and instead go to the US.

At any rate, when you look at the more common metrics of success, like unemployment, economic growth, poverty, and education outcomes, Israel doesn't look so good. Even in innovation metrics like patents per capita, Israel isn't that good. It has a hi-tech economy; so does Silicon Valley. Like Silicon Valley, Israel had Chinese levels of growth in the late 90s, and deep contraction after the tech bubble burst.

At 2:05 PM, February 11, 2010, Blogger Alon Levy said...

Rereading the post, I see that the worst offenses against reality were committed by The Economist, a publication that one likes except on the issues one is familiar with. Essentially, it's a clearing house for hackery.

For example: Sweden has 166 patents per million people, Israel 48. The top two are consistently Japan and South Korea, which average about 1,000 each. But sure, let's say Israel is a country of innovation, rather than a country of back offices for Silicon Valley - it fits our stereotypes.

At 2:27 PM, February 11, 2010, Blogger Tory Gattis said...

Interesting points. To be fair to Newsweek, their article is an adapted reprint from a new book, "Start-Up Nation" by Dan Senor and Saul Singer.

At 8:42 PM, February 11, 2010, Blogger Alon Levy said...

Yeah, that's what I meant to say in my second comment. The most egregious mistakes were made by the Economist.

But even the book reviewed in Newsweek isn't really how most Israelis view themselves. In Israel, the stereotype of Israel is that it's paralyzed by political bickering, religious superstition, and large welfare-dependent subcultures, and does not value education; the stereotype of Israelis is that they're brash, undisciplined, and shrewd in a dishonest way.

The Israeli stereotypes of the US are the opposite: secular, consumerist, rewarding business success, and square. Secular Israelis look up to the US, religious Israelis denigrate it. Israelis also view themselves as prone to thinking they know better than anyone else, and view Americans as the opposite, falling in line for the sake of falling in line.

At 9:40 PM, February 11, 2010, Blogger Michael said...

>>And while Jewish American culture may encourage learning, Jewish Israeli one encourages going to the military and killing Arabs.

If we had been attacked in the US as consistently as Israel is attacked on a daily / yearly basis by its neighbors, I think we'd have military conscription here as well - and we would encourage protecting our homeland just as Israel protects theirs. I don't think most Israelis relish going out and killing members of Hamas any more than US soldiers relish killing members of the Taliban and Al Qaeda, but it quite simply has to be done. That or we invite more 9/11-style massacres of our own people.

As for being the "back-office to Silicon Valley" - well, there are far worse things to be called!

At 10:31 PM, February 11, 2010, Blogger Alon Levy said...

I don't think most Israelis relish going out and killing members of Hamas

They relish going out and killing civilians. The snipers corp makes T-shirts with the picture of a pregnant woman in their sights and the caption, "One shot two kills."

Besides which, the issue is not why Israel has a militant culture. It's that the super-disciplined, stereotypical West Point values that KJB434 attributes to Israel aren't actually there.

At 9:17 AM, February 12, 2010, Anonymous Anonymous said...

"They relish going out and killing civilians. The snipers corp makes T-shirts with the picture of a pregnant woman in their sights and the caption, "One shot two kills.""

"Second, Israelis aren't that smart."

Oh, Lord. Trying to convince people to dislike Israelis here?

This blog is supposed to be about Houston and development strategies.

At 5:52 PM, February 12, 2010, Blogger Alon Levy said...

No, I'm trying to convince people that Israel should be treated as a country with its own issues, not as a symbol of all that American conservatives cherish and liberals hate. For the record, the one shot two kills part is common fact. Leftists will say it's because of the occupation and rightists will say it's because of Palestinian terrorism, but the point is that in a military regime, people don't act disciplined - they instead glorify war.

But the point as far as Houston goes is that military-style service programs will do nothing to help its economy.

At 3:50 PM, February 13, 2010, Anonymous Anonymous said...

I didn't doubt the existence of this T-shirt. And I'm not sure what a "common" fact is as opposed to just a fact, but repeatedly bringing up this T-shirt does not:

-disprove that "I don't think most Israelis relish going out and killing members of Hamas"
-prove that "They (most Israeli soldiers) relish going out and killing civilians."
-make it any less of a red herring argument the second time around
-make people more likely to agree with your opinion more (against a Houston public service corps) more. In fact, I think it seriously turns people off, even to the point of not even wanting to participate in the discussion here.

I suspect that we might even agree that a Houston public-service corps is inappropriate, though from opposite ends of the spectrum and also for different practical and/or philosophical reasons. However, we can't reach common ground when rhetorical devices like these are used up in nearly every single thread.

At 3:52 PM, February 13, 2010, Anonymous Anonymous said...

Ha! I put "more" three times in one sentence. Sorry.

At 2:16 PM, February 15, 2010, Blogger Alon Levy said...

In fact, I think it seriously turns people off

Okay, this is sotto voce on the same level as a mafia don saying "I think something bad is going to happen to Mr. Gambini tomorrow." Sorry, but it is.

My point is not even about the T-shirt. My point here is that the notion of Israelis as a nation of iron-willed discipline-bound warriors is a myth, and the sooner people stop with the symbolism the more informed they will be about the subject.

At 2:41 AM, February 11, 2011, Anonymous Tomer said...

To Alon,
You obviously have problems with your former nation. You are way off base on what you say. Contrary to what you claim many Israelis do in fact speak multiple languages (i.e. many Sephardim can speak english hebrew arabic french). The article is absolutely convincing and correct. Your sour grape memory of Israel is nutty.
(1) when you serve, rich kids and middle class kids work together so you become friends and culturally attuned to others. You are more tolerant and respect the other side. Notions of fair play are central. Did you serve in combat? All of the soldiers are equal anyone seen taking advantage of the other will be dealt with. You know how to fight for what you want - motivation is very high. Discipline is the rule. You also must think on your feet in combat and innovate. These skills do help Israeli companies.
(2) Your description of a lackluster education is a joke. Come on, it produced an articulate Alon, who has a mastery of english, so it cannot be so bad.
(3) All of your other comments are equally without merit.
I surmise you could not "make it" in Israel hence your sour grapes.
Alon, your comments are frivolous.


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