senor singer transcript 20091202
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The Israel Project Conference Call: Dan Senor and Saul Singer
Start-up Nation: The Story of Israels Economic Miracle
12/2/2009, 12:00 PM ET
Jennifer Laszlo Mizrahi: Welcome to the conference call with Dan Senor and Saul
Singer, authors of Start-up Nation: The Storyof Israels Economic Miracle.
Dan Senor is the adjunct senior fellow for Middle East studies at the Council on Foreign
Relations. He has been involved in policy, politics and business in the Middle East. As
a senior foreign policy adviser to the U.S. government, Senor was one of the longest-
serving civilian officials in Iraq, for which he was awarded the highest civilian honor by
the Pentagon. He also served as a Pentagon adviser to Central Command in Qatar and
as a foreign policy and communications adviser in the U.S. Senate. He has studied in
Israel and at Harvard Business School and has traveled extensively throughout the
Arab world. In his business career, he has invested in a number of Israeli and American
start-ups, and today is with a New York-based global investment fund. Senor lives in
New York City with his wife and two sons.
Saul Singer is a columnist and former editorial page editor at The Jerusalem Post.
Historian Michael Oren called his book Confronting Jihad: Israel's Struggle and World
after 9/11, "mandatory reading for anyone, layman or expert, interested in the Middle
East." Singer has written for the Wall Street Journal, Commentary, Moment, the New
Leader, bitterlemons.org (an Israeli/Palestinian e-zine) and the Washington Post's
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international blog, "PostGlobal." Before moving to Israel in 1994, Singer served as an
adviser in the U.S. Congress to the House Foreign Affairs and Senate Banking
Committees. Singer lives in Jerusalem with his wife and three daughters.
Start-up Nationaddresses the trillion dollar question: How is it that Israel a country of
7.1 million, only 60 years old, surrounded by enemies, in a constant state of war since
its founding, with no natural resources produces more start-up companies than large,
peaceful, and stable nations like Japan, China, India, Korea, Canada and the UK? How
is it that Israel has, per person, attracted over twice as much venture capital investment
as the US and thirty times more than Europe? Israel has more companies on the tech-
oriented NASDAQ stock exchange than any country outside the U.S. more than all of
Europe, India, and China combined. Nor is Israeli innovation limited to computers,
security, and communications; the Jewish state leads the world in medical device
patents, and is a strong global player in cleantech and biotech. Drawing on examples
from the countrys foremost inventors and investors, foreign policy insiders Dan Senor
and Saul Singer describe how the countrys adversity-driven culture, flattened
hierarchies, and government policies create a society that uniquely combines both
innovative and entrepreneurial intensity. As the authors argue, Israel is not just a
country, but a comprehensive state of mind. Where Americans emphasize decorum and
exhaustive prep, Israelis put chutzpah over charm. "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, as one analyst puts it. At the geopolitical level, Senor and
Singer dig in deeper to show why Israel's policies on immigration, R&D, and military
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service have been key factors in the country's rise. No college experience disciplines
you to think like [the military does], with high stakes and intense pressure, one veteran
notes, explaining how state service preps Israelis to communicate, to forge teams, and
to improvise at work. At a time when innovation has become the key to driving global
economic recovery and growth, the authors show the myriad ways the worlds most
dynamic start-up nation can inform Americas successes. As Start-up Nationshows,
there are lessons in Israel's example that apply not only to other nations, but also to
individuals seeking to build a thriving organization. As this country reboots its can-do
spirit, theres never been a better time to look at a remarkable and resilient nation for
some impressive, surprising clues.
And now well hear some opening remarks by Dan Senor and Saul Singer. Dan?
Dan Senor: Ive somewhat lost my voice in all the talking Ive been doing about this
book, which has been sort of nonstop. So I apologize if its a little difficult to understand
me, but I will do my best to power through this. As I make a few comments, and then
Saul makes a few comments, then were happy to answer any questions. I guess I will
take a step back and try to address the what of this book,the what and why we wrote
it, what sparked our curiosity in the subject. In 2001, I took a group of about 30 Harvard
Business School students to Israel. So, only three of them were Jewish. So a vast
majority of them were not Jewish and really none of them had any real connection to
Israel. And theyre from all over the world. Theyre from India, the U.K. , Canada,
Portugal, Italy, just to name a few. And the purpose of the trip was to explore the
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economic opportunities in Israel, the side of the Israel story that gets very little coverage
relative to the other side of the story. And we focused on that trip on what we call the
sort of the what of the economic story. What is the what? The what is the following
just to give you a couple of data points, in the book, we do a more exhaustive
examination of this data, but Im just gonna give you a couple of examples. One, there
are more Israeli companies listed on the NASDAQ stock exchange today than any
country in the world outside the United States more than all of India, China, Korea,
Japan and all of Europe combined. Just take a look at global venture capital, which is
the most fungible measure of technological promise. Venture capital investors around
the world make investments not based on theology, not based on ideology, not based
on nationality. They make their investments based on which enterprises they believe will
produce solutions to really big problems, and, therefore, produce completely
disproportionately high returns. That is the only thing that motivates venture capital
investors. If you look at global venture capital if you do look at all the venture capitals,
watching around the world, Israel actually attracts more on a per capita basis than any
country in the world. Anyone. Like 2 1/2 times more than the United States, 30 times
more than Europe, 80 times more than China, and over 300 times more than India. In
fact, Europe probably talk in Europe about boycotts in Israel. You hear this in the
public discourse quite often. European venture capitalists, try persuading them. The
European venture capital industry invests more in the Israeli economy on any given
year than it does in any single European country. And whats truly amazing about the
Israeli model is that it managed to decouple the security threat and the volatility from the
economic opportunity or the degree to which foreign investors and multinational
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companies view Israel as a place to do business. Take the period of 2000 and 2006. So
its a time of immense volatility in Israel. You had on the economic side, you ve the
bursting of the internet bubble, but on the security side, you had the start of the Second
Intifada, you had the Gaza Disengagement and the Second Lebanon War. And yet
during that exact period, 2000 and 2006, Israels share of the global venture capital pie,
all the venture capital going around the world, doubled. It went from 15 percent to 31
percent. So at the end of this trip with these Harvard Business School students, they
were saying to us, Okay, we get the what. We get this amazing data. We wanna know
the how. We wanna know how the Israelis pulled this off in the least likely of
circumstance: surrounded by enemies, in a state of war since its founding, no access to
natural resources and no access to regional capital or regional markets because theyre
all but shut off from the economies of the Arab-Muslim world. And that is what our book
endeavors to do. It tries to answer that question: How did they pull it off? What did they
do? And most important, what can we in the West learn from them? Because, you
know, our interest in this topic accelerated in September of 2008 when Lehman
Brothers blew up, there was a global economic meltdown and there was a big debate in
academic circles, the economic academic circles, about how America could get back to
its innovation roots. How did it get so off-course into a near-zero interest rate, easy
credit, inflated real estate economic model? How could America as the cover of
Business Week Magazine said at the time, Can America invent its way back? Could it
get back to its roots of inventiveness and entrepreneurship and innovation? And what
we argue in the book is theres no more dynamic combination for entrepreneurship and
innovation in the world today than the Israeli economy, and the West has a lot to learn
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from Israel. There are some very specific prescriptions for the world that comes from
Israel, particularly at this time that the world and particularly the United States is
looking for new economic strategy. Saul?
Saul Singer: Okay, so Ill just pick up with that. As Dan men tioned, you know,
innovation and entrepreneurship and these words are often used interchangeably, but
theyre really different. If you look at countries around the world, there are a lot of
innovative countries. In fact, when people ask us Why is Israel so innovative? they
often have their own answer. They say, Well , Jews are smart. Thats kinda their
answer. And we really shy away from that answer because there are lot of smart people
in the world. If you look theres a ton of smart people in Finland or Korea or in
Singapore. These countries are certainly keeping up with Israel in terms of numbers of
patents per capita, their standardized math scores and so on. They are clearly
innovative countries. But if youre, say, a smart person in Finland, you go out probably
after you graduate engineering school or whatever, you go into Nokia, the big
technology company there. Or if youre in Korea, you may be going to Samsung or a
place like that. In Israel, youre likely to do a start-up. And the difference is that Israel
has a culture that fosters both innovation and entrepreneurship. And what you see on
the other side is there are a lot of countries that are entrepreneurial. Theres an
organization called the Global Entrepreneurship Monitor that asks people around the
world How likely are you to start a business in the next six months? How much do you
fear a failure of starting a business? all these questions to measure entrepreneurship.
And countries like Bolivia, Colombia, Thailand are very entrepreneurial, but they dont
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have the innovative part. They dont have the high-tech part. So you have countries that
are innovative, countries that are entrepreneurial, but very few, we would argue
perhaps only Israel and the United States really has this combination, this very strong
combination of both innovation and entrepreneurial culture and instincts. The second
thing to realize that we tend to discover when we were writing this book is that we
were thinking of Israel as a country of start-ups, and thats the title of the book, is Start-
Up Nation, and that is Israels specialty. But what people dont realize is that start-ups
give the wrong impression that its only about small companies. What we found is that
Israel has tremendous impact on very large companies like Intel, Motorola, Microsoft,
Google, Cisco. These companies have done so much work with Israel. They have Israel
as an entrepreneur we like to quote named John Medved likes to say, they had Israel
Inside like Intel talks about Intel Inside in their computers. These companies have
Israel inside their companies. And what they do is they buy. If they see a technology
they like, they buy it. They buy the company, the start-up. And when they do, they buy a
stable of Israeli engineers that they throw their tough problems at. If they need out-of-
the-box thinking, they go to their Israeli teams, either because they bought Israeli start-
ups or because they created Israeli development centers. Since Google, there are only
three countries in the world that have two Google development centers outside the
United States, Israel is one and the other two are India and China. But, in Israel, those
two development centers, theyre just an hour apart, one is in Haifa and one is in Tel
Aviv. But they couldnt just open one in Tel Aviv cause there was too much talent, they
didnt wanna miss out in Haifa. So they have two offices in Israel. And what you see
across the board when we talk to American technology leaders, people like Eric Smith
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at Google and other CEOs, Meg Whitman in eBay and so on, we heard what these
companies are doing in Israel is different qualitatively compared to what theyre doing in
practically everywhere else. Its more cutting-edge, its more central to the company, to
the mission, to the future of the company. And just the last point Id like to make is that
there are hundreds of books about innovation, about how to innovate inside companies.
As Dan and I were traveling around the country, in every airport you see ads for
companies and almost every ad says how innovative they are. But most of this
innovation is thought of on the company level. And what were talking about here is
something different, were calling it a culture of innovation. Question is, how do you
cultivate a culture that fosters all of this, that encourages people to take risks, that
encourages people to innovate and give them the tools to do so? And thats where we
think the lessons for other countries come in, simply how you build a culture of
innovation and entrepreneurship.
Jennifer Laszlo Mizrahi: Fabulous. Well our first question comes from China Radio
International, and they say the e-poster of the call said, How is it that Israel, a country
of 7.1 million surrounded by enemies produces more start-up companies than large
peaceful nations like Japan, China, India, and the U.K? What characteristics do you
think China is lacking of compared with Israel in this economic miracle youve
mentioned in your book? Could you give some suggestions for the development of the
Chinese economy?
Saul Singer: Should I take that, Dan?
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Dan Senor: Id just continue with the point I was making about innovation and
entrepreneurship is that theyre two different things. In China, its actually a very
interesting case cause China is a very entrepreneurial country, and then also theres a
lot of more and more innovation going on there. Youre seeing research; youre seeing
all the technologies in China going up the ladder of research and development. Then
you combine the thousands and thousands of engineers that are graduating every year
in China, its huge numbers, and the innovation, and the drive to succeed, the
entrepreneurial drive to succeed, that I think that youre going to see centers coming up
like Israel, like Silicon Valley. Its something that takes time. But whats interesting about
China compared to for instance in Singapore, almost every other day it seems theres
a delegation coming to Israel from Singapore asking the question, How do we become
more entrepreneurial like you? They say to themselves, We have the top math test
scores in the world. We have a tremendous education system. We have a nice, stable
government, and we have all the ingredients of a great economy, and its been growing
very quickly, but we dont have start-ups. And theyre asking themselves, How do we
foster entrepreneurship? And its tough because the toughest part of entrepreneurship
is a culture that accepts the risk of failure, that doesnt punish failure, that encourages
people to take risks. And thats very tough to develop if you dont have it, but I think
China, of all the Asian countries, has the seeds of this and has a lot of potential.
Saul Singer: I would just add to that, Dan, that I think one of the challenges in
China, at least what weve heard, is that, yes, it is increasingly entrepreneurial, but they
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are not teaching their young people how to be leaders and great leaders and great
managers. And one of the keys in Israel and its not to say that China should replicate
exactly the Israeli model because in some sense this is unique to Israel. But if you take
the military, every single Israeli male service a minimum of three years almost every
single Israeli male and almost every single Israeli female serves a minimum of two
years in the military before they go to university. And they get this crucible leadership
experience at a very young age that teaches them all about leadership, management,
improvisation, what it means to have lives on the line, both their own and others, what it
means to manage millions of dollars of equipment, and what it means to make a
hundred decisions every day where the stakes are enormous and you dont check with
headquarters. The Israeli military is one of the least its not one of, it is, by far, the
least hierarchical military in the world. Theres enormous emphasis put on
improvisation, young people on the front line making decisions without checking with
headquarters, without checking with commanders. Then they take that culture of feeling
very comfortable of taking ownership of decisions and initiatives, and they take that from
the military into the start-up economy. And it is very effective in grooming young people
to think like leaders in an entrepreneurial setting. Most people dont think of the
battlefield as an entrepreneurial setting. We argue in the book that its a very
entrepreneurial setting. But its not just the battlefield. Not every country is in a situation
that Israel is, fighting a number of wars they had to fight. The question is, Can they find
other domains that one wouldnt think ofas entrepreneurial and actually try to figure out
how to inculcate that domain into an entrepreneurial environment and may have linked it
to some kind of national service program so everybody has to participate in it and
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everybody, now metaphorically speaking, goes through that kind of boot camp and
leadership training? Because many of the Chinese we speak to, say that is the biggest
challenge for the Chinese economy, for its future, is that theyre not training their young
people how to be leaders.
Jennifer Laszlo Mizrahi: Our second question is from Germany, from the Frankfurter
Allgemeine, which asks actually a three-part question. How big is the advantage of
Israeli start-ups because of the close relationship many companies have to the military?
And then how many jobs in high-tech start-ups were lost because of the worlds
financial crisis? And thirdly, what did they do to survive the crisis?
Saul Singer: Ill take the first one. Ill let you take number two and three. I think
its a great question. We got this quite a bit when we first started doing research for the
book. People would say, Oh, well, the Israeli Defense Forces, the IDF, they basically
take all these young people, teach them all these gee-whiz, whiz-bang technologies
and then these people leave the military, and they will take these technologies with
them and start companies. And its a sort implicit commercialization program. Its a
glorified military, industrial complex. So we were curious, so we looked closely at it.
And what we found is, if you look at the counter-terrorism defense technology and
homeland security sectors in Israel, they actually only account for less than 5 percent of
Israel's GDP, where Israels start-up economic growth comes from. Moreover, its from
biotech, medical device, internet communications, internet security, greentech,
cleantechIm just giving you a few examples. So this military support for companies is
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actually quite limited. What is true is what I said earlier though, which is that its what
Israelis do get out of the military is this crucible leadership training which is immensely
valuable in a business context. Okay, so on the downturn I mean, one of the very
important things to understand about Israel is that Israel seems to thrive on adversity.
That's really the trend that goes through the entire story from the founding of Israel in
1948 till today, and what you've seen also on the economic side. Because, as Dan
mentioned earlier, of course, doing all of this through the teeth of boycotts and all of
these setbacks, what Israel's done is kind of turn setbacks effectively to advantages. So
what you've seen is in the basically, there have been two big downturns, and since the
whole tech world kind of popped up in Israel in basically the mid-90s, you have the
2000 Internet bubble burst, and as Dan said, Israel survived that very well. And, again,
now on the current downturn, what you see is that Israel has been impacted much less
than most other developed economies, and it's coming out of it much more quickly. And
I think part of the reason is that Israel kind of specializes in adversity, and part of it is the
nature of a kind of start-up economy. Because start-ups because they're kind of, by
definition, not big and bloated companies, they don't have much fat and so on, and they
don't necessarily use a lot of money to run especially in the very early stages, they can
survive downturns better. And also what happens is people actually do start new start-
ups during downturns. Some of the biggest companies we know like Google were
started during downturns. So a downturn is in some ways a good time for a start-up
economy.
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Jennifer Laszlo Mizrahi: The next question is from P.J. Royce, asking To what extent
did and do labor considerations hinder or help economic and technological development
in Israel?"
Dan Senor: Labor relations?
Jennifer Laszlo Mizrahi: Labor relations. I assume they mean things like the army
reserve duty and the more socialist labor laws of Israel.
Dan Senor: Oh,just to answerthe previous question, another thing, specifically, that a
lot Israeli companies did, they were a lot of jobs lost. I mean, its not as much as in the
U.S. and other countries, but there were layoffs in Israel. And what a lot companies did
is they went to four-day work weeks in order to reduce layoffs. So that worked pretty
well, and they're already most companies have already gone back to their regular
work weeks. But in terms of labor relations, there are pretty strong labor unions in Israel,
but they tend actually not to be in the high-tech sector. So the high-tech sector which
is the smaller part of the economy, but the part that's driving the economy in terms of
growth and export is not very much unionized, which may explain its growth to some
extent. The rest of the economy is not doing nearly as well as the high-tech economy.
And part of what we advocate for Israel is that the positive conditions in terms of taxes
and low regulations and so on that exist for the high-tech economy in Israel be spread
to the rest of the economy, which would produce a much greater overall growth.
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Jennifer Laszlo Mizrahi: Based on your research," asks Donald Palmer, "can you tell
us how important you think such alliances between state chamber of commerce
organizations and Israel and joint ventures with American companies and states are?
How important are these joint ventures and partnerships?
Saul Singer: Dan, maybe you can say something about the joint venture
aspects, but this is actually a good point to bring up in terms of the business relationship
between the United States and Israel, which is very, very important. Many of the
leading, pioneering entrepreneurs and innovators in Israel gained a lot of experience
working in the United States. For instance, the founder of Intel Israel, Dov Frohman,
spent years working at Intel in the United States before he came back to Israel and
started Intel Israel, same with the founder of Cisco Israel and so on. So what you see is
a pattern of Israelis leaving, somewhat similar to, say, Indians and Chinese and people
from other countries going to the United States, gaining incredible experience, learning
things that they don't that they're not good at in Israel. For instance, management and
marketing are not, typically, Israeli strengths. They tend to be more on the technology
side, on the invention side. So Israeli's have a lot to learn and have learned a lot from
America. And
Dan Senor: Yeah.
Saul Singer: that kind of circulation back and forth has been very, very
important for Israel.
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Dan Senor: We have a whole chapter in the book dedicated to what's called the
Yozma Programyozma means initiative in Hebrew which was a very clever and
innovative program by the Israeli Chief Scientist Office to actually build a venture capital
industry in Israel. There was no venture capital industry in Israel until the 90s. And the
Israeli leaders realized that they really want to turbo charge their innovation economy
and capitalize on it, and, by the way, put to work these huge waves of immigrants
coming from the former Soviet Union, many of whom have incredible technical skills.
They needed a real venture capital industry, innovation finance. And the way they built
the program now, I won't get into detail on it now, but the short version is that the
whole program incentivized American venture capital firms with real track records to
form partnerships with budding Israeli venture capitalists. And the Israeli government in
this scenario went to the American venture capital firms and basically said they came
up with an arrangement that we can't get into in detail, but for purposes of this call, Ill
just keep it brief they said, "Look, you form this partnership with Israeli funds, then you
guys make the investments collectively in a new entity, a new co. And if the investments
sour, we the government will assume the downside risk. If the investments do well, you
get all the upside. And it basically took a lot of the risks for many American venture
capital funds to come to Israel and to not only invest, but to teach aspiring Israeli
investors how to be venture capitalists. It was very important, critical. We think theres a
lot of value in that program that is prescriptive to the U.S. today at the state level.
Secondly, I would say I'm in St. Louis, Missouri right now. I gave a talk here last night.
And one of the people who came to the talk is a gentleman who works for the new
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governor of Missouri, whos focused exclusively on technology and innovation
development in Missouri. And he's sort of obsessed with Israel. And the state of
Missouri is looking for ways to form partnerships with the Israeli Chief Scientist Office.
They just met with the Israeli Chief Scientist. And this kind of thing is going on all over
the country. There are state governments all over the country that are looking for ways
to partner with Israel.
Jennifer Laszlo Mizrahi: I actually just got a question from Beachwood, Ohio asking
that very thing. How can an American community best attract Israeli people and ideas to
our Midwest market? So what kind of advice do you have for the city of Beachwood,
Ohio?
Dan Senor: Saul.
Saul Singer: Well, in addition to the partnership point, we should also make the
point that weve been making in a lot of speeches and interviews abou t in terms of what
America has to learn from Israel so part of it can be done through these partnerships.
But part of it is the larger point of an untapped pool of talent. I mean, we talk about how
the military in Israel when you're a young officer coming out of the infantry or tanks or
whatever, it doesn't even have to be a technology unit, and you show up for your first
job, and the interviewer in Israel will know exactly the meaning of what unit you were in,
what that service meant, what kind of responsibilities you had, how valuable that is for
what he wants to do. But in the United States and other countries, it's almost the
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opposite. You could show up some of you having tremendous experience in service in
Iraq or Afghanistan or just going through military service and show up in the interview,
and you'll get the question after going through all the things you've done and all the
leadership experience you have, you'll get the question "So what real job have you
had?" because there's kind of an illiteracy when it comes to a military resume in other
countries. And that should change. I mean, there are certain companies that happen to
have a few ex-military people in them who do understand and do hire them and actually
look for veterans. But that's the exception, not the rule. Then also as Dan was saying,
say we're not saying that you need to militarize your economy to be entrepreneurial.
You can get those kinds of skills in other ways, maybe through a national service
program or other kinds of programs that give you responsibility, leadership skills,
teamwork skills, that show that there's something beyond yourself. I mean, the whole
university experience tends to be a little narcissistic, and you don't necessarily go
through a kind of a maturation process during that. Well, in the military or in some other
kind of service program, you do, and that has tremendous business implications. And
the other point we make is that Israel is the country of immigrants, and immigrants are
risk takers. And that has a huge impact on Israel's innovation and culture. And so, you
know, Israel's probably the only country where politicians actually campaign saying that
they're going to bring more immigrants to the country. And they see it is a positive
politically to promise to bring in more immigrants. And so we advocate that other
countries be more pro-immigration. That's another great way to kind of jump start
innovation and entrepreneurship.
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Jennifer Laszlo Mizrahi: I have a call from Beth Townsend.
Dan Senor: Okay,can I justadd sorry.
Jennifer Laszlo Mizrahi: Sure.
Dan Senor: I just wanna add one thing to that. In this book the way we wrote
this book is we get to the points were making through the eyes of stories and
individuals. Through the eyes of various participants in this process whether they're
Israeli investors and entrepreneurs or American you know, the CEO of Google, the
leadership of Cisco, leadership of Intel, whether it's various players whove been
involved, government leaders in Israel. But we also spend a lot of time with American
military officers because their perspective on the point Saul was just making is very
important. The American military is consumed with this question: How do they learn
from Israel in terms of teaching the business world how to be literate to use Sauls
word to be literate about battlefield experience of their men and women, and how
valuable it is in a business context? And the U.S. Chamber of Commerce now, since
our books come out, has launched a national campaign working with the U.S. military
and working with the Department of Veterans Affairs. The Obama administration has
been working with the Pentagon to figure out how to bring military leaders and corporate
leaders in the United States together with this expressed purpose.
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Jennifer Laszlo Mizrahi: Thats fabulous. I have a question in Outlier. Malcolm
Gladwell presents the case that success is not only individual success but many
opportunities made available by family, school, and society. How does Israel create
opportunity and is this a reason for Israel's success?
Saul Singer: Well,one of the things we talk about in the book is the sort of power
of networking. And we talk about how everyone is so it seems like everyone's
connected to everyone else in Israel. Its a very small country. And because of the
melting-pot effect of the military and other institutions, the networks that people have
are very strong. If you combine the lack of hierarchy in Israel and the strong networks,
anybody can get to anybody with one phone call it seems in Israel. And that's very
powerful. That's very important for business. And it also goes to the Israelis overseas
and to international networking.
Jennifer Laszlo Mizrahi: Another question is about Technion Institute in particular, but
what they're really asking is, do you think the impact on any particular university or
institution is bringing more high-tech start-up talents in other places?
Saul Singer: Well, another part of the story here is the strength of Israel's
educational institutions, particularly the ones that were founded very early on. I mean,
one of the most impressive things is that when Israel was before there was even a
state in the 1920s and they're still draining swamps and there's malaria and conditions
were awful, very few people came to Israel or in what would be Israel. Even way back
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then in fact the key institutions of education like the Weizmann Institute, the Hebrew
University of Jerusalem, the Technion were founded back then. And that shows the
commitment to education that's been very important for the whole Start-Up Nation story.
And in fact youd see that Israeli universities have also been very good at tech transfer.
Israeli universities were at it long before the United States American universities were
probably 'cause there was actually a law preventing it from happening in the U.S. that
was later repealed. But that law set back American universities for a decade or so. And
so you have an Israeli who's running the tech transfer office now at Harvard and an
incredible record of the Israeli universities in terms of melding together academics and
technology start-ups.
Jennifer Laszlo Mizrahi: We have a question from American Business Gateway
asking, "Any hope of getting one of these smart, successful entrepreneurs to run for
prime minister of Israel? Has all the good Israeli leadership gone to making money
rather than making the country run smoothly?
Saul Singer: Well, there is one entrepreneur whos mayor of Jerusalem now. His
name is Nir Barkat, and he was investor in some major success stories like Check Point
and other stories we tell in the book. But hes probably the exception. Its true that most
of the entrepreneurs kinda stay out of politics. I mean, that said, the current prime
minister used to work at an American consulting firm. Was it Boston Consulting Group,
Dan?
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Jennifer Laszlo Mizrahi: MacKenzie.
Saul Singer: MacKenzie maybe. So Benjamin Netanyahu is very much oriented
towards the whole technology scene. And in fact, at a speech recently in Washington,
he mentioned our book and said that we are the start-up nation. That shows where his
head is at.
Jennifer Laszlo Mizrahi: I have a question from Antwerp asking, Although the
enormous amount of start-ups in Israel shows a great deal about creativity and
management in the Holy Land, however, the fact is that many successful ones are sold
early on to large, usually non-Israeli companies. Isnt that in some way restraining the
capabilities of Israel in its economic potential?
Saul Singer: Thats actually a raging debate within Israel. A lot of Israeli
technology people would say that we really need to be building bigger companies and
not just start-ups. But theres also a counter-argument. There are people who argue that
Israel the start-ups are Israels comparative advantage, and that the companies that
are soldeven if theyre sold early ontheyre generally not lost to the economy. The
company that buys them wants the Israeli engineers to stay in Israel because theyre
essentially buying a pool of Israeli engineers. Thats why they bought the company. So
they dont want them to go anywhere. And the entrepreneurs who start the companies
often start another one. Its very typical to have serial entrepreneurs. And those who
kind of defend the system here say that someone who actually produces four or five
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start-ups may actually be more productive than someone who spends the same amount
of time in one company. So you can argue it both ways, but I think the trend, in any
case, is to larger companies. As Israelis gain more experience as entrepreneurs
become more experienced than they are in their second or third or more round, they
maybe have the patience more or the appetite to stick around longer and build larger
companies.
Jennifer Laszlo Mizrahi: I have a question from somebody whos already ready for
your next book. They wrote: How many people were interviewed for this book? What
are the start-up strengths? And with the constant mushrooming of start-ups, are you
planning a sequel?
Saul Singer: Dan, do you mind I take this? Hello? Well, Ill just say that we
interviewed over a hundred people for the book, and its quite a wide range that we
spent hours with Shimon Peres in his office. The presidents reminiscence was a
fascinating tour du [INDISCERNIBLE] of the whole history of Israel and all the economic
periods. We did interview Benjamin Netanyahu. We interviewed Eric Schmidt from
Google. We interviewed a lot of heads of start-ups, venture capitalists, historians,
economists. So thats one of the fascinating parts of the book is that its really not an
economic textbook, its a book of stories. We try to tell the story with stories, and I think
thats what makes it more compelling.
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Jennifer Laszlo Mizrahi: I wonder with all of the money that you talk about, this
venture capital money that is going into Israel, do you have too much money chasing
too few ideas? Are investors able to get the same value out of the Israeli market now
that theres so many people chasing the Israeli economic miracle compared to other
economic opportunities that might exist in other countries like China as an earlier caller
had asked?
Saul Singer: Well, now, you do sometimes have a phenomenon of too much
money tossing around. I mean, thats certainly is what happened in 2000 when
devaluations went through the roof and just were out of proportion of anything, and all
kinds of things that werentdidnt necessarily deserve to get funded, did get funded.
But Im not sure thats the case now. That its probably a relatively good fit between the
amount of money around and the companies that need to be funded. Its true, you dont
want too much or too little because if there is too much venture capital money thrown at
things that arent worth it, it doesnt really go anywhere, it just gets lost.
Jennifer Laszlo Mizrahi: I know that Jaime Perez has a fund thats looking to invest in
the Israeli-Arab sector, is there much going on in the Israeli-Arab sector in terms of
venture capital and economic success there?
Saul Singer: Well, there is kinda in the beginning some attempt. I know that
Jaime Perez and other venture capitalists we know and we interviewed for the book
have been exploring this idea of a venture capital fund focused on the Palestinians
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basically. And they think that it has potential. And it hasnt really started yet, but theyre
going for it. And also, theres one company that we know and we interviewed the
founder of it called Ghost, its a cloud computing company, and they have their RND
operation is completely in Ramallah, almost completely in Ramallah. So they have
offices in Israel and in the Palestinian areas, and they just communicate by e-mail and
so on and so on, and theyre able to do their business.
Jennifer Laszlo Mizrahi: Do you see much integration at the top level of the Israeli
start-ups that are successful?
Saul Singer: Communications? Sorry, I didnt understand.
Jennifer Laszlo Mizrahi: Integration.
Saul Singer: Integration?
Jennifer Laszlo Mizrahi: Well, you speak about the military as being a great place for
some talent to get some skills. I know that many Arabs in Israel are not in the military
cause they choose to opt out. So do you see amongst the start-ups, do you see
Arabs who are a part of the leadership given that they do make up 20 percent of the
population in Israel?
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Saul Singer: Yeah. Well, the flip side of the military networks that Israelis built is
that the people who dont serve in the military in the Arab sector are they are hurt by
that. It does make it harder for them. And so that and the fact that the Arab sector is
less developed economically, does mean that the Arab sector is less represented in the
whole high-tech system than it should be. But there are I mean, weve met in
conferences Arab entrepreneurs who were going to the Technion. Theyre studying at
the Technion or Hebrew University, or places like that, and these universities are very
open to Arab attendance. And its kind of a matter of time before these graduates
develop their own start-ups and get more integrated into the high-tech economy, I think.
Jennifer Laszlo Mizrahi: I have a question about the electric car and its status in
Israel and the U.S. Is that a part of what you cover and know about?
Saul Singer: Definitely. Our introduction tells the story of Shai Agassi in Better
Place, and its sort of our marquee story at the beginning of the book. And its a
tremendous story that involves Shimon Peres and the Davos Conference and Carlos
Ghosn, the CEO of Renault-Nissan. Its an incredible story of how Better Place started
just two years ago basically. And its also incredible that Israel is going to be the first
country in the world that was the first country to commit to go in completely electric in
terms of their cars. And is the first country thats building the infrastructure thats run by
Better Place that will allow this to happen, an infrastructure of charge spots and swap
stations for the batteries that will allow electric cars to be cheaper and more convenient
with the same potentially infinite range of gas cars. And so Im very much looking
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forward to getting the first car thats supposed to be available to the public in 2011.
Theyre actually gonna be available to fleets of cars to companies that have fleets
next year. So this is happening rapidly.
Jennifer Laszlo Mizrahi: I know that Dans voice has given out so, Saul, well ask you
to soldier on here with just two more questions. The first one is: What are the failures
that youve seen in the Israeli economy or in their start-up and what lesson do you draw
from those failures?
Saul Singer: Well, I would say the chief failure is the gap between the high-tech
economy and the rest of the economy. As Ive mentioned before, the rest of the
economy is underperforming compared to certainly compared to the high-tech sector,
but even compared to other countries, and thats kinda being masked by the success of
the high-tech sector. And so the challenge of the country is to spread the smart policies
and practices that have been applied to the high-tech sector and applied into the rest of
the economy. The other danger we have a whole chapter in the book about threat,
threats to the start-up nation. And we dont talk mainly about the conventional threats
that people talk about like Iran and whatever. We focus on the issue of education.
Because on one hand, you have tremendous universities; on the other hand, you have
a brain drain from these universities. Israeli academics have been going abroad
because the conditions there are better, and they cant find a place to practice properly
in Israel. That has to be dealt with. And actually Netanyahu said hes gonna deal with it.
We hope he does. But the other problem is the secondary education. We were slipping,
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just like the United States is and so on, in math scores. And that has to be reversed. It
means the country isnt operating on all its cylinders. And were such a small country.
We cant afford to give up all the potential talent that having an education system thats
not what it should be that that situation creates. So I would say those are the failures
or the threats that need to be dealt with. And the good news though is that these are not
cultural problems; these are policy problems. And as much you know, Tom Friedman
spoke to a group in Israel, and he was comparing the situation in Singapore and in
Israel. And in Singapore, they have the best math scores in the world. But he was
saying that Singapores problem in terms of not having start -ups is a cultural one;
Israels problem with its educational system is a policy one. And its easier to change
policies than it is to change culture, but you can work on both, and thats our message
in the book.
Jennifer Laszlo Mizrahi: Were so grateful to Dan Senor and Saul Singer for bringing
this book to the public, and I wanna remind our 220 listeners on the call that you can
purchase this through the e-mail invitation that we sent to you, which has a link to
Amazon where you can get the book shipped straight to you. And I encourage you to
read the entire book that Dan Senor and Saul Singer have presented to us with more
that a hundred interviews and very, very serious lessons. So my final question to Saul
Singerand Im not asking Dan because hes now lost his voice completely is: So
what are some of the final lessons to take away from these hundred interviews that you
have done of what you think those people outside of Israel should know about what will
bring success to the start-up arena?
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Saul Singer: Well, I think the lesson and main overarching lesson is that
innovation and entrepreneurship is ultimately about culture. And you have to think
outside the company, and you have to think about the culture and what you can do to
foster the kind of values that encourage these things, that reward people who take risks,
that encourage people to innovate. We find that all these aspects of the Israeli secret
sauce, if you will, are kinda mutually reinforcing. Its a great place to study to figure out
how you can do that. I mean, some of the things are not easily duplicated, but some
are. I mean, you can come up with other ways of fostering these things attributes. So I
would say thats the overarching lesson. I mean, we end the book with a quote from
Shimon Peres. He said in his interview, which was that, The most careful thing, option,
is to dare. And thats kind of, in a way, encapsulates the Israeli attitude in the Start -Up
Nation. I would just mention that in addition to the Amazon link, that we have a website,
which is startupnationbook.com, and also a Facebook fan page. If anybodys interested
in looking there, theres a lot of additional material.
Jennifer Laszlo Mizrahi: Andif you want more information about the Israel Project or
Israel in general, you can always go to the israelproject.org to get more information from
us. Dan Senor and Saul Singer, weve been very delighted to hear from you.
Congratulations on this masterpiece new book. Thank you for being with us today.
Saul Singer: Thank you, Jennifer.