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 Story of 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 longestserving 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

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 Nation addresses 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 techoriented 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

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 Nation shows, 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

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

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, youve 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

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 mentioned, 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

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 StartUp 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-ofthe-box thinking, they go to their Israeli teams, either because they bought Israeli startups 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

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?

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

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 of as 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, cleantech Im 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 startups 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 answer the 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: important for Israel.

that kind of circulation back and forth has been very, very

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Dan Senor:

We have a whole chapter in the book dedicated to what's called the

Yozma Program yozma 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 about 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 just add 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 sold even if theyre sold early on theyre 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 werent didnt 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 Singer and 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: And if 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.

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