Jerusalem was built at the intersection of civilizations. It was in the center of trade routes between Asia, Africa and Europe. As a result, it was a prized part of any empire that controlled it, because to control it, was to control trade. So while we think of ancient Israelites as shepherds, slaves, priests or warriors; their far more important role was as traders. This is why there are accounts of Jewish traders living all over the Roman and Parthian (Persian) empires, trading goods that moved from East to West. Today Israel is no longer a center of trade, but it is a nexus of ideas. The Jewish diaspora moves knowledge in and out of Israel from all over the world that when in combination of the unique Jewish culture, Israeli government and environmental factors, creates the conditions for a place where entrepreneurs thrive.
When I moved to Israel to study at the Kellogg-Recanati Executive MBA Program at the Coller School of Management, I did so with an intention to learn from Israelis about their entrepreneurial spirit. I wanted to understand what makes Israel different. What makes Israel that Start-Up Capital. There were hypothesis that Israel might do something special, Israeli culture is special or is it simply the environment that does something to people there. The answer, as usual was far from simple. It was a combination of many factors. I’ll outline five of those factors in this article, starting with the first and most important: knowledge.
Ingredient 1: Knowledge.
There is a joke about Israel that when Moses lead his people across the desert, he did not settle until he found a place that smelled like milk and honey. Resulting in Israel being the only place in Middle East without oil. This lack of resources allowed Israel to escape the resource trap plaguing most of the countries in the Middle East. Before oil, the region where Israel was located was known as the place where writing and paper as first created. Writing invented by Phonecians and paper by Egyptians, allowed the Jews to be the people who wrote down their stories and laws into a book that they could later take with them as diaspora, helping them retain their culture. This of course also required the rare skill back in those days of reading. At a time where less than 1% of the world was literate, Jewish people forced their children to read and write, making the Jewish society especially geared for the knowledge economy where being able to find information and use it is the number one skill to have. As a result when the Jewish diaspora returned to Israel to a fledgling nation, one of their first acts was to build universities. This allowed the many returning scholars and professors to have a place to immediately start teaching the hundreds of thousands of Jewish immigrants, especially those who came from Middle East and North Africa. This meant that within twenty years of Israel’s founding, the country boasted more PhD’s than any other country in the region, making it primed for knowledge economy that would be ushered in by the Internet age.
Ingredient 2: Trade Skill
It did not matter whether Jews lived in diaspora of Germany or in Ottoman Jerusalem, the restrictions were the same: they could not own property or join a guild. This gave a Jewish person few options, but the ability to read made the option of creating a business often the most direct path to survival. Contrary to popular belief, rarely did a Jewish busines become large, which is why the Rothchilds, Hirches and Sassoons were famous not because they were the rule, but the exceptions of their time. Most Jewish businessmen were small time peddlers, taylors, butchers or accountants. They were taxed heavily and their movement restricted which put a cap on how large their businesses could grow. But it was a skill that would be passed down from generation to generation. At a time when most people had a path for their children of becoming a farmer or a tradesman in a guild, Jewish children by and large found themselves being trained in family business because farming or skilled trade was not something that was open to them. As a result when Jewish small time traders moved to Israel from Europe and MENA region, they did what they did in their country of birth: business.
Ingredient 3: Government
There were two things that Israelis complain a lot about: taxes and lack of government services. I remember going to the ministry of internal affairs to help with my immigration. It was chaos every time. There was no easy way to make an appointment. I had to stand in line full of East European and African migrants outside the building and then wait for hours to get my turn with a bureaucrat who spoke terrible English and had very little patience to understand or help me. However, as inconvenient as I had it, the early Israelis had it far worse. They moved to a country that had very little but took a lot. It was a socialist liberal democracy, as a result the freedoms were many but so were the taxes. The country needed revenue to fund the army to protect it from hostile neighbors and to build up the non-existent services. Thus all those traders were burdened with heavy taxes and a new beaureaucracy that was staffed by a lot of untrained people. The government pre-occupation was with absorption of nearly a million refugees who had been forced out of MENA region and protecting a country from non-stop invasions. This kept Israel’s GDP low all the way through the 1990’ies when it finally stood well enough on its feet and won enough wars where there was some respite in the area of defense and the taxes were lowered by a new more free-trade aligned government. This created several forces that shaped the country. The business middle class suddenly could grow their businesses. Lack of good government services created many opportunities for people to create businesses. Lack of large businesses left a lot young and educated people without a place to work. You suddenly have an influx of cash, a new internet economy and a population of people armed with knowledge, skill and lack of a job. This is the perfect confluence of forces to create startups. Young Israelis, especially those who graduated from the elite cybersecurity unit of IDF and some of the top universities in the world are finding themselves in the internet age, the single most wealth building time in human history. You can imagine what happened next. Israeli entrepreneurs begin building,
By the time that I moved to Israel, the speed of innovation was unbelievable. There wasn’t a service or sector of economy that wasn’t somehow enhanced by entrepreneurs. One such example was the app MovIt. Tel Aviv lives on the bus. Roads are terrible and narrow, parking is awful, prices for cars and gas is expensive. As a result most people in the city can’t afford cars. However, city buses run all the time and everywhere thanks to the small geographic size of the city. With so many buses it would take forever to memorize routes and schedules. This is problem that Movit solved. It used the GPS trackers on buses to show you where the bus was, when it would arrive at your stop and what bus you could get on to transfer to get to your route in a most efficient manner. This kind of private solution to government problem was normal. However, what truly made Israel a start-up nation was the next ingredient.
Ingredient 4: Language
When Israel was founded, the country was a mix of native Jews and Arabs, Jews from Arab countries and survivors of the Holocaust from Europe. It was a real Tower of Babel where everyone spoke but no one understood. The question was what would be the Lingua Franca. The Hebrew language was old and archaic and it was only used for religious purposes. There was Yiddish and German but after World War two that wasn’t very appetizing and MENA refugees didn’t want to learn Yiddish. Arabic was popular with many of the Jews and Arabs but after wars with Arab states that wasn’t appetizing either. English could have been an option but most people at the time didn’t speak English. Eliezer Ben-Yehuda came to the rescue by taking old Hebrew, Arabic, Yiddish and creating a modern language. Most people had a hard time with it but through a deliberate government campaign, the nation learned it and used it. The common language created an identity that bound the immigrants and the locals to each other and to the country’s history.
However it also set the country apart because no one else spoke Hebrew. This made international business cumbersome. So the immigrants did business in the languages they knew. Primary business partner was France until 1972, not in small part thanks to the many expatriates from Morocco and Algeria. However, after 1972, Israel lost connection with France due to the Yom Kippur war and the closing of Suez Canal and the country pivoted to the United States as an ally and trading partner. This was critical because it suddenly created an opening to one of the super powers. American tourists and immigration expanded and with it the use of English language. So much so that by the early 2000’s you could walk up to most people and if they didn’t speak English, it meant that they were from Soviet Union. Israelis would travel to United States, go to colleges in United States and Israeli Universities started to provide degrees in English. Kellogg-Recanati program was a joint program between Northwestern and Tel Aviv that offered an MBA in English to Israelis. With those connections, Israeli business people especially the young start up entrepreneurs now spoke the international language of business. This made ability to make deals a lot easier. Along with a more friendly to business government, it created a perfect place to start and sell a business, especially to the large well established companies on the other side of the pond.
Ingredient 5: Community.
When I travelled around the world collecting Jewish stories of diaspora, I loved to talk to non-Jewish locals about their Jewish communities. Surprisingly, I met very little antisemitism. Many actually acknowledged a key strength of the Jewish people: community. “Jewish people help each other” was something I heard from many people in many countries. This is a key ingredient in the success of the Israeli Start-Up. Once Israelis sold businesses, they did not hold on to the money. The newly minted millionaires and billionaires quickly transitioned into Venture Capitalists, investing in the next batch of ideas and start-ups. By creating an ecosystem in Israel where it was easy to start a company, get investment to grow the company made it all the easier to later sell the company. The exits created further growth in the economy and in the start-up ecosystem. It incentivized more Israeli young people to take their idea to the next level, creating more solutions not just to lack of government infrastructure problems in Israel but solutions for people around the world.
No startup epitomizes the Israeli transition from a local to global company like WAZE. WAZE solved the problem of getting from place to place in a gridlock traffic. It did so through the power of community. A Kellogg classmate of mine was responsible for building that community component that actually got the drivers to share the information about the road that allowed the app to work. The app sold for billions to Google, making it one of the most widely known success stories of Israel.
Conclusion:
From these five ingredients, replicating Israel’s success is not easy. It is not a one thing that you can do to your society. Israel’s start-up success was borne out of millenia of necessity and chance. It was a confluence of cultural and environmental, governmental and geopolitical changes that allowed it to take advantage of opportunities that were made available to the young Isrealis who were graduating college in the 1990ies and 2000’s.
However, on individual level we can learn some lessons. Teaching our children to be educated in books and business is the first step for them to be able to take advantage of the opportunities and create opportunities. Having a government that doesn’t try to solve all problems and provides incentives to people who solve those problems gives an opportunity for those bright minds to solve those problems and create successful businesses that provide value. Having cultural and language skills to interact with people around the world can take small ideas that work in a small country and allow those ideas to reach the entire globe. Lastly, when you become successful, do not hold on to that success, share the wisdom and invest in people, and you will lift the entire society.
These are not novel or outlandish lessons, but Israel is a place that shows that these lessons work. I hope these lessons work for you as well, because success like a good product, feels better when it is shared.
not-rushin 