Six years in Tel Aviv: Here’s what Dan Krasnostein says Australia can learn from the Israeli tech ecosystem

israeli-tech-startups-community

Israel's Western Wall. Source: Unsplash/Sander Crombach.

I’ve just landed back in Australia after six years in Tel Aviv, investing in the Israeli tech ecosystem and its brilliant entrepreneurs.

I am constantly asked, “what makes Israel tick?” or “what can we (Aussies) learn from over there?”.

So, here are a few thoughts…

First, it’s impossible to talk about the ‘high-tech’ market without giving some context, because it’s important to know how critical it is to the Israeli economy.

  • $10 billion invested in 2020, and >$15 billion in exits – this is large on an absolute basis, and incredibly high on a per capita basis;

  • More than 40 unicorns, countless more public uni- and decacorns; and

  • 10% of the Israeli workforce is in technology, contributing 15% GDP, with 50% of exports from tech and life science.

These are the outputs. However, what’s critical to its success is that Israel has true depth and breadth when it comes to some of the key inputs if a thriving tech sector:

  • Talent: Mandatory military service is an incredible training ground and rapidly builds networks of talent, combined with some world-leading tech universities such as the Weizmann Institute of Science, Technion Institute of Technology etc.;

  • Capital: An abundance at every stage of a company’s lifecycle — angels, VCs, growth funds, Pre-IPO funds, debt providers, secondary buyers;

  • A vast number of world-class accelerators, incubators, co-working spaces;

  • Ambitious and long-term government support: funding and grants for companies, good tax structures for founders, employees and investors; and

  • MNCs: Hundreds of R&D centres of the largest tech companies in the world which serve as customers, capital, advice and acquirers, including Alibaba, Amazon, Apple, Cisco, Facebook, GE, Google, IBM, Intel, Microsoft, Paypal… the list goes on.

So we have this huge market underpinned by a multitude of key players. But what is it about Israeli’s and how the ecosystem operates that we can learn from?

From the moment I landed over there, one thing was incredibly clear: the entire ecosystem works together to move the whole industry forward. It is a powerful force that I’ll come back to, but first, some cultural context on what Israeli’s prioritise when building tech.

Argue viciously but hold no grudges

In Israel, there’s a saying, “if you want two opinions, ask one Israeli”.

Israeli’s are highly opinionated and passionate people, which often leads to heated debates. But the arguments are never personal; they are about finding the best possible solution. And when the decision is made, no one holds grudges. You’ll find that the two people arguing the hardest will be seen laughing, joking and hugging five minutes later.

I can’t help but think we get both of these points exactly backwards in Australia. We are much more polite and don’t want to hurt people’s feelings, so are most often not as transparent with our views; while at the same time, when debates and arguments do occur, we take it much more personally. What we end up with is both a sub-optimal outcome and people who are upset at the way we landed there.

This is not something you can click your fingers and change overnight. This is a practice that needs to be driven from founders and senior management and embedded into the culture. It needs to be considered in hiring decisions and fostered internally.

Speed kills (but in a good way)

The pace at which things move in Israel is off the charts. Products are shipped fast, hiring/firing is fast, decisions and debates are landed fast, investment rounds are closed fast, meetings are scheduled, actioned and followed up fast, networking is fast; you get the point, everything happens fast.

As a general rule, Israeli’s will prioritise pace over perfection. And whilst the result isn’t always… well, perfect, startups are operating in a world where speed is a competitive advantage.

Failure is fine

Failure is just more broadly accepted in Israeli culture than it is here. The result is it allows people to be more ambitious and take bigger risks if they know they don’t get disqualified if it goes wrong. Employees won’t get penalised; founders’ next companies will still get funded (perhaps even more likely get funded).

I remember one founder proudly telling me how on his first solo flight in training for the Air Force, he accidentally flew over an international border that required significant diplomatic efforts to de-escalate the situation. If that’s not bad enough, he did it whilst ignoring navigational advice from his base. The end of his time in the Air Force? Not at all, just another learning opportunity and debrief into how the whole organisation can improve next time.

Or there is Roy Mann, chief executive of Monday.com, who spent 4 years working on saveanalien — a game where users had to adopt an alien to save them from an approaching meteor. Sound awesome? It wasn’t. But it didn’t stop him getting a senior job at Wix.com or to go on to get funding for what is now a $3-4 billion company.

The knowledge you can try and fail creates a sense of empowerment throughout the organisation.

Everyone in the organisation can impact

When most people think of a military, they think highly disciplined structure: commander gives order, officer obeys. The Israeli military is anything but that. Subordinates are encouraged to challenge their leaders if they believe things can improve. What’s more, 18- to 21-year-olds are thrown into situations of serious responsibility where their decisions have genuine impact and consequences — gathering intelligence, commanding other soldiers in combat, flying fighter planes and so forth.

The military teaches new recruits to demand change and drive impact, and provides the platform from which to do it — and it’s this shared approach to innovation that carries on into the world of startups where the cultural empowerment of all staff to be heard and to have an impact is maintained.

But what I really wanted to come back to was my most important takeaway from life in Israel…

Community and collaboration is key

From the second I got off the plane, everyone was doing everything they could to help get me and Square Peg set up and ready to go.

I was lent office space, recommended lawyers and accountants for the fund. Someone spent a day with me opening bank accounts and setting up mobile phone accounts.

I was invited for traditional family dinners — all by senior people at ‘competing’ funds.

I thought it was just people being nice to the new guy, but I learnt over time that the sense of building the market together was ingrained in the DNA. Whether that be investors helping investors, entrepreneurs to other founders, corporates to corporates: people invested significant time and effort into tasks where they seemingly have no direct benefit.

I started to speak to a lot of the locals as to why, and the answer was always simple — in the long run, it doesn’t matter which component of the ecosystem I play in, I benefit from that ecosystem being larger.

“How does that work — isn’t it fiercely competitive?” Yes, and no. When companies are hiring or selling to customers, or investors are trying to “win” an investment opportunity, yes, its ultra-competitive. This competition is great for the market! But outside of these moments, the mindset shifts back to “how do we as an industry improve?”.

So what exactly are they doing? What are tangible examples of collaboration or community building and how can we learn from them in Australia?

I think first and foremost it’s a mindset — one of thinking long term and one of thinking about growing the size of the pie. Everything starts from there.

There are too many initiatives to list them all. Some are large scale, strategic initiatives and others are small and tactical. On the smaller end are just simple WhatsApp communities — different groups focused on investors, or CTOs, or corporates, or angels — which are active daily sharing knowledge, insights, helping with recruitment, for business development, and sometimes just to socialise.

At the other end of the spectrum is an initiative like SOSA — a startup hub founded by some of the leading investors in the industry (competitors!) to facilitate serendipitous meetings between everyone in the ecosystem, including co-working space, food, event hosting and content distribution.

And somewhere in between is an association called YVCA — the Young Venture Capital Association — organised and run by the community to train and network the next generation of investors.

The list literally goes on and on and on… And the point isn’t to replicate, the idea is to work out what would work best in this market, with the assets specific to us. I don’t have the answers (yet, hopefully) for what is best for the Aussie market. I haven’t been back long enough to know what is working and what isn’t. But I’m really passionate about working on it, so if anyone reading has any ideas… I’m all ears!

A final point I think is really important to end on is the Israeli market didn’t spin up overnight, it’s been building in earnest since the 90s and has taken time to get to where it is today; time for the market to mature and all the elements to come together.

To Australia

What excites me about Australia is that I have come back to a different market from the one I left. The acceleration over the last 5-10 years, in particular, has been enormous: we have more companies being founded, more investors for different stages of a company’s journey (there were no local venture debt providers or secondary funds when I left), and most excitingly more amazing rocket ships being built here: alumni from these great companies will join and found the companies of tomorrow.

We can all be part of giving them the best platform possible to build world-class businesses!

This article was first published on the Square Peg blog

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