Tallinn, April 10

Prof. I Drori Prof. S. Ellis Recanati Faculty of Business, Tel Aviv University

MOTIVATION

Explore the idea of why and how culture is unique and a source of competitive advantage.

To provoke a debate of whether culture is imitable, and if yes, so what?

Main Estonian Bottlenecks (GEDI Report, Dec. 2013) Attitudes (individual level ): Perceptions of Risks

and Rewards Associated with Entrepreneurship

“The need to do something to enhance the status of entrepreneurship as career option for educated individuals(this is), prompted by the observation that an entrepreneurial career does not enjoy a high status in the minds of Estonians” (p.10).

“Need for supportive culture (in addition to adequate policy environment) to cultivate the mind and character of the potential entrepreneurs”.

Content of the talk

The Israeli cultural legacy: continuation and change

The Contemporary Israeli entrepreneurial culture

Discussion and Conclusions

Israel’s Cultural legacy: continuation and change

Basic assumptions The historical legacy and its characteristics, such

as social relations, institutions or legal systems, are shaping durable culture which tend to resist change.

Culture persists even if significant changes take place in the environment.

Ideology, tradition and socialization tend to preserve the basic tenants of the national culture which in turn reflected on the entrepreneurial culture.

Competitive Period Cooperative Period

Neo liberal-capitalist ideology: globalization, liberalization, privatization and competition introduced in tandem with changes in the policy environment.

Nation building=> Intensive state intervention, mass migration, priority of labor intensive industries Collective survival=> hard work, resilience, cooperation, mutual help, pattern of delayed satisfaction (one for all).

Continuity and change in Israel’s culture

Basic tenet: Israel’s culture is a set of beliefs and assumptions which are used as a means of cultivating the success of Israel as a Jewish nation , surrounded by enemies.

Associated legacies:

Nation building

Ethos of survival

Jewish heritage

Immigration

Military

Legacy: nation building

Establish an exclusively Jewish community based on solidarity, accountability, collectivism and construction of exemplary national and individual identity (“beacon” to others).

https://www.youtube.com/watch?v=kB6AgwmJw5o

Legacy: Survival

Israel is locked in a battle for survival with its Arab neighbors.

Lack of natural resources and vulnerable political reality

Economic self reliance through mobilization, innovation, creativity and excellence (mainly in science and technology).

Legacy: Survival (Cont.) “Never again” and “no choice” (no second chance)

mentality

“We are not permitted to exchange precise knowledge and realistic evaluations for hopes and illusions. I cannot forget that the Holocaust came on the Jewish people by surprise. The Jewish people cannot allow such an illusion for the second time”

(Ernst Bergmann, the first director of Israel’s Atomic Energy Commission).

Jewish Heritage

Israel role as refuge and guardian for Jews (Law of return)

Israel as the authentic embodiment of the Jewish people, responsible for its future well being.

Division of task (Israel and the diaspora)

Legacy: Immigration

“Melting pot” : metaphor for a heterogeneous society becoming more homogeneous, the different elements "melting together" into a harmonious whole .

Building “new man” and culture

Creating economic opportunities.

Legacy: Military

Israel born in war and is nation in arms, thus, the army (IDF) takes the role of indoctrinating Israelis into the society and culture (universal conscription, reserve service, providing economic leverage).

Absolute and permanent Israeli military superiority in the region.

The “quality edge” (human resources , technology)

How these legacies and the transition to market economy shape Israel’s entrepreneurial

culture?

Immigration

Multiculturalism , individualistic approach replace the ‘melting pot’.

Harnessing the entrepreneurial potential of diverse groups

In the 1990s’ Israel got approx. 1 million Russian immigrants which included 110,000 trained engineers ( 20% of the high-tech labor market) and 9000 scientists.

Number of entrepreneurs among the Russian immigrants are more than third compare with Israeli-born.

Comparison with US: immigrants comprise 20% of high tech workforce and

17% entrepreneurs, between 2000-2011 immigrants in high tech increase by 64%, compare with 22% of US-born

The Israeli ‘returnee’

Transnational entrepreneurs who decide to return home, while exploiting their knowledge and network for developing Israel’s high-tech industry (D. Frooman, Intel).

Facts: Founded 1974 Investment: 10.8 $B 4 R&D centers [8088, MMX, Centrino], and 2 operation plants) Local purchase: 10$B Employment: from 5 to 10,000 Export: 35$B Entrepreneurship: Since 2006, Intel’s ex-employees founded approx.

30 new companies

The Military factor: The army as hotbed for entrepreneurship

“Entrepreneurs in Israel are unique, their approach to problems is different to others because the army is a huge incubator for innovation and entrepreneurship, (as one of the successful entrepreneurs stated:). The army gave us a few million dollars at the age of 18 and asked us to build technology and systems that address problems that only people 10 or 20 years older are dealing with in other parts of the world. That kind of pressure and challenge really brings a lot of things out

of you.” (www. bbc.co.uk/news/technology-16787509)

The Military factor: Selecting the best

“The army is more than a high-tech incubator. It sifts the entire population for talent, giving the most promising techies intensive training in elite units, and inculcates an ethic of self-reliance and problem-solving”

“In the CVs’ I get for open position, I look for army service. The army is growing the best technological and managerial crop. They already select the best and train them. I’m getting the best, already “cooked”.

The Military factor: motivation “ The unit handpicks the brightest teenagers in the country then trains them to solve problems in multidisciplinary teams using methods usually associated with business, not battles. They are encouraged to think differently. The central mission of the unit is to save lives, to prevent terror and other attacks. We teach our people that the mission is so important that there is no possibility of failure." Nir Lempert, a reserve colonel, former deputy commander of Unit 8200

and chairman of its alumni association

Military factor: indoctrination New recruits are on a six-month intensive programming

course study from dawn till night and are taught programming skills, teamwork, project management and – most importantly how to be creative. It’s like a school for start-ups. When you do a degree in computer science you study the technical things, you study how to write a code, mathematics. We don’t focus on that. We focus on how to work in a team. How to understand what your clients needs and make software that fits their demands. How to write good code that you will be able to de-bug and maintain”.

(Computer training course commander).

The Military factor: civilian impact Commercialization of military technologies

Entrepreneurial training:

8200 entrepreneurship and innovation support program (EISP), a five-month hi-tech incubator in which unit alumni volunteer to mentor early-stage startups.

In 2012-2013, 22 of them have received funding totaling $21m and employ 200 people.

The Israeli Start-UP Culture;

Attitude and model

Case Study: Passave

Passave a leading developer of system-on-chip semiconductor solutions for the Fiber To The Home (FTTH) access market.

Acquired by PMC-Sierra a leading provider of high-speed broadband communications equipment for 305$M (2006).

Passave: Anatomy of success (1)

Founded in 2001 by ex- IDF officers of an elite intelligence technological unit.

Seed money of 25,000$ from friend (hiring office space and telephone line)

For two years since founding hired only engineers from their army unit (homophile). “ we are looking for the most innovative and creative people , and the one place to find them was in our old yard”.

First order in 2002 , Nokia , 28,000$ (threat of closure)

First VC funding in August 2002, 7M$

Passave: Anatomy of success (2)

First strategic decision, dropping the European and American market and go for Japan. (“Japanese movies”).

Convince the biggest Japanese telecom company (NTT) to form “research collaboration” (“Israeli chutzpa, little company with only one client , bang and open the door of Japanese company with 100B$ yearly profit”), using NTT as legitimacy ‘vehicle’ (overcoming liability of newness).

The work with NTT drain the company resources as it didn’t generate enough income (threat of closure).

Passave: Anatomy of success (3) Enter luck—NTT decided to stop R&D and to start

marketing the product. In one quarter Passave becomes profitable (2005).

In 2005, First exit attempt in NASDAQ thwarts by Passave’s two major clients which sued the company (30m$) for breaching contract and the underwriter (investment bank) backed away.

Passave hired a competitor (Lehman Brothers). LB presented the company to PMC which acquired PA for 305 $ million.

The founder “secret” “ I didn’t let failures or obstacles to discourage me and at the same time I was well aware of the potential and the prospects of success “ .

Lesson learned (PA): Attitude based on

internal locus of control

Take risk

Don’t let setbacks to deter you

Think big

Have confident in yourself

Innovate and be creative (know everything that there is to know)

The “ Success” model Risk taking and individualistic

entrepreneurship culture: founders are highly self confident in becoming entrepreneurs.

Entrepreneurship culture marked by creativity and innovation, highly regarded talent, commitment and knowledge.

Open and diverse environment helps promote high-tech entrepreneurship.

Risk taking “ The challenge is to get rid of the fear to try something

new. The first trait you need is not to afraid of failure, even if it happened 9 out of 10 attempt. You have to carry on”

“Lots of start-ups fail. In Israel’s today we don’t have strong stigma of failure which stays with you. You should create another opportunity and not thinking about suicide”.

Risk taking (cont.)

In many ways, Israel’s strong innovation culture runs parallel to America’s. Both countries share the unique view that entrepreneurial failure is an education rather than a badge of dishonor. They don’t punish risk-taking the way many other nations do.

(Meir Brand , Google’ Israel’s Managing Director).

Self confidence “In my social circle every one is either starting new

business, about to do it or talk about doing it. There is a social pressure to be an entrepreneur, its stick. So I’m doing it, it is my call”.

“In Europe you look for secure job. In US and Israel, your parent were immigrants, the shoemaker push his son to move forward , doing well in business or becomes a doctor”

Creativity

“ We are improvising even if we have formal plan, so we can act fast and apply unique solutions”.

“ We work fast, don’t take anything for granted, constantly searching for exceptional idea.”

Innovation “We build this start-up to exploit an opportunity to be

an innovative, to present the market with disruptive technology

“ We have a 8200 culture here, out of the box thinking and improvising and each of the people here takes a leadership position in presenting new great ideas.

“We are innovating in those areas that we know for sure that we have an advantage. In technology and applications we look at the last 100m of the mile…”

Innovation “ In Israel we have an advantage: we have innovative

zest with togetherness and dedication.. We never take no for an answer, we think out of the box and we are pushy. One of my company acquired by big US firm. They decided against R&D. My partner and me had an idea and they (American) didn’t budge. Although it was risky, we gave up all the salaries and the perks, and started our new firm”.

Discussion and conclusions

Culture can be a source of sustainable competitive advantage if that culture is valuable, rare, and costly to imitate.

Countries with valuable, rare, or imperfectly imitable entrepreneurial culture should guard and nurture this culture.

If a country is able to modify its entrepreneurial culture, it is likely that others can as well.

If such effort is imitable, at best, it would be source of only temporary success.

Questions for discussion Is it worth while to imitate Israel’s start-up culture?

Could it fit to Estonia. In what ways? (why yes; why no)

Can you characterized the desired entrepreneurial culture for Estonia?

Could you recommend ways to achieve it?

“What we have here [in Israel], beyond the technological knowledge and the hunger for success, is the collective inclination towards entrepreneurship – the appropriate values and the know-how for identifying an opportunity and putting it into practice – [this is] what is needed to create new ventures. The moment we transfer this to others, we lose our competitive edge as a leading Hi-Tec country.”

Zvi, CEO, Broadband Company, Interview, April 2006

Returning to the “insight”…..

Thank You!

Key finding from the entrepreneurship culture study

Our research conclusions: key values of Israel’s Entrepreneurial culture

Network culture: “close-knit, egalitarian network of friends, who shared a vision and worked hard together to achieve it” (overcome ’liability of newness’).

Laissez-faire entrepreneurial culture “You were encouraged to go after your idea. The motto was ‘Those who never make mistakes are not doing [anything].’”

Challenge and pride: “pushing people beyond their envelope and helping them to discover their best capabilities,” “permanent feeling of elation”

Entrepreneurial culture (Cont.)

Paternalism: “A worker in distress could approach the founder and he would get out of his skin to help. Sometimes he treated us like children”.

Improvisation and quick response: “The attitude is do first and then ask and check.”

Risk Taking: “We promised clients things we had never done before, went into projects with bigger and more experienced competitors than ourselves. Everything was done on a trial-and-error basis. The lack of experience is covered by commitment, youth, and enthusiasm”.

Collaboration and innovation “ We look for innovative informal ways such as the “chavruta” to collaborate and bridge occupational barriers.

How Others perceived the Israeli start-up culture:

Comparison: Korea and Israel by

Korean Vice Minister of Science, ICT and Future Planning, Jong-

lok Yoon

Israel and Korea

“ Koreans are even smarter than Jews, but Israelis are much braver, the guns and bullets of our country are much better, but Jews pull the trigger without being afraid of failure – with ‘chutzpah’, which is the willingness to challenge the Establishment . ”

Chutzpa the Korean view: informality’, ‘mashing up’, ‘risk-taking’, ‘tenacity’ and ‘learning from failure

Israel and Korea “ Koreans are even smarter than Jews, but Israelis are

much braver, the guns and bullets of our country are much better, but Jews pull the trigger without being afraid of failure – with ‘chutzpah’, which is the willingness to challenge the Establishment . ”

Chutzpa in Korean: informality’, ‘mashing up’, ‘risk-taking’, ‘tenacity’ and ‘learning from failure

Israel and Korea

As some have observed, creativity in business in Korea is sometimes lacking. People follow the herd, whether it’s online garment retail, or the fried chicken trade, we tend to stampede into new pastures, usually over-grazing them.

In Korea it’s also normal for people to start their own businesses with their own money, which has definite benefits in terms of independence, but which is offset by an intense fear of failure and the damage to your reputation that entails. Korean society is quite unforgiving in this respect. Social attitudes remain fundamental to the question.

Israel and Korea

The vice -minister spoke admiringly of Israel’s reaction to its geopolitical situation, a strategy he called “creative defense.” Israel is completely surrounded by the enemy and both men and women have the duty of national service, and Israel has been able to translate this obligation into a world-beating defense industry”, he explained, going to relate how the Talpiot program, which enables elite students to combine their studies with specialized military service, has allowed Israeli companies to achieve a dominant position in the NASDAQ listing. Now, the Korean Defense Ministry has authored a Memorandum of Understanding with numerous Korean businesses, to grow a creative economy in tandem with military service geared towards R&D in science and engineering.

Evidence: Korean entrepreneur

In my limited experience of starting up a start-up, I’ve received all kinds of help and advice, which people are invariably kind enough to offer. Israelis are helpful, almost to a fault, and this is clearly a major factor in the success of the start-up culture here. Mentoring, and mutually beneficial co-operation between companies large and small, is also common here, whereas in Korea, it’s virtually non-existent. Business ideas in Korea are frequently unrealized, whereas in Israel it’s practically a way of life.

Korea and Israel

But although Israeli firms are selling their companies and ideas to big foreign companies for big foreign money, they aren’t yet creating their own big global brands. Perhaps that’s one area we’ll be able to advise you on!