"The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man". George Bernard Shaw
Entrepreneurs exist everywhere, but several regions, notably Silicon Valley and Israel, are held up as examples for the rest of us to learn from. I know Silicon Valley reasonably well from more than 20 years of collaborating with the natives, together with IMD’s Executive MBA classes and other programs, but Israel is new to me. Yes, of course I’d read “Start Up Nation” many years ago, and reread it again recently, but the 10 days I recently spent there, as part of the IMD EMBA Discovery Expedition, led by the incomparable Prof. Shlomo Ben-Hur, confirmed many of the things I’d assumed, and gave me new insights.
Rather than simply describing the two places, which many have already done, and done better than I could from my brief analysis, I’m taking the perspective of a Swiss high-tech startup, an early-stage venture looking at the two regions and trying to understand the similarities and differences, and whether they should move their HQ, or part of their team, to one or the other.
One caveat: We’re comparing a country, Israel, to a tiny part of the United States. It might be more reasonable to look at this as a comparison between Tel Aviv and Palo Alto.
Money: There is plenty of Venture Capital and angel money for startups in both regions, though in Israel it appears that the weighting is towards the early stages. Several people commented that when you get to your B or C round, it’s then time to go to California. “We’re good at startups, not at scaleups,” is a common refrain in Israel. Another difference is that the majority of Silicon Valley angel and VC money is domestic, coming from US players, while in Israel the majority comes from outside the country, predominately American and Chinese investors.
Mobility & Non-Competes: In both regions the law prohibits the use of non-compete clauses in employment contracts. You can quit the company you’re working for, walk down the street and start working for a competitor tomorrow. As one executive in Israel said, “If one of my engineers thinks that I’m going to put anything into his contract that could prohibit him from learning and taking on new challenges, whether with us or a competitor, he’d never consider working for us”. Obviously if you take any proprietary information with you, and exploit it in your new role, you’ll find yourself in court in both places, but more importantly, “the network” will know what you’re capable of, and it’s likely your career is over in both places.
The Network: Shlomo and others referred to “two-degrees of separation” in Israel, rather than the 6 steps that is commonly assumed around the world (the so-called “small world principle”), and the same applies in Silicon Valley. The strong networks are one of the factors in creating trust, which enables the speed of decision-making and risk taking in both places.
But I did note some differences. In Israel, thanks to the compulsory military service, and the fact that most people will go to one of six top Israeli universities, the bonds appear to be stronger and deeper. At eighteen years of age, boys and girls are plunged into rigorous training, big responsibilities and often high risks, which can’t but help create relationships of trust. On the other hand, it appears that the network can be a bit excessively close and resistant to outside influence, as there is relatively little influx of people from outside Israel into the network. In Silicon Valley, everyone comes from everywhere, India, China, New York, Paris, Russia, etc, and there is a constant flow of arrivals and departures. For those who stay, the network is constantly enriched in the Valley.
Top universities: Both regions have the privilege of great universities that are woven into the fabric of their ecosystems. I’m often asked if Stanford caused Silicon Valley, or if Silicon Valley shaped Stanford. Does it matter? The fact is that they benefit from each other, as does the University of California-Berkeley, UCSF, Santa Clara University, and San Jose State. In Israel you have the Hebrew University of Jerusalem, Technion, the Weizmann Institute of Science, Ben Gurion University of the Negev and Tel Aviv University. Both regions profit from the research done in these top-class schools, as well as the graduates who then stay, populate and lead the multinationals and startups. These schools also help to create and nurture the networks. One difference though is in the size of engineering graduates that they produce each year as raw material for their respective economies: The bay area will graduate about 18,000 engineers and scientists each year while Israel produces about 6,000 annually.
High cost: The cost of living in both places is high. Perhaps for a Swiss startup this will not be shocking, given the high prices in Switzerland, but anyone going to either place will have to contend with the high cost of housing, the requisite high salaries, and then the difficulty in finding and retaining great talent.
Talent: Both places have some of the best educated and most experienced technologists and entrepreneurs in the world, and both can’t find enough of that talent for their growing companies. And both have significant minorities that are under-represented in the tech workforce (African-Americans and Hispanics in the Valley, and Ultra-Orthodox Jews, women and Israeli Arabs in Israel). Israel now has the High-Tech Work Visa (HIT), which allows foreign, non-Jewish, experts to work in Israel for up to five years, and Silicon Valley relies on H1-B visas (the Israeli Innovation Authority estimates that there are 15,000 engineers needed now). It appears that Silicon Valley has an advantage in that foreign immigrants find it easier to integrate in California, and they know that if all goes well, they could eventually stay forever.
Failure is accepted: Not to be exaggerated, but people in both places see failure as part of the process, and you’re not socially stigmatized if your idea or your startup doesn’t work out. When you’re trying to create something from nothing, to do something that others haven’t succeeded in, you are experimenting, and most experiments are not successes.
Clear laws: Not to be underestimated, but in both places the law, how the stock market functions, where the government supports entrepreneurs (or not), etc., is fairly clear and applicable to everyone.
Anxiety: Perhaps still traumatized by the Holocaust and wondering if or when another war for survival will occur, anxiety is part of the Israeli mentality. Though different, the expectation of San Francisco bay area residents that “the big one” is going to happen (i.e. the next big earthquake), also supports this notion of living for today – carpe diem – and not worrying too much about tomorrow. Grab what you can while you can.
Why? Why? Why?: Israelis seem to feel that everything should be questioned. “Why?” is probably the most important word to understand in Hebrew. But, in a sense, this is the same in the Valley, though it might be framed differently: “I don’t necessarily agree with that decision, but show me the data and I’ll be OK”.