Indian Startups Need Lessons from Their Israeli Counterparts

Quite a lot has already been written about the fact that Israel, a small country with slightly over 8 million people, has earned the tag of being a startup nation and attracts more venture capital per person than any other country in the world.

Israel’s expanded technology sector is a result of an improved quality of education and development of modern digital infrastructure throughout the country. It boasts one of the highest concentrations of startups in the world and the Silicon Valley depends on Israeli innovation.

Some of the best innovations in biotech, environmental technology, fraud detection and cyber security come from Israeli companies. It not only has the largest number of firms listed on NASDAQ outside the US but has also received the highest level of venture capital as share of GDP.

Within 68 years of its creation, Israel has evolved from a agricultural economy to become a global tech hub. Technology is not only the main growth engine of the their economy but is also the magnet which attracts foreign investors and leading multinational companies.

They aim to solve real issues to improve and help the world with primary focus on B2B, rather than consumer technologies. There is much to be learned from Israel’s successful startups. The idea of being disruptive, and focus on solving real problems is what drives them ahead of their competitors. One aspect which I find very unique is that money is secondary to Israeli startups. With main focus on what their work is, Israeli companies concentrate on achieving something great.

Military and Entrepreneurship

Military service cultivates a seriousness of discipline, purpose and a cultural willingness to accept new risks. Israel’s investments in defense technology and commercial products spun off from defense technology have encouraged – and even required for – ongoing innovation.

IDF’s Unit 8200 is a special unit with focus on signal intelligence which operates like a high-tech firm. Some of the best and brightest are routed to this elite cybersecurity group and most of them start their own company after their service ends. With a strong alumni network, recruits at unit 8200 develop critical startup skills and required experience even before they start their first company. The commercial applications for some of the technologies developed in the unit are big data, wireless applications and business analytics. They also have developed sophisticated technology systems, including predictive algorithms and data-mining tools.

It shouldn’t come as a surprise that some of the top Israeli companies such as CheckPoint, Nice, Waze, Trusteer, Imperva and Wix all have their roots in this IDF unit.

Highly Educated Immigrants

Israel is a multicultural nation and this allows for creativity and innovation, by encouraging the free flow of ideas and collaboration among different individuals with very different perspectives.

When the Soviet Union began to collapse, American immigration policy averted a large number of Russian Jews from entering into the United States. With all doors closed, they chose Israel. Between 1990 and 1997, more than 710,000 Soviet immigrants landed in the country and directly boosted the working age population. Around 60 per cent of the new immigrants were armed with a college degree which was much greater compared to the native populace.

Though immigration is being perceived as a threat in the current scenario, with respect to work it means that there are more people out there to contribute, buy houses, and pay taxes. It’s even better for growth if the immigrants are qualified and are skilled engineers, managers, and college professors. The Russian influx gave Israel an access to educated and bright minds.

Government Intervention

With solid investments in military research and a well-educated population, Israel possessed some of the key ingredients for materializing a hi-tech boom by the early 1990s. But one thing which was missing were investors. The venture capital scene in Israel was non-existent at that time and the economy was dominated by state-backed behemoths.

The Yozma program changed the entire startup ecosystem in the country. This $100 million state-owned venture capital fund program convinced foreign venture capitalists to create funds in Israel by lowering taxes and a guarantee to match part of the money they raised from investors. By the end of the 90s it created an independent venture capital market that was backing hundreds of startups a year. With the market up and running, the Yozma program was privatized in 1998.

Right Business Model

Solving a problem lies at the core of the Israeli tech startups. Outbrain, one of the world’s most successful content recommendation engine, is one such example which highlights the problem solving nature of these active startups.

In the words of Ori Lahav and Yaron Galai, founders of Outbrain, the company has solved a complex problem for two business communities. For newspapers facing tough competition from online channels, it helped them develop a significant and sustainable new revenue source in their hard times while for marketers, it provided them with an opportunity to tell their brand story on the internet in a more effective way. By addressing this problem, Outbrain jumped ahead of the curve by coming up with a new business model that solved problems for all parties involved.

Similarly, Check Point foresaw the need for protecting computer networks, and introduced firewall for enterprises before most people were even online. America’s Cisco hadn’t even entered the market until 1994. On the innovation front, it came out with a GUI interface when others were still relying on command line controls.

Sound Investment

When Google bought Waze for $1 billion in 2013, it was a milestone event for the country and billion-dollar companies are now all over the place. The Chinese are heavily investing in the Israeli startups followed by the Japanese. Many of these investments have been direct and Chinese behemoths like Baidu, Alibaba, Tencent, RenRen and others are looking to the Israeli’s with arms wide open.

Horizon Ventures fund, owned by famous Chinese angel investor Li Ka Shing, has invested in 30+ Israeli companies. Horizon was also an early investor in Waze.

This pure innovation at play is the soul of the entire Israeli startup ecosystem and everyone wants a slice of this action.

Recently, I got a chance to attend an event related to Indian tech startups where many were asking questions after the speaker sessions. Many of the business ideas discussed there were replicative and there was nothing unique about them. It was herd mentality at display in full public view. This Indian summer has been hard on the Indian startups and many hyper-funded businesses have either downed their shutters, moved to a different business model or have rolled up their business in many cities.

So, innovation alone can be the key to survival in this competitive market and not deep discounted business models as practiced by Indian startups.

To conclude…

We use Israeli technology every day. This applies to Asia, Europe, the Middle East, Africa, and the Americas. USB Flash drive is one example and it was developed in 1999 by M-Systems, an Israeli startup.

Innovation, R&D and prosperity is a global trend and Israel has a very small local market which has actually proved to be an advantage for the startups there. Most of the startups target large external markets in Europe, the United States, and East Asia. They strive hard to innovate to reach out to those marketplaces as they can’t survive only by tapping local markets. This ‘think global, go global’ attitude from the very beginning is what makes them unique.