Israel is going through a major change in business model. There are a few big changes, and one of them is the actual exporting of the entrepreneurial ecosystem. Ecosystem means (from biology, in general use) “a complex network or interconnected system” – is a unique system, and as the biologists describe “Productivity and Nutrient Cycle” of an ecosystem:
Every ecosystem is unique, yet similar ecosystems share fundamental characteristics, including climate, productivity, total mass of living organisms, and numbers of species. For example, tropical rain forests have higher species diversity than temperate forests.
Are Israelis more adventurous or arrogant when it comes to business models? Why would we want to export something so innately connected to culture and habits? How can one bundle culture, business and technology attributes into a box and send it anywhere on earth? Well, one can’t. That is not what Israelis are doing. Israelis are learning from success and failures of others who tried to encapsulate a cultural trait or a business model. American’s failed partially in the 1970s and 80s when trying to copy Japanese manufacturing quality “ecosystems”. American car companies tried to emulate many Japanese “ecosystem” attributes. But to date, no American car manufacturer’s quality can compete with a car manufactured in Japan. Yet, most cars in the US today are manufactured to much higher quality standards and the products show this effort. On the other hand, American companies from McDonalds to Harley Davidson have “exported” essentially products wrapped with American culture. For the most part this has worked out. No Spanish Harley rider will be mistaken to a lost Hell’s Angel from Modesto California. But the spirit of the open road is today enjoyed by many fans.
Successful Entrepreneurship Culture: Finance, Innovation, Risk and Luck
Israel’s start-up ecosystem is an ever changing and growing connection of elements. While Israel has it’s own mix of attributes contributing to the “start-up nation” label, there are many key elements which are easily identifiable. These elements are what makes the export of essentially and ecosystem possible. Some are borrowed and adapted from other countries. Finance in Israel started from individual investors (so called angel investors) and American venture capital firms. Israeli entrepreneurs did not have local investment sources in the 1970s and 80s. Some entrepreneurs, realizing this missing element, came from the US with financial backing. Some went to the US to obtain initial financing. Israel’s government, especially the office of the chief scientist, granted seed funding to entrepreneurs with ground breaking innovative ideas. Finance for start-up is a process which builds a business plan (most importantly a business model) and starts with a basic market and competitive analysis. Sometimes initial (seed or first round) financing is used to develop a prototype product and initial sales or customer proof of concept testing.
Innovation is not hard to learn (therefore package and export). Scientists, retailers, restaurant chefs and even industrial designers learn to innovate. The Israeli take is part experimentation (trial and error), part extension and small improvement (integration, feature enhancement) and part adaptation (take from one sector and adapt it to another). From entrepreneurs and investors coming to Israel to learn about the start-up ecosystem, innovation seem to be the easiest to export. In countries where innovation has been dormant for a long time, importing people with new ideas is an option (UK has been doing this for years, drawing on a vast pool of European and Asian technical experts).
Risk and evaluating risk is a tricky element. Some attributes of risk are innately cultural. Yet some are dependent on a process of evaluating, researching, testing and essentially validating a product idea. This process is heavily borrowed by years of experience in the American venture capital and innovation inside corporate development centers (AT&T, IBM, Xerox and 3M were well known). Validating the viability of a product, market need and readiness, competitive position and even financial cost estimates are part of assessing risk. This element in the package of building an entrepreneurial ecosystem is vital to the success of adapting the Israeli process. Some business training programs (both academic and practical) teach a few courses in entrepreneurship. Yet the field has not become a true sub-specialty in traditional business training programs. While entrepreneurship is an important factor in today’s growth force, traditional technology firms still continue to work in true-and-tried methods.
Luck is something that seems elusive. Not exactly something to “put in a box and ship on the next El Al flight”. Yet, as Seneca’s said: “Luck is what happens when preparation meets opportunity.” In entrepreneurial terms this means getting ready for something. A change in market behavior, a change in consumer preference, a change in existing technology or competitive forces. This is something which Israelis can teach well. There are plenty of examples of start-ups which were not ready for the next change. There are plenty of examples of changes in mid-stream, and plenty of opportunities hidden from sight which needs exploring. Israel’s isolation and connection in business and culture is a great advantage. Israel culturally is more influenced by European countries than American and Asian. Yet Israelis are just as attracted to spend a vacation in Thailand than in Paris or New York. More on influence and preparation for “luck” in future posts.