Israel’s 75th Independence Day, celebrated this year, is an opportunity to reflect on the uniqueness of its tech ecosystem.
Four elements make an effective startup ecosystem. Israel has five, which make the country the best place in the world to build tech companies and as a result, it has the highest number of startups per capita in the world, is a leader in “most attractive ecosystems for startups,” and in the number of acquisitions by global tech leaders.
The four elements are: entrepreneurs; investors; engineers, and experience. The fifth is an Israeli-specific foundation, a derivative of mandatory military service.
Israel has a proportionally greater number of entrepreneurs than any other country in the world, and one major reason for this is a low fear of failure.
At the end of the day, people will choose the path of entrepreneurship when their passion exceeds the sum of fear of failure plus the alternative cost. Therefore, lowering the fear of failure is the key to creating more startups.
How is it done? By regulation — for example, no penalties for failures, lower taxation on success, etc. — and media coverage portraying entrepreneurs as heroes will assist in achieving this goal.
Ecosystem investments should be considered extra lucrative by investors, thanks to increasing return and decreasing risk.
Increasing the returns of the ecosystem can be achieved through the involvement of governmental funds. For example, matching programs for foreign investments, and reducing risk by having system stability, a tax transparent system (i.e. no taxation of the investors in the ecosystem), and a stable democracy.
Simply have more engineers. Governments can easily increase the number of engineers by providing work visas to non-locals arriving to work.
The U.S. is a pretty effective example and Canada is even better.
It is a matter of decision. The other alternative is simple, encouragement via taxation, say offering a 10-year bracket discount for engineers who complete their studies. In the end, those will be paying more cumulative taxes than others. So, the investment will return itself.
A very successful CEO was once asked, “How do you become so successful?” to which he answered, “Two words: right decisions,” which was immediately followed by the next question: “But how do you know how to make the right decisions?” He said, “One word: experience,” which led to the last question. “And how do you gain experience?” To which he replied, “Two words: wrong decisions.”
Entrepreneurial experience is critical to making fewer mistakes, which increase the likelihood of success.
This is also the reason many entrepreneurs and businesspeople write books about their careers and generally about the business world. This was my motivation writing my book, “Fall in Love with the Problem, not the Solution – A Handbook for Entrepreneurs,” sharing my experience with readers and increasing their chances of being successful.
The new generations’ benefit from the previous ones’ experiences. Waze, which I helped found, was the biggest exit in Israel for a consumer app. Since then, many other Israeli companies were sold for more than a billion dollars, and before the 2022 crisis, there were about 70 unicorns in Israel. Their founders pay it forward to the ecosystem helping their peers and the less experienced entrepreneurs.
Mandatory Military Service
The X-factor, the uniqueness of the Israeli ecosystem is mandatory military service.
At age 18, all Israelis (men and women) are recruited for mandatory service of two to three years. As a consequence, they develop a set of behaviors, values, and skills that will later serve them as entrepreneurs, such as the never-give-up attitude, working in teams, trusting your teammates, leadership, and responsibility.
These skills simply make people better entrepreneurs, and probably better professionals later in their lives. The most significant part of military service is that you join at a very young age and when you complete it, you are still very young. This enables people to take all the experience they have gained and use it in their personal and professional lives.
For the last thre decades or so, Israel has cultivated generations of entrepreneurs based on these foundations, educating them to never give up, not to be afraid of failure, providing tax and other incentives, building special funds to support tech startups, and more, and this is what made Israel the most amazing place to build a startup.
For its 75th anniversary, I wish conditions and governmental state of mind will allow it to continue doing that for many more decades to come.
The article was previously published in Forbes.