Welcome to the Newsletter Series. Ivy and I co-write a periodic newsletter. This piece is adapted from an edition of it, dated when the newsletter came out.
Israel has made the greatest impression on us since China so this newsletter we’ll look at two areas that surprised us there.
Tech In Israel
What we learned in China is that the larger the population, the greater the opportunity. All the reports in the Wechat groups Ivy is part of point toward country populations of over 100 million, ideally young, as points of high growth opportunity for startups. More customers, more problems, more competition for the best product, more money, more data.
This is how we designed our trip to the countries that were highly populated startup hubs like Ho Chi Minh, Jakarta, Cairo, etc. But Israel has a population of just over 8M and yet has produced unicorns like Fiverr, Waze, Viber, Wix, Payoneer, Compass, Lemonade, to name a few we’ve heard of.
So we asked everyone we met why Israel manages to punch above their weight, producing some of the world’s top tech talent, and way more unicorns than proportionate to the available talent (population).
1. “We’re surrounded by our enemies”
We heard this from literally everyone - in those exact words, without any probing. Israelis to their bone believe that they will be destroyed as a people if they do not stand up for themselves. They think that the whole country is like a startup, new and needing to move fast, or else being surrounded by Arab countries on all sides, they will perish.
This is a very real problem with war only 40 years ago, terrorist attacks the last few years, and the ongoing Palestinian conflict. They really had to build a machine that shoots down missiles before the enemies could build better missiles.
This kind of mentality results in fast progression in all areas, especially in defense technology. In fact, 30% of investments are in cybersecurity.
2. The Army
Every Jewish Israeli is required to serve in the military at 18, both men and women. But the army isn’t what we expected it to be. Only 10-15% are combat soldiers in the air force, navy, and foot soldiers. Those are typically from the roughest neighborhoods and the most Zionist. Everyone else can be anything from cooks, truck drivers, HR recruitment, to special intelligence.
In many roles, these kids are exposed to state of the art technology at a very young age. Many learn engineering, leadership, management, and how to function in high pressure environments. They are not treated as children and are expected to take responsibility in their roles. By the time they leave the army, they already have 3 years of work experience on top national projects, giving them a better idea of what they want to study and do afterwards. This is a leading factor in how 9% of the population works in high tech yet high tech accounts for 43% of Israel’s exports.
Your role in the army is determined by your preferences combined with a score of whether you meet the bar for them. The score is based on your grades, a series of interviews, and many other factors including socioeconomic class and whether your parents are divorced (negative points). This means kids usually end up in the same group as others of the same backgrounds, limiting socioeconomic mobility. Current policies are changing this system.
3. It’s a B2B and Global Startup Nation
When in China, we noticed that not many B2B startups had taken off. We decided that first comes B2C companies to serve a large domestic market, then comes the B2B companies in data dashboards, payments, etc to support those B2C companies. B2B unicorns exist in more sophisticated markets.
This was not the case in Israel. Of $6 billion of capital raised in Israel in 2018, $5 billion went to B2B startups.
While chatting with a supply chain startup founder and the head of Startup Grind Tel Aviv, both emphasized on how Israeli founders saw themselves as partners to American and European companies. They were keen to source problems to solve in other places, and provide solutions to other companies. Remember, 43% of exports is in high tech - Israelis sell technology.
There are also Jewish people everywhere in the world, especially in the West. This is a source of network, capital, and business for Israeli companies.
4. Work culture
The working culture here is super straight forward. I thought Americans were much more blunt already compared to Asians but Israelis really don’t mind confrontation and disagreement. Everyone we met were not afraid to share their raw opinion on anything we asked them. It was also perfectly fine if we didn’t agree.
This must work well in startups as compared to the Japanese value of ambiguity.
One cannot go to Israel without also learning more about the Israeli/Palestinian conflict, which we did through many conversations with local Israelis as well as a visit to West Bank. We came in with the basic knowledge that the two groups both claim the land as theirs. We expected people we met to think their side is completely right, but it turned out to not be so black and white.
Israelis we spoke to fully recognized the complicated history of the land, and how they displaced the Palestinians. But many of them have also lived there for generations now, it feels as much like their own home at this point. They also pointed to how Israel is helping to make living conditions better for Palestinians. For example, 90% of the electricity in West Bank and Gaza is powered by Israel. At one point, an attack on Israel by Gaza accidentally knocked out the transformer and their own electricity went out. Israel still went and repaired it for them.
On the other hand, Palestinians we spoke to understand that the Jewish people have had a rough history and need somewhere safe to live. They’re even happy to support Israelis continuing to live on the land, coexisting with them. They just can’t accept any agreement where they live oppressed by Israel and with a Zionist state where Jews must be the majority, which is what they deem the current situation to be. For example, Palestine is not allowed to have its own currency or airports. All imports must go through Israeli ports, where a steep tax is added on top. Even the aquifers on their own land are controlled by Israel. They’re only give access to 15-20% of the water, with Israel using the rest. Our guide pointed out that every house you see in Palestine has a water tank on the roof for backup because of this artificial scarcity. We confirmed the water usage statistic but couldn’t confirm if that was the reason for the water tanks, but indeed every house had one.
Starbucks hasn’t penetrated Ramallah, the biggest city in Palestine, but many Stars & Bucks have…
During a meal we shared with an Israeli couple, the wife commented on how a friend of theirs is an Israeli citizen that grew up in Israel but has Palestinian roots and identifies as Palestinian. She found it ironic that this person would identify as Palestinian yet would not want to live in the conditions present there. At the time we agreed.
After our visit to West Bank, we became much more sympathetic to what’s happening in Palestine and could understand their friend’s viewpoint. In later conversations we found our friend Kazem felt the same way. He identifies as Palestinian Jordanian but is a Canadian who lives in the US – his grandparents were originally from Jaffa and Jerusalem and were forced to flee to Jordan as refugees when they were children. We discussed how although time has washed over this piece of history, and he feels little attachment to where his grandparents were born, he identifies as Palestinian to support the humanitarian issue on how Palestinians were and are still being treated.
Unfortunately, ever since the wall got erected dividing the two lands, tensions have gotten worse. Both sides no longer see the other and can’t empathize as easily with real people there anymore. Most people just see what’s on the news which demonizes the other side. The only Israelis that go over are the soldiers, who do not get treated well because of the violence members of their group have committed to Palestinians, and that only worsens their impressions of Palestinians, creating a feedback loop. It’s kind of like a glimpse of what could come from a border wall being built in another part of the world to demonize immigrants… Hopefully history doesn’t repeat itself.
This was an abbreviation of the culture and history we learned about Israel/Palestine. We wanted to keep it short so you didn’t fall asleep - thanks for making it until the end if you did! For more history lessons, check out this great Learning Night talk by Jessie, some Israel-related Netflix Series (Red Sea Diving Resort, The Spy, Operation Finale), or read up on the below periods in Israel’s history: