Israelism: Learning and un-learning from the Israeli entrepreneurship experience

The State of Israel is a state of entrepreneurship. That is a fact, and one to be proud of. Israel has about 8 million residents, about 0.1% of the world population – yet according to various reports, it has more startups per capita than any other country. In September 2015, Jeff Bussgang and Omri Stern published an article in the Harvard Business Review, titled “How Israeli Startups Can Scale”. The two describe successes marked by Israeli entrepreneurship but conclude that the bad news is that Israelis have difficulty cultivating and developing companies. Teva is the only one to that made the list of the world’s 500 largest companies in terms of market cap, and one could count on the fingers of one hand the number of Israeli companies that became “unicorns” – companies achieving a valuation of a billion dollars or more.

Studying Israeli management and entrepreneurship over decades served as a basis for my recent book “Israelism: Israel’s Organizational Culture on the Operating Table” (Ilamor/Afik Publishing House, 2017). “Isralism” (Amazon) is a journey into the intricacies of Israeli national organizational culture and its effect on Israeli management. It is what created a miracle in the desert. However, it also refuses to shed its childhood diseases and while maturing, new illnesses were added. “Israelism” puts the State of Israel on the operating table, and, with the help of professional tools that companies and organizations use to spur growth, tries to understand how the decisions that shaped the organization called the “State of Israel” were reached.

The conclusion of this effort is that, we’re good at entrepreneurship, innovation, and invention, but relatively poor at developing, growing and managing large companies that succeed over time. Why is that? One answer is that growth requires management together with entrepreneurship and innovation. But, as described in Israelism, the organizational culture that accompanies the Jewish people and the Israeli ethos sanctify improvisation, cleverness and last-minute solutions.

Thus the tremendous mission of bringing Europe’s Jews to Israel after World War II by a host of mechanisms under the very nose of Britain, which then controlled the land, was achieved; building the State of Israel from its establishment in 1948 was enabled thanks to tremendous capacities of ingenuity and daring; and the early Zionist settlement strategy dubbed “Tower and Stockade” (Homa U’Migdal) and the ethos of the few against the many. The fact that we live in an environment bristling with threats and surprises led us to believe that strategic planning, operations research and thinking before acting are mere red tape and a waste of time.

One might think that when mortal danger looms, this haphazard culture vanishes, or that the Holy of Holies – the Israel Defense Forces and defense establishment – would conduct itself otherwise. But there is no great difference between the inquiry reports issued over the years: the Agranat Commission report in 1974 about the Yom Kippur War, the Kahan Commission report in 1983 on the events at Sabra and Shatila the previous year, the Or Commission inquiry into Temple Mount riots which led to the October 2000 incidents, the Winograd Commission report published in 2008 on the Second Lebanon War two years earlier, and the protracted recent argument over the IDF’s preparedness to contend with the Hamas’ “attack tunnels” from the Gaza Strip into Israeli territory.

All the reports reiterate claims about a culture of failing to plan and prepare, and relying on other key characteristics: improvisation, the courage of the commanders, and solutions cobbled together “in the field.”

In a series of studies done by Antonio Davila of Navarre University and George Foster of Stanford for the Stanford Center for Entrepreneurial Studies, they determined that startup companies do better when, at early stages of their development, they manage to establish what the researchers call “management systems”: systems whose existence at the start of a company’s road can help it overcome the “entrepreneurial crisis” when they grow to have between 50 to 100 employees.

That is the stage when a company needs to transition from management concepts based on personal acquaintance with the employees to professional management concepts, including planning and managing strategy, collaborations, economic resources, products, marketing, and sales. In their 2010 paper, titled “Building Sustainable High Growth Startup Companies: Management Systems as an Accelerator”, they wrote that after studying 78 startups in Silicon Valley, they found that in contrast to the conventional wisdom that structured management systems kill the entrepreneurial spirit, the opposite was true: they spurred rapid scaling and growth by human capital.

It isn’t always easy to convince fledgling Israeli entrepreneurs to invest in building a growth-oriented organizational culture in that spirit. This requires another factoid from Davila and Foster’s paper. They aver that only 30% of the entrepreneurs who instituted structured management systems will be thrown out by investors compared with 55% if they neglect to adopt such systems. And if all else fails in the dialog with the Israeli entrepreneur, one can always ask if he wouldn’t like to reduce the risk of being ousted as CEO by a professional manager after an investment in the company, or its acquisition.

Another question that begs asking in the context of Israeli entrepreneurs is whether the army is the best context to manage entrepreneurship.

Most Israeli managers served as commanders in the army. In Israeli culture, a military record is hugely influential on the young entrepreneur and on the tools with which he embarks on a business career. There is hardly a senior executive in Israel whose army background doesn’t include service in the elite commando forces, Air Force or intelligence. These facts matter more than whether somebody graduated from the prestigious Technion University or MIT. Everybody knows that Gil Shwed, founder of Check Point, served in the elite 8200 intelligence unit. Few know where he studied or what degrees he earned.

Soldiers and commanders learn fast to cope with heavy responsibility, content that requires accuracy and discipline, and maturity. In addition, and this certainly applies in the combat units, the young Israeli learns to improvise, make do, get organized and extemporize within complex, arbitrary systems. From many perspectives, service in these challenging units trains and hones the Israeli commander and the Israeli entrepreneur. But does it train him and give him the tools he needs to succeed globally?

By nature, the army engages in force in various forms. Power is the product, the service, and the language. The role of the soldier is to attack and to win. The army does not educate its soldiers to aspire to an outcome of win-win with the counterparty, nor does it teach collaborations, mergers or acquisitions.

The army does not educate to empathy, not towards the counterparty nor towards the weakest members of its own organization. A weak member who does not overcome difficulties is “removed”. In the army, the weak of body or mind are categorized as “low profile”. The teams in combat or on the base are quite homogenous. It is a hierarchical organization, with no “management,” only “command.” Even places where open-mindedness is encouraged, the army does not encourage debate about its very existence, its strategy, its actions, or the need for them.

The army also remains a chauvinistic system, although a wider range of service opportunities have become available to female soldiers in recent years.

Ultimately the Israeli army remains a man’s organization. It is a hothouse that teaches us to look at reality through a military lens. Through that lens, we see forces, enemies, targets, we see strong and the weak, rank and file and commanders. An entrepreneur hailing from the 8200 elite intelligence unit is a product of that environment, and to succeed, additional management sources will be necessary.

In their Harvard Business Review piece, Bussgang and Stern studied 112 successful Israeli companies and found a correlation to the identity of the investors. Companies with exclusively Israeli investors averaged 102 employees and sales of $32 million a year. Companies with a mix of Israeli and non-Israeli investors averaged 194 employees and sales of $67 million, and companies with exclusively non-Israeli investors had an average of 254 employees and sales of $116 million. Their advice to the Israeli entrepreneur is to involve non-Israeli investors in their process in order to increase the chances of global success.

The requisite conclusion is clear. The combination of the Israeli entrepreneurial spirit and the Israeli hothouse is not enough to deliver the goods and achieve scaling in the long haul.

Do Israelis know how to listen?

To embrace the two insights described above – the importance of organizational culture based on management and processes, and the necessity of involving non-Israeli investors for the sake of growth, the first one has to be able to listen. A key element to the ability of a person or enterprise to adopt ideas or processes that didn’t come naturally, or take them beyond their comfort zone, depends on the ability to listen and admit to shortcomings. As children, Jews in the Israeli school system grew up on the phrases “Chosen People” and “People of the Book”.

When a Jew is awarded a Nobel prize, when an Israeli-born actress stars in a movie, and of course when we look at the extent of Israeli entrepreneurship, we see them all as proof of that same concept of our superiority. When we lose, and that’s been happening more lately, we usually do not investigate ourselves.

Our many-sided sense of superiority, from ownership of the one God to our militarism, seeps through to our relations with the other, in both interpersonal and the business spheres. We try to teach the other with whom we come into contact in business to be Israeli, to talk straight. We sneer at other cultures for queueing, for adhering to work plans, and for not thinking outside the box.

But management at the global level requires empathy and respect for the other’s viewpoint and advantages, along with recognition of the other’s shortcomings. This is not something at which we excel.

Davila and Foster addressed the issue of heeding outside counsel. They checked a sample of 194 companies backed by venture capital and that sought management expertise on the outside, against 344 companies that did not receive venture capital. After 40 months of activity, the supported companies had grown at double the pace.

In his 1985 book “Innovation and Entrepreneurship”, the management guru Peter Drucker analyzed entrepreneurship as a behavior rather than a personality trait. The foundation of entrepreneurship lies in concept and theory rather than in intuition, he wrote – structured implementation of concepts.

The Israeli entrepreneurial organizational culture can claim a wealth of advantages, of which one could perhaps use some refinement: the perception that is the life-breath of entrepreneurs, that anything is possible, the sky is the limit and there are no rules. But constrained by reality and the law, Israeli entrepreneurship has the potential to evolve and nurture growth. Humility is the start of the process, after which Israeli entrepreneurs may continue to sanctify creativity, but need to reject their ingrained tendency to “wing it”. They may believe in their own strengths, but need to acknowledge the strengths of others, particularly in everything to do with strategy, long-term vision, and management in the global environment. Examples of such combinations can be seen in Western entrepreneurial environments, where Israelis can gain overseas experience in cities such as Berlin, or places such as Silicon Valley. Many entrepreneurs, and investors too, note the value of the intercultural enrichment.

Author Dr. Etay Shilony has a Ph.D. in clinical psychology from Boston University. He held faculty appointments at Boston University and Harvard Medical School.

He is the Founder and CEO of S2R – Strategy2Results. S2R specializes in strategic, organizational and management consultations. Dr. Shilony has over 20 years of consulting experience as he served as a consultant to prominent Israeli organizations from a wide variety of fields.

These include holding companies: Apax partners, Elbit Imaging, Silverboim Holdings; Financial Services: Israel Discount Bank, Psagot, Midroog, Clal Insurance, Menorah Insurance, Visa CAL; Venture Capital Companies: Pitango, Carmel Ventures; Tellecom companies: Cellcom, Partner, Taya Media Group; Information technology companies: Microsoft, Matrix, Verifone, Magic; Service and Industrial companies: Tnuva, Champion, Colomobil; Start Up companies: Webpals, Desti, YCD.

The consultations evolve around major strategic and organizational changes, M&A and PMI as well as assisting with Global management. Under this context, Dr. Shilony consulted to Israeli companies, which are active abroad. Dr. Shilony’s experience in management dates back to the late 1980’s and early 1990’s, when he served as General Director to a chain of clinics in Boston.

Over the past 17 years, he is an adjunct lecturer at the Arison School of Business at the Interdisciplinary Center of Herzliya, teaching courses in the MBA and MA programs. He also writes a column in the Israeli leading business magazine: TheMarker. “Israelism” is his fourth book.