Shai Agassi is us: Israelis' distrust of the big
His ouster from the top of electric-car venture Better Place bespeaks of a bigger problem for Israeli corporate culture: The distrust of big organizations and the discipline they require.
Shai Agassi’s surprise ouster from Better Place looks like bad news for the near future of electric vehicles. But it also highlights a worrying phenomenon in the Israeli corporate world.
It is very hard to fault Agassi for what he did over the last five years. He made a visionary’s case for a network of electric-vehicle battery switching stations and rechargers backed by a communications network that would keep it all functioning. He raised an astounding $800 million from blue-chip investors and brought in Renault-Nissan as a partner. He coaxed tax breaks out of the government and cultivated friends on high places.
But while achieving all this, Agassi burned though his investors’ millions with little to show for it. By the time he gave up the wheel at Better Place, the company had delivered less than 500 cars in Israel and in Denmark – Better Place’s No. 2 market – less than 200. Meanwhile it burned through some $600 million in capital.
No one can ignore the fact that all-electric vehicles have been a hard sell, compared with hybrids like the Toyota Prius. Although Better Place went a long way toward overcoming the limitations of battery-powered cars by offering leased batteries and quick-change stations for switching them, consumers remain skittish. Its cars had little or no price advantage over conventional cars and there is an obvious risk in being an early adapter of a new and untried technology. Middle-class consumers say they want to save the planet, but they are not ready to do it at any great personal cost. An organic cucumber or biodegradable diapers maybe, but the family car? That’s real money and a real commitment. The Chevrolet Volt, the most successful electric vehicle in the U.S, sold a mere 16,348 vehicles in the first nine months of the year, even with the help of a tax credit of $7,500 per vehicles and other bureaucratic favors such as a California rule allowing lone Volt drivers the ability to use carpool lanes. By comparison, Toyota sold 183,346 Prius models during that period.
Even so, Better Place should have done better. Being a geographically small and isolated area, with high gasoline prices, Israel was the perfect test market for his concept. Agassi was enough of a business celebrity that he should have been able to pull of the same kind of marketing feats that Lee Iacocca did for Chrysler in the 1980s and Steve Jobs did for Apple over the last decade.
A lot of Better Place’s problems seem to have been self-inflicted: A failure to cope with the daunting logistical and marketing challenges involved in rolling out its network and selling cars. An autopsy of Agassi’s fate in TheMarker last week quotes several associates as saying their boss didn’t like to be bothered with the details.
Scut work of big management
Innovation isn’t everything it’s cracked up to be. Yes, of course, it is a critical part of post-industrial economies, but another critical part that rarely gets lauded in the financial press or by government policymakers is the ability to manage large, complicated organizations. It is kind of boring and in America and Europe the ability to do that is taken for granted. They have a traditional of managing large enterprises whether it is the Catholic Church, vast armies and giant government bureaucracies.
The modern manifestation of the giant organization is the big corporation. Israel has those, but they are not that big by global standards and they operate in the relatively protected domestic economy where efficiency and innovation created by competition is in short supply. The number of true Israeli multinationals – that is large companies that have extensive overseas operations and face global competition – is small for an economy that is so geared to exports and overseas markets and has the innovative capacity in theory to compete globally. And, of those few multinationals, a surprisingly large number of them are led by foreigners.
At Teva Pharmaceutical Industries, the CEO, Jeremy Levin, is a South African and the chairman, Phillip Frost, is an American. Israel Chemicals is managed by Stefan Borgas of Switzerland. The executive suite at Comverse, starting with CEO Charles Burick, is nearly all non-Israeli. At Amdocs, three of the top six executives are non-Israelis as are nine out of 12 directors. Now Better Place is being run by an Australian, Evan Thornley. (One exception is Makhteshim Agan Industries, which is now owned by the Chinese, but its management remains Israeli.)
It makes perfectly good sense that a multinational company has a multinational management, but the percentage of Israelis running the country’s multinationals is surprisingly small given the natural preference for a company to choose one of its own nationals to run it. And, it seems, the number is falling.
The Palestinians who took umbrage at Mitt Romney’s allegedly racist remarks about the superiority of Israeli culture to create a prosperous economy can take some succor knowing that Israelis have their own cultural limitations. Yes, we can create innovative new products and develop them quickly and efficiently. Faced with a mission, where it’s a commando unit or a software-development team, Israelis excel at unusual and seemingly contradictory combination of close teamwork and out-of-the-box thinking. But we certainly can’t market what we innovate and more critically – as the Shai Agassi affair illustrates – we have trouble managing big and complex operations whether they are multinational corporations or a vast civil service.
Indeed, Israeli culture looks askance at big hierarchical organizations and managerial controls. It dislikes the kind of people who have a talent for administering them with their rules, procedures and an adherence to standards.
In short, the qualities that created start-up nation are different from the ones that create large, sustainable business including one in high technology. To misquote Pogo, “They have axed Agassi and he is us.”
It would be nice to think that we can be a silicon version of Italy, or at least Italy as it was until a few years ago: A prosperous economy of small businesses where government and big business doesn’t function too well but not any great detriment.
But here is the problem. Start-up nation doesn’t produce many jobs and it doesn’t spread its wealth around very much. If you are an engineer or a venture capitalist, a business culture that generates hundreds of new companies every year, a few of which are quickly sold at great profit for tens and hundreds of millions of dollars, gives you a lot to celebrate. But if you’re outside that charmed circle, the opportunities for well-paid, rewarding work are severely restricted as are you ability to set up a new enterprise. Your choice is in the main a bloated and inefficient civil service or a corporate sector dominated by oligopolies. Your talents and your earning capacity are wasted.