'Build first, spend later'
It never provided juicy headlines or indulged in big acquisitions or risky investments, but Check Point is Israel's most successful technology company. On the occasion of the 15th anniversary of its listing on NASDAQ, Haaretz talks to the man behind the market miracle, CEO Gil Shwed
Tuesday, June 28 was an emotional milestone in Gil Shwed's life: It was 15 years to the day since he listed Check Point Software Technologies on the NASDAQ exchange. He was only 28 at the time. Last week he was invited along with the company's board of directors to celebrate the event at the traditional NASDAQ opening bell ceremony. "Thanks everyone that's been with us today, it's been a very long journey," he said at the ceremony, to a round of applause.
Check Point is Israel's most successful technology company: Without big acquisitions, new areas of development or risky investments, it focuses on consistently improving its core product - computer-security software - and leading the market it created almost two decades ago. Check Point keeps on growing, and quarter after quarter registers a healthy and stable profit - but above all, it pours all of its resources back into the company to develop and sustain its future growth (see box ).
"We chose to focus on the world of information security," Shwed says, "and that made us an efficient and healthy company. We always opted to grow organically. I don't want to say that our growth method is the only good one. There are other good methods, but we decided that this is what suits us: to focus, to produce value for our clients, and not to grow at any price."
Most of the other entrepreneurs active during that "vintage" year of 1993, when the company was founded, have bounced around between other endeavors. But Shwed, only 43 today, is static. In the years that have passed since he started Check Point, Shwed has gone from a young entrepreneur to a CEO who led his company to sales of $1 billion in 2010. He is among the wealthiest people in Israel, and this year Forbes magazine ranked him No. 782 in the world, with a fortune of $1.6 billion - thanks to the company's shares rocketing more than 40 percent since the beginning of the year. But you won't find him at social events clinking glasses with the captains of industry.
"It's not that I don't get invited - I simply don't go," he says. "I don't have friends from what you'd call the elites. I'm in high tech because I don't want to be part of that swamp. I'm not interested in buying a giant cellular company in a leveraged deal. What I love doing is running a technology company. I'm less interested in being an investor, because an investor succeeds because of what other people do. I want to go on doing things myself. Shlomo Kramer, one of my partners in founding Check Point, tried to be an investor, and he didn't like it either."
Would you like to do other things besides manage Check Point?
Shwed: "I have no idea. Right now I'm enjoying my work. People ask me and press me: Why don't I do other things? I have hobbies and a family. I enjoy what I do. The main reason I continue working at Check Point is that I love to create and produce."
A week before he would open the trading on the New York stock market, Shwed sits down with us for a conversation at his office on the seventh floor of the Check Point building in Tel Aviv. His dress - black T-shirt and black slacks - is reminiscent of that of another CEO, Steve Jobs.
Shwed ordinarily flees media attention, but is cordial and willing to take a trip down memory lane with us. "When I was 20 I wanted to be No. 1 in the market," he says. "In my mind's eye, I saw a company of 30 to 40 people and $3 million in sales. If we'd reached the market five years earlier, or later, we probably wouldn't be here today. We got our start by raising $250,000 from BRM, which was then a software company, before it became an investment firm," Shwed says, referring to the company owned by brothers Eli and Nir Barkat, the latter of whom is today Jerusalem's mayor. "We operated very frugally. At a certain point BRM saw that Check Point was doing well, and wanted to invest more. We didn't let them. We didn't want to be dependent on anyone before our products were selling. I refused to hire additional employees before we had money.
"Today the level of ambition among entrepreneurs is completely different. Venture capital funds compete with each other over who will give entrepreneurs more money. The amount of money that's available changes the standards of success. The entrepreneur is tempted to take more money than he needs, and thereby finds himself squandering it. I believe that you have to build first and spend later. My recommendation to entrepreneurs is to be efficient and produce value. Not squander as much as possible."
During the late 1990s, when high-tech companies were living it up, with in-house massages, gourmet food in the kitchens and pampering trips to Thailand, at Check Point only a handful of employees received company cars.
Today the company's market value is $11.6 billion - double that of Amdocs, which employs 19,000, in contrast to Check Point's staff of 2,200. This means that the value each employee contributes to the company is immense. On the other hand, Check Point is viewed among high techies as a stable but dull place to work. TheMarker/BDI list of the best companies to work for ranked Check Point 48th in 2008. A year later it was in 52nd place, and in 2010 it slipped to 55th. The 2011 survey that came out this past May saw Check Point rise to the 44th slot. Amdocs came in 17th.
'It's my baby'
Over the years Check Point has rarely provided juicy headlines. It became a leader in its field, and did not experience significant layoffs. This is not just the result of a well-honed corporate culture, but also the result of Shwed's conservative policy.
Why have you never sold Check Point?
"I wanted, and still want, Check Point to succeed and be a successful Israeli company. It's my home. It's my baby. I don't want to sell. If the CEO or the entrepreneur do not tire and make it clear that they believe in the company and are willing to continue devoting themselves to it, in all likelihood their board of directors will continue backing them. But if an entrepreneur says that he's got no strength, then the rest of the shareholders will prefer to sell. I haven't sold because I always saw Check Point as my calling. If I reach the conclusion that I am no longer contributing to Check Point, I'll go do something else.
"I would really like other major companies to arise in Israel," he adds, "but how many companies that have sales ranging from hundreds of millions of dollars to a billion dollars have been created in the world in the past decade? Not many. I estimate that there are no more than 20 software companies in the world that sell more than a billion dollars a year. Once every two years a new company comes along that reaches a billion dollars. You can't expect this to happen every year in Israel."
Don't you think there are too many small start-ups here and not enough medium-large companies?
"There are big companies here like Amdocs, Check Point and NICE Systems, there are R&D centers here of multinational companies, and there are lots of start-up companies. It's a pretty nice mix. There's a terrific entrepreneurial spirit here. I'm not sure that the balance is wrong. When there are lots of restaurants, there is always one that will turn into a McDonald's chain and one that will remain small. It's a matter of statistics ...
"In Israel there is entrepreneurship because people here take risks. I don't mean only financial risk; there's also a great emotional burden. But I do think that we'll be seeing more companies like Check Point here in the future. For example, Conduit or Mellanox."
What problems do you see in today's market?
"There are too many technology companies trying to break into the market today. It's like you have to pick a winning product from among endless possibilities. The market can't digest so many ideas. This is not typical only of Israel. The upshot is that quite a bit of money is being wasted on ideas that get shelved. When I started out, the amount of ideas and initiatives was small, so there was a better chance of succeeding. Today the chance of succeeding is lower."
Nevertheless, what in your opinion characterizes the Israeli high-tech companies that did become major players? Do they share some sort of DNA?
"Israelis are very direct, think that they know everything, aren't afraid to deal with problems, improvise, aren't always orderly. Every company creates a different culture for itself. The advantage at Check Point is that we manage to take what's best about Israeli culture and put it into orderly modes of work and decision-making processes. This balance gives us an edge over American companies."
The walls of the floor on which Shwed's office is located are decorated with modern art. One is a photograph of a tree, almost life-size.
"Gil took that one," the secretary replies, when we ask about the photographer, a moment before the interview begins. Shwed does not conceal his affinity for photography; the meeting with our photographer prompts a discussion of equipment and cameras. ("I wish I had half of his used equipment," the photographer later says to us. )
Shwed does not draw a salary from Check Point. He realizes that this is unusual. "I have enough money and I'm not dependent on it to support my family. I'm not sure this model is right for everyone, and I'm not trying to serve as an example to anyone," he said this year in a television interview on Channel 2. He does receive and hold stock options worth tens of millions of dollars, and today the extent of his holdings in Check Point is 15 percent, which has a value of $1.75 billion.
Shwed, a father of three, is in a relationship and lives in Tel Aviv. He spends a good part of his time abroad, where as a businessman he is clearly identified as an Israeli and does not downplay his identity.
"I enjoy living here. There are people who pressured me to live abroad and I wouldn't do it. I'm happy here. I've never been ashamed of Check Point's Israeliness - all I cared about was being a good technology company," he asserts.
In contrast to other local high-tech companies, Check Point is registered in Israel and pays taxes here.
"Obviously the foreign shareholders would prefer it to be American, so it would not be considered a foreign company in its primary market, the United States," Shwed says. "Our preference to remain Israeli is not for Zionist reasons, but rather tax reasons. Taxes are lower in Israel."
Check Point also relies to a great extent on local labor: Forty percent of its employees are Israeli.
"I prefer to hire Israeli workers and not outsource software jobs," Shwed says. "Beyond Zionism, I examine whether my decisions make sense from a business standpoint. If I saw that hiring workers in Israel was hard and the results were less good, I wouldn't do it. Part of our success in developing successful products stems from the Israeli workforce."
Shwed says the local workforce excels not only on a technological level: In his view a generation of excellent managers has also emerged here over the past decade.
"Today there are more good and experienced managers in Israel. Overseas I desperately want to hire local managers - that's the most natural thing to do - but in a large number of cases, we don't succeed in finding managers who meet the standard we're looking for and we're forced to hire Israeli managers to work abroad."
Is it good for a company to have mostly Israeli employees?
"It's hard for me to say. Our greatest disadvantage in terms of high tech is that we are in Israel: The market for our products is not here. There are ways to turn that disadvantage into an advantage. There are ways of dealing with it - but it's a major sticking point."
The company dining hall is located on the ground floor, near the reception desk. On the hot summer day we came to see Shwed, lunch had just ended. Employees walked out of the dining hall licking Popsicles. Indeed, the company itself is a cool island of stability in the country's economy.
For his part, Shwed, who has shed some weight in the past few months, looks vigorous and energetic. He seems to have created for himself an ideal business-professional world.
"There are quite a few things the government could do better when it comes to high tech. It would be good, for example, if the government were to invest more in educating engineers. It must be said, however, that the current state of engineers in Israel is not bad at all. I don't think the government should intervene directly in the field. It is comporting itself fine - as long as it doesn't ruin things."
Check Point donates more than $1 million a year to a variety of enterprises, including in the fields of education and medicine. Shwed is chairman of two nonprofit organizations in the field of education: Tel Aviv Youth University, and Abilities, a project spearheaded by the Rashi Foundation that aims to raise matriculation eligibility among high-school students who are on the verge of dropping out.
Do you think that Israeli high tech plays a social role?
"Yes. We are a small, stressful and competitive country. The high-tech industry makes it possible to export Israeli know-how to the global market, since Israel doesn't have an advantage in other areas. High tech enables people who come from different backgrounds to integrate into the global economy."
And what do you think of the competition in the economy?
"The Israeli economy is one of the most competitive that I, as a consumer, know. There are efficient and very good companies here. I don't really understand what the problem is. People complain about the price of cottage cheese. So if Tnuva raises the price from NIS 4 to NIS 5, everyone should have bought from another supplier, and Tnuva would have realized that it wasn't worth its while to raise the price, that it doesn't pay. The very fact that there are people here who are not sensitive to prices shows that a large part of the problem is the consumers."
But there are big wealth inequalities in the Israeli population. This troubles the OECD as well.
"It bothers me that there is polarization in society. However, we are a country with a high degree of social mobility, and a person can get ahead. It all depends on how much he wants to do so, how much he is prepared to work for it. If a person wants something and is motivated, it doesn't matter which family he was born into - he'll succeed.
"In this case Israel's small dimensions are an advantage. A kid from the periphery is an hour away from Tel Aviv. If he really wants to get someplace, he'll get there. There is inequality here and obviously this could be improved, but you have to get things in proportion. The people who are living in the bottom decile still enjoy basic living conditions. They have an apartment. They have food. Only a very small percentage lacks basic living conditions."
According to a recent survey, many families in Israel would collapse if they had to bear a one-time expenditure of, say, NIS 8,000.
"I'm not saying that someone who runs into trouble and earns little isn't in a quandary. But ultimately, both the rich and the poor go to the same hospital and receive the same care. The gap isn't that great. People like to cry and exaggerate things, to be critical. The situation isn't so bad. Even a kid with cancer from Tiberias whose parents don't have money for treatment will wind up under the public health system in the same good ward at Sheba Medical Center, lying next to someone whose parents do have money. Everyone watches the same television channels and consumes the same culture. The difference is that if you go to the Bob Dylan concert and you've got money, you pay NIS 1,000 to be in the middle seats, whereas it costs NIS 250 to sit on the side.
"Incidentally, I paid NIS 1,000 and discovered that the people sitting on the side could see better."
Prescient and profitable
Check Point is an information security company which has become a star in the firewall solutions market, with software programs that protect personal computers, computer networks, cellular appliances and USB sockets against penetration by malicious software.
The company was founded in 1993 by Gil Shwed, Marius Nacht and Shlomo Kramer − three 20-somethings who served together in Unit 8200 of Military Intelligence. Nacht currently serves as vice-chairman of the company. Kramer left, and after being involved with various other pursuits, is once again betting on the information security field, this time with Imperva.
Check Point was prescient enough to realize 15 years ago that information security would become a necessary tool for individual Internet users and organizations alike, because of the free flow of information on the Web. In 1995, its sales totaled $10 million and its net profit was $5 million. Last year it chalked up $1.1 billion in sales and its net profit was $528 million − which is growth of more than 100-fold over 15 years. No other Israeli high-tech firm can boast such an achievement.
Generally speaking, for the past decade, Check Point shares have managed to climb steadily, except for the period following the dot-com bubble in 2001. Over the years the company has carried out only five acquisitions. Its biggest purchase was the Swedish company Protect Data, for $586 million in 2006, but it was actually the subsequent purchase of ZoneAlarm that positioned Check Point as one of the dominant players in the firewall field.
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