How Employees Turned a Bankrupt Startup Into Dell’s Israeli R&D Center

Just before Exanet shuttered in 2010, a group of workers managed to take control and sell the company to the U.S. computer maker. Five years on, it is now one of Dell’s leading centers for storage.

Ofer Vaknin

The story behind the establishment of Dell’s research and development center in Israel is a bit out of the ordinary: The center was not founded by buying out an Israeli startup in a glittering exit, nor because of a strategic decision by a multinational corporation to set up a local operation in Israel.

February 19, 2010 – the day Dell’s R&D center was founded – was a happy occasion for the 40 employees at the Exanet startup, but not a happy one for the company’s shareholders. Near the end of 2009, Exanet – which was founded in 2000 by entrepreneurs Giora Yaron, Nir Peleg and Gigi Bar-Or – was insolvent. Employees of the company, which developed large network-attached storage systems, collected some money in order to file suit and have the court appoint a liquidator. The company’s bankruptcy proceedings included a conflict between employees and management – which received a great deal of media coverage.

“We were creditors, and knew that the value we had was the technology and development team. We kept the team of 40 workers for two months with the liquidator, without having any work,” said Yossi Ben-Shoshan, who was also a cofounder of Exanet, and is now head of Dell’s R&D center in Herzliya.

The liquidation request filed by employees said that Exanet’s sales reached some $8 million in 2007 and 2008, and $4.5 million in 2009. On the other side of the equation, the company’s debts were estimated at some $50 million.

Behind the scenes, negotiations were ongoing with the giant U.S. computer manufacturer. Dell bought Exanet’s intellectual property and hired the employees after two months’ talks – a relatively short period for a large U.S. corporation in making such important decisions. And that’s how Dell’s Israeli development center was born.

At the time, the press reported that Dell paid $10-$15 million for the startup’s assets. Exanet had raised $70-$80 million in funding before it closed. Shareholders, including Yaron, Eitan Wertheimer and venture capital fund Evergreen Venture Partners, gave up their holdings.

“Dell had no intention to open a center in Israel,” said Shiri Kerman, now head of Dell’s R&D department in Israel and previously part of the Exanet management team that led the move to Dell. “We all received dismissal letters,” she recalls. “The company wasn’t closed in a good way; they didn’t pay salaries or redeem vacation days, and there were debts to creditors. Usually, in such a situation you work on your résumé and go work somewhere else. We all received many other job offers. As employees of the company, we knew there was excellent intellectual property and we believed in it, so we banded together. We collected money in order to file a lawsuit and appoint a liquidator for the firm. We approached lawyers and filed a suit against the company’s owners,” recalls Kerman.

A cooperative agreement was signed between Dell and Exanet in 2009, before the company went insolvent and Dell had shown an interest in investing in it. But in the end, as a result of differences of opinion between investors, Dell’s investment never happened.

Safeguarding the U.S. police

Dell’s operations in Israel are divided into three areas: 110 employees work in the R&D center in Herzliya, which is based on the 40 people who came from Exanet in 2010, and they belong to Dell’s Enterprise Solutions group.

Another development group works in Yehud, central Israel. This team joined Dell after it bought Quest Software in September 2012, for $2.36 billion. Quest is now part of Dell Software, with 30 out of its 4,000 employees based in Israel.

Dell also employs 30 to 40 people in sales at its center in Herzliya.

Kerman says Dell is constantly hiring people and its goal is to grow by 10% to 15% every year. “If we had wanted to grow more, we could. We believe that an infrastructure product that demands a high level of expertise by engineers cannot grow at a faster pace,” she says.

Dell is developing a complex and large infrastructure technology in Israel, which is intended for file servers. Ben-Shoshan says the technology, which is part of Dell’s storage business, is software that enables providing large quantities of files at a very fast rate to numerous customers. The group at Dell involved in this field includes about 200 workers, and is led from Israel. The group serves customers worldwide who need to access large files very quickly. Among its customers are organizations that work in medical imaging, genetic research, universities, cloud-service providers, television stations, and municipal and security video surveillance.

“For example, we provide the infrastructure for a number of cities that are networked with video cameras. Every policeman in the United States has a camera attached to them, in order to protect them in emergency situations. Our software allows examination of the files and stores them in a safe manner,” explains Ben-Shoshan.

The software that was developed in Israel is part of Dell’s network-attached storage (NAS) products, which include both hardware and software. The software is based on Exanet’s products, which were adapted for Dell. “It is hard to describe the complexity of the development – how we do multitasking, network connections, parallel operations on multiple servers, and security. There is almost no layer in which infrastructure software is not included,” says Kerman.

Storage is a classic knowledge center for Israeli high-tech. A large number of the major multinational storage suppliers have local development centers – including IBM, Apple and EMC – and they’ve also bought up a number of Israeli companies over the years. Israeli entrepreneurs, including Doron Kempel and Moshe Yanai, have founded companies worth billions in the field.

Kerman says most companies in Israel in the field are involved with the storage components themselves, such as hard disks and SSD memory. But with NAS, the file services are what is important – in other words, managing the storage – and this includes areas such as access permissions and handling various protocols. “NAS is picking up steam since its usability is amazing,” she adds.

The 10 A.M.-3 P.M. rule

Dell reflects a rather unique vision in the Israeli high-tech sector. In this dynamic industry, where it’s standard to switch jobs relatively quickly and chase after higher salaries and challenges (as long as you’re young enough to get away with it), Dell actually prefers employees who intend to remain with the company for as long as possible.

Ben-Shoshan says the desire to retain employees for the long term reflects the lengthy amount of time required to train them in these complex technologies. “The software is difficult and complex. When we hire someone, even someone who’s very experienced, it takes a few months for him to start contributing. That’s why it’s important for people to be here for a long time, even on the business level,” he says.

“Since I want the employees to work at least until retirement, if there’s a young person [working here] with a family, I want him to leave work early two or three times a week, in order to pick up his kids, and come late two or three times a week since he drops them off at school. I need there to be a good balance between family and work, and they don’t feel we’re exploiting them. From this perspective, there’s no difference between men and women,” says Kerman.

“We believe in promotion from within and don’t hire team leaders or managers from the outside,” she adds. “People know they can remain for a long time, since they’ll be promoted and we won’t bring a flashy star in from a competitor to take their place.”

Even the presence of a woman in a senior management position in a development center is exceptional. Kerman, who manages the R&D operations, is one of the few in such a job.

“We receive a lot less résumés from women than men,” says Kerman. “We have a group of test engineers who develop software for automating testing. It’s a group of 30 employees, half of whom are women. But in the group that deals with infrastructure software, only a quarter are women. There are fewer women in this world and I don’t know why – maybe because it’s an area with less interaction with people and more work on the level of bits. There are more women working in the apps area,” she adds. As for wage differentials between men and women, Kerman emphasizes that there’s no such thing at the R&D center.

The worldview that proudly espouses a work-life balance is backed up by company policies. For example, employees are required to be present in the office only from 10 A.M. to 3 P.M. Team meetings or multiperson discussions aren’t scheduled out of these hours.

“These are the times you must be there,” says Kerman. “Everyone according to their needs – studies, family or private time to recharge, I don’t care. You can move the window to the early hours or late ones of the day, to have a short day and a long day.” Even when meetings are set with teams in other countries, whether in India or the United States, they take such constraints into account.

“The minute everyone does it, there’s no such thing as leaving at 3 P.M. and others looking at you disapprovingly. It’s the organizational DNA. If my manager wants to schedule a meeting with me at 5 P.M., first he apologizes and makes sure that’s okay,” says Kerman.

The flexible work hours usually don’t come at the expense of working from home. “We don’t encourage working from home – time at home is meant for being at home. If there’s a case in which something is significantly late and the employee needs to leave early, we allow it,” adds Kerman.