What’s Next for the Start-up Nation?

Israeli advances in high-tech can only drive the economy so far. What the country needs to nurture now, say experts, is innovation in virtually every field – from medicine to design.

One popular explanation why so many Nobel Prize winners are Jewish can be encapsulated in one word: necessity.

The oft-touted claim is that in traditional European society the accepted paths for personal advancement – the Church and the army – were closed to Jews. Academia was the sole path open to displays of excellence and the opportunity for social mobility.

Unsurprisingly, necessity is also the key word for the origins of innovation in Israel. Fighting for survival certainly isn't an advisable long-term state of consciousness. Nonetheless, the Israel Defense Forces, which established the elite Talpiot and 8200 military units to meet its technological needs, serves as a de facto innovation incubator for the civilian market.

The story of our army proves that innovation frequently occurs without foresight or planning. But we need to position ourselves for the future by mapping and studying the capabilities and weaknesses of Israeli innovation.

Teach high-tech workers how to sell

Israeli innovation experts concur that Israel's prided high-tech and biomedical industries are rather old news when it comes to innovation. Continued reliance upon these industries will reduce Israel to a much less innovative place, simply because other countries are catching up in these areas, they warn.

"China and India are on our heels, and they enjoy large advantages," says Prof. Jacob Goldenberg from the School of Business Administration at the Hebrew University of Jerusalem. "If the Chinese government decides it wants the world's best soccer team, it will achieve it because it has a giant reserve of potential talent and the money to invest in it. The same thing will happen if it decides to dominate in any other area."

Israel has a small talent pool and its level of capital investment is a tiny fraction of China's, he says. "Consequently, while China can permit itself to have fun with trial and error, the Israeli approach to innovation needs to be much more precise."

The good news is that there are already early signs of innovation in less touted areas. What is now needed is an intensive policy that will foster these innovative areas.

Great products, lousy marketing

Does this mean that the high-tech era is over? The bestseller "Start-up Nation" by Dan Senor and Saul Singer established Israel's position as a high-tech mecca. However, innovation experts claim that Israeli excellence is limited to one type of knowledge-intensive industry.

"An examination of Israeli start-ups shows phenomenal strength in product development, hardware or software, and weakness in marketing and scaling up into international-size businesses," says Prof. Oren Zuckerman, founder and co-director of the Media Innovation Lab at the Interdisciplinary Center, Herzliya. "Take a brand like Angry Birds – it began with a cellphone game, but today every other kid has a branded journal, socks and who knows what else." Israelis don't know how to do that. "We hear about companies sold for hundreds of millions of dollars to Facebook or Microsoft but the wider public never heard of the company. We create the platform and sell it, instead of developing holistic innovation that includes all stages in the life of a product."

What's the solution?

"Interdisciplinary thinking. In Israel, people focus on one discipline – you learn computer engineering or marketing or design or psychology. There's no culture of interdisciplinary thinking – not in the school system, not in academia, not in the tech incubators, not in government policy," says Zuckerman.
Academia should pioneer breaking down the disciplines in advanced degrees, he says. "For their Bachelors, everyone needs to learn the basics, but Masters and doctorates it's impossible to continue teaching a traditional MBA program and a Masters in computer sciences as if there was no connection between them." Engineering and design students should interact. "Innovation comes from collaborative thinking among different minds," says Zuckerman.

Why don't the universities promote such programs?

"Academia is for the most part traditional and territorial. If it wants to contribute to innovation it needs to be innovative itself and it is happening too slowly because among things there is no system-wide guidance. The school system also needs to get on board and teach multidisciplinary thinking at the school level."

The distance between academia and promoting multidisciplinary innovation is well illustrated by the story of Israel Prize laureate Prof. Miriam Erez, founder and head of the center for knowledge and innovation at the Technion. She recently published an article in a prominent periodical co-authored with a colleague, analyzing an issue from their different perspectives.

"They returned the article to us, separated into the two topics we tried to connect," she recounts. "Interdisciplinary thought is so unaccepted that even the editors of well-known periodicals don't know quite how to handle it."

Accelerate traditional industry

Besides the charms of multidisciplinary thought, innovation in Israel is seeking a jumpstart through a new format – an "accelerator." In traditional tech incubators, start-ups may spend years developing a product. Accelerators are three-month mentoring programs in which the fledgling companies flesh out basics with experts, analyze the feasibility of the idea, and proceed to raising capital from investors. Israel has several start-up accelerators, one a Microsoft initiative.

"It’s a very appropriate format for the era of Twitter and Facebook; everything is rapid-fire and immediate," says Erez, adding: "Fields that require more time to ripen from small accessories and apps won't benefit from accelerators."

Where does Israel have pockets of innovation?

"Areas of innovation that have proven potential include: agriculture, sustainability, traditional industry, and medical devices. Our agriculture is very innovative, principally because of the constraints of water and weather and it is worth investing in because everyone needs to eat," Erez points out.

"Sustainability – treating water, alternative energy – can and should become significant growth engines because we have the tools and brains to make this happen. I would propose utilizing the direct ties between doctors and the medical industry and academia in order to invest more in medical devices. Doctors know exactly what devices they need, and stronger ties between industry and academia could yield successful partnerships."

Some of the kibbutzim are quite the nests of innovation, she adds; Kibbutz Amiad in water filters, Kibbutz Mishmar Ha’emek's net-wrapping for agricultural produce (global sales have passed NIS 1 billion a year), Kibbutz Sha’ar Ha’amakim's Chromogen solar water heater factory. In traditional industry there's Tefron, which makes innovative fabrics (for instance for swimsuits and soccer jerseys).


"Regarding the question of where to invest, there are two schools of thought," she says. "One proposes concentrating on cutting-edge areas like nanotechnology; the second proposes encouraging innovation in every area, age, field of study or level of society. Since innovation sometimes comes from the most surprising of places, I would recommend spreading out the effort. Obviously, the size of the pie is limited, but innovation needs to be a flag waved in a very large number of fields and at a very large number of organizations. It doesn't pay to put all your eggs in one basket."

Selling Israeli designs to the Chinese

An interesting area that has received a significant push and is considered likely to become a significant source of revenue for Israel is design.

"Israel isn't a design powerhouse, but can and needs to be one," says the head of the industrial design department at Shenkar, Alex Padua. "The tools exist -- what is needed now is a policy."

Those who are familiar with the design field in Israel agree that natural talent is one of Israel's strong points.

"It’s like how they play soccer in the favelas of Brazil. With us, the mind begins functioning from a young age in a very creative manner," says Padua. "We are talking about a wonderful mix of impatience, a hatred of boredom, a giant motivation to ‘make it’ – and a complete lack of respect for design tradition. We simply don't have one. This allows us to reach completely different places."

Design, never been considered a profession on par with medicine or law, is receiving greater legitimization as a career choice, including thanks to Steve Jobs who taught the world that "good design means good business." Even conservative Israeli high-tech companies and low-tech companies have realized that an excellent product won't sell if it isn't pleasing to the eye. So, what is missing?

"A government decision that everything made in China should be based on Israeli designs," answers Padua. Turkey, for example, provides large grants to companies who work with local designers, she points out: "They understand that proper design boosts sales, and mainly exports."

Bloomberg