The Long Tailpipe - Shai Agassi's Blog

Israel Technology Generations - IVA

A few weeks ago I was asked to give a keynote at a venture capitalists conference in Israel. Given I was never funded by any Israeli VC I thought the honor was worth the afternoon . For the sake of full disclosure, one of the best local VCs – Yaffa formerly from Star Ventures - did want to invest and we just couldn’t get it done due to some technicality (She did introduce me to her brother in law, Leo Apotheker, and years later we ended up being co-presidents at SAP for a great couple of years). In any case, I wanted to share with you this presentation, as a broader vision for what I believe the next wave of Israeli technology and investments should become.

For those who are not familiar with Israel, the country is now entering its 60th year, which I divide into three generations, roughly 20 years in length each. If you add to these 60 years the generation that preceded the formation of an independent state in 1948 as “Generation 0” we get four very different set of periods, different drivers and, interestingly enough, very different technology industry in each.

Generation 0 was all focused on the creation of an independent state – and so the technologically minded folks (most educated at the Technion and Weizman Instititute) were all working on establishing the primary tools a state would need. The best evidence as to the importance of science on the this generation was the selection of a scientist, Chaim Weizman, as the first president of Israel (Einstein rejected an offer to become president later).

As the state achieved independence and was thrown into a battle for life, Generation I focused most of their efforts on survival of the state. A single galvanizing vision of survival sent every tech savvy youngster into science. The defense forces together with the universities served to assimilate the waves of immigrants into society and acquired knowledge became the equalizer in this nascent society.

My father, who immigrated from Iraq after the state achieved independence, became a communication officer in the army (where he met my mother, an immigrant from Morocco who served as a wireless communicator, for which I am thankful to this day). The army paid for him to get a bachelor’s degree, and he signed up to become a career officer – that was the deal, we educate you, and you serve the state for life (well for 16 years…). His first job out of college in 1972– build a wireless network across the Sinai peninsula. The same network served to defend the state and lasted the entire war in 1973. I was born as he started his university years in the Technion and returned to the same school a few years later to get my own bachelors degree in the same house my parents rented.

Somewhere after the six day war, or at the 1973 war, a new generation of Israeli technology emerged. The new companies took a lot of the knowledge the military developed for defense purposes and started exporting it to other countries through 10 or so large hi-tech companies. Generation II was asked to grow an export economy, and improve the Israeli economy. As the state started feeling more secure about survival, growth was the top requirement for a country that found its way into the global economy, at first with military oriented companies like Tadiran and Elbit, who branched out to civilian technologies as well, but later on with purely civilian giants like Scitex, and Daisy. Generation II had very few business leaders, some of them coming from Gen I companies (lik Uzia Galil) others representing the new Israeli Entrepreneur – like Efi Arazi.

My father, who retired from military service in 1981, transitioned just like the state from communication officer to exporting communication equipment in south America, first for Tadiran later for Elbit. I watched him go from military service into business and got exposed to the American culture and to my first Apple II computer in the American high school of buenos Aires.

Generation III started to emerge somewhere in the late 80s, and took shape in the happy days of the 90s internet bubble. It was a generation of individual risk takers, young, aggressive, techno-geeks. Some of the more successful members of the club are the Checkpoint founders - Gil Shwed, Shlomo Kramer (we both went to the same elementary school, he was one year ahead of me), The Chromatis guys, Mercury’s Arie Feingold (of Daisy fame) and Amnon Landan, Yossi Vardi and the ICQ boys, and so many others.

In my own family journey, after being part of a less than stellar startup in educational software, I decide to start a new company, and convince my dad to do the unthinkable – leave the security of a technology giant to the uncharted water of a 1989 startup - Quicksoft. That company spawned 3 more startups we both shared, two of those sold later to SAP, and one still runs to this day as Adobe’s distributor in Israel. That small startup  we started in my parents basement, grew after many acquisitions and changes to be SAP lab in Israel which hosts almost 1,000 engineers who write software for companies around the world.

Generation III was catalyzed by two actions taken by the Israeli government – in particular one person in the public Sector – Yigal Erlich – at first the chief scientist of Israel, who granted many startups, including Quicksoft the funds that made the difference between closing the doors and exporting software. Yigal then started "Yozma" a fund of funds – where he co-invested the state together with 7 international VC funds, and created the VC industry in Israel investing well over $2B a year in the state - making Israel the second most exciting region for high tech innovation after the silicon valley, my adopted home for the last 12 years. As an observer in both worlds, with the luxury to travel back and forth (well, most of the years, I traveled without luxury in coach…) I can see how Israel evolved along the same patterns as the bay area, with a very slight phase delay between the two centers of technological gravity.

It is common to ask in Israel, “ how come there is not one Nokia in all these startups?”. Israel did not grow a Microsoft, a Google, or an SAP out of all these great startups. The most successful got acquired early, and the ones who stood on their on, like CheckPoint remained leaders in their market, but the market did not become a giant market like cell phones or search. The two biggest technology companies in Israel are Teva and Iscar – one leads the world in generic drugs, the other makes carbide cutters that serve every metal cutting industry in the world. Both of these are considered giants in Israeli terms, both need lots of technology, but none of them is as sexy as Nokia, or Google. I keep asking myself whether Israel needs a Nokia?

 
So, if Gen 0 was about getting a state, Gen I was all about survival, Gen II was the organized export era, and Gen III is the generation of individual stars...

• What will make Generation IV, the one starting roughly arond now, a better one than previous generations?
• What are the challenges and where is the path to growth, and dare I say greatness for Israel?
• With the emergence of two Asian giants in China and India, with their infinite talent pool, and equally infinite markets, what is Israel to do to stay relevant, virant and growing?
• Which technology will fuel this growth?

More in the next few posts.

Blog Interrupted

I start with an apology for taking so long between posts – and I have an excuse. See, we are raising money to start this new company called Better PLC. After years of fighting for budget allocations, I forgot how much fun it is to actually go convince investors that your idea has enough merit that they should put their money, and much more importantly - their trust in you.

It is somewhat funny that everyone I talk to has heard about this new company we are trying to create, but no one really knows what we do. In every meeting I discover new ways of achieving the ambitious goal we have set for ourselves, and people really get energized about the idea. It is one of those giant small ideas that I truly believe can make a big difference in this world.

I had a conversation yesterday about all these software entrepreneurs who are moving into clean-tech. My view is that we all see a giant market ready for disruption, bursting ripe from years of very little investment. Put that with a group of people who made enough money not to be enticed by easy money, but looking for a real mission in life and you get some really interesting artifacts happening. It is almost as if the entire silicon valley is going through a mid-life crisis – but instead of looking for a new fast car (we now have our official fast car – the Tesla), we are all looking for a calling. I saw it at TED this year; I see it everyday with so many great ideas.

The people I met over the last 75 days on any part of the world are just amazing in their passion, and drive for a better world. Some solve energy issues, others education, healthcare, food, water – all problems that can really touch life. I am at awe with some of the scientists that I met; all have much bigger goal than to start a small company, or bring a new product. I personally stopped just seeing the problems in the future; I see an ocean of opportunities. 

I get people coming at me from every corner asking how do they sign up for our mission, before they even know what it is we’re going to do. When we share the vision with them you can see in their eyes that they all find their calling. I missed that sense for such a long time, it is just refreshing to be back in it. It is not that SAP was bad for me - it was a great home, it is a great company. It is just so easy to get sucked in to the daily grind of large corporate politics, that makes you lose that sense of big mission, your purpose and your sense of direction for what’s right and what’s wrong.

In any case, I promise to share this weekend some of the things that popped up on my radar over the last few weeks. I gave a few presentations, on both enterprise software and clean tech – in particular a presentation in Israel last week – which I will bring into a series of blog posts. So stay tuned next week…

shai

WEF Middle East - concluding thoughts

I received an eye-opening comment via email to the series of blog entries about the Middle East WEF from one the most intelligent guys at Gartner, Jorge Lopez. Jorge and I go a long way back during my times at SAP in Enterprise Software and I had shamelessly stolen a few good ideas from him and evolved them to strategies. In this case though I will give him all credit for coming up with a few of the lines I will quote (wherever you see quotes here, attribute it to Jorge, even tough I am loosely paraphrasing.)

I’ll start with a James Burke quote about the differences amongst nations and people in one of his books –

“..the difference between the world of belief (Credo ut intelligam. I believe, therefore I understand) to the world of reason (Intelligo ut credam.  I understand, therefore I believe).  This fundamental mindset, and the freedom and institutions that it implies, are central to moving from a world of memory to a world of hope…”

“…In a sense “countries of memory” lack the institutions that can facilitate the social changes needed to capture the value of innovation, fundamentally requiring freedoms…”

We instinctively turn the world freedom in our minds to democracy, but Jorge is pointing out a much more fundamental freedom that seem to be missing in certain cultures and countries – the freedom to fail (forward).

“…Economies can ride waves created by natural or demographic resources, but to sustain performance over the long haul, you need to be able to handle large scale change and the social disruptions that accompany it…”

In a sense, competitiveness is moving up a level for countries in the same way it moved up for companies. It used to be that companies had physical assets as their main value – which is why most of the balance sheet reflects cash, inventory and the ability to convert supplies to inventory and cash. We realized in the last decade that the relationships a company holds are the new asset class, which is when the employee, customers and supplier contracts became assets, and the ability to connect and convert became the new skill the organization was valued for. Now we realize it is the processes that differentiate companies, and the ability to scale them, and change them in reaction to market disruptions are the new skills that make the process into an asset or a liability for the corporation.

It seems as though the same applies for countries – we are moving away from natural resources as the key asset for a country – also known as the “oil curse”. Countries shift to the “relationship” asset class when they realize how to grow a knowledge based economy by improving the real natural asset – their young generation, causing them to attract more smart people into their country. Similarly, trade relationships become key assets, allowing goods to cross borders and each country to optimize for its value and competitiveness. “Countries serving its population” is becoming less and less a cliché, and more of an economic model. “Improve the people so that you can collect more in taxes down the road” – as an economic growth strategy – sounds capitalistic but who said capitalists pigs can’t produce great bacon?

When it gets to agility – in particular that of cultures – we get an interesting new base of competitiveness. Cultures that support circulation of talent will get the small base of people who have the entrepreneur gene in their body to take the immense risk required for new ventures. The swarm of innovation (some of which disrupts industries, others fail and disappear) pulls the overall country economy upwards from recessions and circulates knowledge from large established companies to smaller startups. On the flip side, countries supporting labor laws to “defend the workers” in effect stop the music on the talent musical chairs, causing people to glue themselves into a job early and long -for fear of not finding another one. The glues get stronger in down times, exactly the opposite effect than the one you get when “freedom to fail” is accepted in society.

When you observe the effects in the Silicon Valley, or in Israel for that matter, kids out of school look for the riskiest job proposition (hoping for the highest return, financial but more importantly - personal improvement). Those economies get the aggregate agility of forming many small independent businesses that cushion an economy in slow times – creating a similar effect in the human capital side of macro-economics that state banks do in free economies. When the market is down, more talent becomes available – in a sense making it “cheaper” to start a new company due to abundance of ideas and risk takers. Every great company in the history of the valley started in a technology down cycle.

Interestingly, countries can gain and lose that agility, again as Jorge points out

“…take a look at Japan which changed many times when needed to post world war II, but was paralyzed by the cultural requirement to “support the economy” by the will to write down bad loans on trusted friends and relatives- while the very large savings and loan scandal and downturn in the US was ruthlessly written down and allowed the US to move on in a shockingly short amount of time…”

So the questions that I leave with from these 36 hours of incredible hospitality in Jordan are:

• If the Middle East discovers that freedom is the key to competitiveness, and social agility becomes the true asset (post the current oil-boom), which countries will be willing to turn the key and open a door early to the new society, and which will stay behind in protective states?
• If countries have been defining themselves in the past in terms of conflict, would they be able to look at the market economics and social changes required and define themselves outside the zero-sum inertia?
• Can the Middle-East entrepreneurs Imagineer a new set of skills and rules that are not defined through the current conflicts and engineer a region that will provide solutions to problems instead of problems without solutions - or will the region let the conflict continue to define the issues?