The Start-Up Nation –– Or Is It The Chutzpah Nation?

About eight years ago the word “chutzpah” was given legal sanction when it was used in a decision written by Supreme Court Justice Antonia Scalia, probably the last person on that bench one would expect to use Yiddish. By contrast, when two Jewish authors wrote a book titled The Start-Up Nation: The Story of Israel’s Economic Miracle, it is not surprising that they attribute at least part of that economic success to the Israeli characteristic of chutzpah.

One of the authors, Dan Senor, a senior fellow at the Council of Foreign Relations, describes Chutzpah as “hard to define.” He explains, “Modern Hebrew borrowed the word from Yiddish, the all-but-vanished German-Slavic language. According to Yiddish scholar Leo Rosten, chutzpah is ‘gall, brazen nerve, effrontery, incredible guts, presumption, plus arrogance such as no other word and no other language can do justice to.’” In a humorous vein, Rosten defined the term with the traditional joke, “that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan.”

Senor maintains that, “In the U.S. there are isolated pockets of chutzpah. But an outsider would see chutzpah everywhere in Israel: in the way university students speak with their professors, employees challenge their bosses, sergeants question their generals, and clerks second-guess government ministers.”

He cites as an example, “When the Intel Corporation began building its Israeli teams in the 70’s, the Americans found Israeli chutzpah so jarring that Intel started running ‘cross-cultural seminars on Israeliness.’ Intel-Israel’s Mooly Eden, who ran the seminars, said that ‘from the age of zero we are educated to challenge the obvious, ask questions, debate everything, innovate.’ As a result, he adds, ‘it’s more complicated to manage five Israelis than 50 Americans because [the Israelis] will challenge you all the time — starting with ‘Why are you my manager; why am I not your manager?’”

It is instructive to note that fully half the pages in the introductory portion of the book were devoted to a story still in the making. Readers of Viewpointe read about it in this column in March 2008, (exactly two-and-a-half years ago). Titled “Creative Destruction –– The All Electric Car = The End of Oil?” That article, like the one in the book, describes the efforts of an Israeli-American named Shai Agassi to totally disrupt the over 100 year history of how automobiles are sold, and could bring the automotive fossil fueled era to an end. If that isn’t chutzpah, I don’t know what is.

Another illustration of chutzpah from the book describes, “When Paypal — the internet payments giant — bought Israeli start-up FraudSciences in 2007, Paypal president Scott Thompson went to Tel Aviv to meet with the FraudSciences team. He told us about his first meeting with the staff: ‘Every question was penetrating. I actually started to get nervous up there. I’d never before heard so many unconventional observations — one after the other. Junior employees had no inhibition about challenging how we had been doing things for years. I’d never seen this kind of completely unvarnished, unintimidated, and undistracted attitude. I found myself thinking, ‘who works for whom here? Did we just buy FraudSciences, or did they buy us?’”

The story continued, “To Israelis, this is the normal mode of being. Somewhere along the way — either at home, in school, or in the army — they learn that assertiveness is the norm, reticence something that risks your being left behind.” (The observation about the army is significant, and will be commented on below.)

Microsoft first opened one research & development center in Israel in 1991, and in 2008 when it inaugurated a second 43,000 sq. ft. center, Steve Ballmer, the CEO said, “ The Israel R&D Center vision is to harness the talent and innovation of the Israeli high-tech industry the largest startup community outside the U.S., and to build global products and technologies in key growth areas.”

Israel – “The largest start-up community outside the United States”? How impossible that seems. A country with only 7.6 million people, about one million less than that of New Jersey but about the same geographic size; totally surrounded by enemies; involved in four major wars in its 62 year life; a country most thought would never survive; a nation officially defined by the United Nation as “a country of immigrants” –– [there are 70 different nationalities]; a country with no natural resources; yet, a country that has established itself (as described in a blog by Freakonomics), “as a model of entrepreneurialism that countries at all stages of development have tried to replicate.”

In reviewing the book last November, James Glassman of The Wall Street Journal wrote a glowing account, quoting the authors as saying, “There are more new innovative ideas . . . coming out of Israel than there are out in [Silicon] Valley right now. And it doesn't slow during economic downturns." An eBay executive is also quoted, "Google, Cisco, Microsoft, Intel, eBay . . . " The best-kept secret is that we all live and die by the work of our Israeli teams.

The book can be summed up by just one sentence at the end of the book’s introductory chapter that claims: "if there is one story that has been largely missed despite the extensive media coverage of Israel, it is that key economic metrics demonstrate that Israel represents the greatest concentration of innovation and entrepreneurship in the world today." The book is filled with stories of how successful start-up companies were conceived, nurtured, grown, and either succeeded on their own, or have been acquired by large (usually) America Companies.

Here are some of the metrics mentioned: In 2008, per-capita venture-capital investments into Israel were 30 times greater than into Europe, 80 times greater than into China and even two and a half times greater than into the US. Israel has the highest density of start-ups in the world: 3,850, or one for every 1,844 Israelis. There are more Israeli companies on the technology-focused NASDAQ exchange than all companies from all of Europe [and the Asian continent] combined. The result, as the authors write, “Technology companies and global investors are beating a path to Israel and finding unique combinations of audacity, creativity and drive everywhere they look.”

Undoubtedly, the most intriguing, revealing, and surprising part of the book emphasizes the enormous influence that mandatory military service has had on the economic well-being of the nation. This is a theme throughout the book. “The compulsory service produces a maturity not seen in Israelis’ foreign peers who spend that time in university.” Right out of high school, boys are required to serve in the military for three years, and with some exceptions, girls must serve for two. Whereas in our, and most other countries, 18 year-olds are vying to be accepted by elite colleges, in Israel, the competition is to qualify for admission into crack IDF units. The more elite the unit served in, the more desirable is the individual when seeking a job in civilian life.

“Israel’s resource-stretched and constantly tested military teaches improvisation and flattens hierarchies. Soldiers are taught to get the job done and figure out how.” And especially in the reserves, barriers are broken; young people command their teachers or bosses, no one salutes, and privates address generals by their nicknames. All this contributes to an informal and anti-hierarchical culture outside the military, which is critical for an experiment-focused, probing, and innovating economy.

The book describes a military structure that bears little resemblance to the U.S. military or any other. Beyond the elite tech units, the military has a much broader cultural impact. For example, since all citizens serve in the military, it creates an automatic network for entrepreneurs once they become civilians providing a ready source of capital, employees, and ideas for new companies. This type of networking is even further enabled by the fact that at the end of the three-year conscription period, every one serves in the reserves (into their 40’s), and is called back to duty for a month or so every year. They return to their old unit, renew acquaintances with their old friends, and thus can call upon each other for help, for example, when considering a start-up. This has become a huge advantage, unlike any other country in the world.

If you want to learn about an Israel from a totally different perspective that is normally covered in the media, Start-Up Nation will provide that opportunity. Perhaps it will inspire you to exercise a bit more chutzpah in your life. Conceivably, right now our country could use a bit more too.