The Wall Street Journal’s Sarah Toth Stub published an article in August 2010 titled “Innovative Israel Failing To Grow High-Tech Start-Ups“. The article discusses Israel’s perceived inability to turn its high tech start-ups into mature companies that remain in the country:
While Israel boasts the most high-tech start-ups per capita in the world, over the past decade a tendency has emerged whereby the majority of successful ones are acquired by or merged with larger foreign companies. This occurs before the Israeli companies have the chance to grow into substantial independent firms that can provide local jobs and encourage the development of management skills.
The article lists the possible reasons for this perceived inability and the steps that are being taken to attempt to fix this. It concludes though with a quote by Saul Singer, author of Start-up Nation (together with Dan Senor), who calls this kind of talk “Nokia-envy“:
The lack of patience, lack of respect for authority, lack of planning, chutzpah—whatever you want to call it—are things that make us good at start-ups but don’t make us particularly good at big companies,” he says. “We need to appreciate the importance of start-ups in the global economy, and if we can build bigger companies along the way, well, that’s nice too.
I had the most hilarious conversations with several reps of the Finnish delegation to Israel who attended the recent HTIA conference in Jerusalem. I asked them what brought them to Israel, and their answers had one recurring theme, one that adds an additional perspective to this Nokia-envy theme, especially relevant given the recent sad news from Nokia.
They said: We traveled to Israel to learn what is it that you guys do that encourages such a healthy ecosystem of a large number of start-ups - instead of one massive Nokia.
Makes you think of neighbors and greener grass, doesn’t it?
I say, let’s let a thousand flowers bloom.
It’s ok if entrepreneurs sell their startups for less than $50M after 3-4 years, and do not set their sights on creating the Israeli Nokia. This “failure”, as some of the speakers in the HTIA conference called this kind of scenario, will not only make (usually) the founders and their investors very happy, it will also probably result in:
- The founders will work for an international corporation for 2-4 years, maybe even relocating to the US, and will receive priceless education, the kind that money can’t buy
- The entire team will be exposed to new ways of doing their job at a scale that is probably significantly higher than anything they’ve done before
- Many of the team members will gain valuable new relationships and networks
When it’s time for the founders or anyone else in the team to start a new venture, they will do so armed with experience, knowledge and insights that they did not possess before. They will also be better off financially than they were when they started their previous startup.
In other words, not only will they have better odds at succeeding this time, they are also likely to have more patience for building a bigger company this time, and selling somewhat later in the process. Anecdote: The former employees of Yedda (now AOL Answers), the company we sold to AOL in 2007, started since the acquisition at least 6 different start-ups.
Saul is right. We lack patience. We don’t want to build the pyramids again one level at a time. We forget that Israel is only 63 years old, and its High Tech industry is a lot younger, and so we like to compare ourselves to Finland or even to the US, countries much older than Israel and with a longer tradition of entrepreneurship.
That’s not possible though. A pyramid needs a solid, stable base. We need thousands of start-ups at the base. Small ones, with as little as possible investment. Most of them won’t make it. Some will get acquired. Others will prove themselves worthy of another round of funding and several more years of growth.
We will learn, we will mature as an industry, we will improve our skills at management, marketing, design, scaling, distribution, customer service – the building blocks of the DNA of large successful companies.
We will create a pyramid that is built to last, surrounded by a thousand blooming flowers.
P.S. I no longer work for AOL. Earlier this year I started (together with my partner for many years, Avichay Nissenbaum) lool ventures, where we do our best to help seed and grow such flowers, hoping to see them bloom and give fruit.