Start-Up Nation Central: Promoting Israeli innovation

Eugene Kandel
Eugene Kandel

Former National Economic Council chairman Prof. Eugene Kandel tells "Globes" why he chose to manage a philanthropic organization that services private industry for free.

In July 2015, Prof. Eugene Kandel notified Prime Minister Benjamin Netanyahu of his wish to resign as chairman of the National Economic Council after serving two terms in the position. Confounding speculation that he was planning to join the business or financial sector, Kandel chose to manage the Start-Up Nation Central non-profit organization (SNC), the sole aim of which is to promote innovation in Israel and worldwide.

"Globes": What is the secret of Israeli innovation?

Kandel: "There are two types of innovation. One is evolutionary innovation - how to produce more from the same resources. Sony, for example, began to manufacture electric pots for cooking rice. They went on to electrical goods in general, and from there to electronics products. This was a very common process in the large industrialized countries - Japan, Germany, and the US were really built in this way.

"This entrepreneurship prospers under stable conditions, although the world is constantly changing, so the knowledge accumulated over the year very quickly becomes irrelevant.

"Israel excels in the second kind of innovation, which is a more revolutionary innovation: how you deal with a situation in which reality is changing, and what you did before does not have much value.

"For example, in the transportation industry, following the invention of the car, carts suddenly became irrelevant. This type of innovation requires completely different expertise than the first kind. First of all, it requires the realization that the situation has changed. There is a famous story about a senior IBM executive who predicted in the 1980s that the world would need no more than 2,000 mainframe computers.

"We Jews are the most suitable people for this type of innovation, simply because we have been through a 2,000-year training course of how to foresee changes. Those who didn't foresee simply didn't survive. It's not enough to foresee, however; you also have to know how to develop tools for coping. In Israel, we have adapted ourselves to this new world, spotted the opportunities, shown daring, and taken risks, and it can't be denied that we were also lucky."

"Rose to prominence through a book"

SNC is a non-profit organization founded four years ago by Paul Singer, an American Jew, after he read Start-Up Nation, a book written by journalist Saul Singer and Dan Senor and published in 2009. Paul Singer, a billionaire who made his money from hedge funds, does not invest at all in Israel, but his Jewish-Zionist consciousness has become stronger in recent years.

"Singer decided that his way of helping Israel would be not to create something new, but to develop something that has already existed here for many years, and which became prominent through a book," Kandel says. Singer supports an organization named Gvahim, which helps in the absorption of new immigrants to Israel and supports organizations like Israeli Tech Challenge, but is known mainly as a contributor in connecting young people with their Jewish identity and entities involved in strengthening the connections between Israel and the rest of the world.

One of these is Israel & Co, an organization that helps students, not necessarily Jewish, from leading universities in the US seeking to come to Israel on short visits.

Together with China, Japan, and India, in recent years Israel has become one of the most attractive destinations for visits by students in law, administration, business administration, and even technology from Harvard, MIT, Chicago, Northwestern, and UCLA seeking to learn about the local economy.

According to Kandel, one third of the students at the MIT school of business administration have visited Israel under the auspices of this program. In addition, Singer supports organizations fighting against BDS and anti-Israeli movements on campuses in the US.

"Singer decided that he wanted to do something that would bolster Israeli innovation," Kandel says, "because he regarded the innovation that has developed here as Israel's relative advantage in development of the Israeli economy and in Israel's global image.

"It's not easy to explain to people that this a completely philanthropic organization when it supports an entire industry devoted to making profits. There are entities such as chambers of commerce founded by business entities, but here is a case of philanthropy promoting a business sector, and that's pretty rare. It's logical, though, because in contrast to other sectors having large business entities, (in innovation) there are many entities with different interests."

What is actually the goal of SNC?

"The idea is how we can help the Israeli innovation ecosystem. The goal is not to help any particular entrepreneur; it is to see the entire system grow, with its 5,700 companies, its hubs, the universities, the development centers of the international corporations, and the investors' entities."

SNC operates on three tracks. The first is building an up-to-date knowledge center about the Israeli innovation ecosystem, with all of the thousands of entities operating in it. Beyond its regular monitoring, SNC also deals in research in order to understand the problems, challenges, and opportunities in the field.

In the second track, SNC uses the information about innovation as an engine that can create solutions to actual problems in sectors such as agriculture, water, communications, and insurance.

"Most of the big problems are not in Israel; they are global," says Kandel. "So one of the things that this system needs is a connection to problems, and when it solves them, it creates value. We do the business development - not for a specific company, but for the entire system. "

In what ways do you create such connections?

"On a number of tracks. The first is a free database called Start-Up Nation Finder, which constitutes a gateway to Israeli innovation that can be entered from any computer in the world. We reached one million pages viewed in the database. That's maybe five minutes on the scale of a website like Google, but our website appeals to very focused target market.

"Only recently, we met with senior managers at a large global corporation who came here for a visit, and announced investments in Israeli companies during the visit. When we asked them how they found exactly the companies they wanted, they told us enthusiastically about "a website named Finder." The very next day, an Argentinian investor came to us and told us that he had started a business based on our database. He scans our database and connects companies in Argentina in need of technology with technology companies in Israel appearing in the database."

Doesn't it bother you that somebody is making a profit out of your work?

"We wish them the best - that's what we want. The work that that intermediary does with small companies is the same thing we do ourselves with the biggest companies in the world. We find companies that might be suitable, and suggest that we work for them in trying to find solutions in Israel for the problems they have."

Aren't the companies afraid to expose business information to you?

"We don't ask for business information; we ask what their needs are. We have a good reputation, and we're very discreet. Our advantage is that we don't want money. That also convinces companies that didn't originally intend to invest in Israel.

"We organize for them what we call an engagement. We give them explanations about Israel, what areas we're strong in, and then we bring them specialists in sectors relevant to their sector, and present them with examples of similar companies that have succeeded.

"We demand two things from them: that someone comes in a high position who can make decisions by himself, and not somebody who has to persuade others in the company, and that they try to give companies here insights into their sector, so that we'll e able to give this to the companies.

"We held 40 such meeting a year in 2015 and 2016. We brought some of the world's biggest banks and insurance companies, pharma companies, large investors, major retailers, agro companies, auto companies, and government agencies here. People usually leave here with a much better insight into what is going on in Israel in innovation - and with wonder. "

What here makes them wonder?

"They wonder about the ideas, energy, and diversity. One of the world's biggest consumer products manufacturers was here. He came to check out cyber capabilities, and we showed him what there was here beside cyber. He left in a state of shock, saying, 'I'll be coming back here in a few months'."

Is cyber our strongest card today in innovation?

"We're a superpower in cyber. In 2015, 5-10% of all the cyber products in the world were produced in Israel, and almost 10% of the venture capital. We're one of the world's three largest markets in absolute terms, and Israel's cyber output has outstripped that of the defense industry.

"In the other sectors, it's mostly niches. We're strong in communications systems, big data, agriculture, and water. There are more than 400 companies operating in fintech here, and an Israeli company recently won first prize in a fintech companies competition in remote user identification in Singapore. Other segments include social media, advertising, gaming, and digital health."

How do you become a superpower in a sector? Some of the sectors you mentioned are not considered Israeli specialties.

"Sectors develop from either demand or capabilities. Digital health developed from big data and sensors. Big data comes from the defense establishment. In agriculture, we have a tradition of inventions - the Volcani Center and the Agricultural Faculty - but we combined this with sensors and unmanned aerial vehicles, which make it possible to make optimal use of water and agricultural fields."

In addition to the connection with institutions of higher learning, SNC makes connections between countries. The idea here is to connect countries to the Israeli Start-Up Nation model.

"We're not the Ministry of Foreign Affairs, but we try to assemble coalitions of government-industry-non-profit organizations on both sides in order to try to create as many connections as possible," Kandel says.

Does the world regard Israel as the Mecca of innovation?

"Yes, but we have to make sure that the Mecca isn't empty."

What do you mean?

"Delegations arrive almost every day for the purpose of very aggressive scouting. You can talk about Israeli innovation in terms of a hot-air balloon floating high above. The financing and customers are mostly overseas. The employees can move elsewhere in the world relatively easily.

"This hot-air balloon has very little dependence on the country and the economy, and that increases the risk that the cables connecting the balloon to the land will one day be torn, and it will fly away - to Berlin, London, Sydney, Singapore, and Silicon Valley.

The other aspect of our activity is therefore to strengthen the connections between the innovation ecosystem and the Israeli economy. This means, for example, taking part in the government effort to increase the supply of trained personnel, given the current major shortage of employees in professions like computer programming and engineering. As of now, the more we do, the more the demand grows, and we have to reject many requests from international entities."

Is this success of Israeli innovation a trend, or is it sustainable?

"It depends mostly on us. The world is constantly changing because of technology, globalization, and demography. All this is generating drastic changes. A priori, we have a big advantage in adapting ourselves, and we have to utilize it. That doesn't mean, however, that we don't have a lot of competitors.

"One of the problems we have created for ourselves is that we've shown the world that it's possible to create a living, dynamic, and rapidly growing ecosystem in the middle of the desert. Other countries are now saying that if they (the Israelis) can do it, we (the other countries) can do it, too.

"There are now hubs in Stockholm, Berlin, Singapore, New York, Colombia, and Chile. In all of these cases, the people involved visited us, learned, understood the principle, and are trying to copy our model.

"Obviously, many of them will fail on the way, but some will succeed. Therefore, if we stand still, we'll become yesterday's innovation. It's important to understand that in order to keep our place, we have to grow continually - because the moment we stop growing, international interest will simply go elsewhere.

Published by Globes [online], Israel Business News - - on January 16, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Eugene Kandel
Eugene Kandel
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