What makes Israel such a hotbed of Innovation?

What makes Israel so successful at business innovation particularly in the high-tech field?  Each year this tiny country of 7 million people attracts some $2 billion in venture capital funding – about as much as Germany and France combined.  When you adjust for population Israel leads the world in the number of high-tech start-ups and the size of the venture-capital industry.  The country has over 3800 high-tech start-up companies.  What are the causes of this phenomenon?

According to the Economist one reason is the role of the army.   ‘The army is more than a high-tech incubator. It sifts the entire population for talent, giving the most promising techies intensive training in elite units, and inculcates an ethic of self-reliance and problem-solving.  The inspiration for camera pills (which transmit pictures from inside the human body) came from missiles that can “see” their targets, and the inspiration for heart stents came from drip-irrigation systems. The country has long turned adversity into a source of competitive advantage. For example, it became a world leader in alternative fuel partly because it was surrounded by hostile oil-rich countries.’

Jonah Lehrer in his book, Imagine – How Creativity Works, indicates that the Israeli Defence Force may play another unwitting part in the story.  It depends heavily on the use of reserve units.  Most Israelis under the age of 45 have to serve several weeks a year and they complain about this but it creates a source of innovation.  According to Yossi Vardi, a renowned Israeli entrepreneur and deal-maker, the reserve forces create a vast network of weak ties across the country since reservists reacquaint themselves with others from their unit every year.  They are forced to mingle.  He describes it as, ‘like a college reunion that goes on for a month.’   For example just one unit in the army has given rise to three successful companies – ICQ, Check Point Software and NICE Systems.

There is considerable evidence that weak social networks are one of the reasons that Silicon Valley in California has been such a fertile source of new businesses.  Apple Computer was founded by Steve Wozniak and Steve Jobs who were both members of an informal 1970s group called the Homebrew Computer Club.

Lehrer describes research by Martin Ruef of Princeton which showed that business people with wide networks of weak ties were three times more innovative that people with small networks of close friends.  It makes sense.  People close to you tend to know what you know (and may think what you think).  Loose ties with people you hardly know are more likely to produce new knowledge, different insights and more opportunities.

One Israeli businessman told me that Israel’s success was down to Jewish mothers making unreasonable demands for results from their children.  However, it looks more likely that the cause is the power of social networks operating across a relatively small community.


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