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Why Israel is a Tech Capital of the World

This video is sponsored by Skillshare. The first 500 to use the link in the descriptionget two months free. You, the brave, daredevil you are, open GoogleMaps, throw your mouse into the air, and land here. There are palm trees, lots of 20-somethingstalking into their AirPods, and everywhere you look, a familiar logo: Apple, Amazon,Intel, Yahoo, Microsoft, Google. All within a few blocks of each other. Where are you? Your first guess might be San Jose, maybePalo Alto, or Mountain View. That is, unless you noticed the lack of Teslas,or smell of Hummus, or, the title of this video. This is Silicon Wadi, a cluster of citiesin Israel with one of the highest concentrations of tech companies and startups on Earth. It’s home to Waze, Wix, SodaStream, andFiverr, files more patents per capita than all but 4 countries, and is ranked the 4thmost startup friendly nation overall, behind only Canada, the UK, and the U.S. The difference is, those countries aren’tnext door to the Syrian Civil War. 30 members of the UN still don’t recognizethe existence of Israel, including most of its neighbors. In fact, any evidence of traveling there,on any passport, prevents you from visiting eight of those countries. Because of this, Israeli customs stamps notyour passport but a separate piece of paper. But despite all of this, Despite the constantthreat of terrorism, Despite being only slightly bigger than Fiji and having just two and ahalf percent the population of the U.S., Israel creates some of the most successful tech companiesand entrepreneurs in the world. Why? As one of the very important world leaderswho consult my channel for advice, you want to know how to start your very own SiliconValley. Well, you’re in luck. The recipe is actually quite simple: First, buy some ping-pong tables, throw downa couple of bean bags, and, within minutes, a cavalcade of Soylent-drinking, smartwatch-wearingCS-grads will assemble at your door.

Even better, why not build some apartments,a grocery store, and, while you’re at it, a pharmacy. Then they’ll never leave! Work-life what? Just kidding! Mostly. More than a few countries and cities havetried charming tech companies with tax breaks, grants, free 21-foot cacti, and other totallynormal things, but almost as many have failed. On the other side of the Arabian Peninsula,Dubai built what it calls “Free Zones”, areas with special incentives to attract certaintypes of companies, like Biotech firms, movie studios, and tech companies. At first glance, Dubai Internet City lookslike a great success. And, to some degree, that’s true. It convinced Microsoft, Cisco, IBM, HP, andCanon to invest millions of dollars in the middle of the desert, at a time when the futureof Dubai was much more uncertain. But having beautiful buildings with famouslogos on them is not the same as creating an environment of innovation. You’ll find plenty of the former in theCayman Islands, but it’s not exactly the first place that comes to mind when you think“cutting-edge research”. Meanwhile, Silicon Valley is, despite itsvery high cost of doing business. In other words, tax breaks may bring companies,but not necessarily innovation. Corporations come to Dubai largely for itspromise of no income or corporate tax for 50-years, but often only for marketing, support,and sales, while hiring most of their engineers in the U.S., India, and Israel. So, what do those countries have that othersdon’t? There are three basic ingredients to a successfultech scene. The first is Talent. One of the best predictors of which is, unsurprisingly,education. In the words of Scott Galloway, “Find theuniversities that are gaining the most traction in engineering or STEM and you’re goingto find an ecosystem that can produce a unicorn.” Basically, put a bunch of smart, ambitiouspeople in a small, contained space, sprinkle-in some idealism, ideas will collide and goodthings will happen. At the level of a nation, universities areabout proximity, and hey, if you also learn something along the way, that’s a bonus! Which is great news for Israel, one of themost educated countries in the world. About 47% of those over 25 have a collegediploma. The Hebrew University of Jerusalem, Tel-AvivUniversity, and the Israel Institute of Technology are all globally competitive schools. And because the country is just so small,and its population so highly-concentrated in just a few regions, it has the same fertileground for entrepreneurship as a college campus, at a much larger scale. About 92% of Israelis live in urban areas,almost entirely in the Northern half of the country. Startups, therefore, are surrounded by theircustomers, business partners, and competitors. The other aspect of Talent that’s oftenoverlooked, but just as important, is demographics.

Not just how big a population is, but alsowhat it’s like. For example, it’s misleading to say onlythat Japan has 126 million people and Ethiopia, 98. What those raw numbers hide are their ageand background, which can either act as a free economic multiplier or a bleak and costlyundoing. Japan’s population may be large, but ittakes an unfortunate shape – far too many old people for not enough young. Unless millions of Japanese suddenly changetheir mind and start having children tomorrow, the land of the rising sun will slowly set,as Africa grows into the next major consumer market. Now, Israel’s growth is not quite so dramatic,but it is growing, which is more than you can say about the future of most developedcountries, including all of Europe, the U.S., Canada, Australia, and China. The problem is not that Japan doesn’t haveworking-aged people. Even as its population shrinks, there willlong be millions and millions of workers. But they’ll be busy caring for their parents,not inventing the next big thing. Israel, meanwhile, has enough people to carefor the old and young, with plenty left over. It also has some extra help: immigration. The Law of Return allows any Jew, their spouse,children, grandchildren, and even their non-Jewish spouse to come to Israel and receive citizenship. There are even scholarships to cover yourexpenses while you learn Hebrew. The result of all this is that there are 140scientists, technicians, and engineers for every 10,000 Israeli employees, compared tojust 85 in the U.S. The second, much-simpler ingredient is Capital.

Starting a business is expensive, and someoneneeds to write the checks. The good news is that the only thing SiliconValley hates more than affordable housing is missing out. Investors pour money into companies whoseonly skill is improving the rate at which they can flush hundred dollar bills down thetoilet simply because they don’t want the feeling of having lost an opportunity. (Cough) SoftBank. Once word gets out that somewhere, like Israel,is good at producing high-value startups, finding investors became exponentially easier. The more checks are written, the more venturecapital firms pay attention. Israel’s government got the ball rollingin the ’90s with big incentives for anyone willing to come invest in the country. Today, 4.5% of its total GDP is spent on Research& Development, which is just barely less than first place South Korea. Now, producing lots of smart, young graduatesand giving them bundles of cash is cool and all unless they take those skills and thatcapital to California, giving Americans the jobs and tax dollars. The third ingredient is, therefore, a HighStandard of Living. Israelis have to want to stay in the country. It’s a fun fact for South Africa that ElonMusk grew up there, but not much use because Tesla and SpaceX are American companies. And this is harder than it sounds. On one hand, entrepreneurs and employees careabout healthcare, crime, public transit, and so on. But, it’s a balance. Because, as salaries rise, companies are lessdrawn to the lower cost of hiring an Israeli engineer – currently $73 thousand over, say,a Californian – 114 thousand. Salaries are so high in the San FranciscoBay Area, for example, that, if you’re feeling particularly cheap, you might just buy a $20million private jet to save money, so you can hire employees in less-expensive Houstonand fly them over for the workday. Israel has to be attractive enough for peoplebut not so expensive that businesses look elsewhere. Together, these three ingredients go a longway towards making Israel one of the tech capitals of the world. But there’s also another, harder to measure,but, no less real, factor to consider: culture. If you graduate from Stanford with a degreein Computer Science on Friday, there’s a very real chance you could walk into a Facebookor a Microsoft on Monday and start making $100+ thousand dollars a year. Or you could spend your days begging for moneywith the possibility of losing a lot only to end up back at square one. When the vast majority of new companies fail,starting one is a huge risk, especially considering how lucrative the alternative. It takes a certain kind of personality that’swilling to fail – and do so very publicly. In many Asian countries, the culture of savingface makes entrepreneurship unthinkable for many. The reputational damage of failure is simplytoo great. In Israel, however, a spirit of Chutzpah – roughly,audacity or bravery – has just the opposite effect.

The author of the book Start-up Nation writes“Somewhere along the way – either at home, in school, or in the army – Israelis learnthat assertiveness is the norm, reticence something that risks your being left behind.” Israel is one of a handful of countries thatrequires long military service for everyone – 3 years for men and 2 for women. During their service, Israelis learn skillsthat apply to the workplace, make lifelong friends and business partners, and are remindedthat their country can’t be complacent. Ultimately, Israel proves that there is nosingle factor to economic success. It has high rates of education, lots of governmentinvestment, and, especially considering its geography, an impressive standard of living. But it isn’t ranked number one in any ofthose categories. Instead, a combination of all these things,along with factors like American foreign aid, allow the country to prosper. It also shows that top-down, government policiesare only so effective at encouraging entrepreneurship. Countries can hand out money left and right,but innovation occurs at the level of the individual – his or her ability to take risks,start new projects, and learn new things. If that sounds like you, let me recommendthese videos on Skillshare. This one is taught by Guy Kawasaki, the guyresponsible for marketing Apple’s revolutionary 1984 Macintosh. In short, bite-sized videos, he answers businessquestions like How to ask for money from investors, how to pitch your idea, and why you shouldnetwork. If you already have a business idea in mind,there are also lots of specific lessons. The head of production at Anchor, for example,has this class on how to start a podcast.

Whatever you want to learn – how to draw,take better photos, make YouTube videos, Skillshare probably has it. Better yet – for you, it’s free, for twomonths. Just be one of the first 500 people to usethe link in the description.

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