From Israel's 'start-up nation', 4 lessons in innovation

Only a short flight separates Tel Aviv from many European capitals, but the seaside city’s leadership on innovation and its bustling start-up culture can make it seem worlds away. Ranked sixth in the world by Start-Up Genome’s Start-Up Ecosystem Rankings in 2019, Israel has been recognized internationally as the start-up nation, punching above its weight for a country with a population of only 8 million.

How does this tiny nation manage to be so creative? And if some of these factors are specific to its unique culture, is there anything Europe can replicate?

With 44 countries, including 28 European Union member states, Europe has a lot of innovation potential—if local innovation ecosystems across the region were to better work together. Successful implementation of the EU’s Digital Single Market strategy could create an estimated €415 billion in value, serving a combined population of over 500 million. Europe has an abundance of internationally respected universities and STEM graduates, but the market is fragmented by language and local regulation, as well as more subtle cultural differences.

The Digital Europe initiative is committed to making a pan-European approach to innovation and entrepreneurship possible. To this end, the initiative sent a delegation to meet with Israeli founders, academics and corporates, as well as leadership from the Israeli Innovation Authority (IIA), to support collaboration between Europe’s many digital hubs—and learn how a touch of the “yi-hi-ye be-se-der” (Hebrew for “everything will be alright”) mindset might be applied in Europe.

From those meetings, here are five lessons from Israel for European innovators and policy-makers.

The IIA approaches innovation by understanding the challenge first, and then working backwards to source solutions. This is the reverse innovation model. For example, established corporations are invited to pitch their challenges to start-ups. This promotes the formation of joint ventures (sometimes between competing firms) to address them.

One example is the Floor, a fintech accelerator founded jointly by international banks including HSBC, Deutsche Bank, RBS and Santander. The Floor uses the reverse innovation model to source challenges from the banks and then searches the market for relevant start-ups, incubating and supporting those working on potential solutions. They speak of providing “helpful money”, where financing and mentoring go hand-in-hand. More European accelerators could be set up in this way to source solutions, focusing earlier on the possible applications for the products of selected start-ups.

Just days after the public announcement of the first 3D-printed human heart, Professor Tal Dvir discussed the research and development process that lead to the breakthrough. However, his message was focused not only on success, but also on the need to do more and go further.

A similar message came from SpaceIL, which attempted the first Israeli moon landing. After nine years of work and millions in investment, however, the company failed to complete the mission as their unmanned spacecraft successfully achieved orbit but crashed upon landing. SpaceIL (supported by its investors and the Israeli government) immediately announced a second attempt to become the fourth nation on the moon, emphasizing understanding the cause of failure meant there was no reason not to try one more time. In Europe, there is an active discussion on learning to accept failure, but it is not every day a “failed” project gets national acclaim. While it may be unrealistic to copy-and-paste the Israeli approach, Europeans should still seek a moon mission in the Fourth Industrial Revolution.

In meetings with the European delegates, speakers highlighted the need to think globally from day one, while emphasizing responsibility to the local community. In the close-knit world of Israeli tech, even global companies give back. The new Amazon Web Services headquarters in Tel Aviv has an entire floor available to the public for organizing community events, while Intel—the largest employer in Israel—actively supports diversity programmes. Start-ups like Moovit, an Israeli mobility-as-a-service company, immediately consider global expansion, relying on voluntary “mooviters” to map local transit information in cities, both locally and worldwide, that would be otherwise underserved.

Ashleigh Ainsley, Founder of the UK’s Colorintech, had a good takeaway for European companies that plan to extend beyond their immediate borders: “The size of their domestic and regional market doesn't deter founders but instead acts to encourage them to build businesses that are scalable across borders. This manifests in ways such as language support built into products from the beginning. As a result, the businesses that survive are robust and suited for breaking down the early barriers to entry in foreign markets.”

Army service is an undeniable cultural factor in Israel. But the most common explanation for its significance for entrepreneurship is not related to defence, but rather to the systematic scanning of schools for the country’s best talent, and the following obligation to take responsibility early and to be held accountable. In a country in which nearly 45% of the population is under 24, this is no small matter. Schools apply the same rationale, teaching kids responsibility for their actions, even if it’s as simple as doing community service and keeping the school clean. This gives children agency and higher aspirations.

According to Wolfgang Grundinger, adviser to the German Association of the Digital Economy: “Just as in the Israeli military, where talented individuals in their twenties have the opportunity to be responsible for their own budget and lead teams and projects, other countries should push young leaders to take on responsibility earlier and empower them to lead their countries into a digital future.”

Israel’s disproportionate impact on global innovation also finds its roots in strong links to the world’s highest-performing innovation ecosystems. Europe has everything necessary to build these bridges, internally and externally, and to turn its diversity into a fertile ground for new business. Europeans need to make fostering collaboration between the different ecosystem players—from big corporate players to entrepreneurs, policy experts and investors—a key objective.

Unlike Israel, Europe doesn’t have to start by attracting multinationals. It already has a large industrial base it only has to tap into. Exposure to disruption and innovation is the best remedy against future shocks.