The Indian startup ecosystem should look at Israel as a role model

I love Israel. Having been there 7-8 times over 5 years when I worked for a company (Mercury Interactive, acquired by HP) that had its development center there, I believe they have some of the best developers, product thinkers and execution oriented folks.

They are also amazing at marketing. They have successfully convinced the world that they are the “startup nation“.

Never mind that they have 1/3 as many product startups as India produces annually and never mind that Indian companies acquire or get acquired twice as much as Israeli companies. Indians also make up 52% of Silicon valley startup founders, whereas Israelis make up less than 8%.

Take a look at those 3 data points and tell me they are not facts. The PWC report is for 2012, so its relatively recent. The # of companies we track in India versus Israel startups in our database is three times as well. The # of companies on Angel list or Crunchbase reveals a similar statistic.

Still its Tel Aviv that creeps up on Silicon Valley as the top startup center. If you read the startup genome report, you’ll be convinced of the same based on their methodology.

What are the arguments I have heard against India being the startup nation?

1. Quantity not quality:  We produce numbers, but not quality. Many of our startups are clones of Silicon Valley companies featured on Tech Crunch 3 months post launch. I looked at the 3 top Israel incubators and found that over 60% of the companies they were helping were clones as well.

2. Exits: We dont have a significant number of $billion or hundreds of million $ exits. I have found that while we do not have those exits, the number of companies listed on the stock market in the US for both Israel and India are comparable.

3. Market access: Israel has excellent knowledge, insights and know-how about US markets. Since Israel itself is a fairly small market, most Israeli entrepreneurs focus on US markets solely, even though they are geographically closer to Europe. Technically the # of people with market knowledge of the US in India far exceeds that of Israel, but they are not in product startups but at large companies.

4. Services mindset & positioning: Thanks to the ginormous success of Indian services companies who helped position India as the “world’s backend” (comparable to China being positioned as the world’s manufacturer) we have been already positioned as low value, low margin, consulting providers.

5. Late start: Even though Israel is 60 years old and India as a nation is a little older, we had a late (2001 or so) start to technology startups. Compared to Israel which had some interesting companies (need references here, what I have heard is mostly anecdotal) in the late 90’s as well.

Why do I still say Indian startups should look at Israel as a role model?

1. They champion their startups very well. They are very well vested in their startups success. They are constantly talking about how good their startups are, how they are possibly better than the valley and why they have the best talent in the world focused on startups.

2. They take significant risky bets. The # of investors in Israel (seed, angel and institutional) is comparable to those in India even though the number of startups is a third.

3. They look out for each other. The community is so well connected with each other that they genuinely look out and help each other. I dont know of any other place that supports their own as much as Israel does.

If you have been to Israel or have lived / worked with Israeli’s please tell me in the comments if there are a few data points I missed.

If you have any good data (not anecdotes, I have enough of those) to counter any of my arguments, feel free to call those out as well.

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12 thoughts on “The Indian startup ecosystem should look at Israel as a role model”

  1. The one reason I see that Isreal is promoting the startup culture and technologies, is because they can’t do anything else.

    They don’t have much natural resources or farming to depend on, so they give importance to the above two items to ensure that the economy grows.

  2. To add to the comments that mention support for startups.

    I think there is one more area we have to catch up on, that has to do with opening channels for indian entrepreneurs outside India.

    While the ecosystem in India is to an extent able to help out startups in India, and likewise tie is active in the US – a collaboration between the two ecosystems could be more strategic.

    Case in point – while there was 1 other indian company at Techcrunch disrupt’s demo pit – Israeli entrepreneurs in the US had helped to line up a whole alley dedicated to bring in and showcase 10 startups who were flown in from Israel. There was interest from all over – but there are obvious reasons how this would have helped in a variety of ways.

    I’d take that over keynoting at the biggest Indian startup event. It’s highly unlikely the current ecosystem un India would have the networking or channels to pull something of this scale.

    But it will be great if I’m proven wrong some day soon.

    ~B

  3. Hi Mukund! I hope you are well!

    It’s insanely remarkable to even be having Israel and India in the same comparison of anything, since India is 150X bigger than Israel (in terms of population). From a population-to-population perspective, it’s like comparing the United States to Slovenia.

    Quick stats to add to the above (which I think is why the whole startup nation thing is so compelling), India is the world’s second most-populous country, with around 1.2 billion people (per Wikipedia, March 2011, Google shows a higher amount now). Israel has under 8 million people (January 2013, Wikipedia). So as mentioned, India has more than 150X people than Israel.

    So the comment about Israel having 1/3rd as many startups as India, means India has 3X as many startups, but it should have 150X as many, so Israel is proportionately 50X ahead of India in this statistic. Acquire/Get Acquired 2X as much means Israely is 75X where India is proportionately, and 52% v 8% ratio means Israel is 23X as well represented as startup founders population-wise as India.

    There are a lot of factors that contribute to their success so far, but I think the easiest way to understand it is the quote often ascribed to Plato: “Necessity is the mother of invention.” If you can’t reliably get energy supplies from your neighbors, you develop you own. If your neighbors are trying to kill you, constantly, you develop better weapons. If you need to get better inteilligence information, you develop sophisitcated software, networking, etc., to deal with it. And like every country with a sizable military, you have technology that works its way from military to the civilian sector. In my experience, Israelis also embrace life completely (the constant threat of sending your children off to die affects that), and as an oppressed people, you tend to look out for each other. That’s surprisingly manageable in a country of 8 million people.

    Full disclosure: I lived in Israel for a year (and served basic training in the army there), and it’s my ancestral homeland. And I’ve had my heart broken by slightly more Indian girls than Israeli girls. 🙂

    1. David, my good friend. How are you? Where are you? All valid points. But we are not making a case for per capita numbers right. Just raw numbers-wise it should be ahead.

  4. Good Contents , One thing missing about India is that its a huge market and most of the times exploited , manufacturers certainly do not focus on quality but quantity , but at the same time something which is not sell able anywhere in world got market in India, even junk , refurbished goods found its takers in India, So the atmosphere is there to support numbers game instead of quality.Due to number games focus is on margins and cheap prices hence quality is compromised. Why in India there are less VCs, Angels even when companies are much much larger in numbers compare to Israel.Everybody ( funding agencies, consultants ) tries to get their shares in impractical portions and result is obvious.

  5. I think there are a few cultural reasons also. Take #2 in your “Why do I still say Indian startups should look at Israel as a role model?” list. One of the reasons why “Indian investors” don’t take as much risk is because money in India is still largely in form of family silver than individual wealth. Some of the wealthiest Industrial Houses in India are family owned businesses, so are the numerous middle level trading businesses. In such a scenario, neither are investment decisions possible to be “risky” nor can they be taken “fast” – both contributing to the fact that Indian funding ecosystem remains broken. We can argue similar cultural problems with other factors also.

  6. Hi Mukund,

    I really enjoyed reading your post and I agree with most of the things mentioned I would like to suggest some additional points you may want to add to your list:

    1. Being an entrepreneur is highly encouraged by the family and friends in Israel (was not so in the 90’s but definitely is so now) from my own dealings with Indian entrepreneurs there is an extremely high pressure from the friends family and all of your surroundings to get married and settle down and leave this folly of Startups to other people 🙂

    2. In Israel people are encouraged to ask questions, think outside of the box and challenge their superiors if they believe they are making a mistake. In Indian companies this is less likely to occur. (this does not refer to the fact that a janitor is telling the CEO what to do but rather describes a mindset :-))

    3. A failure in Israel is looked upon as an opportunity to learn and grow and not as the end of the road. Again from my not so extensive experience with Indian startups and entrepreneurs the general feeling is usually “you have 1 shot with this so you better make it right”

    In my opinion the most important thing in points 2&3 is that it does not refer just to 1% of the population but rather describes 80% of the people living in Israel, the question now being how is it that 80% of the Israelis think like that.

    As you may know military service is a mandatory service in Israel, and almost every boy or girl at the age of 18 is going through 2 or 3 years of mandatory service. Many people mention it but no one describes the significance of it or how does it contribute to the entrepreneurial mindset. I would like to expand on it and give some examples on how in my opinion it actually happens.

    Israelis refer to the army as a Melting Pot since it takes children from different backgrounds and cultures and puts them all through the same basic training and mindset.
    One of the things you are taught early on in your boothcamp is how to spot a “Manifestly Illegal order” which is to say you need to think about the orders you are given and if you have a reason to believe it’s manifestly illegal you should alert someone within the chain of command. This is not as simple as “I do not like this order so I will not do it” for disobeying you will be put in the brig, this is rather a form that teaches one not to follow orders blindly and to think for one’s self.

    In the civilian life this creates very opinionated people that are able to analyze a situation, spot the problems and have the guts to point out those problems to his bosses, which is a very good thing for startups.

    An additional mindset gained in the military is learning from failure. Like almost any other military in the world the Israelis perform many drills, simulated combats and combat trainings. However one important thing thought to all, is that the training does not end till you analyzed the entire processes and understood what you did wrong and how could you have done it better, win or lose doesn’t matter as much as improving.

    You may say: “This is nothing special, most of the armies in the world have this process as part of their training” and you would be right.

    But the how many countries can say that 80% of their citizens learn to think like that when they are 18 years old? 🙂

    Oh and by the way regarding Harisankar P S answer Israel is a major exporter of fresh produce and a world-leader in agricultural technologies 🙂

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