Culture of risk: Oh, those Israelis

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This is the 14th article in a continuing series that examines the state of the ecosystem necessary to successfully bring technology to market. Based on dozens of interviews with entrepreneurs, venture capitalists, angel investors, business leaders, academics, tech-transfer experts and policy makers, this series looks at what is working and what can be improved in the go-to-market ecosystem in the United States, Canada and Britain. We invite your feedback.

By Francis Moran and Leo Valiquette

“If Canadians were as good at innovating as we are at explaining why we’re bad at it, Canada wouldn’t rank 14th among industrialized nations in the Conference Board of Canada’s report card on innovation. And because innovation is the key to improving productivity, we wouldn’t be earning $7,000 less a person each year than Americans.”

That blunt comment came courtesy of none other than Conference Board president and CEO Anne Golden in an editorial published last August in the Globe and Mail titled “Canada’s innovation malaise: The cure’s in our culture.”

The Conference Board earlier in the year had released a report card on how well Canada had fared in innovation versus 16 of its peers through the economic downturn. For its purposes, the Conference Board defined innovation as “the ability to turn knowledge into new and improved goods and services.” In other words, it is the ability to move from the “R” to the “D” side of the R&D equation and create wealth from having built that better mousetrap.

We’ll talk more about this report over the next couple of weeks as we get deeper into the role that government should play to support entrepreneurship and innovation. Suffice to say for now that Canada’s ranking of 14 out of 17 stems in part from a public policy focus on R&D instead of wealth creation.

However, Golden stressed in her editorial that public policy alone cannot make an entrepreneurial culture. Canada, perhaps, has become too complacent after relying for too long on a low Canadian dollar, a strong global commodities market and the convenience of a big U.S. market for our goods and services. These are all favourable conditions that have worked to blunt our collective appetite for risk taking as a means to get ahead, leaving us ill-prepared to cope now that the global economy has shifted in a less favourable direction.

If this is so, it is not something that can be easily fixed by government intervention. So what are we to do?

Golden cited the example of Israel, a nation with a story that holds worthy lessons for entrepreneurs, investors, politicians and bureaucrats everywhere.

This story was popularized a couple of years ago by authors Dan Senor and Saul Singer in their book, Startup Nation: The story of Israel’s economic miracle. In it, the authors set out to find answers to the following questions:

How is it that Israel – a country of 7.1 million, only 60 years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources – produces more startup companies than large, peaceful and stable nations like Japan, China, India, Korea, Canada, and the U.K.? How is it that Israel has, per person, attracted over twice as much venture capital investment as the U.S. and 30 times more than Europe?”

The book looks at a number of factors related to public policy and tight linkages between business, government, academia and the investment community, as well as the skills Israel’s young people gain thanks to compulsory military service. But the authors, and Golden, emphasize that these factors can only enable and channel those traits that already exist in the Israeli psyche. It is a culture “built on a rich stew of aggressiveness and team orientation, on isolation and connectedness, and on being small and aiming big.”

Many of these characteristics arise from that Hebrew je ne sais quoi known as chutzpah.

“Chutzpah is gall, brazen nerve, effrontery, incredible ‘guts,’ presumption, plus arrogance such as no other word and no other language can do justice to,” Senor said in an interview following the publication of the book.

Senor and Singer interviewed for the book Paypal president Scott Thompson on his experience when Paypal bought Israeli startup FraudSciences in 2007. Thompson summed his first meeting with the FraudSciences team as follows:

“Every question was penetrating. I actually started to get nervous up there. I’d never before heard so many unconventional observations — one after the other. Junior employees had no inhibition about challenging how we had been doing things for years. I’d never seen this kind of completely unvarnished, unintimidated, and undistracted attitude. I found myself thinking, ‘who works for whom here? Did we just buy FraudSciences, or did they buy us?’”

Now the Israeli culture isn’t without its criticisms, chief among them, that the nation’s startup entrepreneurs are too eager to take a rich exit and sell to a foreign concern rather than build global technology companies that remain proudly Israeli. (Hey, Canada, does this sound at all familiar?) The nation’s tech sector is mired in adolescence, according a story published in the Jerusalem Post last summer, due in part to a lack of later-stage funding for startups, a lack of senior management talent and a “live for today” rather than “plan for tomorrow” attitude.

Nonetheless, the Israeli example demonstrates how adversity breeds opportunity and ingenuity. Perhaps Canada’s greatest issue, and we apply this to American and U.K. entrepreneurs as well, is that we have become complacent. Silicon Valley may still be the hotbed of innovation for the global technology market, but other regions have stepped up and made their presence known. As we have said many times, if you can’t find what you need to fulfill you big vision in your own backyard, then look somewhere else. On the other hand, maybe we all need to look at how we could bring a little of that chutzpah home.

As we will explore over the next two weeks, government has a vital role to play to help startups bring technology to market and grow into competitive global enterprises. While government can’t legislate entrepreneurial spirit it can foster a healthy culture of risk in which the ambition and vision that entrepreneurs need to succeed is valued rather than feared.

We’ll leave off by giving Golden the last word:

“Canadians have what it takes to succeed,” she wrote. “We are richly endowed, with resources and people. Our fiscal management has won us international respect. We are open to newcomers and we are attracting terrific talent from abroad, which can only help beef up our ‘ambition DNA.’

“We are the country that invented both insulin and the BlackBerry – we can do this!”

/// COMMENTS

4 Comments »
  • Ian

    May 02, 2011 10:38 pm

    Take the conference board innovation ranking with a grain of salt. In 2006 when the Liberals where in power Canada ranked 6th. In 2007 when the conservatives took power the Conference Board changed how we rank innovation in Canada and our rank went to 14th. Perhaps an axe to grind with the new governments ideology. Hey the name of the report even changed from “People and Performance” to “A report card on Canada” at least those are my observations.

    Legatum Prosperity institutes rates Canada as 4th in innovation a more impartial assessment than the Conference Board of Canada in my opinion.

    The real enemy of innovation in Canada IMHO is comfort or lack of edge. Middle of the road and low risk tolerance is great for banks … not so good for start-ups.

  • Leo

    May 03, 2011 4:40 pm

    Ian:

    Thanks for the note. On your last point, we will be exploring that in detail over the next couple of weeks with thoughts and opinions from Canada, the U.S. and the U.K.

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