The secret of Israel’s success is the combination of classic elements of technology clusters with some unique Israeli elements that enhance the skills and experience of individuals, make them together more effective as teams, and provide tight and readily available connections within an established and growing community — Dan Senor and Saul Singer, Start-Up Nation, 2009
You couldn’t make it up. From a tiny, embattled country fighting for its life from its first days as a declared nation in 1948, to what Forbes magazine described in May 2021: “One of the top 20 [in per capita GDP] economies in the world, higher than the UK, Japan, France, South Korea, Italy or Spain.”
“One of the top 20 [in per capita GDP] economies in the world, higher than the UK, Japan, France, South Korea, Italy or Spain.”
Forbes, describing Israel
The Start-Up Nation. How did it happen?
As one privileged to observe firsthand for 55 years how Israel’s hi-tech success has evolved, at the Technion, here is how I see it.
Let’s suppose Israel is a person, with DNA. Suppose we sequence Israel’s DNA and trace its genes back to 1948. What would we find?
This is the story of 10 groundbreaking companies and their leaders, a minyan (10 entities) that built Israel’s wealth. Today’s hi-tech entrepreneurs reached new heights because, as Sir Isaac Newton once said of himself, they see far because they stand on the shoulders of giants.
From Iscar to Mobileye, Israeli industry and innovation evolved, as each new generation of entrepreneurs stood on the giant shoulders of previous ones.
Iscar – 1952
“I want to start my own industry!” That is what Stef Wertheimer told his wife, Miriam, after he was discharged from the Palmach. Why? So he could be close to home to enjoy his children.
In January 1952, Iscar began operating on the kitchen porch of 129 Herzl St., Nahariya, with a small machine whose motor turned a grinding wheel. After two lean years, Wertheimer got a large order for hollow bits able to drill into basalt from Mekorot, the company building the National Water Carrier.
With that order, Wertheimer could afford to close in his porch with screens to keep out flies, and added a wooden barrier to keep out the field mice.
Fast forward: Warren Buffett’s Berkshire Hathaway acquired Iscar in 2006 for $4 billion. Buffett says, “There is no better way to explain the miracle of Israel than to examine the life of Stef Wertheimer. Beginning with no resources except for his brain, Stef built one of the most extraordinary industrial companies in the world.”
Iscar today employs 12,000 and is a market leader in hi-tech cutting tools for the automotive industry.
Rafael – 1948/1954
Rafael was created in 1948 as the army Science Corps, renamed by Ben-Gurion as Rafael in 1954 and given the mission of weapons development. Its first head was the legendary Munya M. Mardor. In 2002 it was incorporated as a limited company, government-owned. It is now known as Rafael Advanced Defense Systems.
A decade ago, I wrote these words in The Jerusalem Report about Rafael and its Iron Dome system that destroys 95% of Hamas rockets fired at our cities: “From conception to becoming operational, Iron Dome took only four years, an exceptionally short time. The first battery of Iron Dome was deployed on March 27, 2011, near Beersheba, and 11 days later, on April 7, successfully intercepted a Grad rocket.”
Much civilian technology has been spun off from Rafael, partly through its joint venture with Elron (see below). This includes Given Imaging, now owned by Medtronic, whose pioneering PillCam technology enables doctors to film the farthest reaches of our intestines.
Elron/Elbit/Elscint – 1962/1966/1969
Uziah Galil fled Romania in 1941 as a teenager and came to Palestine alone. He had a vision for the role that knowledge-based businesses could play in building Israel’s economy. After studying electrical engineering at the Technion and serving in the Israeli Navy, he did graduate study at Purdue University in Indiana.
It was a stroke of luck. Galil’s eyes were opened to how universities, government and business worked together – the R&D triangle that made America wealthy. And he brought the model home to Israel.
On returning home, he started a small electronics firm, Elron, in Neveh Sha’anan. In 1967, after France embargoed key arms sales to Israel, Elron was ready to help fill the gap. Elbit, a spin-off of Elron, built one of Israel’s earliest microcomputers. And another spin-off, Elscint, which produced medical imaging devices, became the first Israeli firm traded on Wall Street in 1972.
“Hundreds of companies grew from people who left Elron,” Galil once said. This pattern of start-ups spawning start-ups has continued for over 50 years.
Scitex – 1968
Efi Arazi studied electronics at the Air Force Technological High School. With $50 in his pocket, he showed up at MIT (Massachusetts Institute of Technology) without even a high school diploma – and the dean accepted him.
While earning his engineering degree there, he helped develop imaging technology used to transmit photographs from the US moon lander.
Arazi returned to Israel in June 1967, and in 1968 he founded and headed Scitex Corporation, which specializes in developing and manufacturing hardware and software for the graphics design, printing, and publishing markets. It was the first Israeli hi-tech firm; at its peak, it employed 4,000 people. Many of its “graduates” went on to found new start-ups.
Intel Israel – 1974
Dov Frohman, founder of Intel Israel, had a dramatic, improbable life story. Born in Amsterdam, his parents gave their son to acquaintances in the Dutch resistance, who placed him with the Van Tilborghs, an Orthodox Christian farming family. The Van Tilborghs hid Frohman for the duration of the war. His parents were murdered in the Holocaust.
After years in orphanages, he came to Israel in 1949. After graduating from the Technion in 1963, he went to the University of California, Berkeley, and then joined Fairchild Labs. In 1969, he followed former Fairchild managers Gordon Moore, Robert Noyce, and Andrew Grove to Intel Corporation, which they had founded a year earlier.
In 1970, Frohman invented EPROM (erasable programmable read-only memory), the first semiconductor memory both erasable and easily reprogrammable – which brought Intel profit and prestige.
Frohman returned to Israel in 1973, bringing his long-term vision to create a center of hi-tech research in Israel. In 1974, he established a small chip design center for Intel in Haifa – Intel’s first outside the United States.
That small center grew into Intel Israel – including Fab 28 in Kiryat Gat, which churns out Intel’s most advanced 10 nanometer microprocessors. Intel Israel employs 14,000 and is Israel’s largest private exporter. Many former Intel engineers have left to found start-ups.
RAD – 1981
RAD Data Communications was founded by brothers Yehuda and Zohar Zisapel. They quickly developed a low-cost modem (a box that connected home networks to the Internet) when Motorola dropped them as distributors.
Once, on a visit to Yehuda’s office, I saw an unusual diagram – a spiderweb of start-up companies, with RAD, the mother ship, at the center. Yehuda explained how over the years Rad helped launch 128 start-ups, with a 70% success rate. RAD engineers who had creative ideas not consistent with RAD’s core products were encouraged to launch their own businesses. Some were given funding, but all received managerial advice.
Yehuda told me the basic idea: “We create new companies in a new fast-growing market, with practically unlimited potential growth space.” Using a pandemic metaphor, I labeled this process “entrepreneurovirus” (the start-up bug quickly “infects” new and eager candidates).
Amdocs - 1982
Amdocs began in 1982 as an offshoot of Golden Pages, the Israeli phone directory company founded by Morris Kahn, who made aliyah from South Africa in 1956.
Together with others at Golden Pages, Kahn, a genius, developed a billing software program for phone companies, after discovering that the cost of calculating billing for a call often exceeded the cost of the call itself.
Amdocs went public on the New York Stock Exchange in June 1998 and moved to NASDAQ in 2014. It has annual revenues of some $5 billion and employs 30,000, operating in more than 90 companies.
Amdocs remains one of the last independent Israeli start-ups that attained global scale and was not acquired or merged.
Check Point – 1993
Check Point Technologies was founded by three Israeli Army friends – Gil Schwed, Shlomo Kramer and Marius Nacht – in the summer of 1993. The three identified a pressing need for anti-hacking firewalls well before the markets realized such a need. Schwed remains the company CEO. He developed the idea while serving in Unit 8200 of the IDF, where he worked on securing classified networks.
The three founders received initial funding of $250,000 from BRM Group, which emerged from an earlier software start-up founded by brothers Nir and Eli Barkat.
Check Point today employs 6,000, has $2 billion in annual revenues, and is listed on NASDAQ.
Mellanox – 1999
Mellanox was born in May 1999, founded by former executives of Intel and Galileo, led by Eyal Waldman. Mellanox makes computer networking products – adapters, switches, software, and cables for high-performance computing, data centers and cloud computing.
On March 11, 2019, Nvidia acquired Mellanox for $6.9 billion. The CEO of Nvidia, Jensen Huang, explained the logic of the acquisition:
“We believe that in future data centers, the compute will not start and end at the server but will extend into the network. And the network itself, the fabric, will become part of the computing fabric. Mellanox’s footprint in data centers is quite large. […] We will be in the position to address this large market opportunity much better,” he said.
Nvidia employs 26,000 worldwide and has annual revenues of $26 biliion.
Mobileye – 1999
Mobileye is a company that develops autonomous driving technologies and advanced driver-assistance systems – cameras, computer chips and software.
Mobileye was founded in 1999 by Hebrew University professor Amnon Shashua, with Ziv Aviram as CEO. At an academic conference, automobile executives asked Shashua how many cameras were needed to create a vehicle vision system that was able to warn of impending crashes.
“One,” he said.
The executives were skeptical. After all, humans have depth perception only when they have two eyes.
Shashua evolved his academic research into a vision system that could detect vehicles using a camera and software, aided by a chip Mobileye developed. It plays a key role in new self-driving systems.
Mobileye was acquired by Intel in 2017 for $15.3 billion, the largest sum ever paid for an Israeli start-up.
Storm clouds
My Neaman Institute colleague Gilead Fortuna, former Teva senior VP, is working on an extensive report on Israeli industry – past, present, and future. He regards hi-tech and manufacturing as a single continuous entity with the same key success factors: strong leadership, quality management, long-term thinking, innovative thinking, deep insight into markets, coupled with a strong vision.
As Israel marks its Diamond Jubilee, there are storm clouds everywhere. In Israel, protests against the proposed judicial reform continue. Globally, The Economist financial weekly predicts “Global economic growth will slow sharply this year, reflecting persistent headwinds stemming from the war in Ukraine, high inflation and rising interest rates,” as well as a dogged global banking crisis.
But in spite of the dark clouds, there is reason for optimism. The spirit of creativity, make-do and resilience remain vibrant and durable. In its 75 years, Israel has bounced back strongly from terror attacks, war, recession, inflation, and political strife. It will do so again.
Over 75 years, the torch of innovation has passed from Stef Wertheimer (Iscar) to Amnon Shashua (Mobileye), through the generations – and it still burns brightly.
As we speak, world-changing innovations are brewing in the fertile minds of a new generation of Israeli entrepreneurs. They will, if anything, surpass the minyan of astonishing breakthroughs described above.
As Al Jolson said in 1927, unscripted, at the end of the first talkie movie The Jazz Singer: “Wait a minute … you ain’t heard nothin’ yet.” ■
The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com.