What Makes Israel a Hotbed for Startups?

According to estimates, the country is second to Silicon Valley for new companies. Here are three things that may be driving that.

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By Ron Yekutiel • Sep 9, 2014 Originally published Sep 9, 2014

Opinions expressed by Entrepreneur contributors are their own.

Israel's startup scene is booming. In fact, it's only second to Silicon Valley when it comes to producing startup companies. In 2013 alone, Israel produced 1,000 new startups, according to a survey by TerraLab Ventures. For every startup that failed, two more sprung up in its place.

According to the book Startup Nation: The Story of Israel's Economic Miracle by Dan Senor and Saul Singer, Israel has the highest density of tech startups in the world. Some of these startups achieve global success straight from Israel, such as Waze, and others achieve it after opening centers in places such as Silicon Valley, New York and Boston. According to Guy Franklin, who runs the website Israel Mapped in NY, about 10 new Israeli companies join the New York community every month.

Related: The Secret to Israel's Startup Success

Thanks to Israeli government programs spurring innovation and the depth of STEM talent in Israel, it's not hard to see why Israel has become a startup hotbed. The country has built an ecosystem that continues to grow and create synergy and new opportunities for entrepreneurs.

Here are just a few reasons why the startup scene is thriving and growing in Israel:

1. Necessity is the mother of invention -- and startups. Not long ago Israel was mostly a land of desert and swamps. Today, other than the Dead Sea, the country is very much alive, fertile and blossoming. Forced to find solutions to survive, the country became a hotbed for research and development in irrigation and water technology.

Similarly, the fierce geopolitical conflicts in the volatile Middle East elicited advanced defense-related research and development efforts, which later became the basis for many non-defense innovations in the areas of healthcare, telecommunications, security, transportation, aviation and more.

The need to fight and to innovate for survival made Israelis tough and resolute as individuals, and cohesive and united as a group. Israelis strive to progress together no matter what life throws their way. It is no surprise, then, that tenacity and experience in being calm under pressure has led to startup founders who aren't likely to throw in the towel the first time they hit a bump in the road. A setback is an opportunity in disguise to these entrepreneurs.

2. Shareholders, not employees. A former prime minister of Israel once joked that "in Israel, there are 3 million prime ministers." (The country's population at the time. Today, that number stands at 8 million.)

Related: 5 Lessons From Silicon Valley for Developing Business Hubs

In a small and young country that is fighting for survival and in which everyone serves and contributes, there is a strong sense of individual responsibility and accountability that compels people to voice their opinions, to take action, and, when needed, to challenge authority and the status quo.

People don't feel a mere sense of belonging to the country -- they feel a deep and genuine sense of ownership over it. They see themselves as shareholders of the state, not its employees. Consequently, in the business world, Israelis are drawn to taking the "driver seat" and steering their company and team with conviction and resolve, even (and especially) amidst uncertainty, challenges and risks. Fear of failure is a very distant second to the fear of inaction and paralysis.

3. Bringing improvements to the world. In Judaism, there is a concept called "Tikkun Olam," which bears upon all people the responsibility to heal, repair and transform the world and to bring about better welfare for society at large.

Entrepreneurs in Israel aren't just driven by monetary payouts. They are inspired by bringing great new ideas and technologies to the world. They are eager to address burning challenges and solve big problems that can help and serves others. Entrepreneurs in Israel look at big hurdles as reasons to roll up their sleeves and get working.

Israel is young and small in size and population. It has very little natural resources, and more than its share of perils. Yet, despite this, Israel has become a luminary tech city on a hill.

In a world in which innovation plays an ever-increasing role, there is a potential lesson here for other countries and societies, as well. It is recommended to foster innovation around areas of necessity (everyone has these). Risk-taking and challenging of norms and status quos should be encouraged -- societies that discourage risk and failure inhibit innovation.

There are great benefits to exercising compulsory drafts or social service -- it turns citizens from employees to shareholders, and elicits greater collaboration.

Lastly, it is both rewarding for individuals and for the whole society to adopt the concept of "Tikkun Olam" -- we shall all be better for it.

Related: In Mobile Push, Facebook Buys Israel-Based Data Analytics Startup Onavo

Ron Yekutiel

Co-Founder, Chairman and CEO of Kaltura Inc.

Ron Yekutiel is the co-founder, chairman and CEO of Kaltura, Inc., a widely-used online-video platform.

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