Start-Up Nation - The Story of Israel's Economic Miracle Part 2

If he sent the soldiers in, there was a high risk of additional casualties. And if he sent the bulldozer to destroy the house, this would risk harming the injured soldier.

To further complicate matters, the house shared a wall with a Palestinian school, and children and teachers were still inside. From the roof of the school, journalists were doc.u.menting the whole scene. The terrorist, meanwhile, was shooting at both the Israeli forces and the journalists.

Throughout much of the standoff, the company commander was on his own. Farhi could have tried to take charge from afar, but he knew he had to give his subordinate lat.i.tude: "There were an infinite number of dilemmas there for the commander. And there wasn't a textbook solution." The soldiers managed to rescue the injured soldier, but the terrorist remained inside. The commander knew that the school staff was afraid to evacuate the school, despite the danger, because they did not want to be branded "collaborators" by the terrorists. And he knew that the journalists would not leave the roof of the school, because they didn't want to miss breaking news. The commander's solution: empty the school using smoke grenades.

Once the students, teachers, and journalists had been safely evacuated, the commander decided it was safe to send in the bulldozer to drive the terrorist out of the adjacent building. Once the bulldozer began biting into the house, the commander unleashed the dog to neutralize the terrorist. But while the bulldozer was knocking down the house, another terrorist the Israelis didn't know about came out of the school next door. The soldiers outside shot and killed this second terrorist. The entire operation took four hours. "This twenty-three-year-old commander was alone for most of the four hours until I got there," Farhi told us.

"After an event like that, the company commander goes back to the base and his soldiers look at him differently," Farhi continued. "And he himself is different. He is on the line-responsible for the lives of a lot of people: his soldiers, Palestinian schoolchildren, journalists. Look, he didn't conquer Eastern Europe, but he had to come up with a creative solution to a very complex situation. And he is only twenty-three years old."

We then heard from a brigadier general about Yossi Klein, a twenty-year-old helicopter pilot in the 2006 Lebanon war. He was ordered to evacuate a wounded soldier from deep in southern Lebanon. When he piloted his chopper to the battlefield, the wounded soldier lay on a stretcher surrounded by a dense overgrowth of bushes that prevented the helicopter from landing or hovering close enough to the ground to pull the stretcher on board.6 There were no manuals on how to deal with such a situation, but if there had been, they would not have recommended what Klein did. He used the tail rotor of his helicopter like a flying lawn mower to chop down the foliage. At any point, the rotor could have broken off, sending the helicopter cras.h.i.+ng into the ground. But Klein succeeded in tr.i.m.m.i.n.g the bushes enough so that, by hovering close to the ground, he could pick up the wounded soldier. The soldier was rushed to the hospital in Israel and his life was saved.

Speaking of the company commanders who served under him, Farhi asked, "How many of their peers in their junior year in colleges have been tested in such a way? . . . How do you train and mature a twenty-year-old to shoulder such responsibility?"

The degree to which authority devolves to some of the most junior members of the military has at times surprised even Israeli leaders. In 1974, during the first premiers.h.i.+p of Yitzhak Rabin, a young female soldier from the IDF's Unit 8200-the same unit in which the founders of Fraud Sciences later served-was kidnapped by terrorists. Major General Aharon Zeevi-Farkash (known as Farkash), who headed the unit-Israel's parallel to the U.S. National Security Agency-recalled Rabin's disbelief: "The kidnapped girl was a sergeant. Rabin asked us to provide him an itemization of what she knew. He was worried about the depth of cla.s.sified information that could be forced out of her. When he saw the briefing paper, Rabin told us we needed an immediate investigation; it's impossible that a sergeant would know so many secrets that are critical to Israel's security. How did this happen?"

Rabin's reaction was especially surprising since he had been the IDF chief of staff during Israel's Six-Day War. Farkash continued the story: "So I told him, 'Mr. Prime Minister, this individual sergeant is not alone. It was not a mistake. All the soldiers in Unit 8200 must know these things because if we limited such information to officers, we simply would not have enough people to get the work done-we don't have enough officers.' And in fact, the system was not changed, because it's impossible for us, given the manpower constraints, to build a different system."7 Farkash, who today runs a company that provides innovative security systems for corporate and residential facilities, quipped that compared to the major powers, Israel is missing four "generals": "general territory, general manpower, general time, and general budget." But nothing can be done about the shortage of general manpower, Farkash says. "We cannot allocate as many officers as other countries do, so we have sergeants that are doing the work of lieutenant colonels, really."

This scarcity of manpower is also responsible for what is perhaps the IDF's most unusual characteristic: the role of its reserve forces. Unlike in other countries, reserve forces are the backbone of Israel's military.

In most militaries, reserve forces are constructed as appendages to the standing army, which is the nation's main line of defense. Israel, however, is so small and outnumbered by its adversaries that, as was clear from the beginning, no standing army could be large enough to defend against an all-out a.s.sault. Shortly after the War of Independence, Israel's leaders decided on a unique reserves-dominated military structure, whereby reservists would not only man whole units but would be commanded by reserve officers as well. Reserve units of other militaries may or may not be commanded by officers from the standing army, but they are given weeks or even months of refresher training before being sent into battle. "No army had relied for the majority of its troops on men who were sent into combat one or two days after their recall," says Luttwak.

No one really knew whether Israel's unique reserve system would work, because it had never been tried. Even today, Israel is the only army in the world to have such a system. As U.S. military historian Fred Kagan explained, "It's actually a terrible way to manage an army. But the Israelis are excellent at it because they had no other choice."8 Israel's reserve system is not just an example of the country's innovation; it is also a catalyst for it. Because hierarchy is naturally diminished when taxi drivers can command millionaires and twenty-three-year-olds can train their uncles, the reserve system helps to reinforce that chaotic, antihierarchical ethos that can be found in every aspect of Israeli society, from war room to cla.s.sroom to boardroom.

Nati Ron is a lawyer in his civilian life and a lieutenant colonel who commands an army unit in the reserves. "Rank is almost meaningless in the reserves," he told us, as if this were the most natural thing in the world. "A private will tell a general in an exercise, 'You are doing this wrong, you should do it this way.' "9 Amos Goren, a venture capital investor with Apax Partners in Tel Aviv, agrees. He served full-time in the Israeli commandos for five years and was in the reserves for the next twenty-five years. "During that entire time, I never saluted anybody, ever. And I wasn't even an officer. I was just a rank-and-file soldier."10 Luttwak says that "in the reserve formations, the atmosphere remains resolutely civilian in the midst of all the trappings of military life."

This is not to say that soldiers aren't expected to obey orders. But, as Goren explained to us, "Israeli soldiers are not defined by rank; they are defined by what they are good at." Or, as Luttwak said, "Orders are given and obeyed in the spirit of men who have a job to do and mean to do it, but the hierarchy of rank is of small importance, especially since it often cuts across sharp differences in age and social status."

When we asked Major General Farkash why Israel's military is so antihierarchical and open to questioning, he told us it was not just the military but Israel's entire society and history. "Our religion is an open book," he said, in a subtle European accent that traces back to his early years in Transylvania. The "open book" he was referring to was the Talmud-a dense recording of centuries of rabbinic debates over how to interpret the Bible and obey its laws-and the corresponding att.i.tude of questioning is built into Jewish religion, as well as into the national ethos of Israel.

As Israeli author Amos Oz has said, Judaism and Israel have always cultivated "a culture of doubt and argument, an open-ended game of interpretations, counter-interpretations, reinterpretations, opposing interpretations. From the very beginning of the existence of the Jewish civilization, it was recognized by its argumentativeness."11 Indeed, the IDF's lack of hierarchy pervades civilian life. It can even break down civilian hierarchies. "The professor acquires respect for his student, the boss for his high-ranking clerk. . . . Every Israeli has his friends 'from the reserves' with whom he might not otherwise have any kind of social contact," says Luttwak. "Sleeping in bare huts or tents, eating dull army food, often going without a shower for days, reservists of widely different social backgrounds meet on an equal footing; Israel is still a society with fewer cla.s.s differences than most, and the reserve system has contributed to keeping it that way."

The dilution of hierarchy and rank, moreover, is not typical of other militaries. Historian and IDF reserve officer Michael Oren-now serving as Israel's amba.s.sador to the United States-described a typical scene at an Israeli army base from when he was in a military liaison unit: "You would sit around with a bunch of Israeli generals, and we all wanted coffee. Whoever was closest to the coffee pot would go make it. It didn't matter who-it was common for generals to be serving coffee to their soldiers or vice versa. There is no protocol about these things. But if you were with American captains and a major walked in, everyone would stiffen. And then a colonel would walk in and the major would stiffen. It's extremely rigid and hierarchical in the U.S. Rank is very, very important. As they say in the American military, 'You salute the rank, not the person.' "12 In the IDF, there are even extremely unconventional ways to challenge senior officers. "I was in Israeli army units where we threw out the officers," Oren told us, "where people just got together and voted them out. I witnessed this twice personally. I actually liked the guy, but I was outvoted. They voted out a colonel." When we asked Oren in disbelief how this worked, he explained, "You go and you say, 'We don't want you. You're not good.' I mean, everyone's on a first-name basis. . . . You go to the person above him and say, 'That guy's got to go.' . . . It's much more performance-oriented than it is about rank."

Retired IDF General Moshe "Bogey" Yaalon, who served as chief of staff of the army during the second intifada, told us a similar story from the second Lebanon war. "There was an operation conducted by a reserve unit in the Lebanese village of Dabu. Nine of our soldiers and officers were killed, and others were injured, including my nephew. And the surviving soldiers blamed the battalion commander for his incompetent management of the operation. The soldiers at the company level went to the brigade commander to complain about the battalion commander. Now, the brigade commander, of course, did his own investigation. But the battalion commander was ultimately forced to step down because of a process that was initiated by his subordinates."13 Yaalon believes that this unique feature of Israel's military is critical to its effectiveness: "The key for leaders.h.i.+p is the soldiers' confidence in their commander. If you don't trust him, if you're not confident in him, you can't follow him. And in this case, the battalion commander failed. It might be a professional failure, like in this case. It might be a moral failure in another case. Either way, the soldier has to know that it is acceptable-and encouraged-for him to come forward and to talk about it."

Former West Point professor Fred Kagan concedes that Americans can learn something from the Israelis. "I don't think it's healthy for a commander to be constantly worrying if his subordinates will go over his head, like they do in the IDF," he told us. "On the other hand, the U.S. military could benefit from some kind of 360-degree evaluation during the promotion board process for officers. Right now in our system the incentives are all one-sided. To get promoted, an officer just has to please more senior officers. The junior guys get no input."

The conclusion Oren draws from displays of what most militaries-and Fred Kagan-would call insubordination is that the IDF is in fact "much more consensual than the American army." This might seem strange, since the U.S. Army is called a "volunteer" army (not unpaid, but in the sense of free choice), while the IDF is built on conscription.

Yet, Oren explains, "in this country there's an unwritten social contract: we are going to serve in this army provided the government and the army are responsible toward us. . . . The Israeli army is more similar, I would imagine, to the Continental Army of 1776 than it is to the American army of 2008. . . . And by the way, George Was.h.i.+ngton knew that his 'general' rank didn't mean very much-that he had to be a great general, and that basically people were there out of volition."

The Continental Army was an extreme example of what Oren was describing, since its soldiers would decide on an almost daily basis whether to continue to volunteer. But it was a "people's army," and so is the IDF. As Oren describes it, like the Continental Army, the IDF has a sc.r.a.ppy, less formal, more consensual quality because its soldiers are fighting for the existence of their country, and its ranks are composed of a broad cross section of the people they are fighting for.

It's easy to imagine how soldiers unconcerned with rank have fewer qualms about telling their boss, "You're wrong." This chutzpah chutzpah, molded through years of IDF service, gives insight into how Shvat Shaked could have lectured PayPal's president about the difference between "good guys and bad guys" on the Web, or how Intel Israel's engineers decided to foment a revolution to overturn not only the fundamental architecture of their company's main product but the way the industry measured value. a.s.sertiveness versus insolence; critical, independent thinking versus insubordination; ambition and vision versus arrogance-the words you choose depend on your perspective, but collectively they describe the typical Israeli entrepreneur.

PART II.

Seeding a Culture of Innovation

CHAPTER 3.

The People of the Book

Go far, stay long, see deep.

-OUTSIDE MAGAZINE MAGAZINE

THE ELEVATION OF L LA P PAZ, B BOLIVIA, is 11,220 feet and El Lobo is one floor higher. El Lobo is a restaurant, hostel, social club, and the only source of Israeli food in town. It is run by its founders, Dorit Moralli and her husband, Eli, both from Israel.1 Almost every Israeli trekker in Bolivia is likely to come through El Lobo, but not just to get food that tastes like it's from home, to speak Hebrew, and to meet other Israelis. They know they will find something else there, something even more valuable: the Book. Though spoken of in the singular, the Book is not one book but an amorphous and evolving collection of journals, dispersed throughout some of the most remote locations in the world. Each journal is a handwritten "Bible" of advice from one traveler to another. And while the Book is no longer exclusively Israeli, its authors and readers tend to be from Israel.

El Lobo's incarnation of the Book was created in 1986, Dorit recalls, just one month after her restaurant opened. Four Israeli backpackers came in and asked, "Where's the Book?" When she looked mystified, they explained that they meant a book where people could leave recommendations and warnings for other travelers. They went out and bought a blank journal and donated it to the restaurant, complete with the first entry, in Hebrew, about a remote jungle town they thought other Israelis might like.

The Book predated the Internet-it actually started in Israel in the 1970s-but even in today's world of blogs, chat rooms, and instant messaging, this primitive, paper-and-pen-based inst.i.tution is still going strong. El Lobo has become a regional Book hub, with six volumes: a successor to the original Book started in 1989, along with separate Books for Brazil, Chile, Argentina, Peru, and the northern part of South America. There are other Books stationed throughout Asia. While the original was written only in Hebrew, today's Books are written in a wide array of languages.

"The polyglot entries were random, frustrating, and beautiful, a carnival of ideas, pleas, boasts, and obsolete phone numbers," Outside Outside magazine reported on the venerable 1989 volume. "One page recommended the 'beautikul girls' [ magazine reported on the venerable 1989 volume. "One page recommended the 'beautikul girls' [sic] in a certain disco; the next tipped a particular ice cave as 'a must' (at least until someone else scrawled a huge 'NO!' over that entry). This was followed by a half-page in j.a.panese and a dense pa.s.sage in German, with bar charts of alt.i.tude and diagrams of various plants. . . . After that there was a full-page scrawl devoted to buying a canoe in the rainforests of Peru's Manu National Park, with seven parentheticals and a postscript that wrapped around the margins sideways; a warning against so-and-so's couscous; and an ornate four-color drawing of a toucan named Felipe."

Though it has become internationalized, the Book remains a primarily Israeli phenomenon. Local versions of the Book are maintained and pop up wherever the "wave"-what Hebrew University sociologist Darya Maoz calls the s.h.i.+fting fas.h.i.+ons in Israeli travel destinations-goes. Many young Israeli trekkers simply go from Book to Book, following the flow of advice from an international group of adventure seekers, among whom Hebrew seems to be one of the most common tongues.

A well-known joke about Israeli travelers applies equally well in Nepal, Thailand, India, Vietnam, Peru, Bolivia, or Ecuador. A hotelkeeper sees a guest present an Israeli pa.s.sport and asks, "By the way, how many are you?" When the young Israeli answers, "Seven million," the hotelkeeper presses, "And how many are still back in Israel?"

It is hardly surprising that people in many countries think that Israel must be about as big and populous as China, judging from the number of Israelis that come through. "More than any other nationality," says Outside Outside, "[Israelis] have absorbed the ethic of global tramping with ferocity: Go far, stay long, see deep."

Israeli wanderl.u.s.t is not only about seeing the world; its sources are deeper. One is simply the need for release after years of confining army service. Yaniv, an Israeli encountered by the Outside Outside reporter, was typical of many Israeli travelers: "He had overcompensated for years of military haircuts by sprouting everything he could: His chin was a wispy scruff and his sun-bleached hair had twirled into a mix of short dreads and Orthodox earlocks, all swept up into a kind of werewolf 'do. 'The hair is because of the army,' Yaniv admitted. 'First the hair, then the travel.' " reporter, was typical of many Israeli travelers: "He had overcompensated for years of military haircuts by sprouting everything he could: His chin was a wispy scruff and his sun-bleached hair had twirled into a mix of short dreads and Orthodox earlocks, all swept up into a kind of werewolf 'do. 'The hair is because of the army,' Yaniv admitted. 'First the hair, then the travel.' "

But it's more than just the army. After all, these young Israelis probably don't run into many veterans from other armies, as military service alone does not induce their foreign peers to travel. There is another psychological factor at work-a reaction to physical and diplomatic isolation. "There is a sense of a mental prison living here, surrounded by enemies," says Yair Qedar, editor of the Israeli travel magazine Masa Acher Masa Acher. "When the sky opens, you get out."

Until recently, Israelis could not travel to a single neighboring country, though Beirut, Damascus, Amman, and Cairo are all less than a day's drive from Israel. Peace treaties with Egypt and Jordan have not changed this much, though many curious Israelis have now visited these countries. In any event, this slight opening has not dampened the urge to break out of the straitjacket that has been a part of Israel's modern history from the beginning-from before the beginning.

Long before there was a State of Israel, there was already isolation. An early economic boycott can be traced back to 1891, when local Arabs asked Palestine's Ottoman rulers to block Jewish immigration and land sales. In 1922, the Fifth Palestine Arab Congress called for the boycott of all Jewish businesses.2 A longer official boycott by the twenty-two-nation Arab League, which banned the purchase of "products of Jewish industry in Palestine," was launched in 1943, five years before Israel's founding. This ban extended to foreign companies from any country that bought from or sold to Israel (the "secondary" boycott), and even to companies that traded with these blacklisted companies (the "tertiary" boycott). Almost all the major j.a.panese and Korean car manufacturers-including Honda, Toyota, Mazda, and Mitsubis.h.i.+-complied with the secondary boycott, and their products could not be found on Israeli roads. A notable exception was Subaru, which for a long time had the Israeli market nearly to itself but was barred from selling in the Arab world.3 Every government of the Arab League established an official Office of the Boycott, which enforced the primary boycott, monitored the behavior of secondary and tertiary targets, and identified new prospects. According to Christopher Joyner of George Was.h.i.+ngton University, "Of all the contemporary boycotts, the League of Arab States' boycott against Israel is, ideologically, the most virulent; organizationally, the most sophisticated; politically, the most protracted; and legally, the most polemical."4 The boycott has at times taken on unusual targets. In 1974, the Arab League blacklisted the entire Baha'i faith because the Baha'i temple in Haifa is a successful tourist attraction that has created revenue for Israel. Lebanon forbade the showing of the Walt Disney production Sleeping Beauty Sleeping Beauty because the horse in the film bears the Hebrew name Samson. because the horse in the film bears the Hebrew name Samson.5 In such a climate, it is natural that young Israelis seek both to get away from an Arab world that has ostracized them and to defy such rejectionism-as if to say, "The more you try to lock me in, the more I will show you I can get out." For the same reason, it was natural for Israelis to embrace the Internet, software, computer, and telecommunications arenas. In these industries, borders, distances, and s.h.i.+pping costs are practically irrelevant. As Israeli venture capitalist Orna Berry told us, "High-tech telecommunications became a national sport to help us fend against the claustrophobia that is life in a small country surrounded by enemies."6 This was a matter of necessity, rather than mere preference or convenience.

Because Israel was forced to export to faraway markets, Israeli entrepreneurs developed an aversion to large, readily identifiable manufactured goods with high s.h.i.+pping costs, and an attraction to small, anonymous components and software. This, in turn, positioned Israel perfectly for the global turn toward knowledge- and innovation-based economies, a trend that continues today.

It is hard to estimate how much the Arab boycott and other international embargoes-like France's military ban-have cost Israel over the past sixty years, in terms of lost markets and the difficulties imposed on the nation's economic development. Estimates range as high as $100 billion. Yet the opposite is just as difficult to guess: What is the value of the attributes that Israelis have developed as a result of the constant efforts to crush their nation's development?

Today, Israeli companies are firmly integrated into the economies of China, India, and Latin America. Because, as Orna Berry says, telecommunications became an early priority for Israel, every major telephone company in China relies on Israeli telecom equipment and software. And China's third-largest social-networking Web site, which services twenty-five million of the country's young Web surfers, is actually an Israeli start-up called Koolanoo, which means "all of us" in Hebrew. It was founded by an Israeli whose family emigrated from Iraq.

In the ultimate demonstration of nimbleness, the Israeli venture capitalists who invested in Koolanoo when it was a Jewish social-networking site have utterly transformed its ident.i.ty, moving all of its management to China, where young Israeli and Chinese executives work side by side.

Gil Kerbs, an Israeli alumnus of Unit 8200, also spends a lot of time in China. When he left the IDF, he picked up and moved to Beijing to study Chinese intensively, working one-on-one with a local instructor-for five hours each day for a full year-while also holding a job at a Chinese company, so he could build a business network there. Today he is a venture capitalist in Israel, specializing in the Chinese market. One of his Israeli companies is providing voice-biometric technology to China's largest retail bank. He told us that Israelis actually have an easier time doing business in China than in Europe. "For one, we were in China before the 'tourists' arrived," he says, referring to those who have only in recent years identified China as an emerging market. "Second, in China there is no legacy of hostility to Jews. So it's actually a more welcoming environment for us."7 Israelis are far ahead of their global compet.i.tors in penetrating such markets, in part because they had to leapfrog the Middle East and search for new opportunities. The connection between the young Israeli backpackers dispersed around the globe and Israeli technology entrepreneurs' penetration of foreign markets is clear. By the time they are out of their twenties, not only are most Israelis tested in discovering exotic opportunities abroad, but they aren't afraid to enter unfamiliar environments and engage with cultures very different from their own. Indeed, military historian Edward Luttwak estimates that many postarmy Israelis have visited over a dozen countries by age thirty-five.8 Israelis thrive in new economies and uncharted territory in part because they have been out in the world, often in pursuit of the Book. Israelis thrive in new economies and uncharted territory in part because they have been out in the world, often in pursuit of the Book.

One example of this avid internationalism is Netafim, an Israeli company that has become the largest provider of drip irrigation systems in the world. Founded in 1965, Netafim is a rare example of a company that bridges Israel's low-tech, agricultural past to the current boom in cleantech.

Netafim was created by Simcha Bla.s.s, the architect of one of the largest infrastructure projects undertaken in the early years of the state. Born in Poland, he was active in the Jewish self-defense units organized in Warsaw during World War I. Soon after arriving in Israel in the 1930s, he became chief engineer for Mekorot, the national water company, and planned the pipeline and ca.n.a.l that would bring water from the Jordan River and Sea of Galilee to the arid Negev.

Bla.s.s got the idea for drip irrigation from a tree growing in a neighbor's backyard, seemingly "without water." The giant tree, it turns out, was being nourished by a slow leak in an underground water pipe. When modern plastics became available in the 1950s, Bla.s.s realized that drip irrigation was technically feasible. He patented his invention and made a deal with a cooperative settlement located in the Negev Desert, Kibbutz Hatzerim, to produce the new technology.

Netafim was pioneering not just because it developed an innovative way to increase crop yields by up to 50 percent while using 40 percent less water, but because it was one of the first kibbutz-based industries. Until then the kibbutzim-collective communities-were agriculture-based. The idea of a kibbutz factory that exported to the world was a novelty.

But Netafim's real advantage was having no inhibition about traveling to far-flung places in pursuit of markets that desperately needed its products-places where, in the 1960s and '70s, entrepreneurs from the West simply did not visit. As a result, Netafim now operates in 110 countries over five continents. In Asia it has offices in Vietnam, Taiwan, New Zealand, China (two offices), India, Thailand, j.a.pan, Philippines, Korea, and Indonesia. In South America it has a presence in Argentina, Brazil, Mexico, Chile, Colombia, Ecuador, and Peru. Netafim also has eleven offices in Europe and the former Soviet Union, one in Australia, and one in North America.

And because Netafim's technology became so indispensable, a number of foreign governments that historically had been hostile to Israel began to open diplomatic channels. Netafim is active in former Soviet bloc Muslim states like Azerbaijan, Kazakhstan, and Uzbekistan, which led to warmer relations with Israel's government after the dissolution of the Soviet Union. In 2004, then trade minister Ehud Olmert tagged along on a Netafim trip to South Africa in the hope of forming new strategic alliances there. The trip resulted in $30 million in contracts for Netafim, plus a memorandum of understanding between the two governments on agriculture and arid lands development.

Israeli entrepreneurs and executives, though, have themselves been known to engage in self-appointed diplomatic missions on behalf of the state. Many of Israel's globe-trotting businesspeople are not just technology evangelists but endeavor to "sell" the entire Israeli economy. Jon Medved-the inventor of the "nickname barometer" to measure informality-is one such example.

Raised in California, Medved was trained in political activism, not engineering. His first career was as a Zionist organizer. He moved to Israel in 1981 and made a small living by going on speaking tours to preach about the future of Israel to Israelis. But a conversation he had in 1982 with an executive at Rafael, one of Israel's largest defense contractors, burst Medved's bubble. He was told, unceremoniously, that what he was doing was a waste of time and energy. Israel didn't need more professional Zionists or politicians, the executive stated flatly; Israel needed businesspeople. Medved's father had started a small company in California that built optical transmitters and receivers. So Medved began pitching his father's product in Israel. Instead of going from kibbutz to kibbutz to sell the future of Zionism, he went from company to company to sell optical technology.

Later, he got into the investment business and founded Israel Seed Partners, a venture capital firm, in his Jerusalem garage. His fund grew to over $260 million and he invested in sixty Israeli companies, including Shopping.com, which was bought by eBay, and Compugen and Answers.com, both of which went public on the NASDAQ. In 2006, Medved left Israel Seed to launch and manage a start-up himself-Vringo, a company that pioneered video ringtones for cell phones, which has quickly penetrated the European and Turkish markets.

But his own company is less important. Regardless of what Medved is doing for his enterprises, he spends a lot of time-too much time, his investors complain-preaching about the Israeli economy. On every trip abroad, Medved lugs a portable projector and laptop loaded with a memorable slide presentation chronicling the accomplishments of the Israeli tech scene. In speeches-and in conversations with anyone who will listen-Medved celebrates all the Israeli landmark "exits" in which companies were bought or went public, and catalogs dozens of "made in Israel" technologies. time, his investors complain-preaching about the Israeli economy. On every trip abroad, Medved lugs a portable projector and laptop loaded with a memorable slide presentation chronicling the accomplishments of the Israeli tech scene. In speeches-and in conversations with anyone who will listen-Medved celebrates all the Israeli landmark "exits" in which companies were bought or went public, and catalogs dozens of "made in Israel" technologies.

In his presentations he says only half-jokingly that if Israel followed the lead of "Intel Inside"-Intel's marketing campaign to highlight the ubiquity of its chips-with similar "Israel Inside" stickers, they would show up on almost everything people around the world touch, and he ticks off a litany of examples: from computers, to cell phones, to medical devices and miracle drugs, to Internet-based social networks, to cutting-edge sources of clean energy, to the food we eat, to the registers in the supermarkets in which we shop.

Medved then hints to the multinationals in the room that they are likely to be missing something if they have not already set up shop in Israel. He finds out in advance of each presentation which companies' executives will be in the audience and is then certain to mention which of their compet.i.tors are already in Israel. "The reason that Israel is inside almost everything we touch is because almost every company we touch is inside Israel. Are you?" he asks, peering into the audience.

Medved has taken on a role that, in any other country, would typically belong to the local chamber of commerce, minister of trade, or foreign secretary.

But the start-ups Medved champions in his presentations are rarely companies in which he has invested. He's always torn when he prepares for these speeches: "Do I talk up Vringo among the promising new companies coming out of Israel? It's a no-brainer, right? It's good exposure for the company." But he resists the urge. "My pitch is about Israel. My American investors beat me up over this-'You wind up plugging your compet.i.tors but not your own company.' They're right. But they're missing the larger point."

Medved is in perpetual motion. He's given the presentation fifty times a year for the last fifteen years. All told, almost eight hundred times, at technology conferences and universities around the world, in over forty countries, and to scores of international dignitaries visiting Israel.

Alex Vieux, CEO of Red Herring Red Herring magazine, told us that he has been to "a million high-tech conferences, on multiple continents. I see Israelis like Medved give presentations all the time, alongside their peers from other countries. The others are always making a pitch for their specific company. The Israelis are always making a pitch for Israel." magazine, told us that he has been to "a million high-tech conferences, on multiple continents. I see Israelis like Medved give presentations all the time, alongside their peers from other countries. The others are always making a pitch for their specific company. The Israelis are always making a pitch for Israel."9

CHAPTER 4.

Harvard, Princeton, and Yale

The social graph is very simple here. Everybody knows everybody.

-YOSSI V VARDI DAVID A AMIR MET US AT HIS J JERUSALEM HOME in his pilot's uniform, but there was nothing in his pilot's uniform, but there was nothing Top Gun Top Gun about him. Soft-spoken, thoughtful, and self-deprecating, he looked, even in uniform, more like an American liberal arts student than the typical pilot with crisp military bearing. Yet as he explained with pride how the Israeli Air Force trained some of the best pilots in the world-according to numerous international compet.i.tions as well as their record in battle-it became easy to see how he fit in. about him. Soft-spoken, thoughtful, and self-deprecating, he looked, even in uniform, more like an American liberal arts student than the typical pilot with crisp military bearing. Yet as he explained with pride how the Israeli Air Force trained some of the best pilots in the world-according to numerous international compet.i.tions as well as their record in battle-it became easy to see how he fit in.1 While students in other countries are preoccupied with deciding which college to attend, Israelis are weighing the merits of different military units. And just as students elsewhere are thinking about what they need to do to get into the best schools, many Israelis are positioning themselves to be recruited by the IDF's elite units.

Amir decided when he was just twelve years old that he wanted to learn Arabic, partly because he knew even then that it might help him get accepted into the best intelligence units.

But the pressure to get into those units really intensifies when Israelis are seventeen years old. Every year, the buzz builds among high school junior and senior cla.s.ses all across Israel. Who has been asked to try out for the pilot's course? Who for the different sayarot sayarot, the commando units of the navy, the paratroopers, the infantry brigades, and, most selective of all, the Sayeret Matkal, the chief of staff's commando unit?

And which students will be asked to try out for the elite intelligence units, such as 8200, where Shvat Shaked and his cofounder of Fraud Sciences served? Who will go to Mamram, the IDF's computer systems division? And who will be considered for Talpiot, a unit that combines technological training with exposure to all the top commando units' operations?

In Israel, about one year before reaching draft age, all seventeen-year-old males and females are called to report to IDF recruiting centers for an initial one-day screening that includes apt.i.tude and psychological exams, interviews, and a medical evaluation. At the end of the day, a health and psychometric cla.s.sification is determined and service possibilities are presented to the young candidate in a personal interview. Candidates who meet the health, apt.i.tude, and personality requirements are offered an opportunity to take additional qualifying tests for service in one of the IDF's elite units or divisions.

Tests for the paratrooper brigade, for example, occur three times each year, often months before candidates' scheduled draft dates. Young civilians submit themselves to a rigorous two days of physical and mental testing, where an initial group of about four thousand candidates is winnowed down to four hundred future draftees for different units. These four hundred paratroopers can volunteer to partic.i.p.ate in the field test and screening process for the special forces, which is an intensive five-day series of eleven repeating drills, each lasting several hours and always conducted under severe time constraints and increasing physical and mental pressure. During the entire time, rest periods are short and sleep almost nonexistent, as is food and the time in which to eat it. Partic.i.p.ants describe the five days as one long blur where day and night are indistinguishable. No watches or cell phones are allowed-the screeners want to make the experience as disorienting as possible. At the end of the five days, each soldier is ranked.

The twenty top-ranking soldiers for each unit immediately begin the twenty-month training period. Those who complete the training together remain as a team throughout their regular and reserve service. Their unit becomes a second family. They remain in the reserves until they are in their mid-forties.

While it's difficult to get into the top Israeli universities, the nation's equivalent of Harvard, Princeton, and Yale are the IDF's elite units. The unit in which an applicant served tells prospective employers what kind of selection process he or she navigated, and what skills and relevant experience he or she may already possess.

"In Israel, one's academic past is somehow less important than the military past. One of the questions asked in every job interview is, Where did you serve in the army?" says Gil Kerbs, an intelligence unit alumnus who-after pursuing the Book-today works in Israel's venture capital industry, specializing in China's technology market. "There are job offers on the Internet and want ads that specifically say 'meant for 8200 alumni.' The 8200 alumni a.s.sociation now has a national reunion. But instead of using the time together to reflect on past battles and military nostalgia, it is forward-looking. The alumni are focused on business networking. Successful 8200 entrepreneurs give presentations at the reunion about their companies and industries."2 As we've seen, the air force and Israel's elite commando units are well known for their selectivity, the sophistication and difficulty of their training, and the quality of their alumni. But the IDF has a unit that takes the process of extreme selectivity and extensive training to an even higher level, especially in the realm of technological innovation. That unit is Talpiot.

The name Talpiot comes from a verse in the Bible's Song of Songs that refers to a castle's turrets; the term connotes the pinnacle of achievement. Talpiot has the distinction of being both the most selective unit and the one that subjects its soldiers to the longest training course in the IDF-forty-one months, which is longer than the entire service of most soldiers. Those who enter the program sign on for an extra six years in the military, so their minimum service is a total of nine years.

The program was the brainchild of Felix Dothan and Shaul Yatziv, both Hebrew University scientists. They came up with the idea following the debacle of the 1973 Yom Kippur War. At that time, the country was still reeling from being caught flat-footed by a surprise attack, and from the casualties it had suffered. The war was a costly reminder that Israel must compensate for its small size and population by maintaining a qualitative and technological edge. The professors approached then IDF chief of staff Rafael "Raful" Eitan with a simple idea: take a handful of Israel's most talented young people and give them the most intensive technology training that the universities and and the military had to offer. the military had to offer.

Started as a one-year experiment, the program has been running continuously for thirty years. Each year, the top 2 percent of Israeli high school students are asked to try out-two thousand students. Of these, only one in ten pa.s.s a battery of tests, mainly in physics and mathematics. These two hundred students are then run through two days of intensive personality and apt.i.tude testing.

Once admitted into the program, Talpiot cadets blaze through an accelerated university degree in math or physics while they are introduced to the technological needs of all IDF branches. The academic training they receive goes beyond what the typical university student would receive in Israel or anywhere else-they study more, in less time. They also go through basic training with the paratroopers. The idea is to give them an overview of all the major IDF branches so that they understand both the technology and military needs-and especially the connection between them.

Providing the students with such a broad range of knowledge is not, however, the ultimate goal of the course. Rather, it is to transform them into mission-oriented leaders and problem solvers.

This is achieved by handing them mission after mission, with minimal guidance. Some a.s.signments are as mundane as organizing a conference for their fellow cadets, which requires coordinating the speakers, facilities, transportation, and food. Others are as complicated as penetrating a telecommunications network of a live terrorist cell.

But more typical is forcing the soldiers to find cross-disciplinary solutions to specific military problems. For example, a team of cadets had to solve the problem of the severe back pain suffered by IDF helicopter pilots from the choppers' vibrations. The Talpiot cadets first determined how to measure the impact of the choppers' vibrations on the human vertebrae. They designed a customized seat, installed it in a helicopter simulator, and cut a hole in its backrest. Next they put a pen on a pilot's back, had him "fly" in the simulator, and used a high-speed camera inserted in the backrest hole to photograph the marks caused by the different vibrations. Finally, after studying the movements by a.n.a.lyzing computerized data generated from the movement information in the photos, they redesigned the chopper seats.

a.s.suming they survive the first two or three years of the course, these cadets become "Talpions," a t.i.tle that carries prestige in both military and civilian life.

The Talpiot program as a whole is under Mafat, the IDF's internal research and development arm, which is parallel to America's DARPA (the Defense Advanced Research Projects Agency). Mafat has the coveted and sensitive job of a.s.signing each Talpion to a specific unit in the IDF for their next six years of regular service.

From the beginning, the hyperelitism of the Talpiot program has attracted critics. The program almost didn't get off the ground because military leaders did not think it would be worthwhile to invest so much in such a small group. Recently, some detractors have claimed that the program is a failure because most of the graduates do not stay in the military beyond the required nine years and do not end up in the IDF's senior ranks.

However, though Talpiot training is optimized to maintain the IDF's technological edge, the same combination of leaders.h.i.+p experience and technical knowledge is ideal for creating new companies. Although the program has produced only about 650 graduates in thirty years, they have become some of Israel's top academics and founders of the country's most successful companies. NICE Systems, the global corporation behind call-monitoring systems used by eighty-five of the Forbes 100 companies, was founded by a team of Talpions. So was Compugen, a leader in human-genome decoding and drug development. Many of the Israeli technology companies traded on the NASDAQ were either founded by a Talpion or have alumni situated in key roles.

So the architects of Talpiot, Dothan and Yatziv, vigorously reject the criticisms. First, they argue that the interservice compet.i.tion for Talpions within the IDF-which at times has had to be settled by the prime minister-speaks for itself. Second, they claim that the Talpions easily pay back the investment during their required six years of service. Third, and perhaps most importantly, the two-thirds of Talpiot graduates who end up either in academia or in technology companies continue to make a tremendous contribution to the economy and society, thereby strengthening the country in different ways.

Talpions may represent the elite of the elite in the Israeli military, but the underlying strategy behind the program's development-to provide broad and deep training in order to produce innovative, adaptive problem solving-is evident throughout much of the military and seems to be part of the Israeli ethos: to teach people how to be very good at a lot of things, rather than excellent at one thing.

The advantage that Israel's economy-and its society-gains from this equally dispersed national service experience was driven home to us by neither an Israeli nor an American. Gary Shainberg looks more like a sailor (of the compact, stocky variety) than a tech geek, perhaps because he is an eighteen-year veteran of the British navy. Now vice president for technology and innovation at British Telecom, he met us late one evening in a Tel Aviv bar. He was on one of his many business trips to Israel, en route to the gulf-to Dubai, actually.

"There is something about the DNA of Israeli innovation that is unexplainable," Shainberg said. But he did have the beginnings of a theory. "I think it comes down to maturity. That's because nowhere else in the world where people work in a center of technology innovation do they also have to do national service."3 At eighteen, Israelis go into the army for a minimum of two to three years. If they don't reenlist, they typically enroll at a university. "There's a ma.s.sive percentage of Israelis who go to university out of the army compared to anywhere else in the world," said Shainberg.