Start-up Nation: The Story of Israel's Economic Miracle

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START-UP NATION addresses the trillion dollar question: 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 start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada and the UK?

With the savvy of foreign policy insiders, Senor and Singer examine the lessons of the country's adversity-driven culture, which ...

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Start-up Nation: The Story of Israel's Economic Miracle

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START-UP NATION addresses the trillion dollar question: 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 start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada and the UK?

With the savvy of foreign policy insiders, Senor and Singer examine the lessons of the country's adversity-driven culture, which flattens hierarchy and elevates informality— all backed up by government policies focused on innovation. In a world where economies as diverse as Ireland, Singapore and Dubai have tried to re-create the "Israel effect", there are entrepreneurial lessons well worth noting. As America reboots its own economy and can-do spirit, there's never been a better time to look at this remarkable and resilient nation for some impressive, surprising clues.

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Editorial Reviews

George Stephanopoulos
Senor and Singer's experience[s]...come to life in their illuminating, timely, and often surprising analysis.

anchor of ABC's "This Week"

William Kristol
No one else, in my judgment, has written regularly about Israel in recent years with more clarity than Singer.
Editor of The Weekly Standard
Michael Oren
Saul Singer's Confronting Jihad should be mandatory reading for anyone, layman or expert, interested in the real Middle East.
historian and bestselling author of Six Days of War
Meg Whitman - former CEO of eBay
"In the midst of the chaos of the Middle East, there's a remarkable story of innovation. START-UP NATION is... a timely book and a much-needed celebration of the entrepreneurial spirit."
Tom Brokaw - Special correspondent for NBC News
"There is a great deal for America to learn from the very impressive Israeli entrepreneurial model... START-UP NATION is a playbook for every CEO who wants to develop the next generation of corporate leaders."

George Stephanopoulos - anchor of ABC's "This Week"
"Senor and Singer's experience[s]...come to life in their illuminating, timely, and often surprising analysis."

Michael Oren - historian and bestselling author of Six Days of War
"Saul Singer's Confronting Jihad should be mandatory reading for anyone, layman or expert, interested in the real Middle East."
William Kristol - Editor of The Weekly Standard
"No one else, in my judgment, has written regularly about Israel in recent years with more clarity than Singer."
From the Publisher
"There is a great deal for America to learn from the very impressive Israeli entrepreneurial model... START-UP NATION is a playbook for every CEO who wants to develop the next generation of corporate leaders.

Tom Brokaw, Special correspondent for NBC News, and bestselling author of The Greatest Generation

"In the midst of the chaos of the Middle East, there's a remarkable story of innovation. START-UP NATION is... a timely book and a much-needed celebration of the entrepreneurial spirit."
Meg Whitman, former CEO of eBay

"Senor and Singer's experience[s]...come to life in their illuminating, timely, and often surprising analysis.

George Stephanopoulos, anchor of ABC's "This Week"

"No one else, in my judgment, has written regularly about Israel in recent years with more clarity than Singer."—William Kristol, Editor of The Weekly Standard

"An edifying, cogent report."


"A rich and insightful read."

Publishers Weekly

"Saul Singer's Confronting Jihad should be mandatory reading for anyone, layman or expert, interested in the real Middle East."—Michael Oren, historian and bestselling author of Six Days of War

Tom Brokaw
There is a great deal for America to learn from the very impressive Israeli entrepreneurial model... START-UP NATION is a playbook for every CEO who wants to develop the next generation of corporate leaders.

Special correspondent for NBC News, and bestselling author of The Greatest Generation

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Product Details

  • ISBN-13: 9780446541473
  • Publisher: Grand Central Publishing
  • Publication date: 9/7/2011
  • Pages: 336
  • Sales rank: 78,729
  • Product dimensions: 5.50 (w) x 8.25 (h) x 1.00 (d)

Meet the Author

Dan Senor, Adjunct Senior Fellow for Middle East Studies at the Council on Foreign Relations, has been on the front lines of policy, politics, and business in the Middle East. As a senior foreign policy advisor to the U.S. Government , he was one of the longest-serving civilian officials in Iraq. He has also served in Qatar and studied in Israel. Senor's pieces are frequently published by The Wall Street Journal. Saul Singer is the editorial editor of The Jerusalem Post, for which he writes a weekly column, and the author of Confronting Jihad: Israel's Struggle and the World after 9/11. For ten years, he served as a foreign policy advisor on Capitol Hill.

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Read an Excerpt



Four guys are standing on a street corner . . .
an American, a Russian, a Chinese man, and an Israeli. . . .
A reporter comes up to the group and says to them:
"Excuse me. . . . What's your opinion on the meat shortage?"
The American says: What's a shortage?
The Russian says: What's meat?
The Chinese man says: What's an opinion?
The Israeli says: What's "Excuse me"?
-Mike Leigh, Two Thousand Years

Scott Thompson looked at his watch. He was running behind. He had a long list of to-dos to complete by the end of the week, and it was already Thursday. Thompson is a busy guy. As president and former chief technology officer of PayPal, the largest Internet payment system in the world, he runs the Web's alternative to checks and credit cards. But he'd promised to give twenty minutes to a kid who claimed to have a solution to the problem of online payment scams, credit card fraud, and electronic identity theft.

Shvat Shaked did not have the brashness of an entrepreneur, which was just as well, since most start-ups, Thompson knew, didn't go anywhere. He did not look like he had the moxie of even a typical PayPal junior engineer. But Thompson wasn't going to say no to this meeting, not when Benchmark Capital had requested it.

Benchmark had made a seed investment in eBay, back when it was being run out of the founders' apartment as a quirky exchange site for collectible Pez dispensers. Today, eBay is an $18 billion public company with sixteen thousand employees around the world. It's also PayPal's parentcompany. Benchmark was considering an investment in Shaked's company, Israel-based Fraud Sciences. To help with due diligence, the Benchmark partners asked Thompson, who knew a thing or two about e-fraud, to check Shaked out.

"So what's your model, Shvat?" Thompson asked, eager to get the meeting over with. Shifting around a bit like someone who hadn't quite perfected his one-minute "elevator pitch," Shaked began quietly: "Our idea is simple. We believe that the world is divided between good people and bad people, and the trick to beating fraud is to distinguish between them on the Web."

Thompson suppressed his frustration. This was too much, even as a favor to Benchmark. Before PayPal, Thompson had been a top executive at credit card giant Visa, an even bigger company that was no less obsessed with combating fraud. A large part of the team at most credit card companies and online vendors is devoted to vetting new customers and fighting fraud and identity theft, because that's where profit margins can be largely determined and where customer trust is built or lost.

Visa and the banks it partnered with together had tens of thousands of people working to beat fraud. PayPal had two thousand, including some fifty of their best PhD engineers, trying to stay ahead of the crooks. And this kid was talking about "good guys and bad guys," as if he were the first to discover the problem.

"Sounds good," Thompson said, not without restraint. "How do you do that?"

"Good people leave traces of themselves on the Internet-digital footprints-because they have nothing to hide," Shvat continued in his accented English. "Bad people don't, because they try to hide themselves. All we do is look for footprints. If you can find them, you can minimize risk to an acceptable level and underwrite it. It really is that simple."

Thompson was beginning to think that this guy with the strange name had flown in not from a different country but rather a different planet. Didn't he know that fighting fraud is a painstaking process of checking backgrounds, wading through credit histories, building sophisticated algorithms to determine trustworthiness? You wouldn't walk into NASA and say, "Why build all those fancy spaceships when all you need is a slingshot?"

Still, out of respect for Benchmark, Thompson thought he'd indulge Shaked for a few more minutes. "So where did you learn how to do this?" he asked.

"Hunting down terrorists," Shaked said matter-of-factly. His unit in the army had been tasked with helping to catch terrorists by tracking their online activities. Terrorists move money through the Web with fictitious identities. Shvat's job was to find them online.

Thompson had heard enough from this "terrorist hunter," too much even, but he had a simple way out. "Have you tried this at all?" he asked.

"Yes," Shaked said with quiet self-assurance. "We've tried it on thousands of transactions, and we were right about all of them but four."

Yeah, right , Thompson thought to himself. But he couldn't help becoming a bit more curious. How long did that take? he asked.

Shaked said his company had analyzed forty thousand transactions over five years, since its founding.

"Okay, so here's what we're going to do," Thompson said, and he proposed that he give Fraud Sciences one hundred thousand PayPal transactions to analyze. These were consumer transactions PayPal had already processed. PayPal would have to scrub some of the personal data for legal privacy reasons, which would make Shvat's job more difficult. "But see what you can do," Thompson offered, "and get back to us. We'll compare your results with ours."

Since it had taken Shvat's start-up five years to go through their first forty thousand transactions, Thompson figured he wouldn't be seeing the kid again anytime soon. But he wasn't asking anything unfair. This was the sort of scaling necessary to determine whether his bizarre-sounding system was worth anything in the real world.

The forty thousand transactions Fraud Sciences had previously processed had been done manually. Shaked knew that to meet PayPal's challenge he would have to automate his system in order to handle the volume, do so without compromising reliability, and crunch the transactions in record time. This would mean taking the system he'd tested over five years and turning it upside down, quickly.

Thompson gave the transaction data to Shvat on a Thursday. "I figured I was off the hook with Benchmark," he recalled. "We'd never hear from Shvat again. Or at least not for months." So he was surprised when he received an e-mail from Israel on Sunday. It said, "We're done."

Thompson didn't believe it. First thing Monday morning, he handed Fraud Sciences' work over to his team of PhDs for analysis; it took them a week to match the results up against PayPal's. But by Wednesday, Thompson's engineers were amazed at what they had seen so far. Shaked and his small team produced more accurate results than PayPal had, in a shorter amount of time, and with incomplete data. The difference was particularly pronounced on the transactions that had given PayPal the most trouble-on these, Fraud Sciences had performed 17 percent better. This was the category of customer applicants, Thompson told us, that PayPal initially rejected. But in light of what PayPal now knows from monitoring the rejected customers' more recent credit reports, Thompson said, those rejections were a mistake: "They are good customers. We should never have rejected them. They slipped through our system. But how did they not slip through Shaked's system?"

Thompson realized that he was looking at a truly original tool against fraud. With even less data than PayPal had, Fraud Sciences was able to more accurately predict who would turn out to be a good customer and who would not. "I was sitting here, dumbfounded," Thompson recalled. "I didn't get it. We're the best in the business at risk management. How is it that this fifty-five-person company from Israel, with a crackpot theory about 'good guys' and 'bad guys,' managed to beat us?" Thompson estimated that Fraud Sciences was five years ahead of PayPal in the effectiveness of its system. His previous company, Visa, would never have been able to come up with such thinking, even if given ten or fifteen years to work on it.

Thompson knew what he had to tell Benchmark: PayPal could not afford to risk letting its competitors get hold of Fraud Sciences' breakthrough technology. This was not a company Benchmark should invest in; PayPal needed to acquire the company.


Thompson went to eBay's CEO , Meg Whitman, to bring her into the loop. "I told Scott that it was impossible," Whitman related. "We're the market leader. Where on earth did this tiny little company come from?" Thompson and his team of PhDs walked her through the results. She was astounded.

Now Thompson and Whitman had a truly unexpected problem on their hands. What could they tell Shvat? If Thompson told this start-up's CEO that he had handily beaten the industry leader, the start-up's team would realize they were sitting on something invaluable. Thompson knew that PayPal had to buy Fraud Sciences, but how could he tell Shvat the test results without jacking up the company's price and negotiating position?

So he stalled. He responded to Shaked's anxious e-mails by saying PayPal needed more time for analysis. Finally, he said he would share the results in person the next time the Fraud Sciences team was in San Jose, hoping to buy more time. Within a day or two, Shaked was on Thompson's doorstep.

What Thompson did not know, however, was that the Fraud Sciences founders-Shaked and Saar Wilf, who served together in Israel's elite army intelligence unit, called 8200-were not interested in selling their company to PayPal. They just wanted Thompson's blessing as they proceeded down a checklist of due diligence requirements for Benchmark Capital.

Thompson went back to Meg: "We need to make a decision. They're here." She gave him the go-ahead: "Let's buy it." After some valuation work, they offered $79 million. Shaked declined. The Fraud Sciences board, which included the Israeli venture firm BRM Capital, believed the company was worth at least $200 million.

Eli Barkat, one of the founding partners of BRM , explained to us his theory behind the company's future value: "The first generation of technology security was protecting against a virus invading your PC. The second generation was building a firewall against hackers." Barkat knew something about both these threats, having funded and built companies to protect against them. One of them, Checkpoint-an Israeli company also started by young alumni from Unit 8200-is worth $5 billion today, is publicly traded on the NASDAQ, and includes among its customers the majority of Fortune 100 companies and most national governments around the world. The third generation of security would be protecting against hacking into e-commerce activity. "And this would be the biggest market yet," Barkat told us, "because up until then, hackers were just having fun-it was a hobby. But with e-commerce taking off, hackers could make real money."

Barkat also believed that Fraud Sciences had the best team and the best technology to defend against Internet and credit card fraud. "You've got to understand the Israeli mentality," he said. "When you've been developing technology to find terrorists-when lots of innocent lives hang in the balance-then finding thieves is pretty simple."

After negotiations that lasted only a few days, Thompson and Shaked agreed on $169 million. Thompson told us that the PayPal team thought it could get away with a lower price. When the negotiating process began and Shaked stuck to the higher number, Thompson assumed it was just a bluff. "I figured I'd never seen such a convincing poker face. But what was really going on was that the Fraud Sciences guys had a view of what their company was worth. They were not sales guys. They weren't hyping it. Shaked just played it straight. He basically said to us, 'This is our solution. We know it is the best. This is what we think it's worth.' And that really was the end of it. There was a matter-of-factness that you just don't see that often."

Soon after, Thompson was on a plane to visit the company he had just purchased. During the last leg of the twenty-hour flight from San Francisco, about forty-five minutes before landing, as he sipped his coffee to wake up, he happened to glance at the screen in the aisle that showed the plane's trajectory on a map. He could see the little airplane icon at the end of its flight path, about to land in Tel Aviv. That was fine, until he noticed what else was on the map, which at this point showed only places that were pretty close by. He could see the names and capitals of the countries in the region, arrayed in a ring around Israel: Beirut, Lebanon; Damascus, Syria; Amman, Jordan; and Cairo, Egypt. For a moment, he panicked: "I bought a company there? I'm flying into a war zone!" Of course, he'd known all along who Israel's neighbors were, but it had not quite sunk in how small Israel was and how closely those neighbors ringed it. "It was as if I were flying into New York and suddenly saw Iran where New Jersey was supposed to be," he recalled.

It didn't take long after he stepped off the plane, however, before he was at ease in a place that was not shockingly unfamiliar, and that treated him to some pleasant surprises. His first big impression was in the Fraud Sciences parking lot. Every car had a PayPal bumper sticker on it. "You'd never see that kind of pride or enthusiasm at an American company," he told us.

The next thing that struck Thompson was the demeanor of the Fraud Sciences employees during the all-hands meeting at which he spoke. Each face was turned raptly to him. No one was texting, surfing, or dozing off. The intensity only increased when he opened the discussion period: "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. And these weren't peers or supervisors, these were junior employees. And they had no inhibition about challenging the logic behind the way we at PayPal 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?"

What Scott Thompson was experiencing was his first dose of Israeli chutzpah. According to Jewish scholar Leo Rosten's description of Yiddish-the all-but-vanished German-Slavic language from which modern Hebrew borrowed the word- chutzpah is "gall, brazen nerve, effrontery, incredible 'guts,' presumption plus arrogance such as no other word and no other language can do justice to." An outsider would see chutzpah everywhere in Israel: in the way university students speak with their professors, employees challenge their bosses, sergeants question their generals, and clerks second-guess government ministers. To Israelis, however, this isn't chutzpah , it's the normal mode of being. Somewhere along the way-either at home, in school, or in the army-Israelis learn that assertiveness is the norm, reticence something that risks your being left behind.

This is evident even in popular forms of address in Israel. Jon Medved, an entrepreneur and venture capital investor in Israel, likes to cite what he calls the "nickname barometer": "You can tell a lot about a society based on how [its members] refer to their elites. Israel is the only place in the world where everybody in a position of power-including prime ministers and army generals-has a nickname used by all, including the masses."

Israel's current and former prime ministers Benjamin Netanyahu and Ariel Sharon are "Bibi" and "Arik." A former Labor Party leader is Binyamin "Füad" Ben-Eliezer. A recent Israel Defense Forces (IDF) chief of staff is Moshe "Bogey" Yaalon. In the 1980s, the legendary IDF chief was Moshe "Moshe VeHetzi" (Moshe-and-a-Half) Levi-he was six foot six. Other former IDF chiefs in Israeli history were Rehavam "Gandhi" Zeevi, David "Dado" Elazar, and Rafael "Raful" Eitan. The Shinui Party founder was Yosef "Tommy" Lapid. A top minister in successive Israeli governments is Isaac "Bugie" Herzog. These nicknames are used not behind the officials' backs but, rather, openly, and by everyone. This, Medved argues, is representative of Israel's level of informality.

Israeli attitude and informality flow also from a cultural tolerance for what some Israelis call "constructive failures" or "intelligent failures." Most local investors believe that without tolerating a large number of these failures, it is impossible to achieve true innovation. In the Israeli military, there is a tendency to treat all performance-both successful and unsuccessful-in training and simulations, and sometimes even in battle, as value-neutral. So long as the risk was taken intelligently, and not recklessly, there is something to be learned.

As Harvard Business School professor Loren Gary says, it is critical to distinguish between "a well-planned experiment and a roulette wheel."  In Israel, this distinction is established early on in military training. "We don't cheerlead you excessively for a good performance, and we don't finish you off permanently for a bad performance," one air force trainer told us.

Indeed, a 2006 Harvard University study shows that entrepreneurs who have failed in their previous enterprise have an almost one-in-five chance of success in their next start-up, which is a higher success rate than that for first-time entrepreneurs and not far below that of entrepreneurs who have had a prior success.

In The Geography of Bliss , author Eric Weiner describes another country with a high tolerance for failure as "a nation of born-agains, though not in a religious sense." This is certainly true for Israeli laws regarding bankruptcy and new company formation, which make it the easiest place in the Middle East-and one of the easiest in the world-to birth a new company, even if your last one went bankrupt. But this also contributes to a sense that Israelis are always hustling, pushing, and looking for the next opportunity.

Newcomers to Israel often find its people rude. Israelis will unabashedly ask people they barely know how old they are or how much their apartment or car cost; they'll even tell new parents-often complete strangers on the sidewalk or in a grocery store-that they are not dressing their children appropriately for the weather. What is said about Jews-two Jews, three opinions-is certainly true of Israelis. People who don't like this sort of frankness can be turned off by Israel, but others find it refreshing, and honest.

"We did it the Israeli way; we argued our case to death."  That's how Shmuel "Mooly" Eden (he has a nickname, too) glibly sums up a historic showdown between Intel's top executives in Santa Clara and its Israeli team. It, too, was a case study in chutzpah .

The survival of Intel would turn on the outcome. But this fierce, months-long dispute was about more than just Intel; it would determine whether the ubiquitous laptop computer-so much taken for granted today-would ever exist.

Eden is a leader of Intel's Israeli operation-the largest private-sector employer in the country-which today exports $1.53 billion annually. He told us the story of Intel in Israel, and Intel's battles with Israel.

Throughout most of the history of modern computing, the speed of data processing-how much time it takes your computer to do anything-was determined by the speed of a chip's transistors. The transistors flipped on and off, and the order in which they did so produced a code, much like letters are used to make words. Together, millions of flips could record and manipulate data in endless ways. The faster the transistors could be made to flip on and off (the transistor's "clock speed"), the more powerful the software they could run, transforming computers from glorified calculators to multimedia entertainment and enterprise machines.

But until the 1970s, computers were used predominantly by rocket scientists and big universities. Some computers took up whole rooms or even buildings. The idea of a computer on your office desk or in your home was the stuff of science fiction. All that began to change in 1980, when Intel's Haifa team designed the 8088 chip, whose transistors could flip almost five million times per second (4.77 megahertz), and were small enough to allow for the creation of computers that would fit in homes and offices.

IBM chose Israel's 8088 chip as the brains for its first "personal computer," or PC, launching a new era of computing. It was also a major breakthrough for Intel. According to journalist Michael Malone, "With the IBM contract, Intel won the microprocessor wars."

From then on, computing technology continued to get smaller and faster. By 1986, Intel's only foreign chip factory was producing the 386 chip. Built in Jerusalem, its processing speed was 33 megahertz. Though a small fraction of today's chip speeds, Intel called it "blazing"-it was almost seven times faster than the 8088. The company was solidly on the path imagined by one of its founders, Gordon Moore, who predicted that the industry would shrink transistors to half their size every eighteen to twenty-four months, roughly doubling a chip's processing speed. This constant halving was dubbed "Moore's law," and the chip industry was built around this challenge to deliver faster and faster chips. IBM , Wall Street, and the business press all caught on, too-clock speed and size was how they measured the value of new chips.

This was proceeding well until about 2000, when another factor came into the mix: power. Chips were getting smaller and faster, just as Moore had predicted. But as they did, they also used more power and generated more heat. Chips overheating would soon become a critical problem. The obvious solution was a fan, but, in the case of laptops, the fan needed to cool the chips would be much too big to fit inside. Industry experts dubbed this dead end the "power wall."

Intel's Israeli team was the first group within the company to see this coming. Many late nights at Intel's Haifa facility were dedicated to hot coffee, cold takeout, and ad hoc brainstorming sessions about how to get around the power wall. The Israeli team was more focused than anyone on what the industry called "mobility"-designing chips for laptop computers and, eventually, for all sorts of mobile devices. Noticing this tendency, Intel put their Israeli branch in charge of building mobility chips for the whole company.

Even given this responsibility, Israelis still resisted fitting into the Intel mainstream. "The development group in Israel, even before it was tasked as the mobility group, pushed ideas for mobility that went against the common wisdom at Intel," explained Intel Israel's chief, David "Dadi" Perlmutter, a graduate of the Technion (Israel's MIT) who'd started designing chips at Intel Israel in 1980. One of these unconventional ideas was a way to get around the power wall. Rony Friedman was one of Intel Israel's top engineers at the time. Just for fun, he had been tinkering with a way to produce low-power chips, which went blatantly against the prevailing orthodoxy that the only way to make chips faster was to deliver more power to their transistors. This, he thought, was a bit like making cars go faster by revving their engines harder. There was definitely a connection between the speed of the engine and the speed of the car, but at some point the engine would go too fast, get too hot, and the car would have to slow down.

Friedman and the Israeli team realized that the solution to the problem was something like a gear system in a car: if you could change gears, you could run the engine more slowly while still making the car go faster. In a chip, this was accomplished differently, by splitting the instructions fed into the chip. But the effect was similar: the transistors in Intel Israel's low-power chips did not need to flip on and off as fast, yet, in a process analogous to shifting a car into high gear, they were able to run software faster.

When Intel's Israel team euphorically introduced its innovation to headquarters in Santa Clara, the engineers thought their bosses would be thrilled. What could be better than a car that goes faster without overheating? Yet what the Israeli team saw as an asset-that the engine turned more slowly-headquarters saw as a big problem. After all, the entire industry measured the power of chips by how fast the engine turned: clock speed.

It did not matter that Israeli chips ran software faster. The computer's engine-composed of its chip's transistors-wasn't turning on and off fast enough. Wall Street analysts would opine on the attractiveness (or unattractiveness) of Intel's stock based on performance along a parameter that said, Faster clock speed: Buy; Slower clock speed: Sell . Trying to persuade the industry and the press that this metric was obsolete was a nonstarter. This was especially the case because Intel had itself created-through Moore's law-the industry's Pavlovian attachment to clock speed. It was tantamount to trying to convince Ford to abandon its quest for more horsepower or telling Tiffany's that carat size does not matter.

"We weren't in the mainstream-clock speed was king and we were on the outside," Israel's Rony Friedman recalls.

The head of Intel's chip division, Paul Otellini, tried to mothball the whole project. The clock-speed doctrine was enshrined among Intel's brass, and they weren't about to hold a seminar to decide whether or not to change it.

The "seminar" is part of a culture that Israelis know well, going back to the founding of the state. From the end of March to the end of May 1947, David Ben-Gurion-Israel's George Washington-conducted an inquiry into the military readiness of Jewish Palestine, in anticipation of the war he knew would come when Israel declared independence. He spent days and nights meeting with, probing, and listening to military men up and down the ranks. More than six months before the United Nations passed its partition plan for dividing Palestine into a Jewish and an Arab state, Ben-Gurion was keenly aware that the next phase in the Arab-Israeli conflict would be very different from the war the pre-state Jewish militias had been fighting; they needed to step back, in the midst of ongoing fighting, and plan for the existential threats that were nearing.

At the end of the seminar, Ben-Gurion wrote of the men's confidence in their readiness: "We have to undertake difficult work-to uproot from the hearts of men who are close to the matter the belief that they have something. In fact, they have nothing. They have good will, they have hidden capacities, but they have to know: to make a shoe one has to study cobbling."

Intel's Otellini didn't know it, but his Israeli team was giving him a similar message. They saw that Intel was headed for the "power wall." Instead of waiting to ram into it, the Israelis wanted Otellini to avert it by taking a step back, discarding conventional thinking, and considering a fundamental change in the company's technological approach.

The executives in Santa Clara were ready to strangle the Israeli team, according to some of those on the receiving end of Intel Israel's "pestering." The Israelis were making the twenty-hour trip between Tel Aviv and California so frequently that they seemed omnipresent, always ready to corner an executive in the hallway or even a restroom-anything to argue their case. David Perlmutter spent one week each month in the Santa Clara headquarters, and he used much of his time there to press the Israeli team's case.

One point the Israelis tried to make was that while there was risk in abandoning the clock-speed doctrine, there was even greater risk in sticking with it. Dov Frohman, the founder of Intel Israel, later said that to create a true culture of innovation, "fear of loss often proves more powerful than the hope of gain."

Frohman had long tried to cultivate a culture of disagreement and debate at Intel Israel, and he had hoped this ethos would infect Santa Clara. "The goal of a leader," he said, "should be to maximize resistance-in the sense of encouraging disagreement and dissent. When an organization is in crisis, lack of resistance can itself be a big problem. It can mean that the change you are trying to create isn't radical enough . . . or that the opposition has gone underground. If you aren't even aware that the people in the organization disagree with you, then you are in trouble."

In time, the Israelis outlasted-and outargued-their U.S. supervisors. Each time the Israelis showed up, they had better research and better data, one Intel executive recalled. Soon they had a seemingly bulletproof case as to where the industry was heading. Intel could either lead in that direction, the Israelis told management, or become obsolete.

Finally, this time as CEO , Otellini changed his mind. It had become impossible to counter the Israelis' overwhelming research-not to mention their persistence. In March 2003, the new chip-code-named Banias after a natural spring in Israel's north-was released as the Centrino chip for laptops. Its clock speed was only a bit more than half of the reigning 2.8 gigahertz Pentium chips for desktops, and it sold for more than twice the price. But it gave laptop users the portability and speed they needed.

The switch to the Israeli-designed approach came to be known in Intel and the industry as the "right turn," since it was a sharp change in approach from simply going for higher and higher clock speeds without regard to heat output or power needs. Intel began to apply the "right turn" paradigm not just to chips for laptops but to chips for desktops, as well. Looking back, the striking thing about Intel Israel's campaign for the new architecture was that the engineers were really just doing their jobs. They cared about the future of the whole company; the fight wasn't about winning a battle within Intel, it was about winning the war with the competition.

As a result, the new Israeli-designed architecture, once derided within the company, was a runaway hit. It became the anchor of Intel's 13 percent sales growth from 2003 to 2005. But Intel was not clear of industry threats yet. Despite the initial success, by 2006, new competition caused Intel's market share to plummet to its lowest point in eleven years. Profits soon plunged 42 percent as the company cut prices to retain its dominant position.

The bright spot in 2006, however, came in late July when Otellini unveiled the Core 2 Duo chips, Intel's successors to the Pentium. The Core Duo chips applied Israel's "right turn" concept plus another Israeli development, called dual-core processing, that sped chips up even further. "These are the best microprocessors we've ever designed, the best we've ever built,'' he told an audience of five hundred in a festive tent at Intel's Santa Clara headquarters. "This is not just incremental change; it's a revolutionary leap." Screens lit up with images of the proud engineers behind the new chip; they were joining the celebration via satellite, from Haifa, Israel. Though Intel's stock was down 19 percent over the whole year, it jumped 16 percent after the July announcement. Intel went on to release forty new processors over a one-hundred-day period, most of them based on the Israeli team's design.

"It's unbelievable that, just a few years ago, we were designing something that no one wanted," says Friedman, who is still based in Haifa but now leads development teams for Intel around the world. "Now we're doing processors that should carry most of Intel's revenue-we can't screw up."

What began as an isolated outpost an ocean away had become Intel's lifeline. As Doug Freedman, an analyst for American Technology Research, put it, the Israeli team "saved the company." Had midlevel developers in the Haifa plant not challenged their corporate superiors, Intel's global position today would be much diminished.

Intel Israel's search for a way around the power wall also produced another dividend. We don't think of computers as using a lot of electricity-we leave them on all the time-but, collectively, they do. Intel's ecotechnology executive, John Skinner, calculated the amount of power that Intel's chips would have used if the company had kept developing them in the same way, rather than making the "right turn" toward the Israeli team's low-power design: a saving of 20 terawatt hours of electricity over a two-and-a-half-year period. That's the amount of power it would take to run over 22 million 100-watt bulbs for an entire year, twenty-four hours a day, seven days a week. Skinner noted, "We calculated about a $2 billion savings in electricity costs. . . . It's equivalent to a small number of coal-fired power plants or taking a few million cars off the road. . . . We're very proud that we are dramatically reducing the carbon dioxide footprint of our own company."

The significance of the Intel Israel story is not, however, just that the team in Haifa came up with a revolutionary solution that turned the company around. A good idea alone could not have carried the day against a seemingly intransigent management team. There had to be willingness to take on higher authorities, rather than simply following directives from the top. Where does this impudence come from?

Dadi Perlmutter recalls the shock of an American colleague when he witnessed Israeli corporate culture for the first time. "When we all emerged [from our meeting], red faced after shouting, he asked me what was wrong. I told him, 'Nothing. We reached some good conclusions.' "

That kind of heated debate is anathema in other business cultures, but for Israelis it's often seen as the best way to sort through a problem. "If you can get past the initial bruise to the ego," one American investor in Israeli start-ups told us, "it's immensely liberating. You rarely see people talk behind anybody's back in Israeli companies. You always know where you stand with everyone. It does cut back on the time wasted on bullshit."

Perlmutter later moved to Santa Clara and became Intel's executive vice president in charge of mobile computing. His division produces nearly half of the company's revenues. He says, "When I go back to Israel, it's like going back to the old culture of Intel. It's easier in a country where politeness gets less of a premium."

The cultural differences between Israel and the United States are actually so great that Intel started running "cross-cultural seminars" to bridge them. "After living in the U.S. for five years, I can say that the interesting thing about Israelis is the culture. Israelis do not have a very disciplined culture. From the age of zero we are educated to challenge the obvious, ask questions, debate everything, innovate," says Mooly Eden, who ran these seminars.

As a result, he adds, "it's more complicated to manage five Israelis than fifty Americans because [the Israelis] will challenge you all the time-starting with 'Why are you my manager; why am I not your manager?' "

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Table of Contents

Chapter 1. Persistence
Chapter 2. Battlefi eld Entrepreneurs
Chapter 3. The People of the Book
Chapter 4. Harvard, Princeton, and Yale
Chapter 5. Where Order Meets Chaos
Chapter 6. An Industrial Policy That Worked
Chapter 7. Immigration: The Google Guys' Challenge
Chapter 8. The Diaspora: Stealing Airplanes
Chapter 9. The Buffett Test
Chapter 10. Yozma: The Match
Chapter 11. Betrayal and Opportunity
Chapter 12. From Nose Cones to Geysers
Chapter 13. The Sheikh's Dilemma
Chapter 14. Threats to the Economic Miracle
Conclusion: Farmers of High Tech

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Customer Reviews

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See All Sort by: Showing 1 – 20 of 54 Customer Reviews
  • Posted August 11, 2010

    Start-Up Nations explains the formula for innovation and entrepreneurship

    Dan Senor and Saul Singer - Start-up Nation: The Story of Israel's Economic Miracle.

    How is it that Israel, population 7,500,000 has more companies listed on the NASDAQ than all of Europe, population 300,000,000? Can it be just explained away by their "Jewishness?" This is the question Senor and Singer set out to answer in their new book, Start-up Nation.
    Dan Senor is a policy advisor and political analyst, currently adjunct senior fellow for Middle East studies at the Council on Foreign Relations in New York. Saul Singer is a journalist living in Jerusalem. They approach this anecdotally, stitching together a explanation that includes the impact of the military, the role of the reserve structure, the collection of quality universities, the continuing influx of motivated and risk-embracing immigrants, and perversely, the constraint that Israeli companies cannot trade with any of the countries on its border.

    The role of the military on developing a specific culture of innovation and chutzpah is most interesting to me. There are two aspects that the authors emphasize. First, because of the threat to the nation, there is a zealous dedication to leadership mechanisms that work. This includes boisterous debate prior to decisions and robust and honest deconstructions of events after the fact. Members learn to respect competence, and have an irreverence for rank. The second important contribution is Israel's reserve structure. In effect, military organizations coming together annually to drill form egalitarian networks that would-be entrepreneurs tap in to.

    Another structural aspect of the Israeli military is it's relative understaffing of senior officers relative to junior officers: 1 to 5 in the U.S. Army; 1 to 9 in the IDF. This deliberately lean staffing results in junior officers being thrust into position where they must make key decisions early in their careers. They are tested and their judgment honed.

    I'm not Jewish but I can't help but think there's at least one more thing at play here, not reported by the authors. My experience is that trust significantly reduces transaction costs and speeds interaction. I wonder what the almost homogeneous Jewish population plays in allowing strangers to achieve high levels of trust rapidly, quickly achieving collaborative and common success.

    My name is David Marquet, from Practicum, Inc and we help our customers get everyone be a leader and avoid casting employees into follower roles. To continue the dialogue respond to or follow our blog or follow us on twitter. @totheleadernyou.

    1 out of 1 people found this review helpful.

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  • Posted January 2, 2010

    more from this reviewer

    What to Learn from Israel's Economic Miracle

    Dan Senor and Saul Singer skillfully bring to light Israel's national ethos to explain how Israel has managed to achieve the highest density of start-ups in the world, in spite of its precarious beginnings, its small size, and its isolation from its neighbors for well-known reasons. Israel specializes in what Messrs. Senor and Singer call high-growth entrepreneurship, i.e., start-ups that reengineer entire global industries. As the authors demonstrate convincingly, the Israeli high-tech business success story lies not only in the presence of the institutional elements that underpin classic business clusters, but also, and more importantly, in the key components of its cultural core. Many Israelis display a mixture of seemingly contradictory attitudes which can be baffling to anyone unfamiliar with Israel's national ethos: simultaneously both driven and flat and both ambitious and collectivist. The IDF (Israel Defense Forces) plays a key role in inculcating specific societal norms into the young men and women who do their mandatory military service. Messrs. Senor and Singer summarize this ethos very well when they write: "it is a story not just of talent but of tenacity, of insatiable questioning of authority, of determined informality, combined with a unique attitude toward failure, teamwork, mission, risk, and cross-disciplinary creativity." To their credit, the authors do not gloss over the weaknesses of the Israeli economy such as the mixed performance of its other industries and the low Israeli workforce participation chiefly attributable to Haredim (ultra-Orthodox Jews) and Israeli Arabs. Messrs. Senor and Singer usually explain clearly what different countries such as the United States, Singapore, Finland, and the states of the Gulf Cooperation Council can learn from the Start-Up Nation. However, these countries should keep in mind that, like emulating a successful company with a distinctive corporate culture, copying "High-Tech Israel Inc." will be challenging. Just recycling bits and pieces of that model will often end in failure. To summarize, Messrs. Senor and Singer usually succeed in giving their audience an impartial view of the strengths and weaknesses of the Start-Up Nation.

    1 out of 2 people found this review helpful.

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  • Posted December 7, 2009

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    Bridget's Review

    Isreal is a young yet rich country. How is it possible that a country who is constantly battling enemies can be so powerful? I've often asked myself that question and reading this book helped me to understand. If you are interested in learning about what it takes to make a country, then you should read this book.

    1 out of 2 people found this review helpful.

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  • Posted December 27, 2012

    Great Book, Unfortunately B&N continues to rip off ebook customers

    Start-up Nation is a fantastic read for anyone interested in entrepreneurial policy. I highly recommend it.

    Unfortunately, most booksellers (B&N included) continue to charge the same amount for an ebook product with zero marginal cost as they do for the print version. This is pure profit gouging, and is inexcusable.

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  • Anonymous

    Posted September 14, 2012

    A bit repetitious, but clarifies Israeli frame of reference and approach

    A nice primer to help bridge a cultural gap when working with business people from Israel. Easy read, but verbatim repetition forces the reader to skip over the chaff to get to the wheat.

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  • Posted May 8, 2012

    Compelling! Makes the "Dream Team" sports stories pale in comparison to the real life (and death) obsticles this over-achieving, underdog nation surmounted!

    Well documented history of the courage, determination, panache and "chutzpuh" this over persecuted people possess. In my natural idioms "balls" is the word that comes to mind. Tell them they can't, they will. Tell them don't, they do. In no other nation is success so revered and its persuit so commonly shared that it has become a form of true patriotism! Many history books speak to the events that created Israel, but none so fully explain the societal id that makes it so successful.

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  • Anonymous

    Posted November 30, 2011

    excellent book- eye opener

    Found this book to be fascinating and very informative.

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  • Posted February 4, 2011

    In today's world, one has to wonder with the crisis in Egypt, spreading throughout Middle East, if anything will protect the country now! One can only hope it survives.

    What has made Israel such a successful country? The Israelis approach entrepreneurship in a very unique way. They do not fear failure or recriminations for failure. They pick up and start again, persevere and have unremitting focus in their effort to succeed. Members of the military start many of the businesses. They are selected carefully for their jobs in the military, (right out of high school, as they prepare for mandatory service).after rigorous testing, rather than randomly as in some armed forces. As a result they excel in the business world, as well as in the military. All students are not educated in the same way, but rather they are chosen for specific skill sets that they possess. In this way, their education is used to the best possible advantage. Students are trained because they qualify, not because they are entitled to the education. They are taught to question constantly and authority is viewed differently so that a lowly worker is perfectly free to question someone in authority without fear of repercussions. There is no real hierarchy in the service. Rank is not the most important thing, accomplishment is more respected. Those beneath an officer in the field may request his dismissal if they feel he is not engendering the respect and command required for them to perform well. When Israelis pitch a business idea, they stress the importance of the opportunities for Israel, not for their own personal reasons. Often, they do not tout their own business but they do praise their country and encourage investment there. They are not as profit driven personally but rather nationalistically. Their success is largely due to the approach to education, the universal, mandatory service in the military with its rigorous training right out of high school, the stress on the need to question authority and the ability to learn from one's failures and move on, the absence of the fear of failing is huge, since it is not viewed negatively (failure is not looked upon with disdain but rather as a learning experience from which to jump off and succeed), the stress on learning from experience, and because higher education begins after military service, the more mature work force that is able to think on their feet. Isrealis go out to work in other countries and bring that knowledge back. The Israeli immigration policy, also fosters economic growth, although, in some instances, it has also been a tremendous drain on the economy with those that remain unemployed. Israelis react quickly to ideas, develop them and move on. If they make a mistake they think of a way to fix it and continue. They must find a way to show strength and get the upper hand. Technology has been their strong suit. They don't spend time they don't have, pontificating on the positives and negatives. They are doers. They must be, because they are a small country in a huge world filled with many enemies.

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  • Posted November 17, 2010

    more from this reviewer

    Invigorating story about Israeli entrepreneurship

    Innovation and venture capital are the main engines for creating individual and national wealth. Take Israel, for example, say authors Dan Senor and Saul Singer, who portray the nation as a blueprint for how to launch innovative ventures. They profile the cultural, military and economic characteristics that make it the world's most entrepreneurial nation. This uplifting, inspiring business story explains how Israeli entrepreneurs overcame significant challenges and analyzes how a country's culture influences its business climate. getAbstract finds that this well-informed text offers solid lessons about maintaining national competitiveness in the 21st century.

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  • Posted September 1, 2010

    Great insight into Israeli foreign relations

    Dan Senor and Saul Singer - Start-up Nation: The Story of Israel's Economic Miracle.

    While this book certainly amazes the ignorant, it is actually hasbara (propaganda) from Herzliya which is the location of Mossad headquarters. The true story is more amazing, Israel has stolen more technology, especially secret technology from the United States than any other country in the world.

    Israel gets more United States foreign aid annually than any other country in the world. In addition, the Israeli government receives military aid from the United States. One would think that we were friends, but they reverse engineer the technology and sell it around the world. The F-16 technology is an extraordinary example of Israel selling United States technology "knock-offs" around the world.

    There are wealthy American Zionists (radical extremists) who as the CEO or large stockholder of technology companies in the United States tolerates a company atmosphere which allows the transfer of technology, especially secret technology, to Israel. They are good American citizens except when dealing with United States foreign policy with Israel, then they are Israel firsters.

    What they can't get legally they steal. For example, goggle Jonathan Pollard for past thefts and more recently Stewart Nozette was arrested. These two are examples of American spies who were caught. How many are not caught? That is not known. The United States government does not like the embarrassment created by the trials of Americans who spy for Israel. The Israel Lobby is very strong, especially during election time. When there is a Chinese spy or a Russian spy it is on the front page of newspapers and broadcast news for days. Nozette was arrested last October and how often was he in the news since then?

    Basically, the United States Government pays for the research, Israel gets the technology, sells it to everybody, including the Chinese, Russians and a bunch of dumb generals at pentagon. Then somebody has to create a counter technology. So the United States tax payers pay 3 times for an item. United States jobs are lost when the technology is stolen and produced elsewhere.

    0 out of 2 people found this review helpful.

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  • Anonymous

    Posted April 20, 2010

    Start Up Nation a must read for economic developers...and congressional members...

    "Start Up Nation The Story of Israel's Economic Miracle" is a must read for economic developers, venture capitalists, economists, business leaders and definitely members of the U.S. Congress. The book details why Israel's culture and its people produce innovative entrepreneurs. It details how these entrepreneurs from the tiny nation have literally saved some of the giants in the information technology and telecommunications world through innovation and "chutzpah". Intel, Google, Cisco, EBay and others wouldn't be where there are today without the talent drawn from Israel. Forget economic development missions to Europe - go straight to Israel - that's where innovation is real. The world owes much to Israel for its contribution to today's technologies.

    0 out of 1 people found this review helpful.

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  • Anonymous

    Posted February 6, 2010



    0 out of 1 people found this review helpful.

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  • Posted February 1, 2010

    more from this reviewer

    A great insight into Israeli society

    A refreshing look at Israeli Chutzpa and Balagan (chaos) and why they are actually a good thing. Israeli's are often taken for being rude (chutzpa) and disorganized (balagan) but the authors show us why these characteristics, as well as other factors (in particular the military), have allowed Israel to produce a world class high tech industry and grow its economy. The book doesn't answer why Israelis are the way they are - just how the way they are has shaped the growth of their country. I liked Start Up Nation; it is interesting and well worth the read.

    0 out of 1 people found this review helpful.

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  • Posted January 16, 2010

    Excellent read

    Great stories, very interesting, enjoyable, and humorous.

    0 out of 1 people found this review helpful.

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  • Anonymous

    Posted December 19, 2009

    I Also Recommend:

    Inspiration for Tough Times - The Little Engine that Can

    In trying economic times it is inspiring to read the true story of how a small nation of roughly 7 million people, surrounded by enemies and with very few natural resources, has become a powerhouse in the world of high technology and venture capital. There are a lot of great lessons here for business people and government officials. You do not have to be big to prosper and build a dynamic economy that enhances everyone's life. Take note, we are not utilizing one of our great assets properly, the wonderful young men and women that have returned from Iraq and Afghanistan. Read this and start your own company and unleash the experience and true "trial by fire" responsibility that many of our young veterans possess. The nation of Israel has figured it out.

    0 out of 1 people found this review helpful.

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    Posted January 19, 2010

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