Excerpt: Start-Up Nation

Chapter 4. Harvard, Princeton, and Yale

The social graph is very simple here. Everybody knows everybody.
—Yossi Vardi

The advantage that Israel's economy—and its society—gains from Israel's 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 Dubai.

"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."

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 massive percentage of Israelis who go to university out of the army compared to anywhere else in the world," said Shainberg.

In fact, according to the Organization for Economic Co-operation and Development (OECD), 45 percent of Israelis are university-educated, which is among the highest percentages in the world. And according to a recent IMD World Competitiveness Yearbook, Israel was ranked second among sixty developed nations on the criterion of whether "university education meets the needs of a competitive economy."

By the time Israeli students finish college, they're in their mid-twenties; some already have graduate degrees, and a large number are married. "All this changes the mental ability of the individual," Shainberg reasoned. "They're much more mature; they've got more life experience. Innovation is all about finding ideas."

Innovation often depends on having a different perspective. Perspective comes from experience. Real experience also typically comes with age or maturity. But in Israel, you get experience, perspective, and maturity at a younger age, because the society jams so many transformative experiences into Israelis when they're barely out of high school. By the time they get to college, their heads are in a different place than those of their American counterparts.

"You've got a whole different perspective on life. I think it's that later education, the younger marriage, the military experience—and I spent eighteen years in the [British] navy, so I can sort of empathize with that sort of thing," Shainberg went on. "In the military, you're in an environment where you have to think on your feet. You have to make life-and-death decisions. You learn about discipline. You learn about training your mind to do things, especially if you're frontline or you're doing something operational. And that can only be good and useful in the business world."

This maturity is especially powerful when mixed with an almost childish impatience.

Since their country's founding, Israelis have been keenly aware that the future—both near and distant—is always in question. Every moment has strategic importance. As Mark Gerson, an American entrepreneur who has invested in several Israeli start-ups, described it, "When an Israeli man wants to date a woman, he asks her out that night. When an Israeli entrepreneur has a business idea, he will start it that week. The notion that one should accumulate credentials before launching a venture simply does not exist. This is actually good in business. Too much time can only teach you what can go wrong, not what could be transformative."

The Israeli Defense Forces (IDF) offers recruits another valuable experience: a unique space within Israeli society where young men and women work closely and intensely with peers from different cultural, socioeconomic, and religious backgrounds. A young Jew from Russia, another from Ethiopia, a secular sabra (native-born Israeli) from a swanky Tel Aviv suburb, a yeshiva student from Jerusalem, and a kibbutznik from a farming family might all meet in the same unit. They'll spend two to three years serving together full-time, and then spend another twenty-plus years of annual service in the reserves.

As we've seen, the IDF was structured to rely heavily on reserve forces, since there is no way for such a small country to maintain a sufficiently large standing army. So for combat soldiers, connections made in the army are constantly renewed through decades of reserve duty. For a few weeks a year, or sometimes just a week at a time, Israelis depart from their professional and personal lives to train with their military unit. Not surprisingly, many business connections are made during the long hours of operations, guard duty, and training.

"Every five years Harvard Business School hosts a class reunion," says Tal Keinan, an Israeli HBS grad. "It's fun. It helps keep your network intact. We spend two days visiting with classmates, sitting in lectures. But imagine a reunion every year, and that it lasts for two to four weeks. And it's with the unit you had spent three years with in the army. And instead of sitting in lectures, you're doing security patrols along the border. It nourishes an entirely different kind of lifelong bond."

Indeed, relationships developed during military service form another network in what is already a very small and interconnected country. "The whole country is one degree of separation," says Yossi Vardi, the godfather of dozens of Internet start-ups and one of the champion networkers in the wired world.

Vardi says he knows of Israeli companies that have stopped using help-wanted ads: "It's now all word of mouth. . . . The social graph is very simple here. Everybody knows everybody; everybody was serving in the army with the brother of everybody; the mother of everybody was the teacher in their school; the uncle was the commander of somebody else's unit. Nobody can hide. If you don't behave, you cannot disappear to Wyoming or California. There is a very high degree of transparency." The benefits of this kind of interconnectedness are not limited to Israel, although in Israel they are unusually intense and widespread.

Unsurprisingly, the IDF has many things in common with other militaries around the world, including equally grueling tryouts for their elite units. However, most of the other militaries' selection processes differ in that they must choose from among volunteer recruits. They are not able to scour the records of every high school student and invite the highest achievers to compete against their most talented peers for a few coveted spots.

In the United States, for example, the military is limited to choosing only from among those potential recruits who express interest. Or as one U.S. recruiter put it, "In Israel, the military gets to select the best. In the U.S., it's the other way around. We can only hope that the best choose us."

The American military goes to great lengths to seek out the best and hope that they may be interested in serving in the U.S. military. Take the United States Military Academy at West Point's freshman class each year. The median grade point average hovers around 3.5, and the admissions department can rattle off all sorts of statistics to quantify the leadership aptitude of its student cadets, including the number who were varsity team captains in high school (60 percent), who were high school class presidents (14 percent), and so on. And the admissions department keeps an extremely comprehensive database of all inquiring prospective applicants, often going back to elementary school. As author David Lipsky writes in his book about West Point, Absolutely American, "Drop a line to West Point in the sixth grade and you'll receive correspondence from admissions every six months until you hit high school, when the rate doubles." Approximately fifty thousand high school juniors open West Point prospective files each year, which culminates in a freshman class of twelve hundred cadets. At the end of the five-year program, each graduate has received an education valued at a quarter of a million dollars.

But even with extraordinary outreach efforts, like West Point admissions, a number of the senior leaders of the U.S. armed forces are frustrated that they cannot gain access to the academic records of a broad cross section of Americans. And without that access, they cannot target a tailored recruitment pitch.

A conversation with an American military man underscores the economic value of the Israeli system. Colonel John Lowry, a marine infantry officer, joined the Marine Corps after high school and has been in active duty or reserves for the past twenty-five years. He earned an MBA from Harvard Business School and went on to climb the corporate ranks at Harley-Davidson, the multibillion-dollar premium motorcycle manufacturer. He did so while fulfilling his commitment to the reserves, serving stints in the Horn of Africa, the Persian Gulf, and, prior to his business career, Operation Desert Storm. Lowry commands one thousand marines and travels to various reserve bases across the country for two weekends each month, in addition to annual month-long call-ups. Lowry also helps oversee a number of Harley factory plants and manages about one thousand employees.

By day he is a senior business executive, but by night he trains marines preparing for tours in Iraq. He transitions seamlessly between these two worlds. He only wishes that the kind of military experience he had was as common in the American business world as it is among Israeli entrepreneurs.

"The military gets you at a young age and teaches you that when you are in charge of something, you are responsible for everything that happens . . . and everything that does not happen," Lowry told us. "The phrase 'It was not my fault' does not exist in the military culture. No college experience disciplines you to think like that . . . with high stakes and intense pressure," says Lowry, a graduate of Princeton. "When you are under that kind of pressure, at that age, it forces you to think three or four chess moves ahead . . . with everything you do . . . on the battlefield . . . and in business."

The Marine Corps network is important to Lowry. His military peers are a built-in board of advisers for him. "It's another world of friendships, outside of work, but many of them are connected to my line of work," he notes. "Just the other day I spoke with one fellow officer who is in management at Raytheon, based in Abu Dhabi. Many of these guys I've known anywhere from five years to twenty-five years."

The military is also much better than college for inculcating young leaders with a sense of what he calls social range: "The people you are serving with come from all walks of life; the military is this great purely merit-based institution in our society. Learning how to deal with anybody—wherever they come from—is something that I leverage today in business when dealing with my suppliers and customers."

If all this sounds similar to our description of the IDF's role in fostering Israel's entrepreneurial culture, it should. While a majority of Israeli entrepreneurs were profoundly influenced by their stint in the IDF, a military background is hardly common in Silicon Valley or widespread in the senior echelons of corporate America.

As Israeli entrepreneur Jon Medved—who has sold several start-ups to large American companies—told us, "When it comes to U.S. military résumés, Silicon Valley is illiterate. It's a shame. What a waste of the kick-ass leadership talent coming out of Iraq and Afghanistan. The American business world doesn't quite know what to do with them."

This gulf between business and the military is symptomatic of a wider divide between America's military and civilian communities, which was identified by the leadership of West Point over a decade ago. In the summer of 1998, Lieutenant General Daniel Christman, the superintendent of West Point, and General John Abizaid, commandant at West Point, were driving on the New Jersey turnpike and pulled off at a roadside food and gas station mall for a quick meal at Denny's. Despite the clearly visible stars on their Class B green army uniforms, the hostess smiled and enthusiastically expressed her gratitude to Generals Christman and Abizaid for the cleanliness of the public parks. She thought they were staff of the parks department.

Despite the military leadership's outreach, too few young Americans today feel any connection to their contemporaries in the military, let alone have actually ever known one who has served. Even after two new war fronts, today only 1 in 221 Americans are in active-duty service. Compare that to the end of the Second World War, when 1 in 10 Americans were serving. Tom Brokaw, author of The Greatest Generation, told us that after World War II a young man who had not served would have a hard time getting a good job in business. "There must be something wrong with him" was how Brokaw characterized a typical reaction of employers back then to non-vets looking for private-sector jobs.

But the way David Lipsky describes it, when the draft ended in 1975, after the Vietnam War, an opposite climate began to settle in: "Civilian culture and military culture shook hands, exchanged phone numbers, and started to lose track of each other."

The economic implications of this drift were driven home to us by Al Chase, who runs an executive recruitment firm focused on the placement of U.S. military officers in private enterprises ranging from small start-ups to large Fortune 100 companies such as PepsiCo and GE. Having placed hundreds of vets, he knows what kind of entrepreneurial acumen is formed by battlefield experience. According to Chase, the Cold War military was different. Young officers could go an entire career without acquiring real battlefield experience. But the Iraq and Afghanistan wars have changed that. Almost every young officer has served multiple tours.

As we've seen firsthand in Iraq, the post-9/11 wars have largely been counterinsurgencies, where critical decisions have been made by junior commanders. General David Petraeus's counterinsurgency strategy in Iraq, for example, was predicated on U.S. troops' not just being present and patrolling local Iraqi residential neighborhoods in order to provide security for Iraqi civilians but actually living in the neighborhoods. This is different from the way most U.S. military troops have fought in earlier wars, including in the early years of the Iraq war. Back then, U.S. soldiers and marines lived in forward operating bases (FOBs), enormous self-contained complexes that roughly replicate bases back in the States. A typical FOB could house tens of thousands of troops—if not more. But the soldiers and marines in neighborhood bases in Iraq since 2007 have numbered in only the tens or low hundreds. This alone gives smaller units much more independence from the division in their daily operations, and the junior commander is given more authority to make decisions and improvise.

Nathaniel Fick was a marine captain who fought in the Afghanistan and Iraq wars, before pursuing a dual-degree program at Harvard Business School and the Kennedy School of Government and penning a book about his experiences called One Bullet Away. He told us that he was trained to think about fighting the "three-block war." In Iraq and Afghanistan, he said, "Marines could be passing out rice on one city block, doing patrols to keep the peace on another block, and engaged in a full-on firefight on the third block. All in the same neighborhood."

Junior commanders in America's new wars find themselves playing the role of small-town mayor, economic-reconstruction czar, diplomat, tribal negotiator, manager of millions of dollars' worth of assets, and security chief, depending on the day.

And, as in the IDF, today's junior commanders are also more inclined to challenge senior officers in ways they typically would not have in the past. This is partly from serving multiple tours and having watched their peers get killed as a result of what junior officers often believe are bad decisions, lack of strategy, or lackluster resources provided by higher-ups. As American military analyst Fred Kagan explained it, U.S. soldiers and marines "have caught up with the Israelis in the sense that a junior guy who has been deployed multiple times will dispense with the niceties towards superiors." There is a correlation between battlefield experience and the proclivity of subordinates to challenge their commanders.

Given all this battlefield entrepreneurial experience, the vets coming out of the Iraq and Afghanistan wars are better prepared than ever for the business world, whether building start-ups or helping lead larger companies through the current turbulent period.

Al Chase advises vets not to be intimidated by others in the job market who have already been in the business world and know the "nomenclature." Vets, he said, bring things to the table that their business peers could only dream about, including a sense of proportionality—what is truly a life-or-death situation and what is something less than that; what it takes to motivate a workforce; how to achieve consensus under duress; and a solid ethical base that has been tested in the crucible of combat.

Brian Tice, an infantry officer, was a captain in the U.S. Marine Corps when he decided that he wanted to make the transition to business. By that time he was thirty years old and had completed five deployments—including assignments in Haiti and Afghanistan—and was in the middle of his sixth, in Iraq. He wrote his essays for his applications to Stanford's MBA program on a laptop in a burnt-out Iraqi building near the Al Asad Air Base, in the violent Al Anbar Province of western Iraq. He had to complete his application at odd hours because his missions always took place in the middle of the night. As an operations officer for a unit of 120 marines, Tice had to build the "package" for each operation against insurgents and al -Qaeda—determine how much force, how many marines, and how much air support were needed. So the only time he could rest and plan future operations was during the day.

Based over eight thousand miles from Stanford's campus, he couldn't meet the school's requirement for an in-person interview. So the admissions department scheduled one over the phone, which he did between sniper operations and raids, while standing in an open expanse of desert. Tice asked the admissions officer to excuse the blaring noise of helicopters flying overhead, and had to cut the interview short when mortars landed nearby.

More and more American military officers are applying for MBA programs and, like Captain Tice, are going to extraordinary lengths to do so. In 2008, of aspiring MBA applicants that took the Graduate Management Admission Test (GMAT), 15,259, or 6 percent, had military experience. At the University of Virginia's Darden School of Business, the number of military applicants rose 62 percent from 2007 to 2008. The first-year class in 2008 had 333 students, 40 of whom were from the military, including 38 who had served in Afghanistan or Iraq.

The Graduate Management Admission Council, which administers the GMAT, has made it a priority to better organize the path from war front to business school. It has launched its Operation MBA program, which helps members of the armed forces find B-schools that waive application fees or offer generous financial aid packages and even tuition deferrals for cash-strapped vets. And the council is even setting up GMAT test centers on military bases, one of which was opened in 2008 at Fort Hood in Texas; another is planned to open at Yokota Air Base in Japan.

Yet the capacity of U.S. corporate recruiters and executives to make sense of combat experience and its value in the business world is limited. As Jon Medved explained, most American businesspeople simply do not know how to read a military résumé. Al Chase told us that a number of the vets he's worked with have walked a business interviewer through all their leadership experiences from the battlefield, including case studies in high-stakes decision making and management of large numbers of people and equipment in a war zone, and at the end of it the interviewer has said something along the lines of "That's very interesting, but have you ever had a real job?"

In Israel it is the opposite. While Israeli businesses still look for private-sector experience, military service provides the critical standardized metric for employers—all of whom know what it means to be an officer or to have served in an elite unit.