Soldiers of Fortune

How does Israel—with fewer people than the state of New Jersey, no natural resources, and hostile nations all around—produce more tech companies listed on the NASDAQ than all of Europe, Japan, South Korea, India, and China combined? How does Israel attract, per person, 30 times as much venture capital as Europe and more than twice the flow to American companies? How does it produce, for its size, the most cutting-edge technology startups in the world?

There are many components to the answer, but one of the most central and surprising is the Israeli military's role in breaking down hierarchies and—serendipitously—becoming a boot camp for new tech entrepreneurs.

While students in other countries are preoccupied with deciding which college to attend, Israeli high-school seniors are readying themselves for military service—three years for men, two for women—and jockeying to be chosen by elite units in the Israeli military, known as the Israel Defense Forces, or IDF.

As selective as the top Israeli universities are, certain commando, intelligence, Air Force, and high-tech IDF units are even more so. The prestige of these units makes them the national equivalent of Harvard, Stanford, and MIT for the Israeli tech world. Even outside the elite units, the military experience of Israeli job applicants tells prospective employers what kind of selection process they navigated, and what skills and relevant experience they may already possess.

For Americans, the idea that military service can be great training for business is surprising. "Innovation" is hardly the first word most people associate with the military. "Improvisation" is even less likely to come to mind. And "flat"—as in anti-hierarchical and informal—would be completely counterintuitive. Yet these are exactly the attributes that employers have come to expect from young people emerging from their stint in the IDF.

Talk to an Israeli Air Force pilot and you will see why. "If most air forces are designed like a Formula One race car, the Israeli Air Force is a beat-up jeep with a lot of tools in it," one pilot told us. A U.S. Air Force "strike package" often consists of four waves of specialized aircraft: a combat air patrol to clear a corridor of enemy aircraft; a second wave to suppress enemy antiaircraft systems; a third wave of electronic-warfare aircraft, refueling tankers, and radar aircraft; and, finally, the strikers themselves—planes with bombs. In the Israeli system, almost every aircraft is a jack-of-all-trades. "You do it yourself," one pilot noted. "It's not as effective, but it's a hell of a lot more flexible."

The Israeli business culture's emphasis on multidisciplinary skills—on everyone being able to operate in many sectors—rather than an intense and narrow focus in one area flows directly from the military culture. It also produces mashups: the combination of radically different technologies and disciplines.

Given Imaging, for example, is the Israeli startup behind the PillCam. The company's founders took the miniaturized sensing systems from the nose cones of fighter jets to create a swallowable camera. The PillCam weighs 4 grams, and can beam a movie from inside a patient's intestine out to a doctor's monitor in the same room or across the globe. This is making some highly invasive and painful diagnostic surgeries all but obsolete. Given Imaging, listed on the NASDAQ, was the first company to go public after September 11, 2001. (Article continued below...)

The three founders of biotech mashup Compugen—president Eli Mintz, chief technology officer Simchon Faigler, and software chief Amir Natan—met in the IDF. Twenty-five of the 60 mathematicians in the company joined through the founders' network of Army contacts. While still in the Army, Mintz created algorithms for sifting through reams of intelligence data to find the nuggets that have been so critical to Israel's successes in hunting terrorist networks. When his wife, a geneticist, described the problems they had in analyzing enormous collections of genetic data, Mintz and his partners sought to revolutionize the process of genetic sequencing.

The American corporate giant Merck bought Compugen's first sequencer in 1994, a year after the startup was founded and long before the human genome had been successfully mapped.

The IDF also 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 Ethiopia, the son of an Iranian immigrant, a native-born Israeli from a swanky Tel Aviv suburb, 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 20-plus years of annual service in the reserves.

Not surprisingly, many business connections are made during the long hours of operations, guard duty, and training. This gives young Israelis a tight-knit network with global reach. Two out of three Israelis are immigrants or the children of immigrants. The military is much better than college for inculcating young leaders with a sense of social range.

But the military can also do something much more counterintuitive: it breaks down hierarchies. Normally, when one thinks of military culture, what comes to mind is unwavering obedience to superiors. But the IDF doesn't fit that description. One way that the IDF exhibits a flat, non-hierarchical culture—more like a startup than a large corporation—is that it works to drill responsibility down to lower levels. "The IDF is deliberately understaffed at senior levels. It means that there are fewer senior officers to issue commands," says Edward Luttwak, a military historian. "Fewer senior officials means more individual initiative at the lower ranks."

In the reserves, which are the backbone of the Israeli military in time of war, this flatness and dispersion of responsibility is most pronounced. Hierarchy is naturally diminished when taxi drivers can command millionaires and 23-year-olds can train their uncles. This helps to reinforce that chaotic, anti-hierarchical ethos that can be found in Israeli society, from war room to classroom to boardroom.

It creates an openness to challenging, debating, and probing—even of one's superiors—that permeates the Israeli startup scene; it helps produce unconventional solutions to tough business problems. 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 says. "A private will tell a general in an exercise, 'You are doing this wrong; you should do it this way.' "

This is not to say that soldiers aren't expected to obey orders. But, as Amos Goren, a venture-capital investor with Apax Partners in Tel Aviv and a veteran Israeli commando, says, "Israeli soldiers are not defined by rank; they are defined by what they are good at."

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 in so many transformative experiences when its citizens are 18 to 21 years old. By the time they get to college, their heads are in a different place than those of their American counterparts.

According to the Organization for Economic Cooperation and Development, 45 percent of Israelis are university-educated, which is among the highest percentages in the world. But is it really the university, or is it the fact that Israel is the only country where most university students have also had a crucible leadership experience before they even begin their post-secondary education? Or perhaps it's that Israel's university students get so much more out of the college classroom because—unlike American students—by the time they go to campus they are far more mature and grounded. By their early 20s, they know the true meaning of "life and death," and—as one Israeli general told us—the "value of five minutes" when having to make high-stakes decisions in the fog of ambiguity. That's a skill that's just as valuable on the corporate battlefield as on a real one.