In Israel’s tech prowess, a downside of scale

December 12th, 2011

Dec. 12, 2011
By Kim Hjelmgaard

JERUSALEM (MarketWatch) — Israelis are accustomed to bomb shelters and hostile neighbors. Its entrepreneurial class, Wunderkind of the technology start-up world, is facing a different kind of threat: one of scale.

It may have enemies on all sides and a dearth of natural resources to call upon, yet due to a rare combination of historical accident, military necessity and innate cultural chutzpah, Israel has, in spite of it all, evolved to a position where it is able to consistently crow that it is near the top in terms of having the most companies listed on the U.S.’s technology-heavy Nasdaq index COMP -1.77% . Israel has 58. In the top spot, Greater China, which includes Hong Kong and Taiwan, has 155 companies.

But an environment that makes for creating superlative technology start-ups — the Nasdaq barometer notwithstanding — doesn’t necessarily imply the near-opposite: that Israel is good at harvesting, from the close to 5,000 currently active start-ups, big companies. Or even that it actively wants to.

“You actually hear this complaint from Israelis a lot,” said Saul Singer, during an interview in Jerusalem. Singer is the co-author along with Dan Senor of the 2009 book “Start-Up Nation: The Story of Israel’s Economic Miracle.”

“Why do we just do start-ups? Why can’t we do bigger companies? And one answer to this is: What makes Israelis so good at doing start-ups, like the lack of patience and long-term planning, the lack of hierarchy and not being so interested in management and sales — the things, in other words, that start-ups don’t have to worry so much about compared to big companies — these things are arguably part of what makes us not so good at creating big companies.”