Startups: 4 ways Estonia can be more like Israel

02.07.2013, 11:01

Mike Gault, CEO of Guardtime, writes that Estonia has much to learn from Israel and its successful startup ecosystem, a country has produced more NASDAQ listed companies than all of Europe combined.

Having worked in both Israel and Estonia I know both cultures to some degree.  Here are four ideas how Estonia can replicate Israel’s success:

1. Start from the top

Eyal Bino recently blogged on why Israel has such a successful startup ecosystem. The number one reason Eyal lists as the reason Israel is successful is the culture of innovation that starts at the top. “The Israeli Government is fully supportive of entrepreneurs looking to start a company. A variety of programs are offered by the Office of the Chief Scientist, starting with financial to developmental programs for both entrepreneurs and companies. Startups who are accepted to and go through an incubator are offered up to $500,000 in seed funding.” This is exactly what Enterprise Estonia is trying to replicate. Repairing potholes is important – but so is investing in the future to win in the global marketplace.

2. Accept that failure is part of the process

Fear of looking stupid seems to run deep in Estonian culture. Israel has chutzpah, Estonia has kahjurõõm (Schadenfreude). Our favorite Estonian joke: Question: What does an Estonian have for lunch? Answer: Other Estonians.

Entrepreneurs self-select based on their hopelessly naive conviction that they can change the world. The odds are obviously stacked against them but in order to build an ecosystem it has to be OK to fail, to declare bankruptcy, to live in your car. Eyal writes: “It also helps that Israelis live and breathe the life of the ideal entrepreneur, as they are tough, disciplined and not afraid to fail.” What matters is learning and trying again.

The latest round of Estonian growth startups, Creative Mobile, Fortumo, Grabcad, Guardtime, Now!Innovations, Transferwise, ZeroTurnaround all have the potential to build billion dollar businesses, creating more jobs in Estonia, and building a self sustaining ecosystem. Yes, most startups will fail and the taxpayer ROI may not be as immediate as in filling potholes. Long term however it can create national wealth on a very large scale. Look at Israel.

3. Make it Easy for Foreign Investors

The reason that Estonian companies move to the US has got nothing to do with being closer to their markets – it has everything to do with foreign investors not wanting to invest in Estonia. Indeed not being in the US can be an advantage as potential US acquirers have tax advantages if they can use their overseas earnings to buy foreign companies. John Chambers, CEO of Cisco recently was as far as saying that Cisco was no longer willing to buy US companies.

Take Wayz as an example: Google was able to scoop Facebook because they were willing to allow their 90 employees to remain in Israel. The Israeli model – keep your R&D team at home, the client team in the US has succeeded time and time again and US venture capitalists have no problem investing in Israel. So it should be with Estonia.

4. Collaborate

Eyal says about Israel “Just like New Yorkers, Israelis help one another out. It’s part of the country’s DNA. They’re great at lending a hand in building great companies, after all, the success of one startup can create so many opportunities for others.” A startup ecosystem needs collaboration not an ivory tower. If Cybernetica were an Israeli company it would be listed on the Nasdaq and X-Road would be the de facto E-Government platform in the world. This is a lost opportunity and ROI for Estonia as the most IT literate country in the world.

After independence Estonia embraced innovation and today it is the most advanced digital society in the world. NATO has established their Cybersecurity research center there and DARPA continues to finance fundamental research. Estonia has some of the finest academic minds in the world. However building global companies requires more than academic brilliance.