Start-up Nation (20 page)

Schwimmer insisted that in a world flooded with surplus aircraft from the war, there was no reason why Israel could not buy
planes cheaply, repair and improve them, and sell them to militaries and airlines in many countries, while building Israel’s
own commercial industry. Shortly after they returned to the United States, Peres took Schwimmer to meet Ben-Gurion, who was
on his first visit to America as Israel’s prime minister.

“You learning Hebrew now?” was Ben-Gurion’s first question when Schwimmer reached out his hand to greet him; they had met
repeatedly during the War of Independence. Schwimmer laughed and changed the subject: “Nice girls here in California, don’t
ya think, Mr. Prime Minister?”

Ben-Gurion wanted to know what Schwimmer was working on. Schwimmer told him about the renovations he was carrying out.

“What? With this tiny collection of machines you can renovate planes?”

Schwimmer nodded.

“We need something like this in Israel. Even more. We need a real aviation industry. We need to be independent,” Ben-Gurion
said. This was exactly what Schwimmer had discussed with Peres, while flying over the tundra. “So, what do you think?”

Unbeknownst to Schwimmer, Ben-Gurion had recently instructed the Technion to build an aeronautical engineering department.
In giving the order, he’d said, “A high standard of living; a rich culture; spiritual, political and economic independence
. . . are not possible without aerial control.”

“Sure, I think you’re right,” said Schwimmer, falling into the prime minister’s trap.

“I’m glad you think so. We’ll expect you to come back to Israel to build one for us.”

Schwimmer stared dumbfounded at Peres.

“Just do it, Al,” said Peres. Schwimmer resisted. He immediately began thinking of the run-ins he would have with the Israeli
Air Force chiefs and the small but powerful Israeli establishment. Plus, he didn’t speak Hebrew. He wasn’t a party insider.
He hated politics and bureaucracy. And the Israeli combination of socialist economic planning and cronyist politics could
be stifling for anyone, let alone someone trying to build an aviation industry.

He told Ben-Gurion that he could build the company only if it would be free from cronyism—no political hacks getting jobs.
A private company, organized along commercial lines, he told Ben-Gurion.

“You’re just right for Israel. Come,” Ben-Gurion responded.

Schwimmer did go to Israel. Within five years, Bedek, the airplane-maintenance company he founded with two Israelis, became
the largest private employer in the country.

By 1960, Bedek was producing a modified version of the French Fouga fighter plane. At an official unveiling and test flight
of the plane, dubbed Tzukit (“swallow” in Hebrew), Ben-Gurion told Schwimmer, “This place isn’t just Bedek anymore. You’ve
gone beyond repairs. You guys have built a jet. The new name should be Israel Aircraft Industries.” Peres, who by now was
deputy defense minister, translated the new company name.

Peres and Ben-Gurion had managed to recruit an American Jew to help provide one of the biggest long-term jolts to Israel’s
economy, all without asking anyone for one investment dollar.

For our customers around the world, there was no war.

—E
ITAN
W
ERTHEIMER

W
E’RE NOT HERE TO STEAL WORKERS FROM
M
ICROSOFT
,” said Google’s Yoelle Maarek. “But,” she continued, grinning mischievously,
“if they think they’ll be happier with us, they’re welcome.”
¹
Only ten weeks earlier, Hezbollah missiles had been raining down on Haifa, home to the Google R&D center she headed. Now
she was in Tel Aviv, opening Google’s second research facility in the space of a year.

Yoelle Maarek grew up in France, where she studied engineering, then earned her PhD in computer science at Columbia University
and the Technion in Haifa. Before being tapped to head Google Israel’s R&D operations, she worked at
IBM
Research for seventeen years, specializing in a field called “search” before Google existed and when the Internet was in
its infancy.

To Maarek, the roots of search go deep into history. Scholars in the sixteenth century would consult a Bible concordance to
see where Moses was mentioned and in which context. A concordance is “basically an index, which is the data structure that
every search engine is using. Five centuries ago, people would do that manually. . . . As Israelis and as Jews, we are the
people of the Book. We like to consult texts. We like to search,” Maarek said.

In 2008 Google Israel sold $100 million in advertising, about double the previous year and 10 percent of the total advertising
market in Israel—a higher market share than Google has in most countries.

While Google has become a growing empire of products and technologies—from search, to Gmail, to YouTube, to cell phone software,
and much more—the heart of the company remains its ubiquitous home page. And if the most trafficked home page in the world
is Google’s temple, the search box on it is the holy of holies.

It was somewhat ambitious, then, for Google Israel to take on a project that went right to the heart of the company, to the
search box. The Israeli team took a small experimental idea that had been sitting untouched for two years—Google Suggest—and
made it something that millions of people see and use every day.

For those who have not noticed it, Google Suggest is that list of suggestions that pop down as you type in a search request.
The suggestions update as you type in each letter of the request, just about as fast as you can type.

Google is famous for delivering results almost instantaneously. But Google Suggest had to achieve this feat with each
letter
. Information had to go to Google’s servers and send back a list of relevant suggestions, all in the split second before the
next letter was typed.

Two months into the project, the team got its first break. Kai-Fu Lee, who was the president of Google China, said that he
was willing to take the risk that queries would be slowed down. Chinese is very hard to type, so having Suggest to fill words
in was particularly valuable in China. Suggest worked, and it expanded quickly to Google’s sites in Hong Kong, Taiwan, Russia,
and Western Europe, and soon to Google around the world.

Microsoft was not far behind in capitalizing on Israel. While the damage from two thousand missile strikes during the 2006
Lebanon war was still being repaired, a defiant Bill Gates arrived for his first visit to Israel. He came with a clear message:
“We are not afraid of Google,” he told an Israeli news agency. While he couldn’t resist getting in a dig about Internet search
engines being “in a terrible state compared to where they could be,” he also conceded that Google and Microsoft were in fierce
competition. And the new battlefront was Israel. Earlier Gates had said that the “innovation going on in Israel is critical
to the future of the technology business.”
²

No sooner did the richest man in the world leave Israel than the second-richest, Warren Buffett, showed up. The most revered
investor in America had arrived to visit the first company he’d bought outside the United States. Buffett spent fifty-two
hours touring Iscar, the machine-tool company he’d purchased for $4.5 billion, and Israel, the country he had heard so much
about. “You think of people walking those steps 2,000 years ago,” he said of his visit to Jerusalem, “and then you look at
the Iscar factory on a mountaintop, supplying 61 countries—whether it’s Korea or the United States or Europe or you name it.
It’s pretty remarkable. I don’t think you can really find that kind of combination of the past and the future, in such close
proximity, virtually any place in the world.”
³

But it seems unlikely that it was an appreciation of history that convinced Warren Buffett to choose Israel as the place to
change his decades-long policy of not making acquisitions outside the United States. And nor was it, for this apostle of risk
aversion, an indifference to Israel’s vulnerabilities.

You do not have to be Warren Buffett to worry about risk. Every company carefully considers the risks of doing business anywhere
far from headquarters, let alone somewhere perceived as a war zone. The question, according to Buffett, is
how
you think about risk.

We sat in Jon Medved’s office—at the Vringo headquarters, in Beit Shemesh, a neighborhood between Jerusalem and Tel Aviv—to
discuss the risks of investing in Israel.
⁴
But before he would answer our questions, Medved posed one of his own. He pulled out one of the slides from a PowerPoint
presentation, the “Israel Inside” presentation he often gives in his role as unofficial economic ambassador.

FIGURE 9.1

“Look at this graph,” he told us (figure 9.1).

“What do you see here?” Medved probed. The horizontal
x
-axis showed the years 2002 through 2004; the vertical
y
-axis was unlabeled. And there was a line heading—in a relatively linear, diagonal direction—up into the upper-right corner
of the graph. But with no
y
-axis label, the graph was incomplete. We figured Medved had posed a trick question.

“Well, there is something increasing over the 2002-to-2004 time frame,” we hazarded. “But the vertical
y
-axis doesn’t tell us what the ‘it’ is.”

“Exactly,” he quickly responded. “The ‘it’ could be a number of things. For one: violence. It was, tragically, one of Israel’s
most violent periods in our history, during the second intifada and leading up to the second Lebanon war. The graph illustrates
the number of rockets that hit Israel over those years.”

But, Medved told us, the graph also illustrates the performance of Israel’s economy, which also rose steeply in the first
half of the decade. He then pulled out another slide that was virtually identical to the first (figure 9.2
).

FIGURE 9.2

The vertical
y
-axis on this next slide was labeled “Foreign Investment in Israeli High Tech.” Remarkably, during the same period, there
was an increase in investments coming in as the rocket attacks were increasing.

In fact, as we researched other economic metrics, we found that a number of sets of data would fit roughly along this generic
graph structure. For example, foreign direct investment (FDI)—another macroeconomic metric—measures the total amount of overseas
direct investment in any form that comes into a country. During the period from 2000 to 2005, Israel’s
FDI
tripled, and Israel’s share of the global venture dollars invested inside Israel doubled.

Medved was not suggesting that there was a correlation between violence in Israel and its attractiveness to investors. Rather,
he believes that Israel has managed to divorce the security threat from its economic growth opportunities. In other words,
Israelis are confident that their start-ups will survive during war and turbulence. And Israeli entrepreneurs have managed
to convince investors of this, too.

Alice Schroeder, the author of
The Snowball
, is the only authorized biographer of Warren Buffett. We asked her about the perceived risk of investing in Israel. “Warren
has been in the insurance business for a long time, and looks at every investment decision through that lens,” she told us.
“It’s all about assessing risk like you would in an insurance policy. The things you really worry about are the potential
for earthquakes and hurricanes. Warren asks: What kind of catastrophic risk is there, and can I live with it?”
⁵

Iscar, the Israeli company Buffett bought, has its main factory and R&D facilities in the northern part of Israel and was
twice threatened by missile attacks—in 1991, when the whole country was targeted by Iraq’s Saddam Hussein during the Gulf
War, and during the 2006 Lebanon war, when Hezbollah fired thousands of missiles at Israel’s northern towns. “Doesn’t this
constitute catastrophic risk?” we asked her.