Startup Nation’s Next Act: Becoming The World’s Open Innovation Valley
Guest post by Yariv Lotan
When the writer Don Hoefler first coined the term ‘Silicon Valley’ in 1971 to describe the Santa Clara valley, he could not have imagined that the term would become synonymous with the world’s leading and omnipresent high-tech industry. In the past, that same area – before it became dotted with semiconductor production factories– was filled with orchards. While some of those orchids still remain –the wine in the Bay Area is also world class—the region’s main plant has since been replaced by silicone, the material from which the tiny chips that increasingly power our connected world are made from (and the software that runs on it). But it has become an increasingly insular place, struggling with the implications of its extraordinary success. We see evidence of this in the number of people leaving the valley, starting up elsewhere. Increasingly, we see the rise of nascent innovation hubs elsewhere which are attracting significant talent and funding.
Israel’s Mobileye CEO and Intel Senior Vice President Amnon Shashua speaks during an Intel press … [+]
Some 12,000km away, another region that was once an agricultural and geopolitical backwater has transformed into a high-tech power. In Israel, the story of the birth and growth of Silicon Valley is especially resonant.
From the establishment of the State of Israel —now often called the ‘Start-Up Nation’—innovation and geography have gone hand-in-hand. From challenging initial conditions – wilderness and desert, surrounded by enemies – Israelis have succeeded in developing a diversified and flourishing tech sector that is hardwired for entrepreneurial innovation. Today there is hardly a developed nation that does not engage with Israeli experts in agriculture and food production, water management, cyber security and big data, digital mobility and digital health, and many other industries. Many developing nations are increasingly active with Israeli innovation too, seeking out solutions to their problems.
But like Silicon Valley, Startup Nation is also feeling the effects of its growing success. One in 4 growth-stage Israeli startups have opened R&D centers abroad because they can’t afford top local software engineers, whose salaries have skyrocketed due to their high demand and low supply. Rents and office space in Tel Aviv all but price out startups that are not well-funded and very fast growing.
So while the Silicon Valley and Startup Nation models may be unique to the US and Israel –and there are great examples of other ecosystem models around the world, especially in China and the Nordics—much of the rest of the world still looks to Silicon Valley and Startup Nation blueprints for how to establish their own innovation ecosystems.
But those blueprints are not set in stone, and, at least in Israel’s case, are starting to move in interesting directions. While Silicon Valley faces its challenges, Startup Nation is riding the global shift to the Open Innovation model: innovation developed outside walled-off corporate gardens and cultures not set up for risk-taking and entrepreneurship. There are now over 530 multinationals from 35 countries carrying out innovation activities in Israel, engaging with the over 7,000 currently active startups here.
Multinationals tend to increase and diversify their innovation activity with time into Israel’s ecosystem, for example, going from tech-led R&D centers to operating startup accelerators and engaging in joint ventures and launching proof-of-concept programs. Many of these multinationals say they’re starting to take on some of the characteristics of the startups they’re working with, including regular pivots to new technology focus areas, faster execution of projects, and a higher tolerance for failure.
That’s a key sign of an Innovation Valley developing in Israel. And as Open Innovation spreads here, it is impacting the Startup Nation blueprint, allowing it to grow from an incubator for early-stage deep tech startups into an ‘Innovation Valley’ in the kinds of strategic sectors that will have a critical influence on our lives in the future (and embody an exceptional market opportunity). These strategic sectors are in digital healthcare, food and agriculture, and the Industrial Internet of Things (Industry 4.0). So while cyber security, fintech, and autonomous vehicles are big in Israel and the demand for them is still growing, we believe that the innovation around health, food, and factories will have an even bigger impact on the way billions of people around the world eat, live, and work.
As we work to develop the ecosystem of these sectors, we follow a vision of an Innovation Valley, defined by three mountain peaks:
Each has a role to play, and each is responsible for the interplay between them. Together, they define the strength of each sector’s Innovation Valley and construct a bridge between Israel and the world over which challenges and solutions make daily trips.
One example is Agrifood Week, which took place in Tel Aviv in September. PepsiCo, Danone, and Mondelez International, the parent company of Oreo, Cadbury, and Toblerone to name a few, were just some of the leading global food corporations to make their way to Israel for a taste of the latest local innovations in food, beverage, and agriculture technology. Tyson Foods, the world’s second-largest processor and marketer of meat products, is connecting with Israeli start-ups developing solutions for meat substitutes.
A phone app developed in Israel can scan any object and say what it is and what it’s made of, … [+]
Another example is the upcoming Israel Industry 4. (II4) Innovation Week, which brings together consulting, manufacturing and automotive expertise.
In another case, the head of sustainability at AB InBev, the world’s largest brewer, recently came to Israel as part of a delegation of senior executives. AB InBev is no longer only a beer manufacturer, they’re a critical part of the agriculture food chain, supporting thousands of corn farmers around the world.
Maersk, another global logistics and shipping giant, is engaging with Israeli startups and conducting proof of concept trials in areas like food and drones. The Syngenta Foundation for Sustainable Agriculture is engaging with Israeli startups in smart farming and even insurance technologies. AXA, one of the world’s largest insurers, is working with local startups to refine its products for farming insurance.
Hospitals associated with the Texas Medical Center, the world’s largest medical complex, are increasingly tapping Israeli startups for pilot programs in things like tracking medication use, decision support for practitioners, and AI-based diagnostics.
Siemens Dynamo, the innovation arm of the German industrial giant, is regularly connecting its manufacturing clients from Germany and elsewhere with Israeli smart-factory startups.
The list goes on.
As a small isolated country, the Israeli challenge is to break into international markets, not as exporters of products or foodstuffs, but rather as developers of technologies and innovation in spheres that concern the whole world: health, industry and agriculture. This is speeding up Startup Nation’s transformation into the world’s Open Innovation Valley.
Yariv Lotan leads Strategic Sector Development at Start-Up Nation Central.