Pioneer of Israel's start-up revolution

12 Nov, 2012

When Dan Shechtman started his studies half a century ago at the Technion, Israel Institute of Technology "the country's most demanding and prestigious university for engineering and natural sciences – he knew he was joining an elite institution. Something, however, was missing from the curriculum of the university in Haifa.

"The message from the Technion when I was a student was: you will be so good that when you graduate everyone will want to hire you," says Professor Shechtman, who is one of Israel's leading academics, a Technion professor of materials science and the winner of last year's Nobel Prize for chemistry. '"I said: 'That is not enough. Maybe you will be so good that when you graduate you can open a start-up, and provide a job for yourself and for other people.' But the Technion didn't teach students how to open a start-up. It never spoke about start-ups – not when I was student [or even] many years later."

The omission seems excusable. The Israeli economy in the early 1960s was still dominated by the state, and operated largely in accordance with socialist principles. The idea that a university should expose its finest engineers, mathematicians, chemists and biologists to subjects such as marketing and company law seemed alien, if not absurd.

Prof Shechtman, however, was det­ermined to usher in a new era. As a young engineering graduate, he had himself dreamt of inventing a product and selling it ("I like making things"), but ultimately dropped the plan in favour of a university career. One thing he did not lose, however, was a deep fondness for the people who come up with "beautiful products", and a determination to help them.

That moment arrived in 1986, when he became a full professor and immediately submitted a proposal for a new course called "Technological Entrepreneurship". His plan was to teach students how to apply their knowledge of science and engineering to the world of business – by launching new companies. It was a radical idea with far-reaching consequences, not just for thousands of Israeli students but for the Israeli economy as a whole.

The course established Prof Shechtman's as one of the pioneers of Israel's start-up revolution, and a leading advocate of entrepreneurial capitalism both in his home country and abroad.

"The words [we use today] did not exist," he says. "So I spoke about 'new endeavours'. I spoke about 'new technological businesses'. I used the words that describe what is now known as a start-up."

The course was an immediate success – helped, perhaps, by Prof Shechtman's unusual decision to launch a promotional campaign in the university magazine during the summer holiday. "I told myself: I am teaching entrepreneurship, so I should be an entrepreneur myself. I will advertise," he says. More than 600 Technion students showed up for the first lecture, filling the university's biggest hall beyond capacity.

They would become the vanguard of an entire generation of elite Israeli scientists and engineers that passed through Prof Shechtman's class. Fortified by the experience, many went on to launch start-ups and businesses, helping to lay the ground for Israel's emergence as a global high-technology and innovation hub.

"I hope that I have had some effect on the fact that Israel is a start-up nation," says Prof Shechtman. "By now, there are around 10,000 engineers and scientists in the country that took my class. And the class helped change the atmosphere in the country – from socialist and anti-entrepreneurial to capitalist and pro-entrepreneurship."

At first glance, Prof Shechtman's enthusiasm for the nuts and bolts of the start-up economy is hard to reconcile with his main field of professional interest: the structure and properties of quasicrystals, a form of crystal that scientists thought could not exist until it was discovered by Prof Shecht­man in 1982. He admits the two fields have little in common, with the possible exception of the problem of raising capital in the early stage of a project. Prof Shechtman has little doubt, however, that "being a professor is far easier than being an entrepreneur".

True to his own philosophy, he has launched "a few" start-ups during his university career but always decided to sell rather than dedicate more time to the business ventures.

Now in its 27th year, the principles and structure of Prof Shechtman's course remain unchanged: there are 14 lectures, all of which are given by outside experts. Students do not sit exams but must prove that they have attended at least 10 of the talks. "It is about exposure," he declares.

Prof Shechtman divides the lecturers into three groups: "Category one are entrepreneurs who made it big-time – but who started out 'bootstrapping'. I was looking for role models that the students can identify with. The students want to see somebody who started in the kitchen, in the yard, in the garage and who made it big-time." Among the first people who came to speak was Stef Wertheimer, founder of the Iscar metal-cutting group that was eventually bought by Warren Buffett in one of the largest takeovers in Israeli history. Another business speaker was Uzia Galil, the founder of Elron, one of Israel's biggest tech groups.

"The second category of speakers includes people who opened start-ups a couple of years ago and who are now struggling," says Prof Shechtman. "Some have problems getting money, others have problems finding people to work with, others didn't do the market survey properly and it turns out they made a product that is already made in Taiwan for one-tenth of the price . . . And the students learn from that."

The third group comprises experts on marketing, company law, patents and funding. According to Prof Shechtman, the best way for Israeli entrepreneurs to raise money is through a joint venture with bigger companies in the US or Europe. "[This ensures] that your product fits in their chain of products and fills space that they need. They know the market and they can market the product," he says.

The second-best option is angel investors, followed – by some distance – by venture capital funds. Mr Shechtman has little time for VCs, arguing that they provide a poor service to start-ups: "They need their money back in five years. But in five years a start-up is still too young to be sold, so they are forced to sell, which is bad news."

There are other words of warning: "We tell them which money not to touch. Never touch your own money. Never touch the money of your family. Don't borrow from your grandmother because you will destroy your relationship with your family."

The class offers help, guidance and inspiration – but of course it provides no guarantee against failure. Nor should it, says Prof Shechtman, pointing to one of the secrets of Israel's start-up success: "Israelis do not have fear of failure . . . The atmosphere in Israel now is that if you fail you get a scar, OK, but people will be even more prepared to invest in you – because you have been through the process, and hopefully you will not make the same mistake again."

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