The Unstoppable Startup

Mastering Israel's Secret Rules of Chutzpah

Uri Adoni

• Publisher: HarperCollins Leadership
• Year: 2020
• eBook ISBN: 9781400219179
• Topic: Economics
• Subtopic: Business Development
• Index: Economics

Discover the bold secrets to Israel’s incredible track record of success in this new guide that will help make any startup unstoppable.

More than half of all startups fail - often during the crucial early stages of development when they need to prove their viability on a limited budget. However, when it comes to startup success, one country stands out: Israel.

Even though it is a relatively small country, Israel has one of the highest concentrations of startups in the world, has the highest venture capital per capita, is one of the top countries in terms of number of companies listed on NASDAQ, and is well-recognized as a global leader in research and development.

In The Unstoppable Startup, veteran venture capitalist Uri Adoni goes behind the scenes to explain the principles and practices that can make any startup, anywhere in the world, become an unstoppable one.

Packed with insider accounts from leaders who have realized bold visions, The Unstoppable Startup distills Israeli chutzpah into six operational rules that will help you to:

• Build an unstoppable team;
• Foresee the future and innovate to meet its demands;
• Manage your funding and partnerships through all phases of growth;
• Dominate the market category you are after or create a new one;
• Build and manage an early stage investment vehicle;
• Build and grow a healthy high-tech ecosystem.

Adoni implemented these practices throughout his more than 12 years as a venture capitalist for one of Israel's most successful venture funds, and he continues to utilize these same proven startup strategies today in metropolitan areas in the US.

The Unstoppable Startup provides readers with insights and operational advice on how to run a startup, and how to overcome challenges?that almost every startup faces.

PART 1

THE SIX RULES OF CHUTZPAH

1

WHAT IS CHUTZPAH? AND WHAT IS A STARTUP?

Nothing important was ever accomplished without chutzpah.

—ALAN ALDA

Israel’s startup nation has many drivers: creative individuals, well-structured government support, mandatory army service with a focus on technology innovation, leading academic institutions, and established technology clusters. A number of cultural drivers are also at play. One of the more interesting ones is Chutzpah, a behavioral quality that is both good and bad and that is deeply engrained in the Israeli character. But Chutzpah isn’t limited to Israel—for better or for worse, it is the secret behind most exceptional technology companies and entrepreneurs. Just look at Steve Jobs’s famous “reality distortion field,” or Elon Musk’s audacious goals, like journeying to Mars.¹

Though many Israelis are born with it, Chutzpah is an attitude that can be cultivated and taught. As it applies to entrepreneurship and technology startups, we believe that it should be. But before we get into that, let’s take a closer look at what Chutzpah actually is in practice.

SOMETIMES, CHUTZPAH MEANS flying in the face of reality or probability. Liran Tancman is a redheaded twenty-nine-year-old who sold his less-than-two-year-old company, CyActive, to PayPal in early 2015 for a sum reported to be between $60 and $80 million. His is a story of Chutzpah in both the technological and the deal-making sense. Listening to Tancman, one senses that Chutzpah means, among other things, telling a story that people can’t help but be skeptical about.

“I’ve learned that when you start pitching your startup to someone, you should closely follow how they react to you,” he says. “You will notice their ears prick up all of a sudden if they realize that money can be made. But at the same time, you can also tell when a person is skeptical about your idea but curious to see whether it can actually play out. I think that if the person isn’t skeptical at all, it means the idea isn’t good enough—it’s too easy to believe. At CyActive, the skepticism was about everything, not just about the technology and product but how the company would go to market, since going to market in our case wasn’t at all trivial. The issue here wasn’t just the Chutzpah behind the technological claims we were making; there were doubts about a great many other things we were planning.”²

The technological audacity behind CyActive, the company Tancman cofounded with Shlomi Boutnaru to foil cybersecurity attacks, is that it didn’t set its sights on preventing attacks by known, existing malware. Instead, like a clairvoyant, it claimed to be able to protect companies from computer viruses and worms that hackers hadn’t thought of yet. It claimed to do that through the application of algorithms that were derived from the processes of biological evolution. That’s part of what made Tancman’s listeners so skeptical and at the same time so intrigued. CyActive was challenging the whole antivirus market as it had existed up until then, defining a bold paradigm shift in how it attacked its problem. CyActive’s Chutzpah-laden premise was that malware behaves like a real, biological virus: it mutates as it spreads, adapting to outmaneuver the security measures that are put in its way.

“Hackers stand on the shoulders of giants, i.e., other hackers,” Tancman explains. “Each malware attack is an adaptation of a past malware attack that worked. That’s why malware attacks are so cheap to launch—you make an adaptation to the code and try the malware again, just like a virus mutates. You don’t have to rewrite the whole thing. If hackers had to write all the code from scratch for each malware attack, they would lose much of their power, because they would be priced out of the market.

“There is an investment asymmetry between hackers/attackers and defenders,” he continues. “Hackers can create malware very easily, cheaply, and quickly. There is also a financial asymmetry, because for every dollar invested by hackers, companies spend many thousands of dollars to defend against the new malware. But 98 percent of malwares are variants of known versions. In an entire attack chain, you will not find even one element that isn’t the result of the recycling of another component.”

What CyActive does is fast-forward through the future of malware evolution. Its technology predicts the hundreds and thousands of ways in which hackers could try to evade security measures. It then uses machine learning to create an algorithm that can detect future versions of the malware.

One example is the Poison Ivy Trojan malware that first appeared in 2006—even today, its permutations are potent and malicious. To prove that its evolutionary algorithms worked, CyActive took a Poison Ivy sample from 2008 and put it into its engine. Fast-forwarding through five years of malware evolution, CyActive correctly predicted several “wild” Poison Ivy variants that had actually appeared between 2012 and 2013.

“We had to think about the problem beyond just permuting the code,” Tancman says, using a startling metaphor. “If the hacker is the god of the evolution of malware, what is the hacker optimizing for? We figured he is optimizing for two things: the malicious functionality of the malware, and its stealth. So we generated five hundred viruses and chose the ones that were the most malicious and stealthiest. And then we merged them with others, and so on. Instead of looking for each unique signature of each unique virus, which is what reactive cyberprotection was about, we created a mathematical model that reflects what’s common to this cloud of viruses we’ve prepared and that can defend against it, although it doesn’t exist yet.”

The brilliance of the CyActive approach—its technological Chutzpah—was taking a biological idea—evolutionary algorithms—and applying it to the world of cyberattacks. When CyActive began, Tancman, a veteran of the Intelligence Corps at the Israeli Defense Forces (IDF), was a biology and cognitive sciences student at the Hebrew University. He did many other things too: he advised Israel’s security chiefs about creating a department that could protect Israel from cyberattacks, and he worked as a strategy consultant. He also studied at a Yeshiva once a week. While fundraising for a nonprofit at the university, he met Sara, who was fundraising for another nonprofit. They married soon afterward. By then, Tancman was working as a research assistant at a university lab, studying biological evolutionary algorithms. His plan, he told Sara, was to first study for a doctorate and then found a startup. Sara thought it would be better if he did the startup first.

“Actually, the initial idea for the startup was Sara’s,” Tancman admits. “I came home from the lab and talked about the evolutionary algorithms I was working on and she asked me why I wasn’t using them to predict new computer viruses.”

Evolutionary algorithms have been around for years, but no one had ever thought of applying them to computer viruses. CyActive was the first to have the Chutzpah to do so.

FIRST AND FOREMOST, Chutzpah is about daring. It’s not about daring to be cruelly honest, or to act without regard to others. It is the daring that leads someone to pursue an impossible goal—a great quality for an entrepreneur—and to do so boldly and with laser focus.

“Israel’s high-tech success is the subject of a lot of curiosity—people from all over the world want to know what the secret is,” says Dr. Eyal Inbar. “In my research, I’ve looked at the cultural dimensions by Geert Hofstede, who ranked Israel low on power distance, which in my view is a key for understanding Israel’s so-called secret—Chutzpah.”³

Power distance, according to Hoftstede’s theory, is the degree of acceptance of power, namely the degree to which lower-power people accept the fact that they have less power.⁴ In high-power distance cultures, lower-power people exhibit high degrees of acquiescence and deferral to higher-level people, perceiving it as the natural order.

In low-power-distance cultures like Israel’s, there is a relatively small emotional distance between people with varying degrees of power; relations are more democratic and consultative. Add a healthy dose of Chutzpah and the result is a constant challenging of authority and a constant passion to do things better, regardless of what your boss thinks about it. Stories about technology multinationals entering Israel and being amazed that low-level employees challenge their managers abound. Even more shocking to those multinationals is the fact that those challenges aren’t perceived as out of line.

Kobi Rozengarten, formerly President and COO of Saifun Semiconductors, a world-leading provider of IP solutions for the nonvolatile memory market that went public on NASDAQ, recollects, “Before Saifun, I was an operations manager in an Israeli company. We had an operations plan, as we should, but operations didn’t run according to plan. You always had to supervise the actual implementation of the plan since in Israel employees keep challenging its logic, and many things are open for debate, by anyone. There is no real management pyramid.”⁵ Indeed, lower-power-distance cultures tend to have a flatter management structure or disregard for hierarchy.⁶

When Rozengarten moved to the US, things were suddenly different, radically so. “When you come to the US as a manager, you discover that you are listened to, and that 90 percent of the people just do as they are told, following the operational plan with no debate. Surprise!—Work as planned! Your plans and decisions aren’t challenged. In Israel, conversely, you present your plan and someone says it isn’t a good plan and that person is the least important person in the manufacturing line. The thing is that sometimes this person has a good point. As a manager, you have two options; you can feel threatened by the challenger and try to silence them, or, you can listen to what they have to say.”⁷

“Historically, Chutzpah has been about taking a contrarian position,” says Dr. Eyal Inbar. “In the Talmud [a central text of Rabbinic Judaism] the root of the word Chutzpah is mentioned as a way of being insolent, contrarian. In many ways, I believe this is the core of Chutzpah today—standing up to something, challenging the existing order, defying it. It really is a matter of national culture. According to some interpretationas, even the name Israel means “struggled with God.”⁸ Abraham bargained with God in order to try to save Sodom and Gomorrah from being punished, and Moses argued with God against punishing his people in the desert on several occasions, to name just few examples. The Israelis rebelled against the great Greek and Roman Empires, and managed to remain intact as a people for two thousand years in the diaspora. The establishment of the State of Israel is Chutzpah too—in a very hostile environment, almost against all odds. Other well-known examples are the establishment of Israel’s nuclear research complex in 1959 under the radar of the Superpowers, the escape of Israeli Navy ships from France in 1969 despite the French embargo on Israel, the development of Israel’s military industry with very limited resources, and the rescue of hostages in Entebbe (Uganda) in 1976.

“I am frequently asked,” says Inbar, “whether Chutzpah can be taught. On the one hand, this is a part of Israel’s DNA. Whoever grows up in Israel’s culture is imbued with Chutzpah, so it seems contained in the culture, in the country. But Chutzpah is a way of thinking and behaving; thus you can definitely teach it and train people to use it.”⁹

Israel hosts many delegations from countries seeking to create startup cultures and ecosystems like Israel’s. “The Chinese asked us how to increase creativity, what KPIs [key performance indicators] signify that creativity exists,” says Kobi Rozengarten.¹⁰ “So we told them three things. The first is that people should break the rules. Israelis are good at that. Some of it is thinking outside of the box, some isn’t always nice, but that’s how you cook this dish. This leads to the second thing: don’t fear social sanction. Israelis aren’t offended when they’re thrown out the door or told that they are wrong; they keep trying. The third is th...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Foreword
• Introduction
• Part I: The Six Rules of Chutzpah
• Part II: Principles
• Part III: Practice
• Part IV: Ecosystem
• Epilogue
• Acknowledgments
• Endnotes
• Index
• About the Author