Israel’s lessons for Aussie start-ups

IMAGINE you’re in a room with 100 doors - each one has only a 1% chance of being unlocked. What is your chance of escaping?

Spoiler: there are more doors on the other side.

IMAGINE you’re locked in a room with 100 doors, and each one has only a one per cent chance of being unlocked. What is your chance of getting out of the room?

That was the question posed by Dov Moran, high-profile Israeli tech entrepreneur and inventor of the now ubiquitous USB flash drive, to the audience an Australia-Israel investment conference in Sydney on Tuesday.

Mr Moran, who founded and ran M-Systems for 18 years before selling his company to SanDisk for $US1.6 billion ($2.1 billion) in 2006, was highlighting the difficulties faced by entrepreneurs.

“It’s very easy to work out when you have time and are sitting in front of calculator, but part of life as an entrepreneur is to take decisions on the spot when we’re under pressure, when we don’t have time to think about probabilities,” he said.

Mr Moran said most people’s “gut feeling” when he posed the question was that it was more than 1 per cent but less than 100, but where they landed depended on their background. On stage, guesses ranged from 45 per cent from a finance worker, to 75 per cent from an entrepreneur.

“When I do this task anywhere in the world, people who work in finance always give a number which is below 10 per cent,” he said. “They look at the negative side of the equation. On the other side, the optimistic guys think, it’s only one per cent, but there 100 doors, so it must be a high number.”

The actual answer? Well, the chance of every door being locked is 0.99 to the power of 100, which equals 0.366, or 36.6 per cent. So the chance of at least one door being unlocked is 100 minus 36.6 per cent, or 63.4 per cent.

Mr Moran said obviously the real rate of success for start-ups was much lower — around the one per cent mark — because behind every opened door there were another 100 for each stage of the start-up’s life, from capital raising and selling a product to an IPO.

“If you are perfect and go to all 100 doors, if you take this probability of 63.4 per cent and multiply it seven times, the chances are only four per cent — and clearly no one is perfect,” he said.

Mr Moran said to be successful, a start-up needed the right people, the right idea, the right market and the right timing. “That’s what makes the whole thing so complicated, because finding all the ingredients is difficult,” he said.

AUSTRALIA NEEDS TO EMBRACE FAILURE

With the need to embrace failure to drive innovation a tired cliche at this point, it’s perhaps fitting that Prime Minister Malcolm Turnbull’s much-hyped “innovation agenda” led the way by failing dismally to connect with voters.

The $1.1 billion policy platform, which included incentives including tax breaks and grants for “incubators”, aimed to emulate some of Israel’s success in creating and nurturing start-ups. But Hillel Milo, managing partner of Israeli venture capital firm Aquagro Fund, said it had to start earlier.

“The basic conditions [in Australia] are very different,” he said. “There has to be an element of necessity. People understand that in order to survive, to thrive, to succeed, they need to do something.

“Initiatives like incubators [are good] but it has to start earlier, with education. You’ve got to create a culture. That’s a process. It has to be dictated by actual conditions, not by the wish of somebody to be like Israel.”

Ethy Levy, Israel’s Trade Commissioner to Australia, said there was a lot of innovation in Australia. “The big difference is that in Israel, innovative companies will make the front pages, and in Australia not as much,” she said.

Professor Amnon Shashua, co-founder of automatic driving vision company Mobileye, said culture was a “state of mind”. He pointed out that one common factor cited in Israel’s start-up success, mandatory military service, didn’t apply in South Korea.

“In Asian cultures, when you fail you lose face,” he said. “That really stifles innovation.”

Originally published as Israel’s lessons for Aussie start-ups