The Zisapel Approach Encourages Creative People to Leave Big and Growing Companies and Start Small Ones

MARKETPLACE SHLOMO MAITAL ENTREPRENEUROVIRUS The Zisapel approach encourages creative people to leave big and growing companies and start small ones A HIGHLY infectious virus is sweeping yet. I propose Eretz Yisrael Entrepreneu- survive and thrive in a climate frigid for Israel and has been for years. Strangely, no rovirus. The neuro is in there because the aspiring entrepreneurs, like that of France, one is trying to combat it. No Tamiflu has brain is definitely involved ‒ those who where high taxes and bureaucracy kill the been prescribed. have the virus continue to launch start-ups virus on contact. In fact, mobs of visitors from abroad again and again, even after some of them I first learned about the virus some years make pilgrimages to Israel to learn how to have become impossibly wealthy. And they ago in the office of Yehuda Zisapel. While bring the virus home to their own countries. quickly infect others. A friend tells a friend, interviewing him, I noticed an unusual The virus does no harm; indeed, at times, and brings a friend. And more than once, graph on the wall. It showed RAD Data it makes some of its sufferers extremely their friends and family tell them they are Communications at the center, surrounded happy. The virus’s main symptom is the simply nutty to even try, given the high by a cloud of dots, with each dot represent- passionate, unquenchable desire to create odds against success. ing a start-up that the mother ship RAD something new, which quickly infects oth- Israel is the start-up nation mainly be- helped create, formally or informally. The ers. cause of entrepreneurovirus. Many nations dots were arranged in concentric circles, The virus hasn’t been officially named would give a lot to have it. But it doesn’t each with its own color code, like ripples in 32 THE JERUSALEM REPORT MAY 19, 2014 a pond. RAD is the company Zisapel found- cations firm founded in 1932, and 13 from 15,000? And how did you balance the in- ed in 1981 together with his brother Zohar. Fibronics, an early pioneer in fiber-optics vestment of time between helping RAD They both studied electrical engineering at founded at the Technion. The book by Drori alumni who formed start-ups and running the Technion-Israel Institute of Technology. et al. shows the viral process is accelerat- RAD itself? The RAD cloud or cluster comprises 128 ing; 171 new start-ups emerged from the six “The idea evolved over time,” he tells companies (though not all survive to this founding firms from1996 to 2000, and 222 The Jerusalem Report. “The first success- day), many of them not far from RAD’s during the years 2001-2005. ful start-up was RAD. It was a lean orga- home office in Ziv Towers on Raul Wal- nization that outsourced functions from lenberg Street, in the hi-tech area known as THE RAD MOTHER SHIP Bynet (RAD’s early predecessor, launched Atidim, in Ramat Hahayal, a northern Tel in 1977) and other third parties. Once RAD Aviv neighborhood. Together, they account HAS HELPED CREATE was successful, we decided to copy it and for 15,000 well-paid hi-tech jobs and billions thereby duplicate the model. While duplicat- in export dollars. 128 COMPANIES THAT ing, we improved the model. On average, we Zisapel and his brother created the cloud, ACCOUNT FOR 15,000 started a company every year.” Other com- starting over 33 years ago, and are extreme- panies were started by RAD alums. ly proud of it. The Zisapel model solved a HI-TECH JOBS AND I point out to Zisapel that there are other painful dilemma start-ups face as they grow ‘viral’ clouds in Israel, but they are more ‒ if you implement every idea your creative BILLIONS IN EXPORT informal – like www.exscite.com, the engineers have, your business loses focus group of those who worked for Efi Arazi at and dies; but, if you tell them to shut up and DOLLARS Scitex. The Zisapel “cluster is far more tan- do their job, your creative people leave and gible, grouped physically mostly around your business also dies. Wallenberg Street, in north Tel Aviv.” “At The RAD Group is today a global Isra- Drori, Ellis and Shapira use the term the Massachusetts Institute of Technology, el-based family of independent companies “genealogy” advisedly. The process is there are some 80 biotech companies clus- that make network and telecom software indeed genetic. A real virus takes over a cell tered around it. Research by MIT Prof. Tom and hardware. It employs 3,500 workers and at times by injecting its gene, or RNA, into Allen shows that the employees talk to one has annual revenues of about $1.4 billion. the cell; the cell then replicates the virus. A another a lot, and this informal network RAD’s organizational structure is unique. start-up virus sends a ‘“gene’” (passion to greatly helps.” There is no holding company. Each compa- create and invent) from an existing start-up “Did the fact that the 128 companies in the ny in the RAD Group operates independent- into new ones, which in turn replicate. An RAD cloud were mostly located near one ly, but “under a common strategic umbrel- example is the failed start-up of Dov Moran, another contribute to their success? la.” This decentralized approach keeps each Modu, which was closed and led to some 16 The answer is yes. “In our group of com- business flexible and alacritous, but leverag- other start-ups, including those of Moran panies, we are located in the same block of es synergies inherent in small entrepreneur- himself. (See “Failure University,” The buildings, sharing common courtyards and ial businesses. It is how RAD is very big but Jerusalem Report, August 26, 2013.) restaurants,” Zisapel says, “which promotes manages to feel small. informal interaction. In addition, there are Whenever a market opportunity is iden- MY TECHNION colleague, Prof. Dan also formal venues for interactions, such as tified that needs technology, a marketing Shechtman, 2011 Nobel laureate in chemis- sharing exhibitions, sales meetings, custom- approach or corporate culture that does not try, understood the viral process early. For er meetings, technology discussions, OEM exist in any of the other companies, a new 27 years, he has organized and run an an- (original equipment manufacturers), and business is created. This has happened 128 nual entrepreneurship course, offered to all other cooperation, such as leads and net- times to create the RAD viral cloud. Technion students, every fall semester. I am working, etc.” Three Israeli scholars have studied viral privileged to assist him. Shechtman’s guid- After seeing the cloud of colored dots on start-ups intensively, including RAD. They ing principle is simply to invite entrepre- Zisapel’s wall, my curiosity was piqued. My are Professors Israel Drori, Tel Aviv Univer- neurs to tell their stories – not just successes, Technion and Neaman Institute colleague, sity, Shmuel Ellis, College of Management, but hardships, mistakes, failures and crises. Prof. Amnon Frenkel of the Faculty of and Zur Shapira, New York University. In In this way, Technion students catch the vi- Architecture, along with our assistant, Dr. their 2013 book “The Evolution of a New rus, by seeing and hearing ordinary people Emil Israel, studied the 128 RAD start-ups Industry: A Genealogical Approach” they who have achieved extraordinary feats by intensively. We interviewed many of the document six “genealogies” ‒ Telrad, ECI, launching creative new businesses. We have companies in the cloud. I ask Zisapel about Tadiran, Fibronics, Comverse, as well as had students who took our course return to one of our research findings. RAD. Each of these companies spun off nu- tell other students how they launched and “In our study of the RAD cloud,” I note, merous other start-ups virally. built their own start-ups. “we compared two opposing types of bene- It emerges that viral start-ups are not I ask Yehuda Zisapel whether he purpose- fits that clouds or clusters of start-ups enjoy. new to Israel. According to these scholars, ly created his viral model from the outset, New start-ups launch products with sim- during the period 1991-1995, some 39 start- in 1981. ilar technologies and benefit from shared ups emerged from these six mother ships, Did you have a vision at that time of cre- knowledge. But, new start-ups also launch including 14 from Tadiran, a communi- ating a cloud of 128 start-ups, employing products with different technologies and THE JERUSALEM REPORT MAY 19, 2014 33 MARKETPLACE market needs is the more common objec- tive. We create the new company in a new, fast-growing market, with practically un- limited potential growth space. We attempt to create companies in market positions, which will be complementary rather than competitive.” A DECENTRALIZED APPROACH KEEPS BUSINESSES FLEXIBLE, BUT LEVERAGES SYNERGIES INHERENT IN SMALL ENTREPRENEURIAL FIRMS “Is there anything the government did, or might have done, that helped you build the RAD cloud?” “The government did not provide any different support than the standard offered to start-ups,” Zisapel replies. Zisapel has been campaigning for years to expand the number of engineers graduating from Israeli universities. On another occa- sion, he told me that on average an electrical engineer generates annual value added value of one million dollars. But his efforts have met with little response. “Growth of the hi-tech industry is gen- erated by quality engineers and scientists,” Zisapel asserts. “Unfortunately, the government does not grow the infrastructure of high-level engineering.

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