November 30, 2011 10:33 pm

Israel’s army of tech start-ups

The Israeli military’s in-house high-tech research and development unit has spawned a process for coming up with new ideas

When Aharon Zeevi Farkash enters the offices of his company south of Tel Aviv, he needs neither key nor code. As soon as he leaves the elevator, a camera captures his face and body shape, and feeds the information to a computer that recognises his features. The door unlocks.

Should the face recognition software fail, Mr Farkash will be prompted to speak a few words into a receiver. The computer will switch to voice recognition – and unlock the door.

If both technologies fail to make a positive identification, the only way to enter is with the permission of the receptionist sitting on the other side of the door.

“There is not one technology that will give you 100 per cent accuracy. Not face recognition, not voice recognition, and not a doorman either,” says Mr Farkash. The picture changes, however, once the technologies are bolted together, allowing one piece of the system to step in on the occasion that the other fails. “The technology transforms you into the key,” says Mr Farkash, the founder and chief executive of FST21, the company that developed the system.

The company, set up in 2007 and scheduled to break even at the end of 2012, encapsulates many of the trends and forces that have turned Israel into a global technology powerhouse. Its main product is a mix of technologies, combining hardware and software to suit a specific need. Such technological mash-ups have long been regarded as a speciality of Israeli’s high-tech entrepreneurs. Then there is the focus on security, another Israeli strength. Finally, and perhaps most importantly, the company bears the unmistakable stamp of Israel’s most successful and secretive technology incubator: the Israel Defence Forces’ Unit 8200.

Mr Farkash is a former commander of Unit 8200, Israel’s equivalent of the National Security Agency in the US or GCHQ in Britain. All three belong to a branch of the military called signals intelligence, or Sigint. Unit 8200’s task is to intercept, monitor and analyse enemy communications and data traffic – from mobile phone chatter and emails to flight paths and electronic signals. Its goal is to fish out from an ocean of data the piece of information that will help the Israeli security forces identify and thwart a potential attack. In addition, Unit 8200 – the largest in the Israeli army – is responsible for all aspects of cyberwarfare.

Tactical response

Unit 8200 in its current form is the result of Israel’s biggest intelligence failure: the 1973 Yom Kippur war.

Egyptian and Syrian forces caught the Israeli army by surprise when they launched an attack on the holiest day in the Jewish calendar. Israeli troops eventually turned back their advances, but the war dealt a severe blow to the country’s aura of invincibility.

Israel’s military leadership decided on a complete overhaul of the army’s early-warning system – with Unit 8200 at its heart. The unit received not only more funding, but also the right to pick the best recruits. In addition, it would no longer focus on a small number of big, expensive projects. Instead, it was ordered to break up into small, flexible teams tasked with finding speedy technical solutions to the concrete needs of the intelligence services.

The changes were designed to enhance Israel’s ability to predict, and thwart, attacks. Yet they also created a breeding ground for future figures in a start-up economy.

One important reason for the ubiquity of 8200 alumni in the high-tech sector is personal connections. Many Israeli start-ups are founded by men and women who worked together in the unit. When hiring new engineers and programmers, they typically turn to their former unit, safe in the knowledge that the military has invested heavily in selecting and training its recruits. The unit, says Mr Farkash, is the “best filter” for talent.

The Israeli military allows almost no information about Unit 8200 to leak out: it has a base in the Negev desert but the precise location of its installations re­mains secret – as is the identity of the current commander, the unit’s budget and the exact number of soldiers and officers. Reports that it played a key role in developing the Stuxnet virus – which attacked Iran’s nuclear installations and much else besides in 2010 – remain unconfirmed.

What is beyond doubt, however, is the unit’s towering importance for Israel’s high-tech industry. Aside from Mr Farkash, seven out of 10 engineers at his company hail from the unit.

A similar picture is repeated throughout Israel’s high-tech sector, from tiny start-ups to sprawling multinationals. The unit’s alumni include Gil Shwed, the founder of Checkpoint, Israel’s largest software company, along with the creators of Nice and a string of other tech groups.

Yair Cohen, another former commander of the Unit, argues that “it is almost impossible to find a technology company in Israel without people from 8200, and in many cases the entrepreneur, the manager or the person who had the idea for the project will be someone from 8200”.

Mr Cohen, who today heads the Intelligence and Cyber department of Elbit, the Israeli defence electronics group, says the men and women who have served in 8200 are uniquely suit­ed to the start-up economy. Talent and training are one crucial factor: every year, Unit 8200 enjoys the privilege, shared with a handful of other units, of selecting the best and brightest recruits after a long series of tests.

“We are looking for a combination of IQ and EQ [emotional intelligence],” he says. “We are not just looking for geniuses, but for people who can work in a team and who have leadership skills. And they must be very motivated.” Motivation is said to be extremely high, not least because the unit see the speed, accuracy and quality of their work as a way to save Israeli lives.

What sets the unit apart from its Sigint counterparts in the US and Europe is that it does almost all its research and development in-house. This means that, aside from interpreters and analysts, the unit is home to a huge cadre of engineers, technicians and programmers.

Developers typically operate in small groups, on tight deadlines and in proximity to the unit’s intelligence specialists. According to Mr Farkash, this proximity offers a valuable lesson: “You have to get from the market to the technology, not from the technology to the market. That is what we do in the unit – the technology serves the intelligence, not the other way around.”

Indeed, the unit’s internal procedures and organisational culture read almost like a playbook for the start-up economy. “We are very tolerant of mistakes . . . It is impossible to be creative when fear leads you,” he says. At the same time, the unit hands immense responsibility to men and women barely out of their teens – and tries to instil in them the belief that they can rise to the occasion.

The key to success, say both former commanders, is to find smart, effective solutions for problems that have not even surfaced in the real world. “Ideally, we want to be in a position to understand the implications of a new technology before a terrorist group, or the Syrian army, will start using it,” says Mr Cohen.

“If you look at the organisation, it is basically made up of hundreds of start-ups,” he explains, adding that the development teams wrestle with all the same problems encountered by a start-up: tight budgets, tight deadlines, rising threats from the outside and constant pressure to perform. “All the time, you are trying to do something not with 300 people but with 30, not with $100m, but with $10m.”

Industry veterans are keen to stress that Israel’s high-tech sector draws inspiration and talent from far more sources than Unit 8200 and other technology units of the Israeli army. Yossi Vardi, who founded the first Israeli software company in 1969, also points out that the unit’s core strengths – such as data communications and technology infrastructure – may be growing less significant in an era driven by the internet and consumer-facing applications.

Yet technology investors such as Mr Vardi still pay close attention to the military background of young entrepreneurs seeking funding. Wealth managers should perhaps do the same. As Mr Vardi points out: “More high-tech billionaires were created from 8200 than from any business school in the country.”

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