Interview with Stephanie Cherrin, Investment and Program Manager for hub:raum Tel Aviv (Deutsche Telekom AG)
Tel Aviv has an impressive start-up scene: new businesses seem to shoot up like mushrooms. Around 1,000 of the total 3,400 start-ups in Israel are located in Tel Aviv – one start-up per 431 inhabitants (as at 2015). So Israel’s boom town is an interesting “innovation playground” for several international companies. One of them is Deutsche Telekom. We talked to Stephanie Cherrin, Investment and Program Manager for hub:raum, a kind of start-up network of the telecommunications company. She explains why Tel Aviv is a paradise for entrepreneurs and how established enterprises can profit from a cooperation with (Israeli) start-ups.
Stephanie, what exactly is hub:raum Tel Aviv?
hub:raum is the early stage investment vehicle and incubator of Deutsche Telekom. We invest in start-ups and help them integrate in Europe and within our Deutsche Telekom network. We don’t have a network presence in Israel, so the work that I do on the ground in Israel is a bit different than our larger hubs in Berlin and Krakow. We look for start-ups that fall strategically into our interests whether it’s something that can complement one of our business units or an industry partnership. Additionally, if we don’t have a clear-cut use case for them now, they might be interesting in the future if we see potential in their products. It could be virtual reality, autonomous cars or drones – the technology that is really picking up and sexy at the moment. The eyes and ears topics basically make sure that we stay on the cutting edge of technology.
In addition, the partnering aspect serves as a kind of business development opportunity for Deutsche Telecom. If we see a company that for whatever reason – whether it is investment size or the company’s stage – is not a good investment candidate, our business units can still work with them, doing a pilot or helping them find business opportunities in Europe. And we also help start-ups with lots of different programming that we do within the hub:raum. If we know that there is a business unit that is very interested in cloud technology, then we can hold a boot camp for that and bring start-ups from all over Europe and Israel together. In February, we actually had a cyber boot camp with 12 companies attending, five Israeli. And one of them is now doing a pilot with one of our business units.working with #startups is some kind of innovation transfer for established companies @deutschetelekom #TelAviv Click To Tweet
How does Deutsche Telekom profit from these kinds of investments?
One main goal is to present new tech opportunities to the different Deutsche Telekom divisions. It’s a form of innovation transfer because what they do in their day-to-day jobs doesn’t really expose them to innovation in the same way. Established corporate business units are created to ensure the various divisions function a certain way to achieve core goals of the business, so our various programs enables new processes to be developed in a unique and accessible way.
To what extent could established companies copy the way start-ups work?
In every business unit of a corporate there should be a chief innovation strategist. For many multinationals, the biggest challenge is to find a vested stakeholder to work with start-ups in the business units. If corporates were able to understand the relevance and the value of bringing start-ups on board, there would be a much higher chance of success. I know of several programs, including our own that get a really good buy-in from different business units, allowing for much more successful collaboration opportunities, and consequently it makes them much more money. It all comes down to the structure and the motivation of the teams that actually work with start-ups.
In start-ups, the general state of affairs is organised mayhem. Everybody does everything. So hierarchy or allocation of resources and time are very different from corporates. Established organisations can take away from start-ups the commitment to the cause that you feel when you are the first employees or the founders. When building a start-up, there is no such thing as days off or vacation, because you need to be present every step of the way to make sure your machine produces what you promise. In a corporate, the machine is already working, so there is less of an urgency to make yourself available 24/7 – you clock in and you clock out. On the other hand, corporates have a really advanced structure that allows them to function. That’s what start-ups could learn from them: I always tell the entrepreneurs that they have to build a sustainable infrastructure for their future, because it will be the only foundation they have to work from to scale.
Why is the start-up scene in Israel interesting for companies like Deutsche Telekom?
Over the last couple of decades, Israel has really proved itself to be a very unique hub for innovation. For Deutsche Telekom, Israel is accessible because geographically we are close and the technology is just superior. The technology that comes out of Israel is amazing. We excel in many different industries, but if I were to point out the top three areas we have had the most success to date it would be in the biotech area, enterprise solutions, and cyber security. There are several reasons for that.#startup scene in #TelAviv - The technology that comes out of Israel is amazing @deutschetelekom Click To Tweet
Technological knowledge mainly comes out of the army. When I went to Germany, I asked them: “How do you have engineers, where did they learn? They didn’t go through the army so how do they know how to code?” That’s how it happens here. The army is the best school for developers. One of the army’s technology units is bigger than the entire navy.
We have limited natural resources, so technology has become our bread and butter. Deutsche Telekom has recognised that these kinds of technologies are a very good complement to their core business. And we are not the only ones here, Singtel, Intel and Telefonica also have offices in Tel Aviv. Multinationals are realising that everybody needs at least one innovation arm here, because the talent is so superior. Israelis are also very loyal to the country and most companies, when they get bought, refuse to bring their development team out of the country. There is a lot of national pride surrounding the R&D that we are doing.
In 2015, Tel Aviv had one start-up per 431 inhabitants. Around 1,000 of the total 3,400 start-ups in Israel were located in Tel Aviv. I guess that this number has now grown…
Tel Aviv is actually the number one start-up centre per capita. But there are also initiatives to expand beyond the center of the country. Tel Aviv is the most expensive city in the country and therefore not really accessible to everyone. So, the government is now offering a lot of incentives to move your hub for example to Be’er Scheva, which is in the south in the Negev desert. This area has traditionally not been a very attractive place to live, but over the last few years they have actually turned it into a high-tech farm. Now it is like the cyber hub of the country. Many cyber companies have moved down there because they get government grants and massive tax breaks on every employee that they bring. And the same is now being done in Jerusalem. These regions will never replace Tel Aviv, but the government is definitely trying to expand entrepreneurship by giving as many pushes as they can, in the North or in the South. They want to give people other options.
So it seems that highly qualified talents tend to opt for founding their own business than working for a company. What are the reasons for that?
Yes, that is the danger for any company when you hire somebody really good. Google was once asked something along the lines of, “You are giving your employees so much enrichment and power and you are teaching them so much, aren’t you nervous that they will take that and run?” And they said, “Yes, but what if we don’t?” That is the attitude here as well. The better people you bring on, the more likely they are going to do something on their own; that is a strong personality. But, bringing top talent and educating them internally can bring tremendous benefits to the businesses themselves. Also in Israel, everybody has a do-or-die mentality, and risks are calculated differently. Failure is less scary for us. We are so used to ups and downs and unpredictable situations. In Israel, if something doesn’t work, you say “Oops”, and take away your key learnings, get up and try again.” The risk calculations are very different from those in most European countries because every day and everything is a risk in some way here. That is entrepreneurship: people are much more willing to put everything on the line and pick up the pieces afterwards.
To what extent do the working conditions in corporates have to be more attractive in this environment?
Everywhere there are personalities that like structures, comfort and security, and other people that are looking for a challenge and the next big thing. Companies definitely have to try really hard to attract both types of people. In Israel, the working environments in general are very conducive to employees because we are a country where almost every mother is a working mother. Equality between men and women in the workplace is very high, relative to many other developed countries. Companies are really accommodating to families. For example, you have a lot of organisations that have summer camps in the offices so that the parents can come to work and their kids are occupied, but still near them.
In Germany, what can we learn from the start-up scene in Israel?
There are three main takeaways. The first one would be: don’t be afraid to try. That’s the first step to anything in entrepreneurship. Number two is really evaluating technology. Focus on your technology and make sure that it is your core asset. From there you can turn it into whatever you want. Number three: for Germany the government is important. There is a role the government plays in encouraging innovation and entrepreneurship. And Berlin for example is doing a very good job at this. They are offering a lot of programmes for entrepreneurs. It is the role of a higher level to stimulate an environment conducive to entrepreneurship. That is one of the central ways Israel also got started.Learn from #startups in #Isreal - don’t be afraid to try, evaluate technology and demand government's support Click To Tweet
People in Silicon Valley also promote the mentality of thinking big…
In Israel, we don’t have any huge enterprises or big companies that are based here like Bosch, Siemens or BMW. But we are coming out with a lot of enterprise software and that is how we think big. It is understanding that you are beyond what your local market dictates. I don’t know any entrepreneur who starts a company for the market in Israel, everybody wants to enhance their business globally. Otherwise, it would be difficult to build a company if you couldn’t get beyond the eight million people that we have here in Israel.
In Germany, about 80 percent of start-ups fail. Is this similar in Israel?
Yes, the stats are quite similar. The proportion of success is low, but then again, how do you define success? You have a lot of exits that are not real exits but not failed acquisitions. Regardless, the statistics are not in favour of entrepreneurs, and it makes everybody wanting to establish a start-up pretty crazy because you know the deck is stacked against you. But it is worth trying anyway. Real entrepreneurs don’t do it for the money. They do it because they love what they do and are passionate about it.
Given these figures, what do you look for in particular when you are investing in a start-up?
Execution and the team are the top of my list. If you think about WeWork, there were a lot of co-working spaces that existed before WeWork, but somehow the execution was superior to anybody else’s. Similarly, look at Facebook: you had Myspace before that, but Facebook’s vision and execution was far superior. And you could find a lot more examples. Execution leads you to the team, the people behind the start-up. I have seen companies that started before Airbnb that had the same idea but they weren’t able to bring it to the place it needed to be in order to grow. That is only because the vision of the founders and the structure of the team was not strong enough to really bring it to the next level.
Then after the team and the execution, it is the classic product-market fit, not understanding your market, maybe bringing a solution at a moment when it is not ready for the market yet. If you think of mobile advertising space, there are many companies that came out before the market was ready. The same with autonomous cars. To be ahead of the market is not always a good thing.Important for investing in #startups - execution, the team and product-market fit @deutschetelekom Click To Tweet
You work for a German company in Israel. What differences are there between the corporate cultures of Israel and Germany in your opinion?
I like the fact that Israel complements Germany. The German infrastructure is so strong. We like that here, because we are not as strong at building the sustainable structures that can grow and scale. But at the same time, if you are focused too much on the structure and less on the content, that’s also a disadvantage for start-ups.
Israel is a lot more relaxed and laid back, while Germany values organisation and processes. This mix allows you to think outside the box, while always be confined within very clear boundaries.
How interesting is the German or European market for start-ups in Israel?
In Israel, there is a big push to go to America, because you have a huge market and there is one language to cater to. Europe is number two on the list, and so we are trying to shift that paradigm, because countries like Germany are a big enough market to get significant traction and penetration for a start-up. Start-ups are afraid of many things, but the language barrier is a big one. But if you look at B2B-focussed companies the language is less of a problem than if you are trying to open up a new social network or something that requires a mass of users that speak the same language. So, we are finding a big shift that start-ups are actually recognizing that Europe is just as viable as a market, if not more so, because the location is more accessible and you can focus more of your resources on development.
In Israel, which innovative new products are generated in the field of human resources management?
Israel has a lot of HR companies and HR start-ups. Some are focused more on the recruiting process, such as HiredScore which is leveraging big data and workforce intelligence for recruiters to find the most qualified candidates. You also have companies such as Pitaya who focus on enrichment for employees when already in the workforce. There is a big shift towards employee empowerment to make sure you can maintain employees’ interest in the workplace. We know from Daniel Pink’s book, Drive, that financial compensation is no longer enough to incentivize employees. Companies need to know how to also speak to the intrinsic value employees feel in their workplace.
Interview: Stefanie Hornung
About Stephanie Cherrin
Stephanie Cherrin has over 6 years of media and venture experience under her belt working for companies such as Krypton Venture Capital, WEB3 – Online Media Group and Matomy Media Group. Since February 2016 she has been responsible for selecting innovative start-ups, especially new internet hi-tech businesses, for the Deutsche Telekom incubator hub:raum in Tel Aviv. She has lived substantial amounts of time in Israel, the US and Europe and loves all things related to ocean and innovation. She looks for the human wealth in companies and is driven to bring the start-up nation Israel to Europe.
Meet Stephanie at this year’s Zukunft Personal. She is speaking on Wednesday, 19 October 2016, 1 – 2 p.m., on the start-up stage in hall 2.1 (Koelnmesse) about the “Start-up Nation’s Human Capital: A Story of Culture, Companies, and Collaborative Economy”.