I’ve just returned from CodeCon, one of my favorites events. Held every year in LA, the Code Conference is a great opportunity to hear from current leaders of Silicon Valley and get a real understanding of what’s top-of-mind in today’s industry. Some of the speakers this year included CEOs of Pinterest, Twitter, GoPro, Pivotal and others, but one speaker stood out for me, not just because she’s a very successful CEO of an amazing company but also because she’s Israeli.
In the very last session at the conference, 3 “up-and-coming” CEOs came on stage and among them was Adi Tatarko, CEO of Houzz. Initially, as an Israeli, I felt real pride: There she was on stage, a real star, and she’s one of us (sort of similar to how we feel about David Blatt these days). But after a few minutes, something important dawned on me. Adi was born and raised in Israel, but she built her multi-billion dollar company in Silicon Valley, not in Israel.
Adi Tatarko, CEO of Houzz (middle) speaking at CodeCon 2015. (Photo Credit: Daniel Cohen)
In the hallway, I bumped into a few well-known investors, some of them quite active in the Israeli scene. We all agreed that there is great progress happening in Israel, and that the startup scene is alive and kicking. However, a few of them mentioned that they insist on moving the Israeli founders to the Bay Area, arguing that Israelis perform better when they relocate. “You can’t build big companies that are managed out of Israel”.
Back to Adi from Houzz: On stage she talked about the success factors that brought her (and her company) to its amazing position. Basically, she mentioned 3 well-known factors: The size of the market (huge), the quality of the team (amazing), and the quality of investors (experienced and supportive).
But these success factors are not unique to Houzz. I have seen many Israeli companies go after big markets with amazing investors and high-quality teams, yet only very few (actually, almost none in the past few years) have reached a multi-billion valuation.
So what makes Adi and her Co-founder Alon Cohen so special? If they would have started Houzz in Israel, would they have seen the same kind of success? Unfortunately, I’m not sure. Israelis can definitely build great companies, but it’s easier for them to do it in the US rather than in Israel.
Does this mean we won’t see multi-billion companies out of Israel? Absolutely not. We will see these companies, and quite a few. However, it’s important that we understand what some of the key success factors are for Israeli companies that are trying to make it really big.
Let’s analyze these success factors using the same simple foundations that Adi mentioned on stage:
Market: Houzz was initiated as a side project, where the founders tried to build/redecorate their home and found the process to be completely broken. To be more precise, they found the US process to be completely broken, so when they built their product they were thinking and feeling the US. Being there was critical. In other words, going after a big market is only one part of the story. Founders also need to immerse themselves in the market in order to really understand how it works. Relocation? It’s must at some point.
Investors: Although it would be obvious to talk about investor quality, I actually want to compare the quantity. We always compare the round sizes in the Valley and in Israel, complaining that Israeli companies don’t raise the same mega rounds as in the US (as Houzz’s funding rounds demonstrate). Money is not always a factor, but it can definitely help. We need to see larger rounds in Israel in order to help companies execute their truly big dreams.
Team: This is probably the most important point. Can you build the same winning team in Israel and the US? Let’s use the David Blatt comparison: The same coach, with different teams. Clearly, he couldn’t have made it to the NBA finals with the Maccabi team. David is a great coach, but he needs Lebron & Co. to truly succeed. Is the same true for startups? Did Adi build a big company because she was able to find Lebrons? We (the Israeli community) need to think hard (with a long-term view) on how we train great people in Israel. We don’t have enough marketing heroes, product experts, and true growth hackers. I wish we could import some of these, but if not, then we should at least focus on high-quality training.
On my return trip from the conference I decided that I have “Houzz-envy”. As an investor, I too want to be close to a company worth $2bn+, which is a great goal for the next 1-2 years. Beyond that, I want to see us building the right infrastructure in Israel to enable this to happen. Specifically, it would be great to see the government double down on education and training. If they do, I think that the ROI will be amazing.
ONE FINAL THOUGHT: I believe that relocation is a must for consumer/light enterprise companies, but it’s probably easier to build companies that focus more on ‘tech infrastructure’ – right here in Israel.