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Israel; a country that helps small businesses. Yes or no?

13 April 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Israel is known as the land of the “start up nation”. Ergo, it must channeling a lot of resources towards helping small and medium sized companies. Right?

Back in May 2016 last year, a World Bank report ranked Israel 53rd out of 186 as a place for conducting business. “Among 37 developed countries in the survey, Israel ranked 34th: only Turkey, Greece and Luxembourg ranked lower.”

It ranked eighth for protecting minatory investors, but 56th for starting a business; 96th for dealing with construction permits; 103rd for paying taxes; and 127th for registering property, which the report said required an average of six procedures taking 81 days, and at a cost equal to 8.3% of the property’s value.

Not very encouraging. And to me this is especially worrying. I am a business coach and mentor. I have several clients in the Jerusalem area, who consider themselves in the SME (small / medium sized enterprise) bracket. And everyone knows that the heart of all national economies are the small entrepreneurs.

All this is by way of a preview to introducing the report released yesterday by Israel’s Ministry of Economics. Of the 340m shekels (say, US$90 m) awarded in investment grants during 2016, 256 million or 75% was handed over to SMEs. And of the 103 projects, 92 could be found in peripheral areas of the north or south. Well, that is more welcoming!

The breakdown continues. As opposed to high-tech, metal and plastic companies led the way with a combined 43% of the investments. The ministry has estimated that over 1,500 new positions of employment were created. Revenues increased by over 3.7 billion shekels. Very welcoming indeed.

However, for all the healthy numbers is this enough? A good start, maybe, but the answer has to be a resounding “no”! To make my point, this time I shall resort to anecdotal evidence from some clients of mine.

Story 1: He had a short-term cash flow issue. The bank rushed to the rescue with an immediate 18 month bridging loan. Fine, but afterwards I checked the terms. The rate of interest is 11%, in a country with near zero inflation. Crippling!

Story 2: I have several clients who have applied to government schemes for loans. Most are giving up, as the peculiarities of their circumstances means that they cannot triumph over the paperwork. Pathetic an demoralising.

Story 3: Receiving all the necessary licenses required for a food business – a restaurant or a manufacturing facility – is almost fatally bureaucratic. As my clients tend to find out, the rule of thumb is to start operating and then hope things work out. And when you think about it, that process makes a nonsense of needing the licenses in the first place.

Where to now? Well last year, the government set up a committee to look into relieving bureaucracy for small businesses in Israel. I believe the team has yet to report. Need I say any more?

Hiring the right candidate – can you rely on them?

12 April 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

In my work as business coach and mentor, I engage with many CEOs or company leaders. One of the recurring themes is when they ask for my input on hiring somebody. They want a quick ‘yes or no’ answer.

Now, we all know that hiring is a complex issue; qualifications, experience, initial chemistry and so much more. Then there are ‘environmental’ issues. For example, many of my clients are based in the Jerusalem, which provides a host of cultural issues.

Wading through this mess of computations is David Schulman, whose analysis is featured on the BBC. He gave an interview test to over 800 criminals convicted of white collar crimes and also to thousands of ‘decent people’. Guess what? “The criminals scored uniformly worse in accountability, conscientiousness, and empathy.”

Shulman’s point is subtle but clever.

Most of the time, we determine whether we think someone is honest by our impression of them, for instance, by asking a series of questions during the hiring process, or by how they conduct themselves during everyday business dealings. But, that’s not foolproof.

What I found particularly fascinating was how the BBC went on to cite the work of Nilan Peiris, a VP in a fast growing financial centre. He loves asking a question that will usually generate a small white lie. And here is the punch line:

“And I say, ‘OK, that’s not true. What’s the real reason?…… If they’re able to open up and be honest with us, then that tells us that they’re ready to go on to the next step.”

In other words, honesty is a key part of the process of many interviews. However, it is not something that can be readily measured. (And I have not even discussed those who ‘accidently on purpose’ miss out core information.) As ever, what is essential is that each interview contains a specific test or set of questions that will force the candidate to reveal their strengths on key characteristics.

Branding? Positioning? And the truth in between

31 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

A former client of mine from Jerusalem posted an interesting question this week on a chat line: What is the difference between “branding” and “positioning”?

Several clever answers were entered. To sum up, although rather glibly: Positioning is where you want to be vis-a-vis potential clientele. The branding will show you how to get there.

What was interesting for me is that I have seen two other postings, on Facebook, referring to this same issue. However, on both occasions, these were actual case studies. As I business mentor, I think they deserve a far wider audience.

In the first instance, an 86 year old American sent a letter to her bank. A customer for years, they had bounced a cheque of hers. She did not close her account, but told them that from now onwards, she would treat them as they had treated her. As she explained: –

  • I, like you, choose only to deal with a flesh-and-blood person. My mortgage and loan repayments will therefore and hereafter no longer be automatic, but will arrive at your bank, by check, addressed personally and confidentially to an employee at your bank whom you must nominate
  • Be aware that it is an OFFENSE under the Postal Act for any other person to open such an envelope. Please find attached an Application Contact which I require your chosen employee to complete. I am sorry it runs to eight pages………
  • I will issue your employee with a PIN number………….

And so the letter went on.

In other words, the bank’s actions had told her, where she was going to be positioned. Her branding of herself did not allow her to accept for such actions lying down, especially and ironically as it went against the bank’s own messaging.

At least the branch manager was clever enough to send it to the New York Times letter page.

And now I want to address the fascinating positioning of the London branch of the New York advertising firm “Grey”.

Grey London will become Valenstein & Fatt for 100 days, named after its Jewish founders Larry Valenstein and Arthur Fatt

It turns out that the original founders had wanted to hide their Jewish roots in order to secure more business. A century later, the British team has decided to choose the opposite road. The reasoning is fascinating.

First, it is a calculated knee-jerk reaction to growing xenophobia on both sides of the Atlantic, particularly after the terror incident at Westminster. Second, racism in seen to result in narrow thinking, the opposite value of what an advertising agency is all about. Third, I can but assume it is a very distinct way for Grey (or V&F) to position itself beyond its competitors.

What is left for us to learn from all of this. There are many wonderful books on marketing. You can earn a doctorate on the subject. But for all the theories just never forget that you must attempt to treat all of your customers all of the time as you would want to be served.

Developing economies of peripheral regions – Intel’s Israeli model

29 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Just about every country in the world has a problem ensuring that economic prosperity reaches peripheral areas, away from core population centres. In Israel, Intel has developed a very enlightening approach that is clearly making a difference.

Intel’s overall contribution to the Israeli economy is well-documented. For example: –

  • Intel exports from Israel totaled around US$3.35 billion in 2016.
  • Intel has purchased around US$10 billion in the past decade from local suppliers, with 80-90%  bought from small and medium sized enterprises.
  • It has contributed millions to local causes.
  • Intel has just paid out US$15.3 billion to take control of Mobileye, located literally just down the road from its own Jerusalem fab.
  • And as the Jerusalem plant is nearing a refurbishment, the value of investment in its own plants in Israel over the years is estimated at around US$11 billion.

What is also interesting to learn is how the chip conglomerate also looks after those areas of society not located in the centre of the country.

The company has four plants in Israel. Excluding the site in Petach Tikvah, three are located in what are considered development zones: Jerusalem, Haifa and Kiryat Gat. Thus, 80% of the work force comes from outside the statistically better-off population areas.

In another field of activity, about 40% of Intel employees volunteer in community activities. Significantly, they are involved in about 70 schools in the north of the country, out of sight and sound of the media.

These activities on their own are not enough to resolve the economic woes of the north and south of the Israel, which have historically always felt geographically and commercially isolated. However, they indicate a way forward for the Jerusalem based bureaucrats and politicians to learn from. It is probably a lesson for other countries as well, when it comes to formulating regional economic policies.

Israel’s PM – when a tax cut was actually a tax hike!

20 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Intel’s purchase of Jerusalem-based Mobileye for US$15.3 billion is an unexpected and very grateful windfall for the Israeli Ministry of Finance. A little under 10% will end up in the hands of civil servants, say about 4 – 5 billion shekels.

The question is what to do with the cash. Some say spend it on large infrastructure projects or the financing of social schemes for weaker communities. Others, and the more vocal camp to date, favour tax cuts.

It is no secret that both the PM, Binyamin Netanyahu, and his Finance Minister, Moshe Kahlon are in the latter camp. That said, they have become as political enemies, especially in recent months. In fact, events have become so heated behind the scenes that Netanyahu did threaten this week to pull the plug on his coalition cabinet and to force a general election over their disagreements.

Netanyahu has a long history of proclaiming that he advocates lower taxes, although he is rarely active in that arena. Sometimes, the opposite seems to be true.

However, for a moment and in order to give us some perspective, let us look at some comparative figures. Again, the assumed key number is 4 – 5 billion shekels.

If Netanyahu were to call an early election, the cost to the country is estimated at around 2.5 billion shekels. And that will be cash to pay for the machinations of the political system, diverted away from the needs of the public at large. Potentially very disappointing.

More than that, in order to put together the current coalition and massage its ego, it is estimated that the political maneuverings cost the country, annually, about 7 billion shekels. This includes about 1.6 billion towards childrens’ saving schemes, a further billion for the ultraorthodox education system and 650 million to subsidise bus fares.

So, if you were to cut rid of these schemes, by just how much would corporation tax drop and VAT be reduced? How would income tax be adjusted downwards for the middle classes? And how much would all this boost the economy?

I will not answer my own questions. What I did read is that any immediate tax changes will be delayed about a month. That way, the government can ensure a full collection from VAT one last time! Pathetically ironic, but this does show how the top politician is feeding his electorate a load of ……spin.

Pushing the boundaries at work: 3 Israeli case studies

15 March 2017
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Categories: Business, Israel, Jerusalem

When called in as a business mentor and coach, my role is often to enable the client to do what they see as the impossible. After all, in many cases, if they could do it by themselves, why do they need an outsider to help?

Youtube is full of video clips, showing how individuals with physical handicaps achieve the most amazing success. One of my favourites is the young Australian ballerina, who refuses to quit despite losing a leg in an accident.

However, the question is what can the rest of us learn from these champions?

The answer is very obvious to my mind, but not so easy to implement. We should not just view the downloads and then marvel. We should realise that each and every one of them dug deep and found something that made them demolish accepted boundaries. So what are such demons in our own lives and how can we demolish them?

To show you what I mean, I have picked out three recent case studies from Israel, an environment where I practice my trade. I think we can all take a little bit from these stories.

First, the massive deal that was announced earlier this week, where by Intel will purchase Mobileye for a cool US$15.3 billion. With some irony, Intel’s Jerusalem plant is just down the road from Mobileye.

The founders of Mobileye come from different backgrounds, including academia and the car trade. One of them, Ziv Aviram, who could be walking away from the deal with around US$250 million before tax, started out life working as a logistics manager in a troubled printing company, Keter. From there, he went on to manage a tourist attraction in the Dead Sea.

And this week? Aviram’s company saw their shares leap 30% on NASDAQ. As the leaders of Mobileye mentioned on release of the news of the deal, it is not just about the money. It is about how you can change things for the better.

In a totally different sphere, Israel is performing for the first time in the World Baseball Championships. Rank underdogs, the team won its first four games in a row. This included the destruction of leading sides such as Cuba and South Korea.

While some have compared the heroics to that of the Jamaican bobsleigh team that won a gold medal, I find an alternative explanation. To me, it is clear that somebody sat down and said “how can we make this happen, despite all the odds and history stacked against us”. He or they then saw it through, come what may.

Which I suppose brings me to my third story, and this time it is about myself. I have always loved sports, but never been too good at anything. However, in two days time, I will try to complete the marathon in Jerusalem, one of the more difficult routes on the international circuit.

I will not bore you with the history of how I started running and who convinced (conned?) me to do this. What is relevant is the “why”. The answer has to be that I can show to myself what I am capable of rather than merely complete what I believe that people have expected of me.

And “that”, whatever it may be, has to be worth far more than just a personal best time. I hope you too can find it in yourselves.

 

Israel’s economy – stranger and stranger

10 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

How many countries in the OECD would be jealous of such economic news?

These are three amazingly positive figures. Even for a skeptic like me, who has constantly argued that there is a massive problem with the distribution of new wealth and that the government lacks an economic plan, this is good news by most parameters.

So what has been going on?

As previously reported, exports turned upwards in the second half of 2016. The country is even beginning to send gas to Jordan. What is more remarkable is that this comes against the background of the continuing strength of the shekel against most major currencies. It has appreciated by 8 – 10% against both the Dollar and the Euro.

Regarding the extra money for the Minister of Finance, this comes from both direct and indirect taxation. The rise in wages has added an extra 10% in income tax collection. The 44% leap in car purchases since February last year is one of the prime causes for a surge in VAT collection. (VAT is collected on most imports).

Naturally, all this is improving Israel’s credit rating. This in turn allows both the government and financial institutions to raise capital on the markets overseas.

So, where is the extra dosh going? Well, there are rumours of tax reductions. Fine by me, provided it is not just for those at the top of the greasy poll.

However, so far, it is the ‘big guys’ who have benefitted. All government ministries are spending more in 2017. The outgoings of the Ministry of Defence have grown by nearly 11 billion shekels, an additional 24% since 2016. All the other ministries have grown by 5% when combined together.

Without doubting the pressing needs of the military services, it is sad how the government in Jerusalem yet again has failed to help those ministries that are there to look after the weaker sections of society. I look forward to hear how the civil servants intend to address that issue in 2017, but I am not too hopeful that they will override the vested interests.

El Al – a brand determined to lose customers

8 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

About six weeks ago, I had a very bad experience using El Al, what I consider to be my national airline. I wrote a blog, which was widely read. I complained formally. I answered a customer survey in detail. What has happened since?

The original issue was sparked by price quote that was clearly a rip-off, but I was in a position of ‘take it or leave it’ in order to reach London in a hurry. This prompted me to create an unofficial survey of my own, where the overwhelming majority of respondents indicated that they try to avoid the airline for a range of reasons. Of those in the pro camp, one clear issue was that all the food is kosher.

As it turned out, last week, I had to make another unscheduled trip to the UK. The flight times of the cheaper charter flights did not suit me. El Al was in the middle of a labour dispute with their pilots and the outcome looked uncertain. So I booked, reluctantly, with British Airways.

If I sum up the outward and return flight, I can honestly not find a serious fault. Two very relaxing trips, where the staff even allowed passengers to organize evening prayers. The multimedia system was so much more varied and simpler to use. And guess what? While you had to order kosher meals in advance, they were tastier and more filling than with El Al.

What is so disappointing is that I have yet to hear from El Al – not even a short message to acknowledge my disappointment. The situation is so bad that Mark Feldman, a seasoned tour operator from Jerusalem, wrote an opinion piece in the Jerusalem Post newspaper.

“The vast majority of my business clientele eschew El Al for several reasons….”

In effect, what we are seeing is the demise of a national institution, the collapse of an international brand. And if the senior management and ownership of El Al truly cares about their customers, that are going out of their way not to show it.

 

Best business mentors – Best business presenters

2 March 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Earlier this week, I attended a meet up session in London, whereby ten Israeli start-ups pitched to an audience of potential investors, capital funds and strategists. Hosted by a Tier 1 financial services company, surely, this was a special opportunity for the visitors to link up with international players?

I had expected a crisp set of presentations. Depending on the type of company, each one was allowed between three and ten minutes to excite the audience. The unhidden rules were:

  1. Look the part. Dress accordingly. Most of the audience were attired in “City of London” suits or equivalent.
  2. Know your lines. Each spokesperson was expected to be word perfect, as on the opening night of a play in London.
  3. Have an effective powerpoint presentation, not overburdened by unnecessary wording
  4. Have 7-8 key slides.
    • A dummied-down one liner of what you do
    • The reason you have created the start up – the pain in the market place
    • How you are doing it – What is unique / clever, and the validation
    • The specific market size
    • The business model, and the validation
    • Who is the team, and why are they special
    • What you are looking for and why
    • Next steps

To cut to the chase, in my book, nobody scored more than a B+ for their efforts. I was astounded as to the low standard on show. The issues seem to repeat themselves, speaker after speaker – dressed for an outing with the kids, insufficiently rehearsed lines, awful graphics, meaningless slides, etc, etc, etc.

I was left asking myself the following question. If these people had paid good money for these meetings, in addition to their flight and travelling costs, why had they not invested a fraction extra in themselves?

With some ironic timing, also this week I came across an article surmising What The Best Mentors Do. Itemising four points, the author referred to:

  • Put the relationship before the mentorship.
  • Shout loudly with your optimism, and keep quiet with your cynicism. 
  • Focus on character rather than competency.
  • Be more loyal to your mentee than you are to your company.

As a business coach and mentor with many clients in the Jerusalem region, I fully concur. And I began to wonder why those ten Israeli companies had not reached out to mentors when preparing for their trip to London. If I or a colleague had been working with them, we would have applied the aspects of the four principles, which would have resulted in many of the faults being locked away from the view of the audience.

For example? Take the issue of loyalty. I would have asked what they are prepared to do to secure a deal? What do they need to change? And I would have raised these challenges by giving examples of my own work.

After the presentations, the audience were given significant opportunity to engage with the companies on a one-to-one basis. Clearly, several left a positive impression. Hopefully, commercial opportunities will follow on from this first round.

And yet, I along with others felt that this was an expensive and wasted opportunity for some. And the concern was that for lack of investment in some practical external resources like mentoring, this miss would be repeated in the future.

An Australian, Irishman and German meet in Jerusalem. Why?

27 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Geektime has just published an invigorating summary on the rise of Jerusalem as a start-up centre.

Jerusalem today is replete with accelerators, including for minority sectors. It has just hosted the OurCrowd conference for 6,000 delegates, looking at microfunding for start ups. Intel is restructuring its plant in the capital. Mobileye, the hottest item in global smart car tech, has its HQ in the holy city.

In other words, Jerusalem has fully entered the game of the “start up nation”. And that is not a phenomena that is slowing down. In 2016, according to IVC Research:

Israeli hi-tech companies raised an all-time high of $4.8 billion, which was an 11 percent increase above the $4.3 billion raised in 2015. The average financing round, which has been constantly rising over the past five years, reached $7.2 million in 2016, and most of the investment deals in 2016 involved later stage companies.

So which countries are capitalising on this economic and commercial growth? Well here are three very different uptakes.

The Germans are flooding in. Last week, the mayor of Cologne visited the Holy Land to prepare for a future delegation that will encourage entrepreneurial exchange. Next month, it will be the turn of a delegation form the economic powerhouse Westphalia to found out how they can benefit.

From downunder, the Australians have taken a different track. There are now 12 Israeli companies listed on the Australian stock exchange, with more expected to follow in 2017. Following Prime Minister Netanyahu’s visit to Sydney last week, the following statement was released.

Bilateral trade between Israel and Australia, as expressed in import and export, comes to $1.1 billion annually (2016). However, this data does not reflect the real scope of trade. Most Israeli companies active in Australia supply IT services, among them many companies active in cyber-security. Since service exports are not expressed in customs reports and in import/export reports, and since a significant amount of Israeli exports to Australia are carried out through third parties like the U.S., Singapore or European countries, we estimate that the scope of trade is closer to $2 billion.

And not to be left out are the Irish. Israel has been promoting a new airport in the desert near Eilat. Ryan Air simply dominates the territory there with 43% of the flights. They flew in about 10,700 travelers in January, at least 30% more than its nearest rival. The company intends to expand its scope to cover other destinations from Israel during 2017.

Jerusalem has a relatively high number of ultra-orthodox (Haredi) Jews. Last week, President Rivlin opened an incubator designed specifically for the needs of this community. Clearly, this very special city still has much more to offer the world.

4 unusual items you will not have heard about in the Israeli economy

21 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Israel’s economy continues to fizz along, consistently succeeding in defying the moaners and groaners. Last week, I reported how GDP growth for 2016 has come in at a very healthy 3.8%.

And while I have my gripes about how this new wealth is being spread – the gap between the haves and have nots remains excessive – there is much to welcome. So here are four pieces of news that are worth hearing about and allow you consider how others outside Israel can learn and / or benefit as well.

First, let me return to the macro statistics. For example, in the last quarter of 2016, imports dropped 6.7%, as exports gathered pace by 11.2%. And even though the minimum wage has continued to rise significantly as per a government agreement, unemployment has fallen for a fourth straight year and is now about 4.3%. Significantly, the country is seeing more females enter the workforce from the conservative sectors of the Arab communities and ultraorthodox Jewish domains.

What is encouraging is that these results have been achieved despite the continuing low level economic activity in Europe and in America, and despite the internal constraints posed by the defense establishment. It is also worth mentioning that one Israel’s largest exporters, Intel, witnessed sales to overseas drop off 24% due to structural changes.

Now let me turn to the housing market, where prices have risen and risen for years. The fear is of a housing bubble. If it is to burst, there will be a financial meltdown as happened in America.

The numbers from the real estate sector are contradictory. Yes, the quarterly survey from assessors shows an 8% leap in house prices. However, a survey by the Ministry of Finance has surmised a 1.2% drop. What is clear is that there has been a distinct slow down in the numbers of houses purchased overall, especially in the ‘hot opportunity’ areas such as Jerusalem. In other words, there are signs that maybe the market is finally sorting itself out.

Meanwhile, Israel continues to fulfill its title as the ‘start up nation’. For example, Apple returned for its fourth purchase, picking up Realface. The Israeli company has created a security package, based on facial recognition for mobiles. The previous three ventures were valued in total at about US$765 million, although this one is thought to be worth just a few million.

In a totally different sphere, the Israeli economy persists in showing off its openness and diversity.

A new startup accelerator has been launched in Haifa to assist Arab entrepreneurs. The programme targets startups that have completed Series A financing, already developed a prototype product and/or received funding from the government’s Israel Innovation Authority (formerly the Office of the Chief Scientist).

This effort matches a similar incubator in the Nazareth region. Here, a private cooperation initiative has brought together Jews and Arabs.

What would be super encouraging if the government could come up with a full strategic policy for the economy. Now that could make an enormous and long-term positive difference.

Has Israel’s Prime Minister committed a crime, or is it worse?

19 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel

Israel’s Prime Minister is currently facing two criminal investigations by the police. In a third case, a probe is considering whether his lawyer and others used their priviledged positions in order to push the navy in to purchasing submarines that were not essential.

While I am no fan of the PM, I would like to think that he is innocent. (This is what I had said some years ago about a previous PM, Ehud Olmert, who is now incarcerated in prison). In any event, it will be a big ask for the police to proof that Netanyahu took a bribe and also that he then handed out favours as a consequence.

So, let us assume that he is innocent. What is wrong with that? Well, the answer will eventually lead us back to those submarines.

Step back for a moment and look at which other politicians are under investigation at the moment. In February 2017, there are at least 32 municipalities, where senior politicos are either in prison or under investigation. Roughly half of the allegations are associated with various forms of corruption. About 10% of the cases centre around the theme of sexual abuse. Much of the rest involves abuse of power.

The municipalities include the well known such as Jerusalem, Tel Aviv and Netanya. They encompass the smaller units. They are located in the middle of the country and also out-lying regions.

The common denominator is the centralisation of power in the hands and minds of a few individuals, who operate with few legal (or, apparently, moral) restraints. As for the office of the Ombudsman General, it has only 60 members of staff with which to handle 250 such authorities.

Not good. So let me move onto another story. The Hebrew newspaper, “The Marker” has revealed that 3,037 people from Israel and around the globe donated 46 million nis between 2011 and 2015 to more than one Kenesset member. However, the beneficiaries are frequently to be found on different sides of the political spectrum.

The insinuation is not that the money was offered illegally. The problem is that the donors – a.k.a. vested interests – are hedging their bets. What for me is worse is that the politicians either do not know, do not want to know or just simply do not care!

What I am getting at is that there is a culture of bending the rules, pushing back the norms, and thus pretending that nothing ill is happening. Well, there is a reason that people instituted these laws in the first place – either because corruption had taken place in the past and / or in order to ensure it would not happen in the future.

All this brings me back to those submarines. They were ordered from a company, which has a track history of using bribes to win orders. Well, so do many defense contractors around the globe. However, it is partially owned by a Lebanese businessman, who is a sworn enemy of Israel. Thus, potentially, he is able to lay his hands on a whole load of military secrets.

So, why was the navy pushed into this contract? Why was Netanyahu’s lawyer so heavily involved in cementing the deal? Where is the smell coming from?

Benjamin Netanyahu has been close to the centre of power for the best part of two decades, either as Finance Minister or Foreign Minister. In addition, he has been elected Prime minister of four occasions.

I am sure Netanyahu will claim many successes during that time. And I am bound to add one more – the perpetuation of a culture that fudges the boundaries between good governance and not good. This is a situation where the bad has become the new norm. It is so engrained that its perpetrators cannot see why it is damaging to the society they purport to protect.

Making a small fortune in Israel – 2 success stories

16 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

There is a well-known joke in Israel about how to make a small fortune. Answer – start with a large one. And jokes are usually coated in a bitter truth.

Often, the odds seem stacked against you – bureaucracy, cumbersome banks, regulation and more. For all that, the spirit of enterprise and innovation in the “start-up” nation remains as high as ever, a message brought home by an inspiring new commentary from Wired.

So today, I want to concentrate on two success stories that reveal the true potential of the Israel economy.

I will start with the story of MobilEye. It was founded nearly twenty years ago by a researcher from the Hebrew University of Jerusalem. By 2007, its initial sales had impressed Goldman Sachs to invest US$100m.

And what does the company do? It creates smart solutions for a car to perform safely. Its website refers to partnerships with 27 global manufacturers. In addition, there are 13 agreements with conglomerates looking into the space of driverless cars. And for now, nobody else can match its abilities.

The latest agreement has landed the catch of Volkswagen, which “will use Mobileye’s Road Experience Management (REM) camera-based map and localization technology ……..to implement a new navigation standard for autonomous driving starting in 2018.”

This latest news sent the price of the company’s stock through the roof. Trading trebled. With a share price of around US$45, the company is thus valued at about US$10 billion, a very handy number for the investors, not to mention the founders.

I must add that the irony of Israel now being a key player in the automotive industry is not lost on its citizens. Remember the 1973 Yom Kippur, which led to the quadrupling of oil prices? Well now Israel a leading technology centre for smart cars. Honda and Volvo are the most recent additions to establish r&d centres.

Moving on to a completely different field, Richie Hunter is a British-trained accountant. Until recently, he headed the McCann Erickson advertising agency in Israel. He has since gone on to create and manage several other successful retail adventures.

In addition, he owns 30% of Holmes Place and its 33 gymnasiums. Annual income is estimated at 380 million shekels – say about US$100 million. Pre-tax profits have grown 25% annually in each of the past three years.

Hunter is now looking to take his keep-fit empire, and I believe that he does participate in charity races, on to the Tel Aviv Stock Exchange. The aim is to raise 400 million shekels, which will allow the chain to treble in size through acquisition.

I have not hidden my qualms about how the Israeli economy is being managed. For all those gripes, it is wonderful to be able to recognize true success and be able to write about it. The Hunters and the Mobileyes are not alone.

Israel’s economy – where is the government direction?

13 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

The IMF has just handed the Israeli economy the thumbs up sign. And the stats are impressive.

Israel has strengthened its economic achievements in 2016, reduced the debt-to-gross domestic product ratio, and the government’s deficit stood at 2.1% of GDP, compared to a target of 2.9%. Israel’s economy grew by 3.8% and its unemployment dropped to a historic low of only 4.4%.

And the positive signs keep rolling in.

  • Tax collection in January 2017 was at a record high, even if bloated by some one-off anomalies.
  • Exports for the second half of 2016 recovered all the downturn of the first half of the year.
  • Unemployment has dropped again, now at 4.3%.
  • Even the BDS campaign, promoting an economic boycott of Israel, has had no measurable commercial effect.

So where are the concerns?

I would sum them up under two categories.

First, in the words of the Governor of the Bank of Israel, Karnit Flug, there is a lack of “inclusivity“. In a wide ranging interview, she pointed out the lack of serious investment in primary education, the widening gaps of inequality between different sectors, regulation that helps those who have, and several other concerns.

Personally, all this points yet again to what I see as an economic success, which secures the place in society of the few rather than enhancing the wealth of the overwhelming majority. That does not bode well for the future.

Second, there are clear structural issues that demand resolving. Israel’s transportation system is a mess – continuous traffic jams between cities and within the main cities. As the ports cry out for privatisation, the consumer continues to pay out for their over-manning and burdensome costings. Food companies – local manufacturers and importers – seem to have near monopolies. You do not have to look very far to see how the protected interests continue to be protected.

I am not a lover of government interference. I do believe that central policy makers should facilitate change and improvement that will encourage its population to take initiatives. However, whenever I look at today’s government in Jerusalem, I feel that I am confronted with a coalition determined primarily to hang on to power. Thus, bettering the lives of others is of secondary importance.

Yes, they would argue otherwise. All I want to know is what is the clear and precise economic vision of these controllers of power – a string of sentences not coated in empty political slogans but replete with purposeful direction. Sadly this is lacking. And thus, I fear that the wonderful numbers quoted by the IMF will not be felt by the majority of the country. That is not acceptable.

When you think biotech, it is time to think Jerusalem

10 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

It is known that Israel is the place for start ups. What is not so well known is why Jerusalem is now one of the world’s leading hubs for bio start ups. The change in the past decade has been phenomenal.

Yes, until recently, one associated Jerusalem with phrases like religion, history, tourism and probably a series of terms associated with conflict. Jerusalem merely hosted a few drug companies, such as Rafa and Teva. The latter had grown to become the world’s largest generic drug firm. It was one of the country’s few almost giants in the medical sector. Unfortunately, the board and management structure in recent years has seen Teva bring home a very poor performance.

Since roughly 2006, the city has deliberately set out to change that set up, specifically by tacking on to the world of bio and pharma. They identified that Jerusalem  possesses three core sources of talent. It hosts a world class university, several excellent hospitals and a population of diverse backgrounds yearning to be part of the start up nation.

Just over a decade a passed by. This week, I attended a presentation by Dr Shai Melcer, the outgoing CEO of BioJerusalem, who delivered a very interesting summary of  pthe progress achieved. BioJerusalem is the official arm of the Jerusalem Development Authority (JDA), a body which has created a plethora of benefits for the sector, and Shai has been a quite, subtle and highly effective communicator in his role for the past three years. Consider these stats: –

  • The number of bio / pharma companies in Jerusalem has risen from 93 in 2013 to 149 by the end of 2016.
  • Other cities in Israel are barely able to sustain their previous numbers.
  • In the same period, sectorial employment has shot up from 2,581 to 4,085.
  • The JDA is now helping to plan the new National Institute of Precision Medicine, which will be located in the holy city.
  • Several new bio incubators have been set up and / or have been expanded in the past five years.
  • In addition to Shai’s networking group “Bios4Bios“, JLM BioCity has been launched with tremendously exciting results. Both groups have regular meetings, securing opportunities for entrepreneurs and for investors.

There is still much more than can be effected from these efforts. To give just two examples, the Givat Ram university campus and the Har Hotzvim industrial area are providing more land for pharma comapnies. Jerusalem is clearly on the world map in the bio arena.

El Al, a woeful lesson in how to throw away loyal customers

4 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel

El Al is considered the national airline of Israel. It was privatised many years ago. It is has to cope with the high cost of security, as well as the multiple demands of Israeli travelers, who are never considered an easy bunch of tourists.

For years, the joke was that its initials stood for Every Landing Always Late. However, for all that, be you an Israeli, Jew from overseas, evangelical, business tourist or whomever – there is a feeling that you want to travel with the national airline of the Holy Land.

Thus, when I had to make an emergency 2-day visit to England last week, I too wanted to book with my national airline. I went to the website, made the booking, paid, and all seemed to be just hunky dory. That is when the fun started

It turned out that I had made a mistake. I had not realised that I had organized the return trip for 10 days time. No problem. I called up the help line. I was answered quickly by a pleasant sounding male assistant.

A) Yes, I could change. As with many airlines, El Al rips you off – my assessment – for US$120 approx for altering your ticket, a process which takes about 90 seconds. So be it. I had made a mistake.

B) Yes, a place was  still available on the return flight I had originally targeted. There is a price difference – Why? Same flight, but one week earlier in the dead month of January –  of about US$100. So be it. I had to return as planned.

C) And…wait for it…here comes the juicy bit….as I was staying in the UK  less than three nights and / or not over a weekend, there would a further excess charge of ………….US$350! (The original return flight was costing US$477).

As you can imagine, I was somewhat distressed by this. However, I kept my cool. It took me a couple of minutes to make the helpline understand that I might as well just order a one way ticket from one of their competitors. From his voice, he did not seem to comprehend the logic of this, nor why I should jump to another company, nor why I might be a “tad upset” for being ripped off.

Eventually, he began to use his brain. He converted my points………you see, until now I have been a relatively loyal customer…..to cover the US$350 surcharge. Well, I was never going to use them anyway.

All I had left to pay was about US$220. Now get this. That sum included a US$5 handling charge, as this had been a sale made over the phone!!!!!!!!!!! I kid you not.

So, for all those reading this, let us agree. El Al’s policy of this US$350 – for staying less than 3 nights or not staying over a weekend or whatever other pathetic reasoning is used – is what is called in best Shakespearian English as a SCAM. It is nasty. It is the typical abuse of power of defenseless consumers by a large company, just trying to ‘get away with it’. It disgusts me. And it offends all those who I have told the story to.

However, I wanted to be fair to El Al. Therefore, before I wrote this blog, I posted a simple question on a Facebook page, frequented by hundreds of people who fly regularly, both for work and pleasure. I wrote:

I am conducting some research into El Al. Would you say you are pleased with them or have horror stories – price, service, schedule, etc – and why?

I received nearly 100 comments. I counted at least 21 positive responses, many citing security considerations. As for the rest, the overwhelming majority of the statements were full of frustration if not down right damning. I quote four examples:

  • The last time I flew El Al I went to London and my suitcase went to New York. It took them five days to get it back to me and then it was delivered at 2 am…..Their attitude during the five days the luggage was lost was deplorable.
  • Many airlines are still using similarly-aged aircraft but through refurbishments are able to provide up-to-date IFE and comfortable seats. El Al made a choice not to do this
  • Part of the problem is leg room, they do have leg room, the problem is that most of us have two legs. (My favourite comment, that one, MH).
  • Once they put chicken in my vegetarian meal, I though it was tofu but my daughter tasted it and said it was chicken. I complained but never got any compensation. The last time I flew I didn’t get a meal at all they had run out of veggie meals even though I had pre-booked.

One of the respondents did refer me to a more professional survey, which compared international airlines. El Al turned up trumps in terms of safety, but sucks when it comes to punctuality.

To be fair, the service on both of my flights was very good and attentive. And I have made my complaints known to the company in their standard post-flight survey.

What did the US$350 buy El Al? As things stand at the moment, I have to order several more tickets to England during the coming year. Unfortunately, I guess that I will be joining, very sadly and very reluctantly, that growing crowd of former regularly El Al customers who do their best to avoid their national airline.

Breaking down the Israeli tax code – is it possible?

2 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel

I rarely quote in full from another blog. But rules are there to be broken. And in this case, I think that I have a great excuse.

Understanding modern taxation systems is beyond the capabilities of even your average accountant. To do so in Israel, a country where legislators rarely shirk from complicating the most simplest of procedures, is especially daunting.

My clients often ask me if I have a summary of the salient points. Now, for possibly the fist time, a good acquaintance of mine, Leon Harris, has done the seemingly impossible. He has almost codified the salient point of the Israeli corporate and commercial taxation levels for 2017.

For those of you with business dealings in the Holy Land, I suggest you read in full. For others, comparisons are often helpful. The following is copied directly from Leon’s appraisal.

Businesses:

The regular company tax rate is 24%.

The regular dividend tax rate is 30%-33% for 10%-or-more shareholders, 25%-28% for other shareholders, resulting in a combined tax burden on distributed corporate profits of 45%-49.08%,subject to any tax treaty in the case of foreign investors.

Preferred income derived by preferred industrial and tech enterprises is liable to company tax of 7.5 – 9% in development area A, elsewhere in Israel 16%, without time limit. Dividends are taxed at 4 %-20%. The resulting combined tax burden on distributed profits is 11.2% – 32.8% subject to any tax treaty.

The VAT standard rate is 17%. Exempt dealers must have annual revenues below NIS 98,707.

There are tax breaks for: capital gains of foreign resident investors, trust owned vehicles (TOV‘s), approved rental buildings, oil exploration and production, movie productions.

Real estate:

Home rental income of up to NIS 5,010 per month is exempt. Thereafter, several possibilities exist.

A multi-home tax applies from 2017 to the owners of 2.49 homes or more in Israel at the rate of 1% of a prescribed value but no more than NIS 18,000 per year, subject to various rules and exceptions.

A multi-home tax applies from 2017 to the owners of 2.49 homes or more in Israel at the rate of 1% of a prescribed value but no more than NIS 18,000 per year, subject to various rules and exceptions.

Real estate acquisition tax rates range up to 10% generally. For an Israeli resident purchaser with no other home in Israel, the first NIS 1,623,320 may be exempt from acquisition tax.

The gain from the sale of an only home in Israel by resident individual may be exempt from tax provided its value does not exceed NIS 4,456,000 (in 2016). Otherwise home sales are generally taxed at 25%. A partial exemption applies to the sale of up to two homes bought before 2014 and sold before the end of 2017 by a resident individual.

Foreign expatriates in Israel:

Israel’s tax treaties sometimes grant an income tax exemption for employees resident in those countries but working in Israel.

Otherwise, non-residents working in Israel lawfully in their field of expertise for an employer who are paid at least NIS 13,100 per month, may enjoy a deduction for accommodation expenses and a daily living expenses deduction of up to NIS 320 for up to 12 months as “foreign experts,” provided they are invited by an Israeli employer that is not an employment agency. But employers may be subject to a foreign workers’ payroll levy of 0% to 20%.

One key indicator that shows the manager or boss has got it wrong

1 February 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel

We have all worked with bosses, who you know are making the wrong decisions. And occasionally, we have wondered about the wisdom of our own actions. However, is there some kind of “internal algorithm” that acts as a key indicator to tell us STOP AND THINK?

Over the years as a business coach and mentor in Israel, I have come across many different types of characters in a thrilling array of commercial enterprises. Just about all of them have brought a challenge that has been overcome. In parallel, I like to keep up with how other executives have coped with and triumphed with the demands of their own bosses – the board, investors or even just the marital partner.

I have just finished an autobiography by Mike Malloy, called the Happy Hack. It is a humourous look back at journalism in the UK over four decades.

The most intriguing part of it was the final section, where, as editor of a large newspaper, he details working with the owner, Robert Maxwell. To recap briefly, Maxwell was Czech refugee, who built up a commercial empire, and was sought after by just about everyone in power. However, his methods that brought success also led to his downfall, that saw him raiding pension funds of employees and on to eventual suspected suicide.

Malloy recalls meeting a psychologist, who asked about Maxwell’s characteristics. By the end of the conversation, the diagnosis was that Maxwell shared similar traits to some very unworthy historical notables. Malloy was cautioned to be wary.

One of the questions was:

Does he (Maxwell) micromanage trivial matters but leave important decisions deliberately vague, and then blame others when they go wrong?

Surely top managers would never act in this manner. But just hold that thought! How many times have we seen this in those around us? How often are we guilty of the same crime? And why do we do it? What issue of pain inside ourselves are we trying to cover up, and do so with such intensity?

Well, the rest I will leave to psychologists, but it is food for thought. Fortunately, most of us are in a position to correct our own fault……once we are prepared to recognise it.

The error, the mistake and the business coach

31 January 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel, Jerusalem

Well known case study number 1: Do you remember the story of the music agent who turned down the opportunity to manage The Beatles, citing the excuse that groups with 3 guitarists and a drummer were passé?

Lesser known case study number 2: At least two young Hollywood stars turned down the chance to take the lead roles in La La Land, the film that is set to sweep 2017 Oscars awards.

Now I assume that many of you are thinking: “What crass idiots people can be. These are mega mistakes!”

Well, I agree that an error of judgment was made. If the same people were to repeat these considerations, then I feel that they are making a mistake. And that is when their decision-making process must be called into question.

Back to reality as most of us are not on the level of celeb pop groups and actors. However, we all face such issues regularly and they are equally important for us within our own paradigms. And yet we are quick to place blame, maybe when we should not do so. Here’s what I mean.

I am a business coach and mentor, with many of my clients situated in and around Jerusalem. Whether a classified SME or a larger corporation, I have several CEOs too ready to blame their employees – and sometimes myself also – for things that go wrong. A “mistake” has been made, and it is awful!

Rethink. More frequently, all that happened was that an error occurred. Yes, it should not have done so, but also reflect that it was probably a one-off action. Before rushing off to criticise, I ask the CEO to consider how many times they have thanked their staff for all the good things that these workers have done.

And if it is a mistake that has happened repeatedly, who really is to blame? The person at the centre of the storm, or the senior manager and supervisor? Ouch, mega times over, because this often means YOU, the CEO!

The size and importance of Israel’s cyber industry, globally

26 January 2017
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Categories: Afternoon Tea in Jerusalem, Business, Israel

Google the phrase “Israel cyber industry” and you will find a mass of descriptions of one of the most powerful cyber armies in the world. It is if young Israelis are born with an extra gene that drives them towards the subject.

If that is not enough, the army and security services provide yet more training, free so-to-speak. So before the age of 30, thousands of entrepreneurial Israelis are pouring into the commercial world of cyber technology.

Only yesterday, three more cyber companies from the Holy Land raised money, primarily from overseas investors: –

To quote research from PitchBook and released to Bloomberg:

365 Israeli cybersecurity companies raised a total of $581 million in 2016, (a 9% increase on last year, and) about 15 percent of all capital raised by the industry globally. About a quarter of the 65 Israeli cyber start-ups founded last year have already succeeded in raising funds.

Roughly speaking, 60% of Israeli cyber companies manage to raise funds within two years of set up, with an average about US$9 million per round. That figure falls to 21% for other hightech sectors. No wonder that President Trump has asked Giuliani to lead a mission to Israel to evaluate the levels of future cooperation on the subject.

One stat that may have future significance. There is less of a tendency towards exits. It will be interesting to see if that trend continues in 2017.

Where to next? TechCrunch observed that:

Even as the global cybersecurity market experiences a slowdown in investment, the Israeli sector continues to grow. Companies are raising significant capital, even in tough times. Innovation from Israeli companies is a real bright spot as new security fields keep emerging. We are optimistic about the ability of Israel’s cybersecurity entrepreneurs to continue to innovate on a global stage.

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