Israel is rivaling Silicon Valley in developing innovative technology and retailers are capitalising on the country’s bustling start-up scene.
Executives from Shop Direct, one of the first UK retailers to spot the opportunity in what is being dubbed ‘Silicon Wadi’, last week visited Tel Aviv to ‘speed date’ with 26 of Israel’s up-and-coming tech firms.
“We believe there is a hub here that is unrivalled outside of Silicon Valley”
Gareth Jones, Shop Direct
Start-ups ranging from fashion recommendation engines to mobile gaming specialists and a virtual make-up tester gave 15-minute presentations before being grilled by Shop Direct’s answer to Dragons’ Den: retail and strategy director Gareth Jones, ecommerce chief Jonathan Wall, customer director Dene Jones and retail brands boss Jon Owen.
The Israeli firms are the latest to try to catch Shop Direct’s eye. The etail group, which operates businesses including Very and Littlewoods, last week unveiled partnerships with two Israeli firms to add snazzy new technology to its site to help improve conversion.
Shop Direct has partnered with Cimagine’s augmented reality technology, which allows customers to visualise how furniture fits and looks in the home, and launched virtual sizing technology from yRuler that enables customers to check whether everyday items such as iPads and smartphones fit into handbags.
It is the latest phase in Shop Direct’s love affair with the country’s tech-savvy entrepreneurs. The retailer first forged a relationship with Israeli innovation in 2011 when it partnered with retargeting firm MyThings.
MyThings insisted it could achieve greater success than Shop Direct’s existing partner so the retailer gave it a shot. Gareth Jones says: “Overnight it created £30m worth of sales for Shop Direct. It put about 1.5% on our top line.”
He adds that MyThings is now Shop Direct’s single biggest marketing investment online.
The tie-up wasn’t just a great bit of business for Shop Direct, it also opened up the retailer’s eyes to the possibility of further tie-ups with Israeli firms.
“We’re already heavily indebted to the Israeli tech scene. We believe there is a hub here that is unrivalled outside of Silicon Valley,” says Jones.
Senior executives from Shop Direct now travel to Israel every few months to discover the innovative technology coming out of the country and the retailer has even hired former chief executive of gambling site 888.com and prominent Israeli angel investor Gigi Levy as an adviser to its board.
Shop Direct is using Levy and the UK Israel Tech Hub – a brainchild of the British Embassy in Israel – to meet exciting firms in the country.
The UK Israeli Tech Hub was set up two-and-a-half years ago following UK Prime Minister David Cameron’s proposal that the two countries should collaborate on technology and innovation to drive economic growth.
The hub, which helped organise Shop Direct’s speed dating day, has identified retail as a key sector for collaboration and helped introduce major UK retailers including Tesco and Marks & Spencer to start-ups through its TeXchange programme. This year it brought a delegation of start-ups to London – including a visit to Retail Week Live – and launched events in Israel for UK retailers.
The model has proven so successful that not only are other embassies in Israel seeking to emulate it, but David Cameron has revealed he wants to roll out the ‘hub’ model to other business areas.
But why do Israeli and UK companies make such easy bedfellows? “We see British retailers as the most innovative and British consumers as early adopters of new technologies. It’s really an ideal partnership,” says director of the UK Israel Tech Hub Naomi Krieger Carmy.
And with more start-ups per capita than anywhere else in the world other than Silicon Valley, there is great appeal for UK retailers too.
Krieger Carmy says: “People tell us when they come over for a visit that the amount of interesting and relevant companies that they see over two days is the equivalent of what they’d see over a month elsewhere.”
The hub format has worked well because the retailers and start-ups have formed true partnerships, she explains.
Wall says ecommerce is not as developed in Israel as in the UK so tech firms there can gain understanding of the market from retailers such as Shop Direct.
“We’re meeting developers, founders, real entrepreneurs not sales agents,” he says. “We can help them shape the product and help them understand what we need.”
The Israeli way
But it’s not just about the sheer volume or even the quality of new technology. The whole Israeli way of working is refreshing to UK companies according to Jones.
“They’ve got a nothing-to-lose, never-say-die attitude,” he says. “The guys out here are determined to see through these technologies. They take a completely different approach to failure.”
“When something’s not right they pick themselves up, they change the product, they listen to their customers. That can’t be said of other such technology hubs around the world.”
That attitude has been taken to the heart of Shop Direct and “failing fast” is often referenced by its executive team.
“I’ve taken our stakeholders here to understand the tech scene and the way of working so we can build it into our own business,” says Wall.
In many ways, Shop Direct, which turns over £1.7bn annually, is being forced to act more like a start-up. The etail group, which is pursuing a three-year mission to become a “world-class digital retailer”, is adopting new technologies and processes to help it achieve its goal.
“We can’t pick a model up off the shelf. Therefore we are going to have to try some stuff,” says Jones. “We’re going to have to experiment and innovate and we’re going to have to be fleet-of-foot and at a low cost to find some winners, then back those winners. If that’s acting like a start-up, then yes we are.”
Israeli firms also like to move fast, which is appealing to Shop Direct – a business that has a £100m war chest to invest in its online growth.
“Every presentation today was: ‘we can do it’; ‘Let’s just get it out there’; ‘Pick 200 products and let’s make some money’,” says Jones.
He cites one of the start-ups’ pitches that included a multitude of potential pricing models as a great example of the Israeli mentality. “[The presenter] didn’t care – all he wanted to do was to get it started,” he says.
Eliad Inbar, chief executive of yRuler, says he was impressed that the etailer adopted the same fast-moving mentality.
“We had our first meeting at the end of November. Then there was a crazy holiday period but as soon as 2014 started within four weeks we were on the air. It’s amazing it’s a £1.7bn company, they work as fast as a start-up,” he says.
But what of the 26 enthusiastic start-ups that were pitching to work with Shop Direct last week? In a strike rate that would astound the BBC Dragons, Wall says the executive team at the Shop Direct den were impressed with 24 of the firms and, using its newfound ‘fail fast’ mentality, the etailer intends to test about six of the technologies as soon as possible – with the same eagerness that any good start-up would adopt.
Mothers of invention
Israel has been dubbed a start-up nation, but why is the tech scene so energetic there?
“I think it’s a few different factors,” observes Naomi Krieger Carmy, director of the UK Israel Tech Hub. “One is necessity breeding innovation. As a country, we don’t have a lot of natural resources and technology has really been a driver of new business and entrepreneurialism. It started in industries which had other necessities such as military technology or scarce water resources, that forced Israel to be innovative. Now it has spread into other areas.”
The military has played an important role in the development, according to Krieger Carmy. “A lot of early stage training in military units is focused on technology,” she says.
Ohad Greenshpan, co-founder and chief executive of Fashioholic, which makes mobile games for the fashion industry and which pitched to Shop Direct, was a lieutenant in an elite intelligence unit in the Israel Defense Forces, before he moved into enterprise.
However, it runs deeper than just military training. Krieger Carmy agrees and says that there is a culture of risk-taking in the country. “Israelis are not as polite as British people but with entrepreneurs sometimes it’s good to break the rules.”
Greenshpan maintains that the Israeli trait of persistence breeds entrepreneurs. He says Israeli’s don’t take no for an answer and are not afraid of failing.
However, Menny Shalom, co-founder of virtual fit technology start-up Mipso, says it’s all down to those archetypal Jewish mothers.
“Every mother says to their child here, you should succeed. Israel is a very small country so to succeed you have to succeed abroad,” he says.