It is no secret that the global macroeconomic situation is worrying. Inflation is rearing its ugly head, eroding our incomes and savings, the stock market is a bearer, and recession is looming.
Israel’s high-tech sector, which is strongly linked to international markets, is clearly influenced by these trends.
After the record-breaking year of 2021, layoffs are on the rise, and many of Israel’s tech unicorns and public companies are learning that sometimes it’s easier to get to the top than to stay there.
Is this time all bad? Not necessarily. I’m not anticipating the doom and gloom of layoffs, but from an ecological perspective, this slowdown could bring some much-needed sanity back to the over-hyped tech industry.
The period from early 2021 to mid-2022 was uneventful in many ways. To begin with, startup reviews were flirting with bubble status. This is good for entrepreneurs in the short term, but it makes the industry less competitive and less sustainable.
Next is the human capital front. While it’s a good thing that more talent is finding its way into the high-tech industry, the 2021 recruiting frenzy has had its share of problems.
By the second half of 2021, a record 10 percent of high-tech workers have voluntarily resigned. This disrupts the healthy business practices of tech companies and forces them to focus on continuous recruiting and onboarding rather than growth.
Fierce competition has driven up wages, putting early-stage startups at a disadvantage relative to established companies and global R&D centers.
A step in the cooking process
The ups and downs we are experiencing now – which may end soon – are another sign of the maturity of Israeli companies.
When the waves are right, everyone seems to know how to surf, but choppy water is what separates the good surfers from the mediocre.
Uri Gabay, CEO of the Start-Up Nation Policy Institute. Photo by Micha Loubaton
The same is true for companies. Many of Israel’s latest unicorns and public company management are experiencing their first real economic downturn. It’s important to learn how to work your way through these tough times, so those who are capable come out of it stronger and stronger.
My last point refers to the government. Helping the tech ecosystem grow is hard work. Israeli governments have been very effective over the years in helping the ecosystem reach its current level.
But trying to help too much is not a good idea. Let’s not rush to bail out struggling tech companies. Israel’s high-tech is a highly sophisticated industry, capable of moving its resources from failed companies to better ones.
Israel’s innovation policy should not focus on how to get the industry out of this slump – that is not the role of government under normal circumstances (and failures are indeed normal conditions).
Instead, it should focus on the long term – building the right intellectual, financial and human infrastructure to sustain the industry’s leadership for decades to come.
Yuri Gabai is the CEO of the Start-Up Nation Policy Institute (SNPI).
