Sep 3, 2001 12:00 PM,

Friendly Rivalry

by Donny Jackson

Native Networks' Gilad Goren served alongside PacketLight's Yaki Luzon in the Israeli army. The former classmates are now shooting for success in the optical market, but that's where the similarities end

Class action

For Luzon and Goren, that fall day in 1973 started 14 years of almost daily interaction — four years in high school, two in practical engineering school, five in the same army intelligence unit and three as study partners at Tel Aviv University. Since then, they have followed remarkably parallel paths to prepare for the challenges of founding optical start-ups.

And they are not alone; other high school alums and army cohorts also have found success in starting high-tech companies.

Indeed, one student two years ahead of Goren and Luzon was Nachman Shelef, a partner at Benchmark Capital and former CEO of high-tech firm NiceCom — the start-up that he enticed Luzon to join before it was bought by 3Com.

“It's a very small world,” Barkat says. “There's a lot of similarities between [Goren and Luzon]. I think it's quite interesting that both of them ended up leading optical equipment start-ups.”

Despite the similar backgrounds of their co-founders, the technological approaches of PacketLight and Native are “completely opposite,” according to Goren. Native's optical Ethernet access solution includes a great deal of packet processing that provides dedicated support of all protocols while documenting service level agreement information. Meanwhile, PacketLight virtually ignores packet processing, instead using a patent-pending “transparent edge” architecture to prepare metro traffic for long-haul journeys while maintaining the packet's native format. While acknowledging the differences in positioning, Luzon, who is also vice president of marketing, says PacketLight and Native offer complementary solutions that address multiprotocol headaches inherent in today's networks: “We both put a lot of emphasis on the fact that you have to support both the legacy TDM traffic as well as gigabit Ethernet and data.”

PacketLight and Native also share several business characteristics. Both plan beta trials this quarter and will seek additional funding at the conclusion of these tests. More important, both companies have enlisted help outside the Israeli community in an effort to spread the gospel about their technologies.

Less than zero

Thanks to an educational system that cultivates homegrown talent and the influx of Russian talent that immigrated into the country during the late 1980s, Israel boasts a plethora of engineers — enough that some consider the Tel Aviv area to be a “second Silicon Valley.”

It wasn't always this way. As recently as 1993, “there was no venture-capital money in Israel,” Barkat says. That changed when the Israeli government began funding business incubators and matching financing — “For every dollar you bring in, they'll give you a dollar for R&D,” Barkat says.

This support and one of the highest ratios of engineers per capita in the world has fueled more than 3000 start-ups during the last five years in a country of just 6 million people — where a “Silicon Valley-like” environment focused on cutting-edge technology flourishes, according to Barkat. “Optical networking is the focus of the market right now; if you had talked to me two or three years ago, we'd probably be talking about wireless companies.”

But Israel's start-ups often lack the personnel with the skills and contacts necessary to pitch their products to customers and potential investors — a fact reinforced by a conversation between Goren and Anda Networks President and CEO Charles Kenmore.

“I told [Kenmore] that in Israel we have excellent engineers but, in sales we are a zero,” Goren says. “He told me, ‘No, no, you are wrong. You have a long way to go before you reach zero.’”

Mark Lutkowitz, vice president of optical networking for Communications Industry Researchers, offers a similar sentiment in describing PacketLight's challenges: “The fundamental thing is, like all Israeli companies, they suck at PR and marketing.”

But Lutkowitz says PacketLight has addressed this area by hiring new director of product marketing Rick Talbot, a former executive for Ciena, Broadwing and Alcatel who previously worked for Southwestern Bell. Talbot's experience should be especially beneficial as the Israel start-up goes through the rigorous Osmine testing process needed to qualify for a lucrative contract from RBOCs.

“Getting an ex-Bell guy like Talbot on board really helps smooth the way,” Lutkowitz says. “He knows where to look for the potholes.”

To get Native over the threshold, the company in June handed its CEO reins to Steve Harbour, an industry veteran with recent stints at Cisco Systems and Pirelli. Goren says Harbour's presence quickly opened new doors for the company.

“It gives us respectability. I sent an e-mail before Supercomm to meet with the [chief technical officer] of Deutsche Telekom,” Goren says. “They said, ‘At Supercomm, he will try to come to your booth’ — very polite, but not hopeful. When Steve took the ball, immediately [the CTO] scheduled an hour to meet with us.”

Military intelligence

While the nuances of maintaining a healthy business require Israeli companies to seek help, getting started is not a problem. Israel not only is blessed with an abundance of engineers who have ideas about new technologies, but they seem to be bred with the hardworking independence and risk-taking nature that is critical in start-up mode.

“Half jokingly — but only half jokingly — people say, ‘Israelis don't like to work for other Israelis; they like to be their own boss,’” says Shelef of Benchmark Capital. “Everyone wants to be their own boss, and they're not afraid to take risks.”

For Luzon and Goren, this entrepreneurial attitude was cultivated during all-night study sessions at Goren's workplace: “Once, we messed up the computer at my work doing homework exercises,” Goren recalls.

But it wasn't all work and worry — “Yaki took half of the classes, I took the other half, and we exchanged the notes,” Goren says. “Actually, when I think back, Yaki probably went to a third of the lectures, I went to a third, and neither one of us bothered to go to the other third.”

Their lack of attendance was noted by the dean of the university, who advised Luzon and Goren to spend more time in class. The duo agreed to think about it — as they skipped the next week of class for one last romp through the Sinai Desert, which was given to Egypt the following week as part of a peace accord.

But Luzon and Goren say their most meaningful education did not come in the classroom. Instead, both men honed their practical networking skills during their five years serving in Unit 8200 of the Israeli army, the special intelligence unit likened to the National Security Agency in the U.S.

During their army stints, Luzon and Goren saw little combat duty but played a critical role in ensuring that military communications were networked efficiently and securely, gaining high-level knowledge of networks that is rare for engineers under the age of 25.

Because Israeli military development is conducted within the army and not by defense contractors, the army experience is ideal preparation for life in a start-up, says Shelef, another alum of the army unit.

“You get a chance to work on a solution from the concept phase, through the description, through the development, through the deployment, through the working with the people who are using it, seeing its effect, making the changes, adapting it — you go through all the phases of working on a product from the very beginning.

“If you go to work for a company, then you've got your role — you do that, the people on your right do the stuff that comes before, and the people on your left do the stuff that comes after — and you only see a limited piece of the puzzle. In the army, you actually get a very broad education, and you see what happens.”

And the military intelligence unit — the genesis of half of all Israeli tech start-ups, Goren says — is often the birthplace for commercial relationships after commitments are served, according to Barkat. “It's like getting a five-year head start — for free. When they come out of the army, you've already got a start-up team that has been working together for years — they know their strengths and weaknesses before a dollar is invested.”

They also learn to work under pressure, although Goren says he never considered the idea that a failure in one of his networks could have fatal repercussions for his compatriots.

“Wow, I never thought about those things — I guess I was too young and just worried about solving the problem in front of me,” Goren says. “It's probably a good thing, too — if I had thought of it [in terms of life and death], I might have had more trouble focusing on the task at hand.”

Conflict of interest

Such an attitude may seem almost callous to some, but military conflict is simply an accepted part of life in Israel. In fact, the core R&D center in Tel Aviv is just a 10 to 15 minute drive from a fighting front — “People don't stray too far,” says a spokesman for Native.

And, although both will circle the earth several times by air this year, Luzon and Goren don't intend to stray far from their roots in technology or Tel Aviv's start-up environment. Though both men are fully committed to the success of their current companies, each acknowledges that he sometimes lets his mind wander to “the next one,” as Goren calls it.

“Somewhere, deep in your heart, it's always burning to go build something from scratch on your own and develop new technology,” Luzon says. “In a big corporation, you spend a lot of time in corporate bureaucracy, and in many cases, you start a project and it never ends, while being an entrepreneur, it's really in your hands to make sure things will come out and run after the newest technology, etc.”

And next time, maybe the two school friends will find themselves working together.