Look Out Below! The Dollar is Falling! What Now? Get Awesome!

There is a famous joke/story about former Israeli Finance Minister Pinhas Sapir in which an aide comes to him and tells him that the economy is turning bad and rationing is necessary. Sapir asks the aide "and where is this?" to which the aide replied "Right here in Israel of course." Said Sapir, "Phew, that's OK. I thought things were bad in America."

For years the Israeli economy was pegged to the Dollar, the US economy and everything American, making Sapir's comment less humorous than it appears. However, after 2008, the Israeli and US economies disconnected, with the US economy stagnating and the Israeli economy growing at an even accelerated pace. This is due to both to Israeli innovation and the opening of global markets such as Eastern Europe, the Far East and Brazil to Israeli exports and entrepreneurs.

Sapir's mantra and US focus, however, is seared into the Israeli psyche and business assumptions. This causes both a focus on the Dollar/Shekel exchange rate and a real problem for companies whose principle market is the USA and whose functional currency is the Dollar. I have written very frequently in my posts about the Dollar Shekel exchange rate and the inevitable rise of the Shekel (barring a war), calling on our portfolio companies to hedge their currency risk and hold enough shekels for as long as possible. Despite Stanley Fischer's heroic maneuvers, even he understands that it is not possible to stop the Shekel's appreciation forever. He has slowed it to allow Israeli businesses to adapt but he cannot stop it. As Pimco's Bill Gross describes, without a big US political move on entitlements, the Dollar's decline is inevitable. With the Dollar likely (again, barring a physical or diplomatic war) moving closer to 3:1, it is important to focus on what Israel's competitive advantage is: Awesome Innovation.

As I wrote in parts 2 and 3 of the Humus Manifesto, Israel was never a low cost development zone. India and China were always cheaper. What Israel is good at is innovation. Actually, as Douglas Gayeton said, "Israelis are the world's best at making the most out of scant resources and this is the cornerstone of sustainability." Israeli entrepreneurs need to focus on this strength with the falling Dollar as a backdrop. We need to create awesome products that do good for the world. This is what will and does differentiate us. Better Place is not a "cheap" development (neither in Shekels nor Dollars) but it is staggeringly innovative on a scale that attracts global attention and has a shot at breaking the World's dependence on oil. Israel is a world leader in agricultural technology from water technology such as Netafim, to enhancing distribution for local farmers from Farmigo to Seed technology from Evogene. The Volcani Institute of Agricultural Research is a world leader and needs to be leveraged more as I wrote in Humus Part 3. Sustainable agriculture should get the focus of both the entrepreneurial community and the government and it is needed worldwide including in countries whose currency is not the Dollar. Lastly, Israel has an advanced mobile ecosystem (the mobile phone is a fixed appendage on every Israeli's ear) and with some focus we can create both a cottage industry and large companies in Mobile that attack the global markets. We can lead in these innovative global markets by doubling down on awesome innovation and not fretting the dollar. It should catalyze us for more meaning and more innovation, not more cost cutting.

I want to finish with a long quote from the Humus Manifesto

"We need to use this opportunity to retool our definition both of great technologies and a great economy. Part of our raison d'être in being here in Israel is to fulfill what the Prophets, Herzl and Ben Gurion all had in mind. That is: We, Israel and its citizens, should be an Or Lagoyim or Hevrat Mofet(loosely translated: An exemplary society). We should figure out which radical innovation does good while doing well and set it up here. We should make this a cornerstone of our drive into leadership of next century's economies and technologies (Hat tip to Umair Haque). We should think of economic advantage not only in terms of company's increasing profits and cash hoards but also in terms of increasing employment and creating places and a country where people want to work and feel good working at. The economy should serve to bind society and not divide it, creating a shared sense of purpose, nation-building and mutual responsibility. Our challenges in the technology industry and the world's economic challenges should be viewed as an opportunity to innovate our own business model away from some of Adam Smith's selfish motives and toward a community of trust and shared building. Let us, the people who gave the world the Ten Commandments, ethics and morality, innovate our way to both increasing GDP, generating jobs and inspiring generations and nations with a meaningful pursuit."