Thursday, September 24, 2015

Interesting article in the Wall Street Journal about what is happening on kibbutzim.

Interesting article in the Wall Street Journal about what is happening on kibbutzim.
Kibbutzim Look to Future in High Tech
Agricultural communes being rejuvenated by tech entrepreneurialism

Sept. 22, 2015 5:43 a.m. ET
KIBBUTZ SASA, Israel—For 66 years, this mountaintop collective near the Lebanese border has relied on apples, dairy cows and, more recently, a vehicle-armor factory for its livelihood.

But its fastest-growing business is cybersecurity startup Sasa Software, which makes software that filters and secures data and networks. From a standing start in mid-2012, it has jumped to 90 customers, though it won’t disclose financial figures.

“We can’t be isolated from all of the changes,” said Michael Piha, Sasa Software’s vice president of marketing and a kibbutz member.

Israel’s kibbutzim—where members have worked for decades at equal pay for the good of their relatively isolated, members-only communities—are staking out a greater part of the country’s tech-startup success, mixing their traditional collectivism with a new acceptance of tech entrepreneurialism.

Despite traveling the globe drumming up business for his software firm, Mr. Piha still relies on the collective’s laundry to wash his clothes; he still eats in the community dining room, and he draws the same salary as his fellow kibbutz members who work the orchards.

The economic fortunes of such communities ebb and flow, but times are good for Kibbutz Sasa these days. The community doesn’t disclose pay, but it is flush enough to be building 42 new apartments for its 220 residents. Each year, it funds a vacation abroad for all members—lavish by traditional kibbutz standards.

Such largess would have been unheard of to the kibbutz’s austere founders. Up until the 1990s, kibbutzim were true economic collectives where members lived in identical apartments or dormitories. Those who earned money outside of the kibbutz gave it to the group’s treasury for equal redistribution.

Those days are over. About 75% of the communities have abandoned economic collectivism in varying degrees. Those that remain collectives, including Sasa, are more flexible. Many have cut out expensive costs like the community dining room, and sought out new funding streams, like renting real estate and running hotels.

The Kibbutz Industries Association, a trade group that represents kibbutz-based companies, estimates that the average kibbutz—there are 270 around Israel—has 10 million to 20 million shekels ($2.7 million to $5.4 million) to invest in new enterprises.

Many are looking to put that money into high tech, an industry in which Israel plays an outsize role. That is thanks in part to a large talent pool of tech-savvy army veterans, and top technology universities.

There is little data available on kibbutzim investment patterns, but tech-industry executives and kibbutzim trackers point to growing anecdotal evidence.

“Kibbutzim have land and they have money,” said Shay Mey-Tal, founder and chief executive of Agam Advanced Agronomy, which analyzes agricultural data collected through satellites and drones. It moved from a central Israeli town to Kibbutz Megiddo in northern Israel in 2014.

Agam took on three kibbutzim in the area as investors over the past year, granting them a total of 60% equity in the company. The company’s five employees sit at computers in an office next to Kibbutz Megiddo’s metal workshop and garage, which fixes the kibbutz’s tractors.

Kibbutz members typically hold equal shares in its investments. But decisions—even on kibbutzim that remain collective—are made by a small committee, often advised by outside consultants, several kibbutzim said.

“It’s a very closed community, in a way, but as far as business goes, it’s capitalistic,” said Simon Guthrie, business manager of Kibbutz Bror Hayil, near the Gaza Strip. Its 75%-owned cloud-based software company AKOL started life in the late 1970s as a kibbutz-maintained agriculture database.

It is now turning a profit and pursuing global sales. The company recently brought in a new chief executive from outside the kibbutz and is refreshing its workforce both with younger kibbutz members and nonkibbutz employees from the area.

Kibbutz Revivim, in southern Israel’s Negev desert, is spending about 1.5 million shekels to convert a 8,000-square-foot chicken hatchery into a high-tech accelerator. Set to open in October, it will host 10 startups focused on Web and mobile products and services.

The kibbutz will take a 15% stake in each startup that participates in the three-month accelerator program. It aims to acquire shares in about 40 new tech enterprises a year.

“Now, instead of eggs,” said David Ben Lulu, business manager of the kibbutz, “it will be businesses that are hatched.”

On Kibbutz Sasa, Mr. Piha’s cybersecurity-software company uses office space no longer needed by the community’s vehicle-armor company. It also has plopped down a shipping container on kibbutz land for additional office space.

Kibbutz Sasa was founded in 1949 by Zionist youth group members from North America. It relied on growing apples and other crops. In 1985, it established its vehicle-armor factory, Plasan, at a time when many kibbutzim were adding industrial operations.

Like many kibbutzim, Sasa borrowed heavily in the 1980s to finance this expansion. By the 1990s, it was drowning in debt, hit especially hard by steep interest rates to curb Israel’s runaway inflation.

“Sasa was for many years at the bottom,” Mr. Piha said.

The kibbutz’s financial situation perked up again in the early 2000s, thanks to a flood of orders to Plasan from the U.S. government to provide armor for vehicles used in Iraq.

Mr. Piha, who spent years picking apples in the kibbutz’s orchards, worked for Plasan from 1997 to 2013. He was among a group of employees who persuaded the kibbutz to spin off a startup built around cybersecurity software the company had developed internally to safeguard its sensitive orders.

“You need to be an entrepreneur to maintain the community,” Mr. Piha said. “Today it’s not enough to have the best apple orchards. People want to work in other fields.”

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