Israel has been celebrated for having one of the most vibrant technology sectors outside of the US. But the success has a downside.
As billions in venture investment poured into the technology ecosystem and multinational tech companies opened research and development centres over the last decade, Israeli IT executives have struggled with a growing shortage, and surging cost, of labour.
As a result, Israel’s small but robust tech economy has become a job seekers’ market when it comes to hiring tech talent. According to a report on human capital released Wednesday by Startup Nation Central, a non-profit that collects data on Israel’s technology sector, the number of open positions in the field rose 8 percent to 18,500 in mid-2019 compared to the previous year.
That’s forcing technology startups and the IT departments of traditional companies to get creative to compete with generous salary packages at larger companies.
“Each year we see the numbers go higher and higher and higher. This causes a lot of pressure on the entrepreneurs and the CEOs, and CIOs who are part of the managerial team,” said Dana Bash, the founder and chief executive of iTalent, a headhunter firm that provides recruitment services to Israeli startups, multinationals, and mature companies.
CIOs can’t compete for talent on salary alone
“If you are a company like Google or Facebook, you have a lot of money for salary packages,” said Bash. “If you are a small company, you can’t compete with that. You need to find a different way.”
At Meitav Dash, Israel’s second largest institutional investor, CIO Gil Tsabar recognised the difficulty in competing with the salaries offered by the local offices of Google or Amazon, companies with much deeper pockets than Meitav Dash. However, he also recognised another factor: the office amenities that are standard at both tech multinationals and startups.
“They have benefits that young people really appreciate. They have restaurants in their offices, they have a gym, they all kinds of other things that make them feel cool. That’s really a challenge. So we built a new floor, specially for IT, and we designed in a way that looks different from other places at Meitav Dash, so it looks more like a startup,” Tsabar said.
“The old school company doesn’t understand why I as a CIO want to change the design. ‘What’s wrong with the old design? Why do we have to spend so much on design?’ I can show them that young people look at the environment, not only at the salary.”
In order to retain talent, Tsabar said he tries to offer IT employees flexibility in their work schedule to devote a portion to projects that involve newer systems. That gives them a break from handling older legacy IT systems, and gives them an opportunity to hone new skills.
The IT departments in the public sector also struggle to attract top talent. “The really good people that you see in the market can get [competing] offers that are too good to turn down. And it’s a problem for us,” said Liora Shechter, the CIO at the Tel Aviv municipality.
Cultivating youth, providing stability for pros
Shechter said she’s responsible for a department of 450 professionals who develop systems that oversee the municipality’s operations and interactions with residents. To solve the problem, the municipality focuses on two pools of talent – it cultivates IT employees who arrive with relatively little experience, and it recruits high-tech veterans looking for employment stability after hoping from company to company.
In the last decade, Israel’s tech ecosystem has seen a flood of investments and an international embrace. Investment in Israeli technology ventures quadrupled from 2010 to 2019 while the number of multinational companies with a presence in Israel more than doubled, according to the IVC Research Centre, which tracks industry investment data. Multinationals in Israel pay employees 40 percent higher than local companies.
That has pushed up tech salaries at a rate faster relative to growth in the rest of the economy. Some companies have elected to establish research and development centres in countries where wages are not as high. The island-like nature of Israel’s economy – it has few links to its Middle Eastern neighbours – makes the problem worse.
“The chronic shortage is a problem,” said Maty Zweig, head of human capital at StartUp Nation Central. “The Israeli talent pool is limited. Israel is a small ecosystem, which is very isolated.”
That makes for a daunting challenge for the thousands of local startups – some of which need to rapidly scale up their operations as they win the backing of investors. In addition to competing with the salaries offered by multinationals, the ventures need to establish a reputation and name recognition with prospective employees.
Promoting your brand to potential recruits
Recruitment specialists say that has prompted technology startups to invest energy in “employer branding,” crafting a company’s reputation to cater to a desired pool of talent. Those efforts take the form of specialised public relations, social media campaigns – or even on billboards near Tel Aviv’s major buildings and highways.
“Companies don’t just wait to get candidates through an agency. They are doing it proactively by advertising,” said Shani Kotzer, vice president for people at Lightico, a startup that develops customer engagement software. “The candidate is swamped with offers, and everybody wants to be unique.”
Because the competition for qualified candidates is so intense, Lightico also relies on software tools that help source and screen candidates. “We need to be fast,” she said.
To offset the high salaries, amenities, and the prestige of working for a known multinational, startups seek to lure candidates by offering opportunities to join development projects touted as game-changing products. The opportunity to work in a small company alongside a successful serial entrepreneur counts as another potential draw.
“There needs to be something unique about the team, the product, and the vision,” said Yael Ran, a team-building consultant who advises Israeli startups.
“The key motivator is being able to work on cutting-edge technology. If you get a chance to develop something that hasn’t been developed before, that’s a key selling point. But it has to be backed by a strong team.”
Reuniting former colleagues from military service (Israel has mandatory conscription for 18-year-olds and graduates from elite computing units are highly sought after) is another technique for recruitment. The chance to reunite with a former commander on a startup project can be compelling for some candidates.
“These are strong ties. People will go for the long ride,” Ran said. “Friendship and camaraderie; this is unique to the Israeli market.”
More tech graduates needed
One of the reasons for the talent shortage is the failure of Israel’s higher education system to produce more graduates with degrees in computer science and technology.
Also, Israeli IT departments and technology companies haven’t fully tapped the talent pool of the country’s Arab minority. Though Arabs account for one-fifth of the country’s population – and represent 22 percent of graduates from Israel’s prestigious Technion engineering university – they are just 2 percent of the tech workforce.
To overcome the shortage, companies need to be creative and seek out prospective employees on many fronts. They need to work with recruiters, rely on employee networks and prospect candidates and widen their scope beyond military veterans and tech degree holders.
Some companies consider crash training courses for winners of hackathons or engineering graduates, said Ronen Engler, a vice president for sales at the Israeli technology services company Matrix and the CEO of its tech placement subsidiary, SeeV. Companies need to offer employees the option of working from home or combining studies with work, he added.
“Companies need to be flexible,” he said. “Whoever rests on one technique collapses.”
In the last year, Israeli digital content startup Lightricks has doubled its tech workforce. Nimrod Gruber, an in-house headhunter at the company said the prospect of gaining equity options in a fast-growing company is a draw.
Lightricks relies mostly on the networks of its employees to bring in new candidates. However, that’s not sufficient, he said. Maintaining an active company social network and enhancing the company’s profile by winning awards enhances the stature of an employer.
“It’s so you know you are coming into a high-performance company,” he said. “That way you can attract go-getters and achievers.”