Decisive Action for Startups in Mexico

Early in his Administration, President Enrique Peña Nieto embarked on a serious mission to fuel entrepreneurial growth by challenging Mexico to better tap into its people’s creativity and boost productivity. On January 11, 2013—less than two months after he took office—he signed a decree that created the National Institute for Entrepreneurs (INADEM). Few governments have institutionalized their commitment to building an entrepreneurship ecosystem as highly as Mexico, which now has a decentralized administrative office of the Secretariat of Economy dedicated to entrepreneurs.

Thanks to support from its national leaders and a new vehicle to work through, the prospects for sensible policymaking in support of startups looks promising in Mexico. INADEM seems to be highly connected from the ground up, collaborating with the likes of Endeavor Mexico on high-growth entrepreneurship issues. Its leaders are also connected to the small but growing global network of policy experts, who are typically recruited by their governments from non-government initiatives. With 72% of employment and 52% of the country’s GDP coming from micro, small and medium-sized enterprises, the challenge now for INADEM is to stay focused on young, growing businesses as a separate “species” from the more predictable SME (small and medium enterprises) sector relative to high-growth, high-potential startups. These scalable companies and the new frontiers they open for Mexico’s entrepreneurs fuel the powerful economic growth engine.

Currently, 65% of SMEs in Mexico are family-owned businesses, according to ProMéxico. High-growth startups not only provide a faster engine for growth but open new frontiers for other Mexican entrepreneurs. With new talent and networks comes more bandwidth within the ecosystem—independent of family ties. Just look at the impact of star entrepreneurship performers from Mexico in 2011. High-growth Mexican companies in the Endeavor Mexico network saw a 45 percent growth in average revenue and these companies grew their workforce by 23 percent, accounting for an additional 63 new jobs per company in 2011.

Mexico’s universities are key to enabling new entrepreneurial knowledge bridges that support the creation of these high-growth startups. Entrepreneurship centers are already becoming more popular at universities nationwide, enticing students into an entrepreneurial career path. The intent is to encourage a change in the current career trends. For example, most engineering graduates end up in the traditional manufacturing sector even though Mexico boasts the 9th largest pool of IT professionals in the world. Entrepreneurship centers hope to encourage more disruptive innovation in traditional sectors while preparing young professionals to start their own innovative companies. In the meantime, established voices of this younger generation such as Junior Achievement are making great strides in feeding the entrepreneurial talent pipeline. As co-host for Global Entrepreneurship Week in Mexico, JA (Impulsa) has become a major organizer of startup-focused events in the country.

Until recently, pro-entrepreneurship efforts at the government and private levels were highly concentrated in Mexico City. One entrepreneurial leader from Querétaro, José Luis Andrade, who is part of the GEW Startup Nations network, is seeking to expand the entrepreneurship impetus outside of the capital city through a multi-pronged approach. He is the founder of IMAN (Instituto de Modelado y Aceleración de Negocios), an organization dedicated to entrepreneurship research and to the design of new training experiences that can help drive scalable businesses in Mexico. He has also been leading Exeas for the past six years, a non-profit foundation that gives support to universities and associations through conferences and workshops. But Andrade’s focus isn’t confined to Mexico’s borders. At a meeting I attended in Malaysia a few weeks ago for Startup Nations members, Andrade explained that entrepreneurs outside of Mexico City also want to connect to the global grid and that he is leading an initiative, in partnership with YouNoodle, to connect entrepreneurs with Silicon Valley. Such exchanges with U.S. entrepreneurship hubs are becoming more commonplace. The newly created INADEM has already led an initiative for the United States and Mexico to launch a joint Start-Up Boot Camp for Entrepreneurs.

While the U.S. is a natural market for products and services from Mexico’s startups, its entrepreneurs do not necessarily need to look north to get started. Entrepreneurs have a huge national market to tap with a population of 120 million, a median age of 27 and an ever-growing middle-income bracket. In fact, Mexico is the third most internet-connected OECD member and has 12 free trade agreements that allow preferential access to 44 countries, representing more than a billion potential consumers and nearly 70 percent of global GDP. Entrepreneurs are also well poised for the Latin American region which largely shares a common language. Mexico is already the leading exporter in Latin America, exporting more than the rest of the region’s countries combined (yes, Brazil included). Thus, Mexico has the potential to “export” an entrepreneurial culture throughout the region, joining Colombia and Chile in the ranks of emerging “startup countries” in the hemisphere.

These factors make Mexico an appealing stop for outside investors and startup junkies. For example, Dave McClure's 500 Startups, a Silicon Valley-based seed fund and accelerator program, has set up an office in Mexico City and quickly became the country’s most active seed fund. Ernst & Young held its Strategic Growth Forum here in mid-October 2013, pointing out that Mexico’s GDP is expected to grow over 4% this year and is currently the 11th largest economy in the world (in terms of GDP). Furthermore, Ernst & Young points to Mexico’s innovative capacity and improved competitive position. For instance, aerospace industry exports grew 140% in the last five years and the country boasts some pretty impressive innovations—including:

  • Color television (1940) - Guillermo González Camarena
  • Contraceptive pill (1951) - Luis Miramontes and George Rosenkranz (together with American Carl Djerassi)
  • Indelible ink (first used in 1994) - Filiberto Vázquez Dávila
  • GNOME (desktop environment and graphical user interface that runs on top of a computer operating system, 1999) - Miguel Icaza and Federico Mena
  • Translucent concrete (2005) - Joel Sosa Gutiérrez and Sergio Omar Galván Caceres

The newer generations promise to bring many more “born in Mexico” innovations. According to a recent NPR report, in the past decade, Mexico's tech industry has flourished, growing three times faster than the global average. Just take a look at some of the winners of Innovators Under 35 Mexico 2013 and their projects:

  • Alejandro Maza: Collection and analysis of citizen proposals to address social problems
  • Daniel Gomez: Technologies for the generation of decentralized power from non-food sources
  • Enrique Lomnitz: System for rainwater collecting for low-income urban areas
  • Jorge Camil: Quality education assisted by information technology to close the digital divide
  • Jose Rodriguez: Sustainable architecture and design in a pocket app
  • Melissa Rodriguez: Wireless water contaminants monitoring through a network of biosensors

With thriving entrepreneurship hubs in Canada and the United States, an entrepreneurship hub in Mexico could make for a great "North American startup ecosystem." It could also reshape the nature of U.S.-Mexico relations.

As President Obama said earlier this year during his official visit to Mexico:

“I believe that the long-term solution to the challenge of illegal immigration is a growing and prosperous Mexico that creates more jobs and opportunities for young people here.”

It is time for Mexico and the United States to play the entrepreneurship foreign policy card. Despite strong trade ties, the full potential to develop deep cooperation around new business creation is untapped—as pointed out in the September 2013 report of the Bilateral Forum on Higher Education, Innovation, and Research (FOBESII).

However, Mexico still has many obstacles to tackle in its emerging entrepreneurship ecosystem—as Mexican entrepreneurs told President Obama during a roundtable conversation as part of his visit in May. Enrique Gómez Junco (Optima Energia), Alfredo Suárez (AliBio), Moís Cherem (Enova) and Gabriel Manjarrez (Micel)—who are all regarded as the potential next Carlos Slim’s of Mexico—shared with President Obama and his team the challenges and opportunities they face as entrepreneurs. They told the American visitors that Mexico faces entrenched institutional forces that hold entrepreneurs back, such as stifling monopolies. They also explained how corruption tends to perpetuate the advantages of an old economic system while a weak K-12 education system constrains the talent pool required by a new wave of entrepreneurs in order to continue growing their companies.

In addition, and not surprisingly, as Mexico's startups pop up, their founders lament the paucity of ways to finance their growth. That is the gap global funds like 500 Startups and foreign venture capital firms—as well as homegrown early-stage, private equity investment companies like Monterrey-based Alta Ventures—want to fill while betting on impactful returns. Fortunately, the government has stepped in when in it comes to entrepreneurial finance. Mexico’s National Financial institution, NAFIN, and the Secretary of Economy now run a $30 million capital fund for entrepreneurs, which will operate in two lines of investment: a seed capital fund and as a co-investor in startups. The National Institute for the Entrepreneur is also seeking to encourage the private banking system to be friendlier towards small businesses and entrepreneurs with a bill currently making its way through the Mexican Congress that is the result of a commission formed in April 2013 to analyze policies and the regulatory framework affecting risk-taking in the banking industry. However, it is still not enough for such a promising pipeline of nascent entrepreneurs.

A couple of observations from Mexico are clear: a new wave of entrepreneurs is helping the country make a comeback and they have the full support of a new administration which has recognized that entrepreneurs are a decisive factor in the country’s economic development. Whether the economy will make it back in a sustainable way will depend on how the government intervenes—either by removing roadblocks to new businesses or micromanaging a giant, but slow moving SME sector. That cautionary statement aside, it is useful for policymakers around the world to look at the political commitment that Mexico has mustered to inject entrepreneurship into its economy. It is a long-term economic and social view with short-term sustainable real action towards the future. Clearly, Mexico is intent to punch its full weight in the global startup scene.



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