Mexico has a reputation for a conservative business culture. Throughout the 20th century men of privilege and education traditionally used their resources and connections to get ahead in a country that was defined by controlled markets and an aversion to risk taking.
But things are changing, and at a rapid pace. Policy reforms and a new class of entrepreneurs are creating a boom in tech startups that are transforming how business is done in Mexico.
“The culture will shift slowly with successful startups,” says Ralf Aigner, CEO and founder of Wishbird, an “experience company” that uses its Web service to offer everything from balloon rides to flying a helicopter. “Up until now in Mexico it has not been attractive enough to work for a startup. Good graduates have tended to prefer safe, well-paying jobs in banks and multinationals.”
This is partly a legacy of Mexico’s conservative culture, in which promising young graduates are encouraged to seek security. Now, however, successful startups like Wishbird are re-defining opportunity.
“There is definitely no shortage of talented, smart people in Mexico,” says Aigner. “However, there are definitely relatively few people who bring experience to e-commerce and other online-based business models, as the ecosystem is just starting up.”
Building Startup Buzz
Mexico has benefited from an incredible amount of technology startup buzz, particularly in its big cities. Monterrey has had its successful Startup Weekend, Guadalajara has its monthly iTuesdays event, and Mexico City hosts Tech Startup Nights. This phenomenon is supported by a shift in government attitudes as well.
“The Mexican government is very publicly stating that they want to support entrepreneurship, and they are doing a lot of publicity,” says Aigner. “In my view, government should concentrate on offering a good framework to do business. One thing they could do in Mexico is to make hiring people more flexible in order to support startup businesses.”
The list of government initiatives promoting entrepreneurship in Mexico is impressive. Business people can receive support, including funding, from the National Institute of the Entrepreneur (Instituto Nacional del Emprendedor, also known as INADEM), and help through a toolkit provided by the Instituto PYME, which aids small business. There is also a program called Jóvenes Emprendedores that is geared specifically to youth.
But challenges remain, and perhaps the biggest is financing.
“It’s sometimes hard in Mexico to get access to capital,” says Aigner. “There is not really a lack of capital; the problem rather is the distribution. In my opinion betting on bank financing is not a viable option for a startup company.”
The reason? Banks in Mexico are very risk averse, and increased competition has yet to change the lending culture. That said, difficulty in bank financing is a familiar story the world over and hardly unique to Mexico.
“Banks want to see a track record of at least two years, and even then you have to provide them with some assets like house or office building to secure your loan,” says Aigner. “Furthermore, the rates are not really attractive.”
The result is that Mexican entrepreneurs look to other financing sources such as family and friends, or apply for seed financing through one of Mexico’s incubators or accelerators. One example is 500 Startups, which made news late in 2012 when it took a stake in the Mexico via its subsidiary, Mexican.vc. Since then, it has taken 10 percent ownership in 16 companies, giving each $25,000 as well as access to workspace and a startup bootcamp. These are typically small companies with two or three employees.
“The greatest challenge for us was to get the first customer,” says Aigner. “It’s a hen-egg problem. Without sufficient activity you are not really attractive to potential customers, and without customer traction you’re not attractive to ‘experience’ suppliers. In my belief the main success factor for us was to have a very small but very focused team.”
Mexico is also beginning to attract the interest of equity investment firms, ranging from giants like Bain Capital to smaller and more specialized players like Beamonte Investments. Thanks in part to a strong economy, “Managers are feeling more comfortable taking risk in Latin America,” Beamonte Managing Director Luis Trevino says.
Going Global: World Beyond Mexico
The trend in Mexico is for startups to leverage Web 2.0 capabilities and software-as-a-service delivery models. In the last 10 years, the country’s tech industry has grown three times the global average. Much of this has been driven by demand from the United States, but many Mexican startups are looking to the domestic market first, and then to the rest of Latin America.
“Whether or not the Mexican market is big enough depends a lot on the business and industry you are in,” says Aigner. “I’m seeing a lot of startups here that have good ideas but they are attacking quite small market niches, so I think they will have a tough time if they concentrate only on Mexico.”
Wishbird is looking to expand outside of Mexico, and is interested in the Spanish-speaking population in the United States. This has been a successful strategy for startups such as Publish88, a Mexican publishing software company that has landed foreign clients, and video solution company Ooyala, which is headquartered in Guadalajara.
Mexico is not the only country in Latin America that has a vibrant startup culture, but it may be the country with the brightest future. Brazil has Startup Brazil, which is modeled on Startup Chile, but the World Bank ranks Brazil 121st in ease of starting business, whereas Mexico ranks 36th. Other statistics are similarly encouraging: Mexico has 520 business incubators, with 10 active venture capital funds. As well, 6.3 percent of Mexican 18-to-24-year-olds have their own companies.
Clearly, this is a cultural, business, and technological revolution, exemplified by a wealth of new companies leveraging new technology, media and new business models. These startups have names like Boletia, Fontacto, GarageCoders, Nuperty, SeMeAntoja, Yaxi, Bandtastic, Nuflick, Myprice, Capptalog and PingStamp – and they are bringing permanent change to how business is done in Latin America’s second largest economy.
Timothy Wilson is a Canadian journalist based in Guadalajara, Mexico. He covers business and technology, as well as cultural and political news. Aside from Global Delivery Report, he freelances for the Canadian Broadcasting Corporation and the Globe & Mail, among other outlets. His blog, “La politica es la politica” covers breaking stories from Mexico and Central America. Follow Tim on Twitter @TimothyEWilson.