Mexico, the land of technology startups

Emerging country's entrepreneurs are today bringing in 536 million euros a year That's more than double the figure of six years ago

Juan Diego Quesada
Students from Veracruz University, the third-biggest in Mexico.
Students from Veracruz University, the third-biggest in Mexico.KEITH DANNEMILLER (CORBIS)

We walk into the room - spacious, with plenty of natural light filtering in through a set of floor-to-ceiling windows - and the first thing we see are two young people shooting sucker darts at each other with toy guns. A little further back, two more employees are playing ping-pong - and they're pretty bad at it, too. A giant television screen is connected to every video console in the market. The feeling is one of walking into a math class just when the teacher went out for a quick smoke.

But the reality is that this is the place with the most talent per square meter in all of Mexico. Founded by two Mexican brothers and a US partner, Ooyala began as an internet startup in 2007, and has since become a behemoth of multi-device video delivery whose clients include Dell, The Hearst Corporation and ESPN. Its success captures the entrepreneurial moment of an entire country and the spirit of a generation of enthusiastic youngsters who dream not of revolution but of emulating Steve Jobs or Mark Zuckerberg.

Mexico has over 520 business incubators, organizations created specifically to encourage the growth of startups and early-stage businesses. Carlos Quirarte, Ooyala's operations director at the Guadalajara headquarters (the city is considered Mexico's Silicon Valley because of the high concentration of innovative companies based there), is a willowy man who makes his way around the desks with an unconcerned look.

"This country is brimming over with good ideas, and it's full of very talented people," he says regarding the entrepreneurial fever gripping Mexico.

This country is brimming over with good ideas and talented people"

From Tijuana down to Chiapas, there are scores of youngsters bent on innovating, often with nothing more than their ideas and a computer as their total capital. This year there were Mexican representatives at the San Francisco and New York finals of The Battle of the Tribes, a competition that draws entrepreneurs from all over the world. The Mexicans attracted the second-largest amount of investment money, and got more media mentions than anyone else.

"There are fellow Mexicans who are on the cutting edge of innovation," says Rocío Paniagua, an expert on startups who is a regular speaker at tech conferences. She is convinced that in the next five to six years, "giant things" are going to happen in Mexico mainly due to one factor: "The technical and business model is very good."

Paniagua says that entrepreneurs need to think big and be original. The first step is to come up with global businesses that might interest someone from China or from New Zealand indistinctly; the second condition is avoiding imitations, such as a Mexican Facebook or a YouTube for fans of mezcal. There is still a long road ahead: startups account for financial flows of 536 million euros a year, more than twice as much as six years ago and representing 0.6 percent of GDP.

The Mexican government appears to have understood the importance of the present moment. Either it encourages innovation and creates competitive tech businesses at similar rates to other emerging economies, such as those of India or Brazil, or the country will fall behind.

6.3 percent of 18-to-24-year-olds have their own companies

This year, President Enrique Peña Nieto created the National Entrepreneur Institute under the direction of Enrique Jacob. Its mission is to work like a one-stop shop, providing economic support and advice to entrepreneurs and bypass the famously daunting Latin American bureaucracy. Before this agency opened, there were over 40 entrepreneurship programs scattered across the country that sometimes lacked a single applicant. Now, with a budget of 432 million euros, the institute has enough funds for new entrepreneurs and for small and midsized businesses.

"We want to be there by the entrepreneur's side during those first few steps," says Jacob over the phone.

But the founders of Fontacto had to do it all by themselves. A few students at Monterrey Tech in Querétaro, a pretty town in central Mexico, came up with a solution for small businesses that didn't know where to forward their calls, whether to their home line or cellphone. Fontacto offers a fixed telephone number and a professional answering service that makes small companies sound like large, sophisticated organizations.

"This way, if someone calls up to express interest in your work, your mother doesn't have to pick up the phone," says José Antonio del Río, one of the founders. The members of Fontacto's management team are barely over 20 years old. They obtained 15,490 euros in venture capital from Silicon Valley, the promised land for all tech entrepreneurs, and that is where they ultimately want to be. Fontacto has already taken the first steps to become one of three Mexican participants in a program called 500startups in Mountain View, California.

President Peña Nieto has created a national institute for entrepreneurs

Precociousness seems to be a Mexican virtue. Statistics show that 6.3 percent of 18-to-24-year-olds have their own companies. Every month, around 35,000 small and midsized businesses open up in the country.

But there is no better indication of what is going on here than the recent visit by US President Barack Obama, whose agenda ignored historical problems such as immigration and violence to focus on the economy instead. "A new Mexico is emerging," said Obama at a gathering with students and businesspeople.

Ramón Scott shares that enthusiasm. The man who was innovation director for the previous Mexican administration believes that being an innovator and running your own business makes you interesting and cool. This notion is drawn from the relaxed attitudes of the twentysomethings in the dotcom industry, who show up for work meetings in jeans and flip-flops.

"Now it's time to bring that over to Mexico," he says. "Perhaps we lack resounding success stories to provide youngsters with inspiration. You can hear about Steve Jobs but in the end he seems like a distant figure. But if you hear about a guy named Chávez who looks like you and who made it big, you might think 'why not me, too?'"

We need role models; you hear about Steve Jobs but he is a distant figure"

Scott misses more opinion formers in Mexico. Argentina witnessed an explosion of startups less than a decade ago on the back of successful initiatives such as the Alibaba portal, and Chile imported those fresh new ideas to develop projects of its own. In that sense, Mexico is just barely getting started, but it is moving at a fast clip.

In order to make sure this is not just a mirage, Scott thinks that schools and universities should have instructors who are themselves entrepreneurs with personal experience of creating a business. Last year, he was behind the creation of Mexico's first seed funding initiative, endowed with a $19-million budget.

Seeking: a Tijuana with no negative associations


"Not long ago, the name Tijuana immediately brought up images of crime, violence and drugs. But there is a lot more to this city," explains Claudio Cossío, a startup consultant and marketing vice-president for www.interesante.com, a social network that helps organize, collect and disseminate content. "A Latin Pinterest," as Giovanni Rodríguez described it in Forbes magazine.

The website has launched a project with Nortec, a band that fuses Norteño music and electronica. "There are many things you can create here [in Tijuana]," says bandmember Pepe Mogt. This kind of partnership between musicians and entrepreneurs is not unusual in this border town, he thinks. "It's the typical story from Tijuana; you have an idea, you develop it, and there are lots of people ready to participate. There is a desire to create."

Many of these ideas have been supported by Tijuana Innovadora, a movement of over 1,000 volunteers working to consolidate the city's (recent) good name. And while it is true that technology occupies a place of honor, there are also projects involving handbrewed beer and haute cuisine, as well as cultural and scientific ventures.

"On my three visits to Tijuana, I have seen three different realities. Now I am finding an innovative city that has been able to invest in its roots; it deserves kudos for that," said the Madrid chef Andrés Madrigal at the annual meeting of Tijuana Innovadora in late 2012.

Economic activity in Tijuana has even relaxed the once tense relationship with the city on the other side of the border, San Diego. Its mayor, Bob Filner, a Democrat, has expressed an interest in having both cities present a joint bid to organize the Olympic Games. There was even talk of speeding up the border crossing - the San Ysidro crossing, which links Tijuana and its US neighbor, is the busiest in the world, with over 40 million people using it every year. The hours-long wait at customs represents an annual cost of over 1.5 billion euros for the US government, according to a study by the San Diego Association of Governments.

Regional growth (and the emergence of a hybrid identity combining cultural aspects from both sides of the border) is reflected in the amount of joint projects announced in recent months. The Olympic bid is perhaps the most ambitious of all, but it is far from the only one. Tijuana and San Diego are planning coordinated strategies on environmental issues, city planning, the improved border crossing and even a combined youth orchestra.

There is an anecdote that illustrates this newfound empathy. In his inaugural speech as mayor of San Diego, Filner congratulated the Tijuana Xolos, the local soccer team, for winning the Mexican League championship, hailing them as "our champions."

Over the last six years, this country's entrepreneurial spirit has expanded significantly. In 2006 barely two universities had ties to government programs for entrepreneurial support, but now there are 12. There are also over 10 venture capital funds looking for Mexican ideas to support, and over 45 private capital funds that handle close to 6.2 billion euros annually. Brazil is the standout in Latin America in this respect, according to figures from the Economy Secretary's Office: the country attracts 62 percent of venture capital, followed by Mexico with 13 percent, Chile with 11 percent and Argentina with seven percent.

The culture of starting one's own project, rather than simply becoming an employee who clocks in from 9 to 6 at any random company, has made inroads among a generation of Mexicans who are getting university degrees. Startup Weekend is a 48-hour event where participants from all specialties join together to develop a product. The winner is selected on the final day, and proposals are discussed. The first event was held somewhat tentatively in Mexico in 2011, but two years on there are going to be around 50 gatherings across the country.

"We play a fundamental role in entrepreneur creation," says Gustavo Álvarez, the coordinator in Mexico. The goal is to set up companies that will resolve global problems, develop the product, put it on the market, and submit it to customer review - for better or for worse.

Cellphone applications and web platforms are two other major market niches that young business-oriented Mexicans are exploiting. Both are emerging markets. Companies such as Bandtastic, which lets fans raise enough funds to bring their favorite band to town; Nuflick, an independent film site; and Myprice, an app for freelancers, have all garnered global recognition.

César Salazar keeps on top of these developments. He is a well-known investor who founded the successful Mexican VC, one of the main driving forces behind the country's startups. His company works with 500 entrepreneurs who want to create businesses oriented towards the Mexican market but likely to succeed globally. Salazar has invested in 18 projects this year, injecting between 27,000 and 38,000 euros in cash. He notes that people from China, Canada, Peru and Germany are coming to make business deals with Mexicans.

"We are looking for businesspeople who will take on markets of 772 million euros and who can climb rungs in the internet," he sums up. Salazar has helped create e-commerce sites, medical portals, movies, 3D printers and more.

Some people spend all their time and money trying to make it. Alejandro Santamaría, a bespectacled Mexican with long hair who looks younger than his 39 years, has started over 100 projects. Most of them fold after evaluating the cost-to-profit ratio, but he simply won't give up. In this industry, they say that a great entrepreneur is the one who has failed a thousand times before.

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