The Entrepreneurial Ecosystem in Mexico
By: Sergio Velasco Escobedo
Tags: Mexico, Entrepreneurship, Social Entrepreneurship, Growth, Innovation

I recently had dinner with two friends I went to school with in Mexico. They told me about a project they are creating that sounds incredibly interesting for the entrepreneurial environment in our home country. While talking about their project, we came to the conclusion that there are significant differences between the entrepreneurial environments in Mexico and those in the US.

There are many problems they are facing as young entrepreneurs in Mexico that would not normally occur in the US. Lack of accessibility to financial resources, lack of support from both government agencies and industry experts, and lack of knowledge of digital/tech ecosystems, are just some of the things they mentioned. It didn’t come as a surprise to hear about all the problems they are currently facing, after all, being an entrepreneur is hard and being an entrepreneur in Mexico is even harder. However, while the challenges are the same, the mentality many Mexicans have regarding entrepreneurship is why I believe Mexico struggles with innovation. We have the bad habit of thinking that being an entrepreneur is a simple and easy process, as easy as a school project and therefore, do not put forward the same kind of resilience and big-thinking other entrepreneurial ecosystems strive for.

Contrary to popular belief, the average age for entrepreneurs in the United States is 38 years old, and 40 in the UK. “Overall, the empirical evidence shows that successful entrepreneurs tend to be middle aged, not young” (HBR, 2018). Mexico has one of the youngest entrepreneurial generations in the world. The average age for entrepreneurs stands at 26. We have a large, young and creative generation of students that categorizes us as one of the ten countries with the highest number of engineering graduates worldwide in the last 10 years, despite that, we are ranked below the global average in innovation capacity by the OECD. But how can we channel this necessity for entrepreneurship at such an early age, and turn it into sustainable innovative development?

Let’s first look at some interesting facts I found from Entrepreneur (2018), about entrepreneurship in Mexico that may help us understand why we have a more relaxed mentality to starting a business:

80% of entrepreneurs in Mexico sell less than $1 million pesos (around $50k USD) per year.

89% start their project with personal or family funding vs a 3% that receive formal investment.

75% of all startups fail before the 2 year mark.

Only 14% of startups receive revenue from foreign markets.

52% of these businesses are home operated or have no formal office space.

As you can see, even though the numbers exist, they’re not favorable for the development of the Mexican entrepreneur. A lot can be attributed to the fact that there is very little support for these young companies in the country. For starters, there are less than 70 venture capital firms throughout the whole country, compared to the 800+ already established in the US. Meanwhile, we see foreign governments not only offer fiscal incentives to their startups but also provide economic and managerial resources to impulse their entrepreneurs towards global competitiveness, this is not the case for us. On the other hand, private sector investments destined towards R&D in Mexico are significantly low, despite housing some of the biggest industrial parks in the world. In fact, Mexico only contributes to 1% of the total Gross Domestic Expenditure on R&D (GERD) among the 36 OECD members while being the 12th largest exporter in the world. Internally we also invest less than 1% of the national GDP towards R&D. Our entrepreneurial spirit is not going to take us anywhere without technological advancement. Someone who is familiar with the traditional startup environment will agree that this industry in Mexico is not only stagnant, but also lacking in structure.

Despite us having far to go, I believe in the future of Mexico’s innovation ecosystem. We might not have the accessibility or the resources, but we have the willpower. Since 2003, over 182 technology parks have been founded. There are over 120,000 startups launched in the country each year, a number that has been proving to grow at higher rates year after year. Our market is not only big enough (132 million), but there is a close-to-50% internet penetration in the country, and it also shares borders with the largest market in the world, the US.

We live in a globalized world, in order to accelerate our growth, we have to start thinking globally, not just locally. We are still behind most important economies in technological advancement, if we want to be internationally competitive that must change. We have to promote initiatives that favor the innovative ecosystem in the country, especially those that favor R&D both publicly and privately. We also have the responsibility of cultivating an environment of collective support with no discrimination of socioeconomic statuses or educational levels. Companies like Apple and Google have proved to us that the need for a college degree does not limit our ability to think different and we should follow their lead.

If we want to be an entrepreneurial country, then let’s prove it globally.