By: Nomara Parra, Alejandra Barroeta y Tatiana Petrone
To understand what happens in Mexico when speaking of “entrepreneurship” – in addition to defining who are entrepreneurs – it is important to learn what the entrepreneurial ecosystem is and what elements comprise it.The entrepreneur is part of a system, like a leaf of a tree, or a tree in a forest. The panorama is filled with those who work, those who are the innovators and those who are dedicated to offering goods and services: the companies.
But behind those companies, behind these entrepreneurs, there are individuals and institutions that contribute so that a business idea can be carried out. All those people and parts of a whole are known as actors in the entrepreneurial ecosystem. In this ecosystem there are incubators, accelerators, investors and even universities or the government – all with the goal of adding value depending on their function, their experience and their links with the other participants, which enriches the end result and benefits all the participants. More than a term, it already forms part of the public domain.
According to the IMEF 2013 working paper, “A Mexico of Entrepreneurs” (a team to provide ideas and proposals to the financial community and the country), the high impact ventures do no exist in isolation nor do they happen by chance. For new business ventures to have a substantial effect on the economic activity of a country or a city, it is necessary to create an entrepreneurial ecosystem (Casas Alatriste, 2013).
If one starts from scratch, at the emergence of an idea, what actors of the ecosystem are involved in this stage? When the entrepreneur aims to consolidate his business model through commercial and financial validations that support the existence of a market interested in its offer of value, the incubators act as specialized agencies that contribute to examining the idea in order to be a part of the formal economy.
Incubators work in particular with start-up companies that have high growth potential. They are non-traditional innovating business models with a high technological component. In recent years, these new companies have increased in the country, which has favored the entrepreneurial ecosystem.
High impact incubators are a key element, which meet two main objectives: 1) to promote the creation of businesses with institutional bases; and 2) to contribute to the development of new products and services that address the needs and social problems of the region. Incubators focus on the core ideas of a citizen governance: governance, security and civil protection; sustainable economic development; habitability and services, public space and infrastructure; effectiveness, accountability and combating corruption.
In Mexico City, the National Entrepreneurship Institute (INADEM) recognizes only seven high impact incubators: Angel Ventures México, Wayra, Venture Institute, Jardín de Innovación, InnovaUnam, Tecnológico de Monterrey campus Santa Fe and Startup Mexico.
Normally during the incubation, entrepreneurs are offered different services, such as a shared space, with a telephone line and Internet, to operate with other ecosystem participants, development of deliverables (business plans and financial models), mentoring and customized consultancies on business models and even specific advice with financial models and commercial feasibility studies.
Incubators have different incubation programs. It depends entirely on entrepreneurs to decide which incubator offers greater added value in accordance with their interests and vision of their company. In general, incubators try to create the largest number of formal jobs, incorporate cutting-edge technologies or new uses of existing technology and prepare tools to compete in national and international markets. The result is a well-structured business model and a survival rate higher than the other companies in their industrial sector.
Accelerators are found in consolidated companies with a greater degree of progress. Originally, the accelerator programs were created to support the gazelle companies. According to the Economy Secretariat, gazelle companies are those with growth rates above average in the sector to which they belong and, as a result, are also those that contribute most to the development of the economy. Among the accelerators recognized by the INADEM are PwC México, Endeavor, New Ventures, NETBA AND Victoria 147, although there are many others, each with its particular acceleration methodology and dedication to different industries.
Through the INADEM, which is a decentralized body of the Economy Secretariat, the government promotes the ecosystem with a variety of tactics. Also, in the National Development Plan 2013-2018, strategy 4.2.4 is established as one of the National Goals for a Prosperous Mexico. This strategy sets as an objective to expand access to credit and other financial services. This means that through the development bank and with funds approved in the budget of expenditures of the Federation, there is an economic section to consolidate a support fund for micro, small and medium-sized enterprises.
The INADEM also drives the ecosystem with its rallying power in the Entrepreneur Support Network, which is defined as a strategy for coordination and linkage of the policies and support programs for entrepreneurs and MSMEs of the various levels of government and the private sector. This project is unprecedented and means that the communication between stakeholders will be smooth and the activities will be aligned in similar ways, instead of being isolated efforts whose results are not transformed into common benefits.
The government is not expected to be the primary motivator, but to facilitate the use of the resources that they already have and that previously the MSME Fund distributed. Now there is a clear strategy that includes the other actors and helps them to collaborate.
There are other resources, apart from those from the government. If the company has already validated its business model and wants to raise capital to move to the next stage, it is recommended that it approach a private equity fund. Funds that operate and invest in Mexico include LIV Capital, Alta Growth, Ventures Capital, AVM I, IGNIA, Adobe, and others. They differ in the average investment per company, the sectors in which they invest, and their investment thesis.
It is the responsibility of the entrepreneur to verify that his project meets the requirements of the fund before requesting a meeting with their officials. Otherwise, it is likely that the fund managers will have the impression that the entrepreneur did no research and they will not consider him among their first investment options. Another important factor of the meeting is that it provides the first opportunity to impress the investor and attract his interest in a project.
There are still other, less recognized actors, who are mentors. They do not play a formal role, but they are a key element for the performance of entrepreneurs.
Recently, Richard Branson, founder and president of Virgin Mobile, said, “No matter how smart an entrepreneur is or how brilliant or innovative his business concept is, he needs a good mentor. The difference between an entrepreneur who seems competent and one who already enjoys success is the mentoring.”
Although the positive impact of mentoring in companies has been demonstrated, less than half of the entrepreneurs seek a mentor. There may be several reasons: a culture in which presenting problems or challenges projects an image of failure; a distrust in presenting ideas for fear that someone is going to steal them; or simply ignorance of this resource and its advantages.
However, there are more important reasons to trust mentoring than not to trust it. In Mexico, the mortality rate of the micro, small and medium-sized enterprises is considerably high, almost 80% during the first year. Many entrepreneurs who start a business do not have the tools or knowledge to manage it. Added to that is a legal and fiscal environment that makes it very difficult to establish and consolidate enterprises. At this point, mentoring is more important because it communicates to entrepreneurs the experience and skills of someone who can meet the challenges.
Mentoring has good results in the survival rate and the generation of income and employment, plus it fosters motivation and entrepreneurial confidence. It is essential that entrepreneurs find the right mentor to grow their business and that they build a trusting relationship so that they hold meetings of intellectual enrichment for all.
Here are some tips to find the ideal mentor:
Define the problem or challenge well. The clearer and more specific the request for assistance by the entrepreneur is, the easier it will be to find the proper support.
Have initiative. Search, find and keep looking. Locate people who have the skills and knowledge that the entrepreneur needs, in addition to the time needed to support him. The entrepreneur must speak with several close candidates and preferably experts in his field in order to decide who is the best for his particular case.
Be ready to learn. The entrepreneur must recognize that he does not know everything and he can learn from others. He should also be open to listening to the advice of his mentor and to positive criticism.
Be honest and transparent. The more the mentor knows the business and the challenges it faces, the better he will help the entrepreneur to solve them.
On the other hand, there is a need for more mentors, experts who are willing to put their skills and experience at the service of others. Whoever has a career in the business world would do well to share with others what he has learned.
The IMEF 2013 working paper reads as follows:
Models are simplifications of reality that help to understand it better. In this sense, having a model, an outline or a graphic representation improves the understanding of the social phenomena. In many cases, these graphics follow a geometric, rigid and hierarchical logic, which is not an accurate representation of these new realities that are being experienced. Therefore, we looked for a figure in nature that could be used to represent and help understand these ecosystems. We thought of a neuronal cut, of atoms or of galaxies and, finally, we found something that is more simple and accessible: a flower. In both its structure and its reproduction function, there are important similarities with these entrepreneurial communities [Casas Alatriste, 2013].
Source: Taken from Casas Alatriste, 2013.
In everyday practice, professionals are immersed in their own activities and possibly do not notice they are already part of the ecosystem.
The richness of the entrepreneurial ecosystem lies in the influence of each of the components and in its ability to connect in order to exchange the resources they possess. These resources are human capital, intellectual or economic relationships. The result of adding isolated efforts will prove the theory that 1 + 1 can be 3, or more.
Just as the human being is a witness to the diversity of natural habitats, each with its own context, in a similar way the ecosystem of the entrepreneur in Mexico is unique and unrepeatable. To try to create a copy of models of developed countries would be an irrational endeavor that would interfere with our country’s own, natural evolution. Of course it is always possible to learn from better practices, but without forgetting the basic principle to which the country should advance: conceived, designed, patented and produced in Mexico.
How Companies Are Born
To understand what happens in Mexico when speaking of “entrepreneurship” – in addition to defining who are entrepreneurs – it is important to learn what the entrepreneurial ecosystem is and what elements comprise it.The entrepreneur is part of a system, like a leaf of a tree, or a tree in a forest. The panorama is filled with those who work, those who are the innovators and those who are dedicated to offering goods and services: the companies.
But behind those companies, behind these entrepreneurs, there are individuals and institutions that contribute so that a business idea can be carried out. All those people and parts of a whole are known as actors in the entrepreneurial ecosystem. In this ecosystem there are incubators, accelerators, investors and even universities or the government – all with the goal of adding value depending on their function, their experience and their links with the other participants, which enriches the end result and benefits all the participants. More than a term, it already forms part of the public domain.
According to the IMEF 2013 working paper, “A Mexico of Entrepreneurs” (a team to provide ideas and proposals to the financial community and the country), the high impact ventures do no exist in isolation nor do they happen by chance. For new business ventures to have a substantial effect on the economic activity of a country or a city, it is necessary to create an entrepreneurial ecosystem (Casas Alatriste, 2013).
If one starts from scratch, at the emergence of an idea, what actors of the ecosystem are involved in this stage? When the entrepreneur aims to consolidate his business model through commercial and financial validations that support the existence of a market interested in its offer of value, the incubators act as specialized agencies that contribute to examining the idea in order to be a part of the formal economy.
Incubators work in particular with start-up companies that have high growth potential. They are non-traditional innovating business models with a high technological component. In recent years, these new companies have increased in the country, which has favored the entrepreneurial ecosystem.
High impact incubators are a key element, which meet two main objectives: 1) to promote the creation of businesses with institutional bases; and 2) to contribute to the development of new products and services that address the needs and social problems of the region. Incubators focus on the core ideas of a citizen governance: governance, security and civil protection; sustainable economic development; habitability and services, public space and infrastructure; effectiveness, accountability and combating corruption.
In Mexico City, the National Entrepreneurship Institute (INADEM) recognizes only seven high impact incubators: Angel Ventures México, Wayra, Venture Institute, Jardín de Innovación, InnovaUnam, Tecnológico de Monterrey campus Santa Fe and Startup Mexico.
Normally during the incubation, entrepreneurs are offered different services, such as a shared space, with a telephone line and Internet, to operate with other ecosystem participants, development of deliverables (business plans and financial models), mentoring and customized consultancies on business models and even specific advice with financial models and commercial feasibility studies.
Incubators have different incubation programs. It depends entirely on entrepreneurs to decide which incubator offers greater added value in accordance with their interests and vision of their company. In general, incubators try to create the largest number of formal jobs, incorporate cutting-edge technologies or new uses of existing technology and prepare tools to compete in national and international markets. The result is a well-structured business model and a survival rate higher than the other companies in their industrial sector.
Accelerators are found in consolidated companies with a greater degree of progress. Originally, the accelerator programs were created to support the gazelle companies. According to the Economy Secretariat, gazelle companies are those with growth rates above average in the sector to which they belong and, as a result, are also those that contribute most to the development of the economy. Among the accelerators recognized by the INADEM are PwC México, Endeavor, New Ventures, NETBA AND Victoria 147, although there are many others, each with its particular acceleration methodology and dedication to different industries.
Through the INADEM, which is a decentralized body of the Economy Secretariat, the government promotes the ecosystem with a variety of tactics. Also, in the National Development Plan 2013-2018, strategy 4.2.4 is established as one of the National Goals for a Prosperous Mexico. This strategy sets as an objective to expand access to credit and other financial services. This means that through the development bank and with funds approved in the budget of expenditures of the Federation, there is an economic section to consolidate a support fund for micro, small and medium-sized enterprises.
The INADEM also drives the ecosystem with its rallying power in the Entrepreneur Support Network, which is defined as a strategy for coordination and linkage of the policies and support programs for entrepreneurs and MSMEs of the various levels of government and the private sector. This project is unprecedented and means that the communication between stakeholders will be smooth and the activities will be aligned in similar ways, instead of being isolated efforts whose results are not transformed into common benefits.
The government is not expected to be the primary motivator, but to facilitate the use of the resources that they already have and that previously the MSME Fund distributed. Now there is a clear strategy that includes the other actors and helps them to collaborate.
There are other resources, apart from those from the government. If the company has already validated its business model and wants to raise capital to move to the next stage, it is recommended that it approach a private equity fund. Funds that operate and invest in Mexico include LIV Capital, Alta Growth, Ventures Capital, AVM I, IGNIA, Adobe, and others. They differ in the average investment per company, the sectors in which they invest, and their investment thesis.
It is the responsibility of the entrepreneur to verify that his project meets the requirements of the fund before requesting a meeting with their officials. Otherwise, it is likely that the fund managers will have the impression that the entrepreneur did no research and they will not consider him among their first investment options. Another important factor of the meeting is that it provides the first opportunity to impress the investor and attract his interest in a project.
There are still other, less recognized actors, who are mentors. They do not play a formal role, but they are a key element for the performance of entrepreneurs.
Recently, Richard Branson, founder and president of Virgin Mobile, said, “No matter how smart an entrepreneur is or how brilliant or innovative his business concept is, he needs a good mentor. The difference between an entrepreneur who seems competent and one who already enjoys success is the mentoring.”
Although the positive impact of mentoring in companies has been demonstrated, less than half of the entrepreneurs seek a mentor. There may be several reasons: a culture in which presenting problems or challenges projects an image of failure; a distrust in presenting ideas for fear that someone is going to steal them; or simply ignorance of this resource and its advantages.
However, there are more important reasons to trust mentoring than not to trust it. In Mexico, the mortality rate of the micro, small and medium-sized enterprises is considerably high, almost 80% during the first year. Many entrepreneurs who start a business do not have the tools or knowledge to manage it. Added to that is a legal and fiscal environment that makes it very difficult to establish and consolidate enterprises. At this point, mentoring is more important because it communicates to entrepreneurs the experience and skills of someone who can meet the challenges.
Mentoring has good results in the survival rate and the generation of income and employment, plus it fosters motivation and entrepreneurial confidence. It is essential that entrepreneurs find the right mentor to grow their business and that they build a trusting relationship so that they hold meetings of intellectual enrichment for all.
Here are some tips to find the ideal mentor:
On the other hand, there is a need for more mentors, experts who are willing to put their skills and experience at the service of others. Whoever has a career in the business world would do well to share with others what he has learned.
The IMEF 2013 working paper reads as follows:
Source: Taken from Casas Alatriste, 2013.
In everyday practice, professionals are immersed in their own activities and possibly do not notice they are already part of the ecosystem.
The richness of the entrepreneurial ecosystem lies in the influence of each of the components and in its ability to connect in order to exchange the resources they possess. These resources are human capital, intellectual or economic relationships. The result of adding isolated efforts will prove the theory that 1 + 1 can be 3, or more.
Just as the human being is a witness to the diversity of natural habitats, each with its own context, in a similar way the ecosystem of the entrepreneur in Mexico is unique and unrepeatable. To try to create a copy of models of developed countries would be an irrational endeavor that would interfere with our country’s own, natural evolution. Of course it is always possible to learn from better practices, but without forgetting the basic principle to which the country should advance: conceived, designed, patented and produced in Mexico.