Entrepreneurship in Mexico

I’m teaching a master’s level class called Global Political Economy for the first time this semester.  We are participating in a project on Mexican entrepreneurship with the State Department’s Diplomacy Lab.  I had never heard of the Lab before a couple of months ago, but the department is experimenting with crowd sourcing research topics it would like to see answered (note to self: must try this!).

Even though I know a fair amount about the Mexican economy, the current state of entrepreneurship in the country is not something I’m familiar with.  Fortunately, it is something I would like to know more about, so this project will be a good learning experience for me and the students.

I’ve had students gathering sources on the topic and I have done the same.  I decided to see if anyone has asked and answered questions on Mexican entrepreneurship on Quora and found some fascinating answers.  At least in Mexico City, it sounds like the state of entrepreneurship is thriving.  Here are a couple of my favorite Q & As from the site:

Q1: “What is the entrepreneurial ecosystem like in Mexico City? I’ve recently started a trip through Latin America trying to get a feel for the entrepreneurial ecosystems in the region. I started in Mexico City and have posted two of my four interviews there so far. Both interviewees so far have said that they feel Mexicans lack role models and mentors and that there isn’t a vibrant culture of entrepreneurship in Mexico.Is this true? If yes, what do you think can be done to help build such a culture and should those steps be taken?”  

The most popular answer was written by M. Chris Johnson, Founder of LatAmStartupBlog.com

He starts by stating something that I think is really important to recognize: “We need to define our terms here — what I assume you’re talking about is tech entrepreneurship (this is my interest as well).   If we’re talking about general entrepreneurship, that’s a different story.  There’s really no shortage of entrepreneurial zeal in Mexico; Mexicans are a hardworking lot and you can see all sorts of entrepreneurship, from people selling things on the street to the ubiquitous abarrotes that are generally mom & pop shops.  However, most Mexicans that are in these businesses don’t seem to consider themselves emprendedores.  They’re just making a living.”

Definitely worth reading his whole answer, but the short version is that he believes the “ecosystem is growing fast, and business conditions in Mexico are also evolving quickly (for the better).”  He points specifically to an event called Startup Weekend, writing that “Last year Mexico had more Startup Weekend events than any country other than the United States. Great companies don’t come from Startup Weekend but it’s a great educational opportunity and I think this is a good indicator of how the level of enthusiasm for technology entrepreneurship is growing.”

 

Q2: What’s the future for the Mexican Startup Environment?”

The most popular answer notes that “Mexico is attracting the attention of reputable Silicon Valley investors and funds. Evidence of this was Dave McClure and his partners at 500 Startups agreeing to team up with MexicanVC (The Discovery Fund for Mexican Startups)” and that MexicanVC evolved from an ambitious idea to a fully functional discovery and investment fund for the most promising startups and entrepreneurial talent in Mexico, in just a few months. They are already finding, nurturing and graduating startups with real potential into the marketplace.”

Some other good Q&As on the topic that are worth exploring:

What are the coolest startups in Mexico? 

What venture capital / Angel investor firms exist in Mexico?

What are the active startup meetups in Mexico City?

Business Illiteracy as an Obstacle to Development

A new NBER working paper called Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico tests whether females entrepreneurs in rural Mexico are being held back by a lack of business skills.

More specifically, the authors develop a model that yields two testable hypotheses:  (1) among the treatment group, those with less entrepreneurial ability should be more likely to quit their business; and (2) those with more entrepreneurial ability should increase their profits after receiving the treatment.  They measure ability by pre-treatment business profitability and the treatment is a free, 48 hour business skills course for female entrepreneurs.

They find that “those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. “Low-quality” entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.”

 

Intrepid Entrepreneurs

Entrepreneurs everywhere need almost a blind optimism in their vision or they probably would never undertake the investment in the first place.  In Somalia, though, this is probably even more true. While entrepreneurship is crucial to a Somalian economic recovery, it is not for the faint of heart.

The New York Times had a great piece in the magazine called Somalia’s somewhat friendly skies. Not surprisingly, the roads in the country are either of very poor quality or non-existent: “Somalia has only a handful of passable roads — and most of those are patrolled by bandits and militias.” 

So what does an enterprising young entrepreneur do?  Start an airline of course:

jubba_air

 

I love the optimism of the tagline:  the happy way to fly.  Some beg to disagree:

“One passenger described one of Jubba’s Antonovs as a piece of “Soviet dereliction” in which a family of five sat piled into three seats. “We had to board an old Russian plane. In total darkness,” an online reviewer wrote of his “flight from hell” to Hargeisa, the capital of the self-declared republic of Somaliland. “The seats had no seat belts, there are luggage and 20 boxes on back seats, not secured. . . . Avoid by all costs.”

The founder of Jubba notes that all planes have seat belts now and that this negative review is probably from a Somalian rival airline (!).

There have been some tough times for Jubba Air and its employees (see some salient examples below) but if Somalia does turn around, they are well placed to take advantage of the good times.

a. “Whenever we fly to Mogadishu, we give them combat pay,” Warsame said. “And they never stay. They land and leave as fast as they can.” Jubba pays the captain, co-pilot and flight attendants “around $100 extra” for each landing they make in Mogadishu; the bonus goes up after they make the trip several dozen times. [Note: $100 doesn’t seem like much in combat pay and I don’t understand the reasoning behind the bonus going up after 24 landings].

b. “Until late 2011, Al Shabaab controlled 9 of 16 districts in Mogadishu, some within firing range of Aden Abdulle International Airport. Pilots were instructed to ascend & descend rapidly over the ocean, and to avoid flying at low altitudes over the warrens of the city. The rebels have since been mostly driven out, but pilots still perform the same maneuver.”

c. “Domestically, Jubba has inaugurated Antonov flights to Baidoa, a central Somalian town known as “the City of Death” during the devastating famine of the early 1990s; and Kismayu, a strategic southern port held by Al Shabaab until last November, when Kenyan AMISOM troops drove out the militiamen. Kismayu is still unstable, with two clans feuding violently for control of the port’s lucrative charcoal trade. But Warsame said that the demand for access to the city was so high that Jubba decided to take the risk. “It is impossible for people to travel there by road, because of explosive devices and ambushes,” he told me. “So many people said, ‘We need a flight to Kismayu.’ We sent in some staff, they inspected the runway, they talked to the local people and they said it was O.K.” [Note: the local people saying it was ok would probably not be enough to convince me to fly there]

Whether you are an airline entrepreneur or an airline customer, Somalia is definitely not for the faint of heart.