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Startups in Mexico: A nascent tech hub may succeed by solving local problems

Startups in Mexico: A nascent tech hub may succeed by solving local problems

Posted by Juan Gavasa on April 06, 2015

An on-call masseuse is the clearest sign of Kueski’s ambitions to be a Silicon Valley-style tech star, perks and all. But the startup, which lends money to middle-class people starved of credit, is based not in San Francisco but a four-and-a-half hour flight to the south, in Guadalajara—a Mexican city more associated with tequila, conservative families and Catholicism than the modern religion of entrepreneurship.

Guadalajara has long been a magnet for American electronics firms. Motorola arrived here in 1968, followed by IBM, Hewlett-Packard and various contract manufacturers, all of whom produced mainly for export. According to Erik Peterson of Oracle, an American technology firm that opened its third global development centre here in 2011, the city is now progressing from churning out hardware in bulk to creating software, somewhat like a textile factory moving into designing its own clothes. “It’s the most tightly knit tech community in Latin America,” he says. Last year Jalisco, Guadalajara’s home state, exported almost 25 times as much tech as tequila, in dollar terms.

To foster the rise of a Valle de Silicio south of the Rio Grande, in February President Enrique Peña Nieto pledged 300m pesos ($20m) this year to start building a “Creative Digital City” in central Guadalajara. Ricardo Álvarez, a researcher at the Massachusetts Institute of Technology and a promoter of the project, says Guadalajara has many of the ingredients to become a tech cluster, but “it’s not a done deal yet”. One thing it doesn’t lack is chutzpah, though. A banner outside the airport welcomes visitors to “The land of entrepreneurs”.

Such claims bring a smile to the face of Andy Kieffer, an American venture capitalist who moved to Guadalajara from San Francisco in 2008. The business climate could not be more different, he says. In Silicon Valley, everyone is from somewhere else; in Guadalajara, families stretch back generations. In the Bay Area, dropouts rule; in Guadalajara, without a university title a secretary will not let you through the door. In Silicon Valley, success is celebrated to the point of self-adulation; in Guadalajara, it is hidden, partly to stop criminals putting you on their hit lists.

Yet entrepreneurship in a place without a culture of business innovation is not as impossible as it sounds. Though Mexicans may not be about to create the next global hit such as Facebook or Uber, they have plenty of room to deploy technology to improve efficiencies in their country’s lumbering “old economy”. For instance, its banks are so risk-averse that only 15% of Mexicans have a credit card and just 5% have access to an overdraft, says Adalberto Flores, Kueski’s chief executive. His firm analyses data, such as the number of social-media friends someone has, that provide a gauge of trustworthiness, and offers promising customers loans averaging $150 for periods that average 22 days.

Voxfeed, another local startup, has just raised a second tranche of venture capital, according to its backers. Its aim is to drag Mexico’s $5 billion-$7 billion a year advertising business into the digital age. Mexico is way behind its northern neighbour in switching from traditional marketing methods to online and smartphone ads. Many advertisers, for example, still use “yellow pages” paper directories or stick billboards on the sides of lorries. Yet Mexico has one of the world’s highest participation rates on social networks. In a digital version of word-of-mouth advertising, Voxfeed pays people with an influential presence on Twitter and other networks to recommend places and products.

This sort of thing is exactly what Mexican startups should focus on, says Mr Kieffer: instead of trying to invent something completely new, they should disrupt sleepy Mexican industries. For example, trucks and trains often travel to the United States full of exports but return empty, even though Mexico imports all manner of things, from machinery to meat, from its northern neighbour. This demonstrates that there is scope for using technology to modernise the logistics business. Few of Mexico’s hotels, apart from the priciest ones, offer online bookings—so they are left with empty beds. Mr Kieffer says it is like America was decades ago. Instead of using technology to find customers and suppliers, “Businesses in Mexico are used to working in a few relationships where everyone knows and trusts each other. That is breaking down.”

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