Mexico Shows Symptoms of Catching Start-Up Fever

Nearshore nations don’t always make things easy for new businesses – even for IT outsourcing companies that bring the promise of jobs and revenue. But recent developments in Mexico, where investors tend to be “more conservative” and wary of would-be innovators, indicate that government and venture capitalists are becoming more supportive of start-ups.

The Mexico government has come up with a series of reforms to facilitate the creation of start-ups, including streamlined regulations and an on-line portal to register new companies. Their aim is to eliminate unnecessary red tape and reduce the time and cost required to file paperwork for new businesses. In theory these changes will also weaken monopolies that threaten to suffocate the markets, stimulate employment, and increase efficiency and investments in the Mexican economy.

While some of the reforms to the laws – which include the Foreign Investment Law, the General Law of Mercantile Societies and the Public Administration Law, among others – came into effect on January 1, the remainder will do so in June of this year.

The government says the reforms will reduce the time it takes to register a new firm from 56 days in 2006 to just nine days.

The various reforms reduce the response time for new business applications, eliminate various fees for the application process and reduce business transaction costs. Additional regulatory reform eliminates unnecessary bureaucracy within the Federal Public Administration by eliminating 16,000 internal regulations and replacing over 7,000 rules with nine handbooks.

To register a new business in the past it was necessary to apply to various government agencies, each with their own paperwork, procedures and fees. Under the reforms, the registration process is now dealt with solely by the Ministry of Economy (SE).

The SE has created a new website that condenses the application process to a single online registration system. The government describes it as “a portal created to facilitate the establishment and operation of companies in Mexico, through the use of electronic media and the streamlining of federal procedures.”

Entrepreneurs will also find encouragement in reforms made to the Federal Law on Economic Competition to combat the monopolies that stifle competitiveness in the Mexican marketplace. The changes criminalize absolute monopolistic practices and give the Federal Commission of Competition (COFECO) greater power against monopolies and oligopolies by increasing economic sanctions.

The reforms come as President Felipe Calderon enters the final months of his administration, suggesting that he hopes to leave a positive legacy and boost his party’s chances in the July elections by overseeing improvement in the economy.

Guadalajara Accelerator

Meanwhile, a group of local entrepreneurs are trying to make things easier for start-ups in the Guadalajara area. Their first objective: Do the right things.

When Rodrigo Padilla Navarro attended a “Build or Die” boot camp for startups last spring, he found he “was doing everything wrong” as co-founder of Web 2.0 startup Folgom – and so were most of the other Mexican start-ups that had traveled to Silicon Valley to test out their ideas.

“We were doing all the wrong things,” he remembers. “We were building a product nobody wanted.”

So to help himself, and other Guadalajara-area entrepreneurs seeking to adapt to the harsh demands of the market, he and a group of colleagues are founding Skyrocket Tech Lab, a “business accelerator” that will provide a place for IT start-ups to test demand for their products, and get technical help from area IT companies in developing them once they find a market need.

Plans are still in the early stages; an open “ideation” meeting at Tec de Monterrey yesterday was scheduled to include talks by veteran start-up founders and opportunities for networking. The evening was patterned on best practices from the Founder Institute, a global network of startups and mentors. Padilla is regional director of the group’s Guadalajara chapter.

Mentors with experience in start-ups or the broader IT industry will receive no pay for coaching start-ups, but will receive a small percentage of the equity in the companies, depending on the amount of help they provide, said Padilla.

Padilla is currently seeking a location for the “Tech Lab” and government help with start-up funding. He sees the center as a business “accelerator” that can help Guadalajara-area start-ups to create the dynamic, growing companies they dream of.

“Instead of just helping entrepreneurs build their idea and to launch them, and find out nobody wants your idea or your product,” he says, Skyrocket will help entrepreneurs gauge interest in their ideas with customers by, for example, posting preliminary information on social networking sites and tracking how many people click through or ask for more details.

Existing IT firms in the Guadalajara area such as IBM and Intel have also offered the use of their facilities to help start-ups with the more technical phases of product development, he said.

Based on his ongoing journey of identifying the right business model for his own company, his initial focus was on a professional network that would help buyers and sellers find trusted referrals, which he said, its more than 7,000 users found “valuable…but not their main concern.”

Aided by about $65,000 raised by Folgom, and an equal amount from government agencies, Padilla is spending the next four months developing another approach, which he wouldn’t describe except to say it is relies more on transactions to drive revenue.