government gives very little support to startups
Ignacio de la Vega spoke with recently graduated entrepreneurs. (Photo: Screenshot from Enlace+)

Like a bedridden patient with an uncertain medical prognosis, startups in Mexico are in a complicated situation, because they’ve gotten “sick” from erroneous government policies and a lack of long-term vision.

This is the message that Tecnológico de Monterrey’s Business School (EGADE) Dean, Ignacio de la Vega, put across to 22 companies graduating from Enlace+, an organizational professionalization program.

He claimed that there’s great enthusiasm for entrepreneurship in the country, in contrast with the unfavorable situation exacerbated as a result of the pandemic.

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A country with two faces

“Mexico presents a dichotomy. On the one hand, there’s an extraordinarily high rate of entrepreneurship, and on the other, we’re seeing that it’s an endeavor that doesn’t quite have the same impact that it would in other places, where it generates much more employment and wealth,” said de la Vega.

The academic expressed that entrepreneurship in the country isn’t often based on opportunity but is mainly focused on necessity. The result: small businesses of little consequence.

“Unfortunately, we suffer from a governmental framework that gives little support to startups, adding huge layers of bureaucracy, and often discouraging the work of entrepreneurs,” he said.

According to de la Vega, this eliminates the possibilities of obtaining high capital gains, as well as inhibiting the existence of a powerful investment ecosystem.

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The impact is greater on the weakest

This diagnosis has been true for some time, but the situation has worsened since the health emergency that began in March, mainly because there’s less and less interest in investing in the country from scratch. As de la Vega pointed out, “Money is a coward. Money runs away from risk.”

Small businesses, or those just starting out, are at a disadvantage compared to large companies that, according to de la Vega, do have the backing of venture capital fund instruments.

“There’s a negative impact on the weakest, on startups, especially in places like Mexico, due to poor preparation or our society’s lack of competitiveness,” he said.

He pointed out the seriousness of the focus being on survival when facing the economic consequences of the pandemic. As a result, growth expectations and digital strategies for the future are put to one side.

“The damage hasn’t been to those of us who’ve been working from home, but to the weakest in the chain, to those small and medium-sized enterprises without the capacity or the money to withstand the onslaught of this terrible crisis,” explained the EGADE’s Dean.

In Mexico, there are more than 52 million people who survive on less than is necessary. Unfortunately, according to de la Vega, the number will exceed 60 million citizens living below the poverty line by the end of the pandemic, based on United Nations parameters.

“70% of workers are also in the informal sector, who haven’t had the opportunity to work from home, and have seen the need to go out every day to find sustenance.”

Regarding the surviving small businesses or those that are just starting out, this economics expert suggests that it’s necessary to seek additional debt and to reform the business model according to the path set by new technologies.

“If the future isn’t digital, there won’t be a future,” he concluded.