The pandemic has fueled the emergence of new digital entrepreneurs, and they’re here to stay.
With all the social distancing measures, face-to-face businesses have had to migrate and orient their operations towards the web or digital platforms, where they have reaped great benefits.
Tec Review spoke with Armando Ruiz, a professor at Tecnológico de Monterrey, and Nacho Flores, founder of Fido, a digital platform to protect monetary transactions –particularly in the real estate sector– about the characteristics, opportunities, and challenges of digital entrepreneurship in Mexico.
What makes digital entrepreneurs different from traditional ones?
Armando Ruiz says that digital entrepreneurship is a trend that began more than 30 years ago with the development of the internet, but its growth has increased even more during the Covid-19 pandemic.
He defines digital entrepreneurship as “those businesses seeking to solve the needs of a group of people, generating value predominantly through the internet, be it web pages or mobile applications or a combination of both.”
Armando says that, depending on the type of startup, digital entrepreneurship is not in competition with more traditional forms. This means startups can be a physical place, like the kitchens that sell via apps, or they can have collaborators, like the transport or food delivery apps.
Nacho Flores explains what he considers to be the characteristics of digital entrepreneurs, based on his experience as a digital entrepreneur:
The way of thinking
“Traditional entrepreneurs think of the customer next door, who speaks the same language as them, lives in their city, whom they meet face to face or communicate with by phone. But digital entrepreneurs are thinking about how to make their platforms work in Thai, Chinese, and English. Think beyond your borders because your customers are changing. They’re no longer just local, but global.”
The business model
“Generally, traditional entrepreneurs are looking for customers that are big players, like the government for example. With a large customer, you’ve got it made. But in the digital world, cases like ours can arise, where we charge very small fees. Our model is not to serve one customer, but many of them, on a massive scale.”
Raising the capital
“For digital entrepreneurs, seeing how to inject more capital is crucial for their business, because they’re thinking globally, and raising capital is crucial to going global. Although traditional entrepreneurs also seek capital, they don’t place as much emphasis on it because their market niche is smaller.”
Digital entrepreneurship, with a huge market
According to the recent 2020 Population and Housing Census, just over half of Mexican households (52.1%) have internet access.
A large part of the population still mistrusts making electronic transactions for fear of losing their money due to fraud or cyberattacks.
In this context, Professor Armando Ruiz says that these conditions do not represent barriers to digital entrepreneurs, since they are not impossible to overcome.
“The Mexican Internet Association estimates that there are 80 million Internet users in the country. Of these, more than 90% connect using their cellphone. This tells us there’s a very large potential audience. Between March and June last year, the number of Mexicans who made purchases online doubled, which just goes to show that there are opportunities,” he says.
Regarding the mistrust of performing online operations –in which people have to provide sensitive information such as credit card information or their personal address– Ruiz points out that there are ways for businesses to counteract it so that they can gain the customer’s trust.
“Many digital startups have looked for hybrid systems, so their products are usually sent to an Oxxo or to a nearby store the first time someone buys from them online. There are also prepaid cards so that customers trust them more,” he says.
He says that entrepreneurs should not be afraid of customers not making digital purchases at first. Mexican e-commerce figures show that, in one year, more progress was made than was expected to happen in five.
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Fido, a digital venture that was born out of mistrust
Nacho Flores, founder of Fido, provides us with an example of digital entrepreneurship by explaining how his business model works.
“We function like an escrow account, which is nothing more than a monetary custody service while the legal operation of transferring real estate is being carried out. That is, we protect the buyer’s money so that they never have to make a direct advance payment to the seller until after the sale has been finalized,” said Flores.
His business idea arose from a bitter personal experience when he was the victim of fraud in a transaction to buy and sell a property, in which he gave an advance payment to the supposed seller, who never responded.
“I realized that we all depend on trusting the other party we’re dealing with. Our business arose from the distrust that exists to provide a solution to that niche in the market,” he explained.
He points out that, unlike its traditional competitors, which are financial institutions that have the fiduciary business and use the legal concept of fiduciaries, Fido charges a much lower commission, which is 0.4% compared to 2% or 3% for fiduciaries.
He also explains that it’s quicker to open an agreement, since everything can be completed over the internet without having to go to offices or use paper, using the Advanced Electronic Signature (e.firma) provided by the Tax Administration Service.
To this end, the agreements are legally valid because in addition to being signed with the e.firma, they are also backed by a brokerage firm, providing financial certainty to the client so they know that the money they have placed in escrow is well protected.
So, for property transactions, the buyers give their advance payments to Fido once they have signed an agreement with the sellers. Once the legal procedures for the sale have been completed, the sellers receive their money from the buyers, but if the transaction is not completed, the buyers are guaranteed to get their money back.
Nacho Flores explains that their communications strategy does not consist of large marketing campaigns, but rather targets digital communities for real estate or lawyers on Facebook, in order to explain the business model to them.
He says they do this because they are dealing with complex matters such as how escrow works or how contracts with the e.firma are handled, which are issues that cannot be explained in advertising spots or through digital marketing companies.
“Our greatest success has been promoting ourselves by word of mouth on social media. We talk and explain calmly, we listen and respond to any doubts. When we’re successful with a community, they recommend us and our niche grows larger,” adds Flores.
The health emergency caused by the pandemic has given them a boost. Two specialists explain how digital entrepreneurs should build on their success.https://t.co/GlpZv2WpFl
— Tec Review (@TecReview) March 4, 2021
Moving towards digital entrepreneurship
Armando Ruiz, a professor at Tecnológico de Monterrey, says that social networks are one of the advantages of doing business on the internet as we can already meet the target audience without having to leave home and without necessarily requiring a marketing agency.
He says that, just as traditional startups need a physical place to work, digital startups seek to solve tangible customer needs through the internet.
“AirBnB, for example, was born in 2008 with someone who rented a room online, and then the idea spread to connect people who were looking for accommodation with those who were renting their property. For Uber, it was during a chat at university that someone said they wished they could order a car by phone, and someone made it happen,” says Ruiz.
He explains that, in digital entrepreneurship, it is also necessary to define the market niche. It’s a mistake to believe that the product or service you’re going to offer is for everyone, because in the end, it won’t be for anyone.
“The more specific the audience, the better. You’ll be more precise and even be able to define under which platform to publicize your business. If I want to reach people aged 40 to 45, TikTok wouldn’t be the best place to promote it. But, if my audience is made up of teenagers and young people, then the best place to promote would indeed be TikTok,” adds the academic.
He explains that another advantage to ventures of a digital nature is that, by publicizing on social media or applications, it is possible to receive feedback from users or customers.
He says that likes or comments can be used to improve the business. They help companies to better understand their audience. Technological ventures rely on people’s comments to improve and establish themselves. This is what happened with Rappi, which incorporated suggestions from the distributors and clients, and Uber, which added route sharing and cash payment in order to improve its service.
Ruiz also recommends sharing your business idea with others to receive comments. You have to lose the fear that they might steal your idea.
He claims that it’s actually positive: as the idea is shared, you get to hear comments from those the idea is directed at, find out what people like, among other things.
You’re not alone!
Both Nacho Flores and Armando Ruiz agree that digital ventures cannot be the work of a lone ranger. Creating a team with ideas that can be implemented is essential.
Flores emphasizes the need to have a team of programmers. From his experience, this is what determines the success or failure of a business, rather than legal, marketing, or capital issues.
“The programming team is like the operational hub. It is your base. You could have the most fantastic business idea but if the programming isn’t right and if it doesn’t look secure then people won’t buy from you,” says Flores about his case, since his business has more to do with the provision of financial services.
On the other hand, when it comes to businesses that offer a physical product, Armando Ruiz points out that, in addition to the programming team, it is necessary to form multidisciplinary groups to strengthen the logistics and marketing side so that precise, quality messages can be shared within targeted interest groups.