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Shared DNA, Different Destinations. Start-Ups Introduction

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Shared DNA, Different Destinations. Start-Ups Introduction Pymes Shared DNA, different destinations. Start-ups Introduction A rose by any other name would smell as sweet,” Guillermo Ortega Rance and Noha Ki- says Juliet in the romantic balcony scene where khia reached an overarching conclusion Executive Editor she asks Romeo to forsake his name out of love for that Mexican public policy on innovation her and the prospect of having her forever. in 2018 - 2024 needs to balance creating Rossana Fuentes Berain Villenave What name will we have to forsake in Mexico to the space needed for a nascent startup refer to an entity dedicated to business, an entity that does its ecosystem while also attending to a lack Authors work with a limited number of employees, that already has sales, of productivity in small business. aspires to grow and may or may not be rooted in technology? Doing this from two branches of pow- We know that not only Shakespeare but also the Argentine er, executive and legislative, in Mexico and Guillermo Ortega Rancé poet Jorge Luis Borges said that naming makes a thing real. two spaces within the US government, the Noha Kikhia It opens and closes possibilities because the way in which we Department of State and Small Business describe the world affects how it manifests. So rather than Administration, is taking agency over the Collaborators switching from one concept to another or just abandoning one spirit of Chapter 25 from the new trilateral all together, we wanted to see what was implied in two terms: trade agreement USMCA. One of the prem- Mayra Álvarez Graphic Design startups and small and medium sized businesses in Mexico and ises of the new agreement was to expand Addy Góngora Basterra Editor the United States. the benefits of international trade to a larg- Conversations about innovation frequently use both terms er number of companies, and not only the and therefore the concepts are quite relevant. Shall we use the usual suspects for SMEs, but also those Thank you to the following for sharing your thoughts with us: English word that immediately references Silicon Valley, the owned by minority groups and women in home of technological startups for the global economy? Or giv- Mexico, the United States, and Canada. Abel Bezares - VARIV Capital / Startup Ecosystem en the current political times shall we forsake the Shakespeare In Mexico, understanding startups and Alejandro Ortega Amaya - Integra Solution TI / SME in Mexico language and go for castellano, PYMEs, that puts more of an small businesses better will allow the eco- Alexandre Berthaud - Akiba / Startup emphasis on the internal market? system to grow and fill with not simply Antonio Aguilar Solís - Centro de Competitividad de México (CCMX) / SME Ecosystem Are SMEs and startups different entities belonging to two dif- more incumbents, but others who want Joan Segura Oyamburu - Play Business / Startup ferent Mexicos? One that is globalized or another that is inward to be a part of a movement. However, re- Pascal Finette - Singularity University / Startup Ecosystem looking? Or can the words move between those two universes gardless of the name adopted, we all want regardless of their specificity? something similar from the capitalism of The following exploration is meant to provoke precisely that - the hemisphere: to generate first-rate jobs. a dialogue around the two concepts in the purest sense of what the Mexico Institute at the Wilson Center always promotes: – Rossana Fuentes Berain Villenave • The generation of a body of knowledge, this time around start- CEO and Co-Founder México Media Lab ups and small businesses in Mexico • Documenting what can be of value within the same concepts in the USA to use as comparative politics • Promote ideas for bilateral cooperation on the topic Contents Executive Summary 1. Definitions of Small Businesses & Startups_______________ 9 What is formally a Small Business? What is formally a startup? What are the differences between small businesses and startups? 2. Mexico, the public policy pendulum for small businesses ___________________________________ 19 Ecosystem and public policy Needs Challenges 3. Estados Unidos, manteniendo el liderazgo innovador ____25 Ecosystem and public policy Needs Challenges 4. Bilateral agenda ______________________________________ 31 Talento International trade Innovation What are we doing in Lab4? _____________________________ 33 5 Small Businesses & Start-ups Executive Summary tartups and small businesses in Mexico and the United es share a need with large corporations States are integral to the growth of each economy. The in incorporating innovation and technol- purpose of this document is to explore formal and infor- ogy in their operations to be competitive mal definitions of both types of organizations, study their in their industries. Startups do not share Scontexts and needs on each side of the border, and how each this need because they typically are using government can design effective ecosystems and public policy. technology in their novel business mod- The primary difference between small businesses and start- el to disrupt the market, a threat to both ups is that to be classified as small there are formal guidelines small businesses and large corporations. whereas the definition of a startup is much more fluid. In both In the United States, public policy has Mexico and the United States small business criteria is based on long focused on giving support to small number of employees, annual sales and the industry - the only businesses while the private sector took difference lies in the exact formulas. A startup on the other hand the lead on cultivating startup ecosystems. does not have objective characteristics and the informal defini- In Mexico the public sector has been cru- tion relies on its level of growth and relationship to innovation cial for both groups. The difference in gov- and technology. Through interviews and formal research we have ernment engagement has created an op- identified three primary characteristics that distinguish a startup portunity for both countries to co-design from a small business: a bilateral agenda that takes into account the strengths and challenges of startups 1. Objective to grow: startups are born with the ambition to and small businesses in each country. We grow to reach many users and customers recommend the bilateral agenda focus on 2. Speed of growth: startups are able to scale exponentially, the following issue areas: growing their income with relatively small teams 3. Novelty in the business model: startups are generally orient- ● Talent: create a regional vision for the ed toward resolving an unmet need in the market workforce and train people with tools that connect supply and demand of tal- These three characteristics are crucial to understand. It ent on both sides of the border demonstrates that support services and public policy that targets ● International Trade: take advantage of these two groups are interconnected but require slightly different the USMCA to move away from focusing approaches to reach ideal outcomes. Startups are experimental solely on volume of trade between the and contribute innovation, new skills and added value to their in- countries to actually integrating regional dustries and the economy. Small businesses are integral to eco- value chains to make North America a nomic growth and job creation. While both types of organizations more competitive region globally appear similar based on size, the needs of small businesses are ● Innovation: increase the level of glob- a combination of the needs of startups and large corporations. al connectedness of the innovation and Much like startups, small businesses often compete with entrepreneurship ecosystems in each large companies that have access to more resources which cre- country to positively impact the growth ates common needs across the two groups: access to financing, and competitiveness of small business- talent and new clients. However, unlike startups small business- es and startups 7 Small Businesses & Start-ups Definitions of Small Businesses 1 and Startups 8 9 Small Businesses & Start-ups ow many times have we used a The law and formal language allows us Stratification of small businesses in Mexico word and realized too late that to give uniform and pragmatic definitions Law for the Development of the Competitiveness of Micro, Small and Medium Enterprises it means something different to to the concept of business/empresa that us than those with which we are also allows comparability between the Hcommunicating? two languages and contexts. However, In the areas of business, economics, informal definitions created through dif- Micro Small Medium and technology there are various words fering cultural lenses also influences how that refer to abstract concepts that are es- we interpret business concepts. In the Sector All Comercial Industrial and Commercial Services Industrial pecially susceptible to differing interpreta- rest of this paper we 1) elaborate on the Services tions. In Mexico it is common to hear con- formal definitions of small businesses and versations where people see startups as startups in Mexico and the United States, small businesses as well as others claim- 2) identify differences based on conver- Number of Up to 10 10 to 30 31 to 100 31 to 100 31 to 100 51 to 100 ing they are quite different. Some strongly sations with different actors of the entre- Employees defend themselves as “serious” business preneurial ecosystems of both countries, professionals, not entrepreneurs; others and 3) propose focus areas for a bilateral presume their companies are startups, not agenda. Annual sales small businesses. (millions of Up to $4 $4.01 to $4.01 to $100.01 to $100.01 to $100.01 to These gaps in understanding are What is formally a small business? MXN pesos) $100 $100 $250 $250 $250 deepened when we translate from one language to another. Each word used has Small and medium sized enterprises its own cultural evolution. For example, (SMEs) are considered the backbone of when we refer to the concept of engag- many economies, especially in Mexico and Maximum 4.6 93 95 235 235 250 Combined* ing in economic activity to earn a profit, in the United States.
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