AN ENTREPRENEUR IN TIJUANA

A Mexican entrepreneur tries to remake his hometown of Tijuana.

Ramon Toledo is embarrassed by his bodyguard. The silent, burly man has trailed us from the Tijuana offices of Toledo’s company, Busca Corp., to a technology co-working space and then to a seafood restaurant. The man does not enter the buildings, but remains outside with the vehicles.

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“He works for my family,” says Toledo when asked. “He’s been with us a long time. I don’t need him, I really don’t. But my family, they insist . . .”

The Tijuana that requires a wealthy businessman like Toledo to have a bodyguard is not the city that the entrepreneur wants to show a visiting reporter and photographer. That’s the Tijuana that was rocked by horrific drug wars as recently as three years ago. The one with gunfights in public thoroughfares and headless bodies hung from overpasses, violence that replaced the city’s tequila-soaked image with something far worse.

No, the Tijuana Toledo wants to showcase is the one with a small, but growing population of tech entrepreneurs, one where workers do more than assemble products for companies headquartered in other countries. He believes in a new identity for Tijuana, one inescapably tied to the United States, but out from under its giant shadow. It’s a campaign Toledo is uniquely qualified to lead.

Straddling the border

Toledo lives in San Diego. Legally, his company, Busca Corp., has its headquarters there. But his heart and soul are in his hometown of Tijuana.

“I just see Tijuana with so much potential,” he said. “The image was tarnished and it managed to reinvent itself tourist-wise. Now it has to bring back investors and new companies that can benefit from what it can offer.”

Toledo, 42, resembles a shorter George Clooney and he has the charm and polish of the former diplomat he is. He comes from a wealthy family that made its fortune in Baja California real estate. He was director of foreign capital for two Mexican brokerage houses, but after the Mexican economy crashed he moved to Switzerland in 1997 and earned his master’s degree. He ran the Economic Affairs Department at the Mexican Embassy in Geneva where he met and married a Swiss woman.

From Switzerland, he watched the Internet explode, a boom in which Mexico played virtually no part. He moved to La Jolla in 2001 (his Swiss wife wanted no part of Tijuana) and joined the family real estate business, getting rich selling Baja condos to wealthy Americans. When he had earned enough to fuel his dream, he founded Busca Todo in 2006.

His vision was big and, he admits, foolish — a Spanish-language search engine to rival Google. Once it suffered the same fate as all Google rivals, he looked around for other opportunities.

He knew that News Corp. in 2005 bought the video game site IGN for $650 million. There was nothing comparable in Latin America. So he bought LevelUp, a small gaming blog in Mexico City, and moved its two operators to Tijuana. He invested in it, adding reviewers and producing a weekly game review show. It won “Best 2.0 Site in Mexico” in 2008 and “Best Entertainment Site” in 2010 from the Mexican Internet Association. It’s now the predominant Spanish-language gaming site in Latin America and in the U.S. Hispanic market.

Toledo seized other opportunities. He bought a “YouTube wannabe” called MetaTubefrom a pair of guys in Texas, added a Spanish translation to it, and it now draws more than 3 million visits a month.

In late 2010, Toledo went into business with the Union-Tribune, the daily newspaper in San Diego. The U-T has a weekly Spanish-language version, but did not even have a bureau in Tijuana.

Toledo’s solution was SanDiegoRed.com, a Spanish-language news site that translates the top stories from the U-T and does its own reporting in Tijuana and Baja, including video. The Mexican Internet Association awarded it “Best News Site” last year.

Busca’s newest site is Qore, a Spanish-language tech site similar to Gizmodo and built on a new proprietary platform to which the other sites will soon switch.

There is an underlying pattern here: 1. Identify a successful English-language website. 2. Check to see if a Latin American counterpart exists. 3. If not, create it. It’s worked well enough for Busca to partner with Yahoo!, MSN Latino, Sony, Playboy and Televisa, the Mexican media conglomerate.

“We always look for a proven, successful business model, we look for a necessity in the Mexican and Hispanic markets, and try to look for blue ocean business scenarios where there is room to grow with very little competition,” Toledo says.

Selling Tijuana

Toledo had an ulterior motive for starting SanDiegoRed. He was tired of what he saw as a relentless stream of negative coverage of Tijuana and Baja in the Union-Tribune. “The San Diego (paper) was basically bashing San Diego and Baja California so bad every day talking about the killings and the murders and please don’t go (there). And I said what can I do here to help? How could I change this?”

He added to the website a section called The Real Baja, which highlights wineries, the trendy Baja-Med cuisine, B&Bs, music and upscale tourism, a side of Baja most outsiders are unfamiliar with. And San Diegans are crossing the border more frequently. While still violent, Tijuana is more peaceful than it was a few years ago, partly because of a federal crackdown and partly because of an apparent truce between the Sinaloa and Tijuana cartels.

The Union-Tribune recently extended its contract with SanDiegoRed for another two years. “It’s a really good marriage,” says Publisher and COO Mike Hodges, adding that Busca has improved the volume, depth and variety of the paper’s Baja coverage. “They’re obviously based there so they can jump on a story right away.”

For decades, the relationship between San Diego and Tijuana was simple, if imbalanced. Tijuana was where San Diegans went to party and San Diego is where Tijuanans went to work, shop and, sometimes, study. More than 8 million pedestrians and 11.5 million vehicles last year made the San Ysidro border crossing the busiest one in the Western Hemisphere.

Toledo drives his white Mercedes SUV from his home in San Diego to Tijuana every weekday, skipping the long waits at the border with a SENTRI Pass, which lets pre-screened drivers pass through unchecked.

Tijuana is the perfect place for software development and digital media, he says, because its programmers can speak and code in Spanish and English and are equally comfortable in either culture.

“Tijuana has everything,” he says. “It has something that Mexico City, even with 22 million people, doesn’t have. It has a bilingual culture. We all grew up thinking like Americans, but being Mexican. We have the best of both worlds.”

While Busca’s sales and editorial operations are in Mexico City, the programming is done in a cramped two-story building on Calle Brasil in Tijuana. Inside, young developers slump before monitors, Red Bull or coffee at hand. They are grouped by website – LevelUp over here, Metatube over there. Lunch is provided so the programmers don’t wander far from their keyboards. Toledo even provides free housing for some in the apartment building he owns next door. Hundreds of university students apply for six-month, government-subsidized internships at Busca and, after the tryouts, Toledo hires the best – a cheap way to keep the talent flowing.

Some do leave, eventually. Toledo says he is proud that recent Startup Weekendcompetitions in Tijuana have been won by former employees of his while others have gone on to work for Google and Netflix.

The Cortés Syndrome

Though Busca employs only 70 people and its projected annual earnings of $2.5 million are paltry by Silicon Valley standards, the company is an unparalleled success in Tijuana. We got a taste of Toledo’s star power during a visit to Baja’s Innovation and Technology Center in Tijuana, where he is greeted with hugs and backslaps by the entrepreneurs there.

A former grocery store, the BIT Center was remodeled last year by the government into a 100,000-square-foot co-working space for tech startups. It also has room for development classes and networking events. All polished concrete floors, sharp angles and glass, it is sleek, ultra-modern – and largely empty.

Thirty-two startups are sprinkled throughout its cavernous two levels, but there is room for 120 more, estimates Director Claudio Arriola, who says he is not discouraged by the low occupancy. Many startups can’t afford to finish the spaces or the rent. But Arriola is sticking to his guns, turning down offers from call centers and keeping space open for the startups he is confident will arrive soon.

Also at the BIT Center that day was Ulises Elias, who operates Mexican Innovation Development (MIND) Hub in Tijuana, the first tech incubator in northwest Mexico. It was started by ArkusNexus, a software and IT consulting firm based in Tijuana, but, like Busca, with offices in San Diego.

Elias, who is launching his own startup, said Mexico does not have the sort of culture that allows an entrepreneur, a developer and a designer to bump into each other in a coffee shop, swap ideas and form a company by the time their cappuccinos have cooled. Would-be tech entrepreneurs come to him every week with ideas, he said, but no idea how to connect with the developers and designers needed to make them a reality.

“In Mexico,” he said, “we are just beginning to do that. We don’t really trust each other when it comes to starting a business.”

Many of the essential ingredients for high-growth entrepreneurship are in short supply in Mexico – venture capitalists, mentors, tech experience, networking, a history of IPOs and mergers and acquisitions, and the kind of success stories that inspire others to take a chance.

When Angel Ventures Mexico (offices in Mexico City, Puebla, Sonora and Tijuana/ San Diego) formed in 2008 it couldn’t find enough angel investors with a tech background, so it had to tap people from the real estate, manufacturing and natural resources industries, the traditional sources of Mexican wealth, but not necessarily those best equipped to foster tech startups. “It has been hard for us to find (tech) investors; they want to see something tangible,” says Miguel Marshall, director of the Tijuana/San Diego chapter.

Progress has been slow. In four years, the group has reviewed 390 business plans, but funded only 11. Most of the plans were unsophisticated and didn’t include exit strategies, Marshall said, something he attributes to a shortage of mentors and networking.

Yet, for whatever failings Mexican entrepreneurs have, the biggest problem is that there aren’t enough of them. While more and more young Americans start companies, their counterparts south of the border don’t harbor the same dream.

“What we have to do is try to change the mindset of the people,” says Elias. “We need to convince them that they don’t have to use their talents to work for someone else, that they can go to work for themselves as entrepreneurs.”

Mexican entrepreneurs suffer from Hernando Cortés Syndrome, Toledo says, referencing the Spanish conquistador who toppled the far-larger Aztec empire in the 1500s. The Mexican inferiority complex leaves entrepreneurs feeling they cannot duplicate what’s being done in Silicon Valley, Boston and elsewhere, he says.

That’s why Busca’s corporate headquarters are in the wealthy San Diego neighborhood of La Jolla. “If you hand someone a business card with Tijuana on it, they laugh. But not if it says La Jolla,” Toledo explains.

That sense of inferiority can be particularly strong in Tijuana. Mexico City, its cosmopolitan neighbor to the south, thinks it’s a hick town while its neighbor to the north regards it as a combination of dangerous playground and sweatshop.

Everyone agrees that Tijuana needs more entrepreneurial success stories like Busca. When he speaks to students, Toledo tells them entrepreneurship is hard work, but persistence brings success.

It’s hard to avoid the feeling that the tech community in Tijuana can’t wait for Toledo to sell Busca and become an angel investor. Toledo says his original intent was to exit Busca in four years, but three years and a few offers later, he says he’s having too much fun to stop.

“At first, to be honest, I did it, it was for the money — at first,” he says. “Now, I basically do it for the journey. It’s a great journey. When I go to Seattle and sit down with a guy from Microsoft, I’m a little kid from Tijuana . . . It’s Ramon Toledo and they’re opening the doors and there’s a badge for me and I sit them down and talk how we can do more business and how we can create better content and I would never have thought about that, to be honest.”

Two cities, one region?

Talk to anyone in Tijuana about entrepreneurship and they will ask if you’ve read Chris Anderson’s January opinion piece in the New York Times. The former editor of Wiredwrites about why, upon starting a drone company, he decided to open the manufacturing plant in Tijuana and base corporate and R&D in San Diego.

“What all these pieces add up to is a model — one that might hold the long-sought answer for how American manufacturers can compete with those in China, India and the next generation of economic powerhouses,” Anderson wrote. “That’s because the TJ template isn’t so much about outsourcing as it is quicksourcing. And that’s also the way to create thousands of good jobs in the United States. As any entrepreneur can tell you, the shorter and more nimble a supply chain is, the better.”

In fact, the model is nothing new. The Mexican side of the border is thick withmaquiladoras, foreign-owned factories that import parts, assemble them and ship them back out, free from tariffs. Though the program started in the 1960s, it exploded in the 1990s after the passage of the North American Free Trade Act. The enormous plants churned out TV sets, appliances, electronics and automobiles.

The maquiladoras were hurt in the past decade when manufacturers moved operations overseas in pursuit of even cheaper labor. However, the rising costs of transportation and labor in Asia have manufacturers turning again to Mexico to produce aerospace components and medical devices. The estimated 5,000 plants employ approximately 1.85 million people.

After years of administrations that kept Tijuana at arm’s length, new San Diego Mayor Bob Filner, a former congressman from the border area, is embracing the relationship. The city has opened its first office in Tijuana and the mayor has pledged to promote increased ties at every level, from reducing border crossing times to perhaps a shared area code. Economic ties between the two cities are only going to get stronger, said Mario Lopez, director of bi-national affairs for the San Diego mayor.

The two cities have even submitted a bid to co-host the 2024 Summer Olympics. While the Olympics do not now allow two countries to mount a joint candidacy, Filner and his Tijuana counterpart, Carlos Bustamante, are lobbying to change the rule and have asked La Jolla resident Mitt Romney, who oversaw the 2002 Winter Olympics in Salt Lake City for help.

The time is right for Tijuana’s economy to diversify. The economic mainstay of tourism has been staggered successively by 9/11, 2009’s H1N1 flu pandemic, a requirement that American visitors have passports and, of course, the drug violence.

But Toledo and others want Tijuana to grow beyond tourism and manufacturing – and they want San Diego’s help to do it.

Marshall from Angel Ventures Mexico says he would like to see more bi-national companies with founders from both cities and an acknowledgment that the Tijuana tech community has a lot to contribute.

San Diego’s well-developed entrepreneur network should push south, Toledo says.

“We desperately need mentors, advisers and success cases and if San Diego has several of these, why can’t they just take a monthly trip and open all these bright minds in Tijuana and just tell them they can do it,” Toledo says.

In the meantime, Toledo will continue to preach the Tijuana gospel on both sides of the border.

“Mexico, Indonesia, Singapore and Turkey are supposed to be the new Chinas. So it’s just a matter of time until some people start looking at us like that,” he says.

 

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