What Cuba’s new wave of entrepreneurs need to know

What Cuba's new wave of entrepreneurs need to know
COMMENTARY by Russell Walker, Kyle Bell SEPTEMBER 19, 2015, 3:00 PM EDT

For a country operating outside traditional business markets and
business practices, answers to the most basic business questions aren't
so obvious.

The recent decision by the United States and Cuba to renew diplomatic
relationships is a sign not only of changes in how the U.S. and Cuba
operate, but an indication that more Cubans will be moving away from
governmental jobs and into entrepreneurial roles.

Cuba has authorized 201 job categories, and their emerging private
sector is expected to absorb the country's informal employment activity
as well as massive layoffs by state-owned entities. Many of these jobs,
not surprisingly, are service-oriented and leverage the growing and
successful tourism industry in Cuba.

But how does a Cuban entrepreneur get started?

Consider a paladar – a family owned and operated restaurant permitted by
the government. Is building one and operating one a good investment?
What capital requirements, supplies, labor, and other equipment are
needed to get started and to be successful? Might other ventures be a
better investment or better risk, given an entrepreneur's goals,
talents, and needs? In short, is a new entrepreneurial venture a good
opportunity given the many rules and regulations on its operation?

For a country operating outside traditional business markets and
business practices, the answers to these questions are not so obvious.
In fact, operating in a regime that had stifled entrepreneurship for
many years has removed examples of success and even placed limits on
access to capital and goods.

As a professor at the Kellogg School of Management at Northwestern
University, I recently examined these questions with my students as part
of our Risk Lab, an experiential learning class. We looked at real-world
problems of risk and exercise frameworks for the improved management and
selection of risk. It is not about risk avoidance but rather about
finding the right level or risk.

For the Cuban entrepreneur, risk is uniquely challenging. In addition to
byzantine governmental regulations, the availability and price of
various items are problematic. Cuba makes few things, so even basic
items, must be imported. For instance, operating a hair salon (one of
the permitted Cuban businesses) requires equipment like brushes and
lotions not made on the island. Importation duties on many classes of
items can be hefty. So deciding to borrow or to import critical goods
are some of the decisions that Cuban entrepreneurs must consider when
forming a business. We looked at the business decisions and return on
investments of these newly permitted businesses in Cuba and found an
immense need to connect Cuban entrepreneurs with international markets.

During this process, we collaborated with Tomas Bilbao, who is the
executive director of the Cuba Study Group – a non-partisan group that
works to increase the economic prosperity of Cubans.

The study findings highlight the importance of importation and access to
capital (seed money, if you will) for many Cuban entrepreneurs. The
study also led to U.S.-Cuba policy recommendations on eliminating Cuban
family remittance limits, expanding banking services in Cuba,
facilitating imports to Cuba, and prioritizing trade services such as
cargo and express mail offerings that can connect Cuban entrepreneurs to
U.S. markets.

Raising the importance of these changes is possible when looking at how
Cuban entrepreneurs could prosper under such changes. In particular,
these changes will allow Cuban entrepreneurs to access seed money from
families in the U.S. and to buy basic and necessary goods for their
businesses through importation from the U.S. These changes are
fundamentally necessary for the growth of entrepreneurship in Cuba
because of the nearly nonexistent supply of basic goods and access to
capital.

This experiential learning garnered real-world solutions to the growth
of the Cuban private sector. With the Cuban economy in great flux, the
role of individual entrepreneurs has never been greater. Providing these
entrepreneurs tools for success also provides pathways to prosperity
that have not existed to date.

Russell Walker is a clinical associate professor at Kellogg School of
Management at Northwestern University, the founder of the Risk Lab
experiential course and the author of Winning with Risk Management and
From Big to Big Profits: Success with Data and Analytics. Kyle Bell is
a Kellogg MBA student.

Source: What Cuban Entrepreneurs Need to Know - Fortune -
http://fortune.com/2015/09/19/what-cuban-entrepreneurs-need-to-know/