The big idea: A couple of years ago, many Cubans couldn’t go into a restaurant. Now they are quietly opening their own eateries. In a country where private companies don’t have an identity, self-employed people are conducting “private activity.” Although the term “entrepreneur” generally is not favored, Cubans who have good ideas, a good education and are not government employees are instead registering as self-employed people.

Generating start-up equity for private activity in Cuba means relying on friends and family — sound familiar? Where it differs is that money comes in the form of remittances from expatriate Cubans. But although start-up issues may differ, Cubans are probably as entrepreneurial as almost every other start-up in the world — with a socialist twist.

The scenario: Not far from the Revolution Museum in Old Havana, a restaurant called Prado 115 opened in 2014 — in a private home. With few options for financing, the owner opened with money from her husband’s relatives in Spain. Theresa has to pay for a license to work; the cost is based on the income the business generates. The paladar (as private home restaurants are called in Cuba) has several workers, but they are not employees. The state employs the paladar’s staff. The employees pay for a permit to work. Although they are employed by the government, they can receive tips. The government regulates the number of tables allowed on the premise — much the way that local governments do in the United States.

One of the biggest challenges for a paladar is suppliers. There is no wholesale sector for restaurateurs to buy supplies cheaply. Most of the food suppliers and distributors to the paladar are owned by the Cuban Ministry of Agriculture and other government agencies. Although there is an opportunity to supply from the black market, the fines are high, with prison time for anyone caught killing cows. Or as described by one Cuban farmer, “Beef can provide you a lot of shadow.” Ensuring the paladar is stocked with items to fill the menu and controlling quality levels to produce consistent results are monumental tasks when relying on a single supplier.

The resolution: Entrepreneurs are resourceful. In Cuba, the government owns all goods produced on farms. Farmers often own the land; indeed, many plots have been passed down for generations. Some farmers, however, belong to cooperatives. Once the government has what it needs, the cooperative is free to sell on the open market. Certain paladars have tapped into these cooperatives to keep a steady supply for their restaurants. Others, such as a paladar called Mediterraneo Havana, own boats to catch fish daily.

The lessons: Entrepreneurs in any context must respond to uncertainty and shifting landscapes. In contemporary Cuba, as in Eastern Europe in the 1990s, entrepreneurs manage evolving customer expectations, tenuous and confusing legal structures and the worry that they are unprepared to respond to a potential market opportunity in their own back yard.

Gerry Yemen and
Gregory B. Fairchild

Yemen is a senior researcher and Fairchild is a business professor at the University of Virginia Darden School of Business.