Meet the Entrepreneurs Breaking Into This Long-Forbidden Market: Cuba

cuba-illo-06-2016_36814

CREDIT: Edel Rodriguez

INC.COM MAGAZINE By David Whitford Editor-at-large January 30 2017

Less than 100 miles south of Key West sits a socialist country forbidden from doing business with the U.S. for 57 years. Now it’s on the brink of being opened to American entrepreneurs. Meet the ones hoping to cash in first.
“A whole litany of countries are in Cuba doing business, investing hundreds of millions of dollars. This idea that it’s not happening? It’s happening, but without us.” – Darius Anderson, founder of U.S. Cava Exports, a Napa Valley-based company hoping to sell California wines to Cubans.
CREDIT: Edel Rodriguez

The Friday before Halloween, Josh Weinstein was set to take his first trip to Cuba: bags packed, visa in hand, leased Beechcraft turbo-prop booked for Sunday pickup at Sarasota Bradenton International. Then the dispatcher called. We have verbal approval to fly to Havana, he told Weinstein, but we’re still waiting on one last stamp from the Cuban government. Don’t worry, he explained, this happens all the time. Unfortunately, the government offices were now closed for the weekend. “we’ll keep pushing,” he promised.

Weinstein is president of Witzco Challenger, a $12 million family business that builds heavy-haul trailers in Sarasota, Florida, and ships them all over the world. Witzco lost about half its sales in ’08 and ’09 during the Great Recession. That was not long after Weinstein, former treasurer of his local stagehands union and grandson of Witzco’s founder, took over the company from his aunt and uncle, and he’s been scrambling to recover ever since. Exports are a big part of his business, about 35 percent, but they’ve been slipping lately. The stronger dollar hasn’t helped.

His unlikely solution: Cuba. The forbidden market less than an hour’s direct flight from Witzco’s central Florida factory is suddenly bursting with pent-up demand. Tourism in Cuba is soaring, on pace to exceed 2015’s record 3.5 million visitors, including a growing number of Americans who find a way to qualify for one of 12 exceptions to the Treasury Department’s limits on travel. (U.S. tourism is technically still banned.) Weinstein’s betting on a construction boom, spurred by the Cuban government’s plan to double the number of hotel rooms in the country by 2020, in pursuit of economic growth. “The first thing they’re going to have to do is infrastructure,” Weinstein says excitedly. “Water, septic, cable, electricity, communications. They’re going to need heavy equipment. My trailer moves the heavy equipment.” Not exactly a Cuba expert, Weinstein wants to see for himself. “I don’t really know the market, only what I’ve been able to Google,” he says. So he booked a booth at Cuba’s international trade show, slated for the fall.

Sunday night, the stamp came through. Monday morning, he was on his way, a day later than hoped. (The first lesson anyone learns when dealing with Cuba: It’ll happen when it happens.) Forty-five minutes across the Everglades to Miami to top off the tank–gas is much cheaper in the U.S.–and then another 45 minutes across the Straits of Florida to Havana. Upon landing at José Martí International Airport, Weinstein and his posse of two–all wearing khakis and Witzco golf shirts–were met in an otherwise deserted terminal by unsmiling customs officials, who opened one of Weinstein’s bags. In it was a stash of trade-show paraphernalia–candy, logoed pens, and sales pamphlets in Spanish, English, and Russian (in case there were any Russians left in Cuba, Weinstein figured). The pamphlets raised eyebrows. Propaganda, declared one of the officials. Where is your approval? A discussion ensued. Weinstein turned on his charm. Maybe a little bit of money changed hands. “It’s the cost of doing business,” Weinstein says. “I’m OK with it.”

And the Witzco delegation was in.

Josh Weinstein, the third-generation president of Witzco Challenger, a Sarasota, Florida-based company hit by the Great Recession, is hoping to rebound by riding the anticipated tourism boom in Cuba.
CREDIT: Lisette Poole

When President Obama flew to Havana last March, it marked the first visit to Cuba by a sitting American president since Calvin Coolidge in 1928. His posse numbered more than 1,000. Among them: Brian Chesky, founder of Airbnb, Dan Schulman, CEO of PayPal, and Fubu founder and Shark Tank judge Daymond John. The president drove straight to the Meliá Habana Hotel, where he addressed the staff of what used to be the United States Interests Section of the Embassy of Switzerland in Havana (it’s a long story) but is now a full-fledged U.S. embassy. There he spoke of his desire to “forge new agreements and commercial deals” with Cuba, in line with the main thrust of U.S. policy as of December 2014, when the current wave of reforms began.

A lot’s happened since then, including the death of Fidel Castro; the removal of Cuba from the U.S. list of state sponsors of terrorism; the restoration of full diplomatic relations; the resumption of regularly scheduled flights by U.S. airlines, including American, Delta, United, and JetBlue; authorization for U.S. hoteliers Marriott and Starwood to pursue Cuba deals; service agreements involving U.S. cell-phone providers; and glory, hallelujah, the granting of permission for American visitors to bring home Cuban rum and cigars.

But that doesn’t mean Cuba is open for business. There’s still the nettlesome matter of the embargo–a dense web of constraints, restrictions, and outright prohibitions, some in place since 1960, that, despite the recent thaw, prevents anything approaching normal business relations. Most commerce between the United States and Cuba is banned outright. Everything else is a hassle. For instance, while U.S. companies have been permitted to sell food and medicine to Cuba since the Clinton administration, the U.S. government often requires Cuban customers to pay the full amount up front. (That, in a nutshell, is why Cuba buys nearly all its rice from Vietnam, rather than from nearby U.S. growers.) And if you’re an American trying to do anything in Cuba, you had better bring plenty of cash, which is all anyone accepts. Unless you happen to have a credit or debit card from Stonegate Bank–a Fort Lauderdale, Florida, institution that has a temporary continental American monopoly on Cuba-ready cards–plastic credit is worthless, and ATMs barely exist.

The embargo is like an argument that’s been going on for so long, nobody remembers anymore how or why it started. Initially, under President Eisenhower, it banned only sugar imports. After Cuba responded by confiscating the assets of U.S. companies, it was broadened to cover nearly all trade between the nations. Soon it morphed into a Cold War weapon to punish Castro for aligning with the Soviet Union, and supporting communist-led insurgencies in Nicaragua and Angola. Cuba’s dismal record on human rights didn’t help.

But attitudes toward the embargo have changed. In a CBS News/New York Times poll conducted on the eve of Obama’s Cuba visit, more than half of Americans (55 percent) said they supported doing away with it. A more recent Florida Inter­national University poll of Cuban Americans living in Miami-Dade County–traditionally ground zero for the no-compromise camp–found an even bigger majority who would be happy at this point to move on. But we’re still stuck.

Washington, D.C., attorney Robert Muse has been advising U.S. companies on Cuba for 25 years. He says that lifting the embargo is up to the United States. He equates Cuba’s position to that of an abused wife whose husband says he’ll stop beating her if she’ll start putting dinner on the table: “Her attitude, quite rightly, is, ‘It’s you attacking me! You have to stop. Then we can have normal relations.’ “

If and when the embargo is lifted, American companies need to remember what kind of market they’re dealing with. Cuba indeed dominates the Caribbean, by landmass (it’s roughly the size of Virginia) and by population (11.3 million). But it’s poor. The average state salary is $25 a month. In 2010, according to the CIA’s latest estimate, its gross domestic product per capita was $10,200, one rung up on the world ladder from Swaziland’s. That’s partly why John Kavulich, longtime head of the U.S.-Cuba Trade and Economic Council, sees “a lot of inspiration and aspiration chasing very little reality” in Cuba. Americans assume, not unreasonably, that Cubans “need everything, they want everything, and they put a period there,” Kavulich says. “But there’s a next sentence: Do they have the resources to purchase everything? Dubai isn’t 93 miles south of Florida. Cuba is.”

Even so, Weinstein and other eager Americans are stubbornly optimistic. Entrepreneurs like Saul Berenthal, for instance, a 72-year-old in Raleigh, North Carolina, who wants to sell small tractors to Cuban farmers. And Darius Anderson, a political consultant, lobbyist, and investor who’s been visiting Cuba since he was a college student, and now has a scheme to sell California wines to Cuban restaurateurs. Everybody wants to believe that we’re at the beginning of the end of an era; that no one–not unforgetting Cuban émigrés in Miami, not Fidel’s ghost, not a brash and unpredictable President Trump–can halt the momentum now. That the embargo must be, will be, swept aside, and the rivers of commerce will flow.

But Cuba is not for innocents or neophytes. “People get besotted with Cuba,” Muse warns. “If you’re a little guy, you might think that because the big guys aren’t there, you can play in those waters. It’s exotic. You’re a pioneer! All these things combine to make some people abandon basic business principles.”

“People get besotted with Cuba. If you’re a little guy, you might think that because the big guys aren’t there, you can play in those waters. It’s exotic. You’re a pioneer!” All these things combine to make some people abandon basic business principles.”Robert Muse, an attorney who advises U.S. companies on Cuba

The fairground for Cuba’s international trade show is 12 miles south of central Havana. It’s a slow cab ride, on crowded roads filled with mid­century Fords, Chevys, and Cadillacs, many of them refitted with diesel motors, not one of which would pass a U.S. emissions inspection. A mural of Che Guevara hovers omnisciently over the Plaza de la Revolución, while billboards flaunt slogans like socialismo o muerte (“Socialism or Death”) and normalizar no es sinónimo de bloquear (“Normalization and Blockades Don’t Go Together”), a blunt reminder of Cuba’s all-or-nothing stance on the embargo, which Cubans call “the blockade.”

The American pavilion is a hike from the trade show’s main entrance, in the farthest corner of the grounds, beyond the scattered remnants of past exhibitions–a petrified pump jack, a stilled windmill, a parked Air Cubana airliner repurposed as a restaurant. JetBlue banners flank the entrance. Inside, ordinary Cubans who have managed to snag coveted trade show credentials graze the American booths, scooping up free hats, pens, and pistachios. Perhaps because there is no conventional advertising in Cuba (it’s illegal), Cuban consumers are adept at ferreting out whatever’s available, wherever it can be found.

The National Auto Parts Association has a booth, looking toward the day when it can begin populating Cuba with its stores. So do a smattering of state-sponsored trade delegations representing poultry farmers, soybean growers, and the Port of Virginia; and all manner of small and midsize U.S. manufacturers, displaying motors, electronic controls, and other industrial gear, none of which are yet on the list of permissible products. The U.S. embassy’s chargé d’affaires, Jeffrey DeLaurentis, roams the aisles in a seersucker suit, chatting up exhibitors and awkwardly ducking reporters. (“There is still an embargo,” his aide explains apologetically.)

Saul Berenthal, a Cuban emigre based in Raleigh, North Carolina, was supposed to be the first American entrepreneur to build a factory in Cuba-until his company got caught in political crossfire.
CREDIT: Lisette Poole

Overall, attendance by American exhibitors is lower this year than last, when Obama’s first round of reforms created a kind of euphoria that has since dissipated. Those who have returned see the potential but understand the need for patience. Among them is investor Noel Thompson, decked out in a blue blazer advertising his ties to the U.S. Olympic Committee. Thompson is a former Goldman Sachs banker now running his own hedge fund in New York City. He’s been coming down to Cuba every few months for the past couple of years, working his way into the culture, gathering intel, developing contacts. He imagines doing a lot of business in Cuba one day-trading currencies, advising on deals, helping privatize government assets, and otherwise capitalizing on the explosion he thinks will surely come when the embargo lifts and America fully engages with Cuba’s suppressed capitalist passions. It won’t happen tomorrow, he knows, or even next year, but one day. “Maybe it’s my Goldman training,” Thompson says. “When you see a butterfly flap its wings … “

Manning a nearby booth with sunglasses propped on his forehead and an unlit cigar clenched in his teeth, another American, Darius Anderson, presides over a winetasting led by his pal Fernando Fernández, Cuba’s preeminent blender of rums and cigars. Anderson first visited Cuba in 1986 as a student at George Washington University, where he had a poster of Che Guevara on his dorm room wall. When his pals went to Florida for spring break, he went north to Toronto, from which he was able to get to Havana. His total visits since then: “Somewhere in the mid-60s,” he guesses. Every time the border agents run his passport, they ask, “Why so many times?”

Originally, he went because it was forbidden, Anderson says, and now it’s because he’s long since fallen in love with “all things Cuban: the music, the culture, the cigars, the baseball.” After college, Anderson worked for a Democratic congressman on Capitol Hill, was an advance man for Bill Clinton in California, and apprenticed seven years at the right hand of super­market billionaire Ron Burkle–a useful résumé for navigating a market in which business and politics are inseparable.

With his company U.S. Cava Exports, Anderson, 47, is trying to bring expensive wines from Napa Valley to Cuban consumers. He’s been laying the groundwork for years, hosting a seven-day tour of Napa and Sonoma wineries for his Cuban friends, and leading a party of more than 100 California vintners on an educational mission to Cuba, where they met with chefs and sommeliers. Like Weinstein, Anderson is hoping to make money on tourism. Unlike Weinstein, he’s peddling an embargo-exempt agricultural product that’s not contingent on new construction. This should be easy.

And yet, 2,500 miles northwest of Havana, in a refrigerated warehouse near Napa County Airport, sits a shipping container filled with Anderson’s stranded inventory: 1,200 cases of carefully curated California sauvignon blanc, zinfandel, pinot noir, cabernet, and chardonnay. Total value, just under $400,000. It’s been there all fall, costing him at least $500 per month, and not for want of a buyer. In fact, Anderson has one all lined up, a Cuban state-owned distri­butor willing to pay full price in advance, per U.S. law. But there’s a holdup. Anderson is waiting on final approval from the highest levels of government–in this case, Cuba’s foreign ministry.

U.S. Cava Exports is only one of Anderson’s ventures at the moment, so he has the luxury to wait this bureaucratic purgatory out. He still sees a chance to have “a real, viable business and grow it over time.” The rest of the world is already here, he points out. Not just Cuba’s biggest trading partner, China, and Spain–it’s oldest–but also Brazil, Canada, Mexico, the Netherlands. The list goes on. “A whole litany of countries are here doing business,” Anderson says. “They trust the system well enough to invest hundreds of millions of dollars. This idea that it’s not happening? It’s happening, but it’s happening without us.”

At least twice since the late ’90s, emissaries associated with Trump companies have visited Cuba to scope out investment opportunities for hotels and golf courses–acts that may well have violated the embargo.

Saul Berenthal went to high school before the revolution. He was born in Havana, where his parents met after fleeing the Nazis in Eastern Europe. His father worked his way from Holocaust refugee to sole GM parts supplier for Cuba, which helped land Saul at the elite Havana Military Academy. In 1960, his parents sent their 16-year-old son to study in the United States. They visited him the following year, expecting to stay for a few months. Then came the failed Bay of Pigs invasion. Suddenly, they were unwilling to return to Cuba, refugees once again, this time in America.

Bespectacled and trim, still at home in a loose-fitting guayabera, Berenthal has a complicated relationship with his birthplace. He belongs solidly to the generation of exiles whose grim resolve and political clout have defined U.S. aggression toward Cuba. But he’s also become a full-fledged American, having had spent 18 years at IBM, where he met Horace Clemmons, his future business partner. They bonded over their frustration with IBM’s stubborn attachment to proprietary product lines when the future was all about open-source computing. “We worked hard, lived the American dream, created three companies and sold them, and set ourselves up for a nice retirement,” says Berenthal.

But, a couple of years into retirement, Cuba beckoned, and starting in 2007, Berenthal was finding excuses to visit his birthplace. “It was curiosity more than anything,” he says. The surprise was that he felt instantly at home. The language, the mannerisms, the customs, the operating in a culture where it’s hard to make appointments (“You’ll be here next week? Look me up”) and a meeting might not happen because somebody’s car won’t start or he can’t find gas. Where checking email on the fly means locating a Wi-Fi hotspot and making sure you’ve got enough minutes left on your government-issued access card. “Not very well organized, but I understand why,” says Berenthal, revealing a trace of his native Spanish. “People take care of things as they come up. They don’t know where they’ll be at any time until it’s that time.”

Berenthal still knew people who knew people in Havana. He was introduced to professors in the economics department at the University of Havana, organized academic exchanges, and got involved in studies that led to Cuba’s accelerated reengagement with the global economy in 2011. But it was Obama’s dramatic announcement on December 17, 2014–“Today, the United States of America is changing its relationship with the people of Cuba”–and the policy changes that followed that convinced Berenthal it was time to reunite with his old partner, Clemmons, and come up with a business idea for Cuba.

Berenthal knew that an American company could succeed in Cuba only if it was sensitive to the socialist country’s motivations for doing business with outsiders. Cuba is not interested in inviting foreign companies in to make a few players wealthy. If Cuba is to embrace capitalism, it will be on socialist terms: to generate revenue and become less dependent on imports, and so protect what Cubans consider the lasting achievements of the revolution–free education, free medicine, subsidized housing, and subsidized food.

U.S. entrepreneurs are beginning to visit Havana in anticipation of trade restrictions being lifted. CREDIT: Michael Christopher Brown/Magnum Photos

Clemmons, a farm boy from Alabama, thought of tractors. Inexpensive tractors designed to meet the needs of small farmers in a poor country that’s rich in arable land but where many still work the land barefoot, behind a mule or an ox, without basic equipment. An alternative to a company like John Deere, which could come into Cuba with an expensive, proprietary product. Instead, Cleber, as their company is called, would assemble tractors according to open-source manufacturing principles, using standard components, making them easy to maintain and infinitely customizable. By creating an opportunity for Cubans to build an ecosystem of products around Cleber’s tractor, they would help kick-start the creation of a homegrown agricultural manufacturing industry.

Berenthal and Clemmons proposed building their tractor factory in Mariel, a planned economic development zone about an hour west of Havana. When Cuban officials expressed support, the pair began working to persuade their own government to create an opening in the embargo that would allow them to proceed. “We spent a lot of time in the Office of Foreign Assets Control and the Department of Commerce, trying to get it through,” says Berenthal. In February 2016, after months of meetings, they succeeded. Cleber won U.S. approval to build the first American-owned factory on Cuban soil since the revolution. It was a happy story, shot through with hopeful symbolism, coinciding perfectly with the Obama administration’s initiatives. They even got a shout-out in a White House press briefing.

But they still needed final approval from Cuba, and by last summer, Berenthal didn’t like the signals being sent from officials at Mariel: pushback on environmental standards and workplace safety, and worrisome doubts about whether Cleber fit with the development site’s larger goal of promoting high-tech manufacturing. Berenthal was baffled. None of the other projects in the Mariel pipeline–cigarettes, cosmetics, meatpacking, none of them U.S. backed–were obvious ways to achieve that goal. Here he was, trying to persuade higher-ups who opposed a simple, practical idea that somehow threatened them. He had flashbacks to his time at IBM. “Everybody is acting in their own best interests,” says Berenthal. “IBM wanted to protect the proprietary lab where they were building the proprietary technology and not accept change, because that would mean loss of power or prestige or even their jobs.”

In late October, Berenthal drove to Mariel for a meeting with development zone officials. “They were very cordial,” Berenthal says. Then they proceeded to tell him that after much consideration, they had decided not to approve Cleber’s proposal after all.

If Cuba were to embrace capitalism, it would be on socialist terms–to protect what Cubans consider the lasting achievements of the revolution.

Weinstein had a good trade show. He didn’t arrive until late on the first day–after the delay at customs, and an errant cab ride to the wrong fairground–but he hit the ground running. Within an hour, every bottled-water peddler in the building had a Witzco bumper sticker on his cooler, and most were wearing Witzco baseball caps. He made no actual sales to actual Cubans, of course. The embargo forbade him, which he knew going in. But he met a lot of people there, and went home happy at the end of the week with a long list of proposals to prepare for buyers from Canada, Panama, Mexico, Belgium, and Spain.

Then history happened. Days after the trade show ended, Donald Trump was unexpectedly elected president. Then Fidel Castro died. Suddenly American entrepreneurs with dreams of doing business in Cuba were forced to reevaluate everything.

When it comes to Cuba, Trump the politician appears to have a different mind than Trump the entrepreneur. At least twice since the late ’90s, emissaries associated with Trump companies have visited Cuba to scope out investment opportunities for hotels and golf courses–acts that may well have violated the embargo. Since the election, however, Trump’s been all bluster and ill will. When the news broke of the former dictator’s passing, he tweeted gleefully: “Fidel Castro is dead!” He soon followed up with, “If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.”

In reality, Trump’s tough talk is off base. As attorney Muse points out, there is no Obama-era “deal” between the nations. Only a “series of rolling measures” issued from various realms of the federal government that would be next to impossible to untangle one by one, and which few Americans object to anyway. But what Trump could do, says Muse, is “go big and go unilateral,” in a way that plays to his strength. That is, he could leapfrog Obama’s measured steps toward normalization by announcing his willingness to negotiate America’s $1.9 billion in outstanding property claims against the Cuban government as a “necessary predicate” to ending the embargo once and for all. “Where the embargo began is where the embargo should end: With a resolution of the certified claims,” Muse says.

After the Cuban government derailed Berenthal’s factory plans, he was discouraged but not devastated. He understands why his company, in which he and Clemmons have invested $5 million, was used as a political pawn: Cuba wants the embargo gone; as long as it remains in effect, Cuba has little incentive to grant piecemeal exceptions that reduce the pressure on Congress to demolish it once and for all. At least, that’s the best explanation he or anyone else can come up with to justify what happened.

So Berenthal and Clemmons have shifted plans. Now they’re building tractors for export at a factory in Paint Rock, Alabama. Clemmons, the more frustrated of the two, is focusing his energy on selling them to other markets–small farmers in Australia, Ethiopia, and Peru. Meanwhile, Berenthal’s contacts at Mariel have told him, “Commercialize your tractor and your products, and bring them to Cuba,” and he’s taking them at their word. Cleber’s new business model may in the end be more lucrative, albeit less transformational for Cuba than Berenthal had hoped for.

Still, there’s one more wild card. Cuba’s current president, Fidel’s brother Raúl Castro, is scheduled to end his term in 2018. “In my opinion,” says Berenthal, “this will trigger the final removal of the embargo.” Castro’s likely successor, Miguel Díaz-Canel, was born nine months before the revolution. If there’s going to be real change–generational change–in U.S.-Cuba relations, that’ll be the turning point. “I hope others will take the long view and continue the efforts to bring the two countries together through commerce,” Berenthal says. He understands, as best as anyone can, how it works in Cuba. That things happen when they happen. But, eventually, they do happen.

FROM THE FEBRUARY 2017 ISSUE OF INC. MAGAZINE

LINK: Meet the Entrepreneurs Breaking Into This Long-Forbidden Market

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