Thursday, May 21, 2015

Will the nascent Cuban startup community thrive?

The first meetup of the Merchise Startup Circle will be held in Havana on May 23. The event is being organized by a couple of Cubans who have worked abroad and hope this is the first of many meetings for people interested in startups, tech and entrepreneurship.

Can Cuba develop a vibrant tech startup community? Cuba may be short on financial capital, but that be raised fairly quickly -- Cuba's human capital has taken years to develop.

A successful software industry requires trained, demanding users and skilled technicians and Cuba's long-standing emphasis on education leaves them with both. As an indication of their commitment to education, Cuba spends 12.8% of its GDP on education -- the highest rate in the world -- and the Cuban literacy rate is 100%.

The United Nations Development Program reports a human development index (HDI) for every nation annually. The HDI includes components for health, economy and education and the only nation in Latin America and the Caribbean to out rank Cuba on the overall HDI and the education index is Chile. (Chile and Cuba rank 43rd and 44th on the HDI and 49th and 50th on the education index).

Cubans are generally well educated, but are they "trained, demanding users of technology?" Internet connectivity is nearly non-existent in Cuba and relatively few have sporadic, slow access to the Cuban intranet, but there a long history of promoting computer use and literacy among the youth. In 1987, Fidel Castro agreed to create 32 Youth Clubs of Computing and Electronics (YCCs) for promoting and teaching computer technology. As shown below, he expressed his envy of the young people at the dedication the YCC headquarters, which occupied the ex-Sears store in Havana (prime real estate) and his support has continued.

Fidel at the opening of the YCCs

Today there are 611 YCCs and over 2.25 million adults and kids have completed their courses. The YCCs are distributed throughout the island, not concentrated in one or a few large cities -- a common pattern in developing nations.

Of course, Cubans have some Internet and intranet experience. Most is at work or school, but there are also paid Internet access "CyberPoints." It is noteworthy that ETECSA (Cuba's single provider of Internet and telephone access) plans to increase the number of Cyber Points from 155 to over 300 by late this year -- evidently there is demand for slow Internet connectivity even if it costs as much as a week's salary per hour. (I would be curious to know who the users are and how they are using it. That would be an interesting survey).

Trained users will demand and shape tech products, but what about developers? The YCCs trains and supports hackers as well as users. Their Free Technology Users Group is active in information exchange and support of development. For example, they have been involved in developing and contributing content to EcuRed, Cuba's faux-Wikipedia. This photo shown below was taken at a 2015 users group freeware festival.

2015 Latin American Freeware Festival in Havana

In a 2011 report on the state of the Internet in Cuba, I looked at Cuban universities and found their general enrollment rates and expenditure per pupil were high, another indicator of potential user demand, but what about technicians? In 2011 Cuban universities produced 5,407 technical science graduates and 572 in natural science and mathematics. One university, the University of Informatics Sciences (UCI), which specializes in information science has graduated 12,648 engineers in computer science since it was founded in 2002.

In my 2011 report, I compared the UCI curriculum with the computer science curriculum at Carnegie Mellon University and found that
The work-study balance – ten semesters of professional practice and three studying business topics – differentiates UCI from U. S. universities. Students are expected to work on useful applications in education, health, sport, and online government -- writing software, building Web portals and developing multimedia products.
While they may not have experience with the latest technology, Cuban graduates should be ready to do practical work and good students may gravitate toward startups since state enterprises are the only alternative source of employment.

Even without domestic users, outsourcing can help bootstrap a tech community and Cuba's outsourcing prospects look good. Cuba is close to the large U. S. market, is in the Eastern time zone and there are many Cuban expats in the U. S. and elsewhere with professional and family ties to Cuba. Cuban developers have been doing small-scale, sub rosa work for U. S. firms for some time, but now that we have approved work by independent Cuban programmers (as opposed to state enterprises) that work can expand openly.

UNDP HDI and education ranks
I checked the 2014 A.T. Kearney Global Services Location Index™ and it turns out that the top ranked nation for outsourcing is India and Mexico (4th) and Chile (13th) are among the top 15. Given their UNDP Human Development and Education indices, Cuba looks like a formidable competitor to all three.

I've focused on tech and education to this point -- what about Cuban culture?

Of necessity, Cubans are resourceful. The old cars that Cubans have managed to keep running are as well-known as Cuban cigars. Homebrew computers are common. Before the government cracked down, homemade TV dishes were ubiquitous in Havana. There are even illegal satellite links in Cuba. These are a few examples of Cuban resourcefulness in the face of constraints. For more, watch this video:

The legacy of years of socialist rhetoric might also contribute to the success of a startup community. The early ARPA/Internet community or Silicon Valley in the 70s and 80s provide examples of success that was partially due to a somewhat idealistic, cooperative culture and a sense that the participants were doing something important.

When the PC revolution was just getting under way, computer clubs sprung up around the country. One, the Homebrew Computer Club (HCC) met in an auditorium at Stanford University in the heart of Silicon Valley. The meetings featured a "random access" session during which people stood up to ask for help or offer to share information. At one meeting I attended, Steve Wozniak offered schematics and a parts list for anyone who wanted to build a copy of the single-board computer he had designed, while his partner Steve Jobs stood at a table showing off wire-wrapped versions of the machine. After the meetings, "competitors" met at a hamburger place in Menlo Park (I forget its name) to talk about their latest S-100 but boards.

Random access session at the Homebrew Computer Club

The early Silicon Valley user/maker community was very much influenced by the "counter culture" movement that valued sharing, cooperation and appropriate technology. The Whole Earth Catalog ("access to tools and ideas"), The People's Computer Company and the Community Memory project and later the Whole Earth 'Lectronic Link exemplified the values in the Silicon Valley.

Might the Merchise Meetup and the YCC Freeware Festivals turn out to be Cuba's HCC?

I've been painting a rosy picture -- talking more about what I would like to see happen than what I think will happen -- "Silicon Malecón" faces many obstacles.

Readers of this blog well know the sad state of Cuban Internet connectivity. As neuroscientist Frances Colón, acting science and technology adviser to Secretary of State Kerry says, "More than anything else, Cuban science and technology entrepreneurs need connectivity to finally move into the 21st century of scientific discoveries and technology development."

A lack of capital is another obvious problem, but Cuban entrepreneurs with good ideas and organizations will be able to attract capital if government polices encourage foreign investors. That being said, the Cuban economy is already looking up with easing of tension with the U. S. and Cuba may find it desirable to finance significant parts of its own Internet infrastructure.

A lack of business and marketing experience may also hinder Cuban entrepreneurs. That should be mitigated by close ties between Cubans and the expat community. Business schools are also eyeing Cuba. There is also Proyecto Cuba Emprende, which offers "training and advisory services to Cuban entrepreneurs who wish to start or improve a small business in order to contribute to the development of an entrepreneurial culture, social progress and to improve the quality of their lives."

The biggest problem for the startup community may be Cuban bureaucracy and the power of incumbent state software enterprises. Will the government stifle startups with micromanagement and regulation (as exemplified by their list of jobs eligible for self-employment) and taxes? Will politically entrenched state software enterprises like Albet and Desoft view startups as competitors to be beaten or will they be a training ground for future entrepreneurs? (This is similar to the question of the infrastructure policies of ETECSA).

I've mentioned some of the things the Cuban startup community has going for and against it. Let's hope it takes off.

Update 5/26/2015

The Merchise Startup Circle meetup was held last Saturday. Over fifty people came -- there would have been more if they had had more space (and a larger pizza and beer budget :-).

An elegant meetup setting

Two of the organizers, Alex Medina and Medarado Rodriguez welcomed the attendees (the third, Rodney Hernandez was out of the country and could not attend). 

Alex medina (l), Medardo Rodriguez (r)

More meetups are planned and you can see more tweets and photos from this one here.

Update 6/2/2015

The Cuban government has approved new measures for private, non-agricultural cooperatives.

They will now allow cooperatives a year to hire workers (it had been 3 months) and are studying 205 proposals to create new cooperatives.

Since 2012, 498 private non-agricultural cooperatives have been established (347 are still operating) and the authorities are presently studying 205 proposals to create new cooperatives.

Cooperatives are allowed to have Internet accounts, but do any readers know if any of these cooperatives -- existing or proposed -- involve technology or the Internet?

Bus from the cooperative Taxi Rutero

Update 6/30/2015

The date has been set for the second meetup of the Merchise Startup Circle in Havana.

Update 7/12/2015

The Miami Herald has published an article profiling several Cuban software startups. It describes their applications and the difficulties they face. A "window" is starting to open for Cuban software startups -- how long until it is closed by established competitors -- from the US and other nations or Cuban state software enterprises?

Update 8/4/2015

The second Merchise Meetup was held last Saturday. Read about the meetup here, see photos of the meetup here and check out all the tweets here.

It sounds like it was a great meeting with good speakers and a lot of enthusiasm. Here are a few quotes from folks who were there:
  • Cuba still lacks high-level Internet infrastructure, but it is full of programming talent.
  • I attended the event it was great. The technical knowledge is very strong.
  • Lots of smart people *already* doing lots of interesting things... instead of just waiting :-)
  • Bold prediction we will see better startups out of #habana than #miami in the coming years
  • It was great talking with so many engaged and interesting people. Thank you for your contribution and support!
  • Fantastic to hear investment topics described in an enlightening and entertaining way.
  • Awesome words of startup wisdom by @ubaldo, co-founder of Many thanks!
  • Awesome ... Over 50 techies for 5 hours.

Update 8/13/2015

The C.A.A. Foundation is sponsoring four Cuban student internships at a Manhattan tech incubator.

C.A.A. founder Miles Spencer, four Cuban interns and advisor John Caulfield, former
chief of mission at the US Interests Section in Havana.

They are the first interns in the C.A.A. Innovadores program, which seeks to provide opportunity, networking, mentoring and resources for promising innovators in Cuba.

C.A.A.'s first initiative is "to offer Cuban Innovators fully underwritten opportunities to intern and study with some of the best incubators and boarding schools in the Science and Technology space in the United States."

For more on the program, check this article from Forbes, and watch the following video:

Update 8/14/2015

Nearshore America has published a market research report on Cuba's IT infrastructure, policy and software development community.

The report is written for those interested in outsourcing IT work to Cuba and it costs $749, but the atypically interesting executive summary is free.

The report includes results of a survey of Cuban IT professionals (half of whom report that they are already doing work for foreign clients). Here are a couple of figures summarizing characteristics of the developers who were surveyed:

Update 11/9

The Cuban software entrepreneurs shown below (left to right), Robin Pedraja, Vistar Magazine; Luis Manuel Mazorra, CiberCuba; Hiram Centelles Revolico and Elio Hector Lopez "The Transporter" from El Paquete Semanal spoke Thursday in Barcelona. They told how their businesses work and described their plans.

You should check the post out, but a couple of things caught my eye. It says that El Paquete is paying taxes in Cuba. We've speculated on reasons for government tolerance of El Paquete -- reducing demand for Internet access and providing employment -- and it seems the government is also sharing in the revenue through taxes. (There has even been speculation that El Paquete is government run).

Revolico and CiberCuba pay taxes and employ people in Spain, where they were established. There was no mention of Vistar taxes, but it has 23 employees in Cuba. Revolico has 7 million page views per month, with 50% of the traffic from within Cuba. It has 25,000 ads daily and is profitable.

Update 12/2/2015

There will be a meetup in Miami featuring the founders of five Cuban startups: Hiram Centelles - Co-founder, Fonoma, Revolico & Yagruma, Marta Deus - Founder, Deus Expertos Contables, Yondainer Gutierrez - Founder, Alamesa, Ubaldo Huerta - Co-founder, Fonoma & Yagruma, and Elio Hector Lopez (el Transportador) - Creator, El Paquete Semanal. Ted Henken will be the moderator.

You can see their bios here.

Update 12/9/2015

You can read about the Connecting Cuba meetup featuring five Cuban Internet entrepreneurs here and here or watch the following archived live-stream video.

Update 5/22/2016

Merchise has been organizing startup activities and meetups in Havana and is in a partnership with Stripe to help Cuban entrepreneurs export their goods and services -- commercial activity. But, they began as a programming research group and are now returning to their roots as organizers of MonadLibre V2016, a conference on functional programming, in August. I've not followed functional programming since playing a little with LISP as a student, but they seem to have invited a number of well known speakers from Haskell and related communities.

Update 5/25/2016

Cuba is going to legalize small and medium sized businesses, but there are many open questions -- what is the difference between a small business and a cooperative or a self-employed person who hires others, what about taxes, can someone who is not a Cuban to make an equity investment in a small business, could a small business own an office space and hire Cubans directly, how small must a business be to qualify as "small or medium-sized," will they be allowed to compete with state-owned enterprises, etc.

For a tech-related example -- could a non-Cuban provide capital to establish an offshore programming business in Cuba? Cuba already allows self-employed computer programmers -- has this law changed anything for them?

The answer to such questions may become clearer when Cuba's National Assembly approves the proposed law.

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