The famous American Economist, Frank Knight said, “Profit is the reward for taking risk.” Dr. Knight argues that profit and risk are intertwined. In seeking profits, we must therefore seek risks that are attractive.
That is how Kellogg students are introduced to Risk Lab, an experiential learning course that allows students to examine the attractiveness of risk in a real-world investment decision. Last year, the course examined the opportunities and challenges facing Cuban entrepreneurs.
Carlos Castillo, who was one of the students in the course and graduated in June from Kellogg’s One-Year MBA program, took some time to talk about what he learned from the experience.
What would you say the goal of your Risk Lab project was?
Understanding that the most significant problem facing small business on the island is the cost and availability of supplies, the team worked with the Cuba Study Group (CSG) to analyze the costs of acquiring necessary capital inputs for Cuban entrepreneurs along nine different categories of government-approved enterprise.
What were you most excited about going into the project?
I selected the Cuba project to contribute to the Hispanic community while also having the opportunity to have both a business and a social impact. With recent political developments, I was confident that the result of the project was going to have a tangible impact in the short term.
What surprised you most about your findings?
The first surprising aspect of the project was the evident lack of information from the Cuban government. Initially, data collection was almost impossible and forced us to be very resourceful in order to obtain the necessary data points. Secondly, while our findings suggest that Cuba has price advantages over imports (from the U.S.), entrepreneurs continue to source from the U.S. This seems to be counterintuitive; however, it may be explained by perceived advantages of U.S. products (i.e. quality, availability, etc.)
In previous conversations, you have mentioned the project helped you realize how certain things that are taken for granted in the U.S. are much larger challenges in developing countries. What are some of those aspects you think are taken for granted?
From a research perspective, in the U.S., pricing data is readily available for almost all products imaginable. In Cuba, formal databases do not exist. The government controls the pricing of official items and there are only informal ways for Cuban people to exchange goods (i.e. Revolico.com – a website similar to Craigslist). Another interesting example is the availability of items. If I want to buy a digital camera in the U.S., I just need to walk or drive to one of the many store options and get it. In other countries, and Cuba in particular, I am at the mercy of what inventory the government stores want to hold. There may or may not be a digital camera for me to buy. And if there is a camera, it may or may not be cost prohibitive due to the high tariffs paid on imports. Lastly, and interestingly, a Cuban entrepreneur can only choose among 201 approved categories of business, and it would be illegal to start something outside of that list. In my mind, this policy stifles creativity and limits opportunity of true business breakthroughs.
What does it mean to see your research and findings being shared the way they are?
The level of interest given to the findings makes me confident that there will be additional projects to further our team’s research and increase the positive impact on the lives of current and future Cuban entrepreneurs.
Is there anything else you’d like to add?
When we started the project in September 2014, a change of the U.S. foreign policy toward Cuba was only a hope. It was something that experts thought could happen in two to three years. However, only one week after we presented our final deliverable to the CSG in December 2014, President Obama ordered the restoration of full diplomatic relations with Cuba. Talk about perfect timing!