Travel to Old San Juan, Puerto Rico, and you'll find ice cream lovers lined up to buy artisanal gelato and sorbet Popsicles in tropical flavors such as pineapple, papaya and coconut at the colorful shop Señor Paleta.
Señor Paleta, founded in 2014, has grown from a tiny operation selling at festivals and private events into a profitable company, surrounded by new and exciting businesses springing up in the area's century-old buildings. Today it employs 40 people at four locations, generating nearly $1 million in revenue. Despite Puerto Rico's debt crisis, the company is now in a position to consider manufacturing.
"Everyone was always saying that in crisis there are opportunities," says co-founder Ramon Ortiz, a pharmacist by training who launched the business with physician Jennifer Serrano. "I thought once we validated our product, got our clients and were seeing some sales, we could build on that."
Señor Paleta is just one example of the scalable firms started by local entrepreneurs that are blossoming in Puerto Rico despite the challenges of a chronically declining economy. Far from Silicon Valley, we are home to innovative companies in sectors from telecom to software that are expanding into fast-growing economies in Latin America. We have also seen the growth of businesses aimed at supporting entrepreneurship, like the co-working space Piloto 151, which occupies an old Spanish building surrounded by balconies and balustrades. These enterprises are creating needed jobs and tax revenue — and are contributing to a small but growing and vibrant environment for investment.
Now that Puerto Rico's Governor Ricardo Rosselló has introduced a fiscal proposal that will cope with the island's debt and balance the budget, and our decisions are being disciplined by a federal fiscal control board, we need to start thinking about what it will take to create a sustainable economy where more companies like Señor Paleta can grow. If we don't throw more support behind entrepreneurship, young people will continue to flee the island for opportunities elsewhere instead of staying here and contributing to our future growth.
Here are three steps I would suggest, based on my 20 years of experience in building and running a Puerto Rico-based company that now has about 160 employees and will soon begin doing business in the Dominican Republic and Panama.
1. Build a stronger entrepreneurial ecosystem. In an environment where investment capital is scarce, we need to nurture more organizations whose emphasis is on building a support system for entrepreneurs. Without a formal focus on creating more business incubators and accelerators and luring more equity investors, any start-up activity will happen too slowly to move the needle for the economy.
We've had a good start with the Foundation for Puerto Rico, a not-for-profit whose mission is "to transform Puerto Rico … by driving economic and social development through sustainable strategies." The foundation was launched five years ago by one concerned citizen. It has already recruited many private companies and individuals and successfully influenced government policy.
There are other business organizations that are thriving in Puerto Rico, but while inspirational, these examples are too few and scarce to create the critical mass of start-ups necessary to shift the downward trend of the economy. Business leaders in our community need to come together to form more forward-looking organizations that will help the entrepreneurial community grow.
2. Think beyond our own companies. Puerto Rico is home to some of the most innovative and battle-tested businesses in the world. Their leadership teams know what it takes to survive and grow in a challenging environment. In an economy of "survival of the fittest," what's left now are the fittest.
In these strange times, we need the majority of business leaders to accept a higher level of accountability for reviving the economy, through commitment, innovation and a broader view of success that includes contributing to the island's social and economic advancement. Many more leaders must take up the mantle and usher in a true private-sector renaissance. Simple steps, such as looking for suppliers and vendors on the island, using one's connections to help other local firms tap into demand or meet investors, and expanding one's own business beyond Puerto Rico can all make a difference.
This is not about utopian corporate selflessness; it's about enlightened selfishness. If the private sector does not carry the economy on its back, we cannot expect to see a better fiscal future in Puerto Rico that helps all of our businesses grow.
3. Minimize the role of government. Ensuring liquidity for the government to pay its employees and debt immediately is vital. However, in order for the private sector to drive the economy, the government must get out of the way of economic growth. The Puerto Rican government has great potential to harm the economy and slow a recovery, and unfortunately, that is exactly what it has done for more than a decade. The government must change its identity from a primary employer to the main facilitator of private-sector employment. And it must act consistently and holistically with its support and the elimination of economically hostile policies and laws, such as restrictive labor laws, ever-changing tax policies and an almost exclusive emphasis on funding the government for one more month instead of growing the economy.
Of course, it's unrealistic to imagine government stepping out of the way completely. There are some useful roles it can play to help spur the economy. As I mentioned in a previous commentary, our government needs to promote homegrown entrepreneurs instead of dying manufacturing jobs. It can facilitate this by funding incubators, hosting events to attract investors and introducing them to the local entrepreneurs, refocusing the public university system to emphasize entrepreneurial skills and revamp a municipal and central tax system currently hostile to start-ups. These changes will go a long way to paving a road for a nascent new private sector in the process of recreating itself.
The ingredients are here for our economy to thrive. The government has finally been backed into a corner and is taking the politically unpopular steps needed to foster a turnaround. Many of the weaker companies have been eliminated through a 10-year war with recession. Only a vibrant, skilled set of entrepreneurs are left. Through resourcefulness, inovation and force of will, many companies are growing again. It's a perfect time for capital to reengage in Puerto Rico.
Now it is up to local business leaders to show investors there are great opportunities in Puerto Rico. Puerto Rico could have a very bright future ahead if entrepreneurship is allowed to take hold and local private-sector leaders become more actively involved. We all need to adopt the philosophy of enlightened selfishness.
— By David Bogaty, owner of WorldNet, a voice, data, cloud and internet services firm in Puerto Rico, and a member of the CNBC-YPO Chief Executive Network
CNBC and YPO have formed an exclusive editorial partnership consisting of regional "Chief Executive Networks" in the Americas, EMEA and Asia-Pacific. These Chief Executive Networks are made up of a sample of YPO's global network of 24,000 top executives from 120 countries who are on the front lines of the economy and run companies that collectively generate $6 trillion in annual revenue.