The stakes were high when Café Nautico lost electricity during its grand reopening here last month. Losing power is commonplace in Cuba, but this occasion was different: It was the first time restaurant employees would be paid based on the day’s earnings. The chef scrambled to keep the kitchen running by candlelight while the waitstaff assured the handful of customers that the lights would be back shortly.

Café Nautico used to be a state-run restaurant, which meant reliable – albeit low – wages for the staff of 12 whether or not anyone came to dine. But the Cuban government recently transferred management of the location to its employees, now called “associates,” to be run as a cooperative.

“We are making a lot of changes and we will try anything that can be useful,” says Jorge Cercera Montes, the president of the cooperative who got his start as a cook. He’s opening the restaurant for business earlier in the day, hosting parties and weddings, and renting out the back room for private events. “Our objective is to grow so that this place can provide more income for us as cooperative members.”

The Cuban government is strapped for cash as it works to keep its economic vision alive, more than five decades after the US implemented its economically isolating trade embargo. In an attempt to jumpstart the economy and shed unprofitable state enterprises, the government is now converting select businesses into cooperatives and allowing others to pop up in the Cuban market.

The move is part of a broader attempt by President Raúl Castro to update Cuba’s economic model, while maintaining its socialist principles. But the nearly 250 cooperatives operating here exist without constitutional protection, and will only be legally incorporated into the economy if the experiment is deemed a success. This leaves many Cuban entrepreneurs excited, yet skeptical of the viability of projects like Café Nautico in the volatile Cuban marketplace.

“The Cuban government is afraid of losing subsidies from Venezuela and they are … turning to cooperatives to help fill the gap the state can’t provide,” says Christopher Sabatini, the senior director of policy at the Americas Society and Council of the Americas.

“Decentralizing the economy will allow the government to earn money from taxes [from cooperatives], inject productivity into the lumbering, inefficient government, and sop up some of the thousands of employees that were recently let go by the state,” Mr. Sabatini says.

'A little imposing'

In contrast to businesses run by the government, cooperatives allow their members to take home a portion of the business’ earnings, and give their workers democratic control over operations and management, including electing their own president. The state is also giving them a leg up on their private competitors by offering them perks like a 20 percent discount on products bought from the state in the case of Café Nautico, and subsidizing their utility bills.

“The old system was a little imposing,” says Tania Lourdes Ortiz Fernández, an esthetician at the Bellall Health and Beauty Institute in the Vedado neighborhood. She says she’s “more happy with this system than the one we had before.”

For example, she makes more money – about $42 a month compared to $15 when her "boss" was the Cuban government. Ms. Ortiz says that although she lost clients when the beauty center became a cooperative (the associates voted to raise their prices), she now has access to better products and has more time to dedicate to services.

Although many cooperative members say they receive higher wages, there are complaints.

“The largest obstacle right now is the bureaucratic process of approving new cooperatives,” says Eric Leenson, president of Sol Economics, a company that promotes socially responsible development in Cuba.

Additionally, cooperative employees complain they don’t have access to wholesale markets, and that importing materials or products from outside the country is almost impossible.

Even convincing the Cuban workforce that they could benefit from working in a cooperative has been a challenge, says Adriana Cervantes, the president of the Bellall Health and Beauty Institute. She lost more than a quarter of her workers when the business converted to a cooperative eight months ago, and has had trouble convincing others to invest the one-time payment of 500 Cuban pesos ($22) required to join.

“Right now I need a manicurist … we have so much demand,” says Ms. Cervantes. “For months I have tried to hire more associates but people tell me that they don’t understand why they have to invest in order to become a member of the cooperative,” she says as dozens of clients pass her on their way to an aerobics class at the institute.

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Mr. Leenson believes that, despite these initial problems, the cooperative project in Cuba is here to stay.

“This change in Cuba is broad enough and strong enough that there is no going back.”