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What can be learned about business at a lemonade stand

Inside Business

Posted: June 18, 2008 2:39 a.m.
Updated: August 19, 2008 5:02 a.m.
 
Reading an article some time back I came across a philosophy of life. I don't remember who wrote the article and I am sure I can't remember all the parts of it, but one portion surfaced last Saturday. It was, "Whenever there is a lemonade stand, stop and buy some from the proprietor. That child is going to be running his or her own business some day and they need to be encouraged."

As I turned into my neighborhood I spotted a young man about 10 years old waving a sign. I pulled up to the curb and bought some lemonade (two cups) and gave a very nice tip to keep the young man's spirits up in the heat of the midday sun.

Later I reflected on what this young entrepreneur was doing and why it was working. There are lessons we can all learn from him and his lemonade stand.

First, his location selection was excellent. He placed his stand on the corner of his parent's lawn, where there was plenty of room for his facility but more importantly, for his customers. The stand stood where there was room for his customers to pull up to the curb, out of the traffic flow, where he could safely serve them. His understanding of the importance of his site (location, location, location!) would make every real estate agent in the Santa Clarita Valley nod in appreciation.

Second, his signage was effective. He did not leave to chance that people would see the stand on the lawn; he had created a sign that was easy to see, easy to read and easy to grasp what he was selling: Lemonade $0.25. The sign was lightweight and was easy for him to hold and wave at potential customers.

The whole thing was so simple it would make an advertising professional proud!

Third, he was precise in defining his target market. This young man was focused on a specific demographic in a specific geographic area, in this case, his own neighborhood. He waved his sign and did business with those driving automobiles and trucks on that specific street during the time he was open for business. He wasn't trying to reach everyone because everyone wasn't his customer. His focus would make a marketing expert smile!

Fourth, he priced the product for profit. His retail price was $0.25 per cup and his cost of goods sold was less than a nickel, meaning his gross profit margin was more than 80 percent, unheard of in most businesses selling a product. He ran a low overhead operation; rent was covered, advertising was a one time expense (the sign) and he did not have to maintain a presence if he needed to take a break or shut down early. His financial savvy would bring joy to any CPA.

Fifth, his commitment to service and his enthusiasm for what he was doing was contagious. He knew his product was filling a need (selling a cold drink on a hot afternoon to thirsty consumers) and he was delighted to be there. It could be argued that he was smiling all the way to the bank but my take is that he was delighted to serve others. And, they were happy that he was there to serve them. His attitude towards making people smile would be the envy of any company. In fact, The Ritz-Carlton might want to consider hiring him to train their staff.

Sixth, he provided a quality product. It was so good that after purchasing one cup of lemonade I bought a second one. I am sure that this young entrepreneur went through some sort of quality control testing to make sure that the product was attractive to look at and great tasting. Maybe he asked for some input from a focus group (his parents or siblings) or maybe he just used his own taste buds as his sampling tool, but in either event it worked. His product would make the quality control manager at Godiva Chocolate proud.

Seventh, he had developed a good revenue model for his business. If you wanted to buy his lemonade you paid him in cash, in advance. This kind of cash flow system is something that he might have learned the hard way but more than likely the young business owner decided that he didn't want to wait around for someone to pay his bill for cold lemonade in 30, 60, 90 or more days, long after it had quenched the customer's thirst. This kind of thinking would make a banker proud. This young man was running his business like a bank, one without subprime mortgages on the balance sheet.

Eighth, he has a board of advisors to provide him with advice and counsel. Whether you are 10 or five times that age, there is plenty to learn in business and life. The young entrepreneur has issues and concerns, and needs to be able to turn to people that he trusts for candid advice. His advisors will probably teach him some things so he does not have to learn lessons the hard way. And, while his advisors want the lemonade stand to be a success, they realize that at the end of the day, it is the young entrepreneur's business and he will ultimately succeed or fail based not on what they say but on the choices he makes.

Down the road, when he is older, if he decides to pursue the honorable profession of business ownership, I am sure he will be notified about all the things that business owners have to deal with, including collecting sales taxes, getting the right permits, having insurance to protect the business, leasing space, hiring employees, payroll taxes, competition and all the rest. All of these things, he will learn, are not obstacles to ignore or fight but a part of doing business.

Between now and then, I am confident that he will work on upgrading the signage, maybe consider offering a larger size, changing the packaging, lowering his cost without impacting the quality, perhaps raising the price, seeking out advice from others in order to make better decisions and choices.

Above all, it is my hope that he never loses his passion and enthusiasm for taking care of his customers. Because the most important lesson this young business owner has learned is that while he has a lemonade stand he is in the business of providing excellent service to his customers. It's a lesson we all could benefit from being reminded about from time to time.

Kenneth W. Keller is president of Renaissance Executive Forums, bringing business owners together in facilitated peer advisory boards. His column represents his own views and not necessarily those of The Signal.

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