Wednesday, July 18, 2012

The Lemonade Stand

The other day, my boys got a good lesson in business, economics, marketing, and most importantly, what it’s like to do business in California. They had their very first lemonade stand. Actually, it was a combination lemonade stand and bike and scooter wash. They figured a diversified product and service offering was key to their success.

My wife had bought them a four-foot-tall, $20 cardboard lemonade stand kit, which I was tasked with assembling. The boys “helped,” so it only took us a few hours to put together. We brought it out to the front yard, and the education began. They just thought they were having fun and making money, but unbeknownst to them, they were learning valuable business lessons all day.

We started the day by scouting our neighbors’ lots for good lawn sign locations, then knocking on doors to ask if it would be OK to put a sign on their lawn for the day advertising the new business. We live in a nice neighborhood, so that went really well.

Site Layout
With an operation that put off a lot of drain water combined with an operation that relied on a cardboard structure, they had to be careful. We ended up locating the bike wash on the opposite side of the front yard from the lemonade stand.

Supplier Issues
Their business model depended on providing customers with “Homemade Lemonade,” or at least, that’s what the pre-printed sign said on the lemonade stand. Their supplier could only deliver lemon-flavored Crystal Light drink mix. Since Mom, Inc. has a monopoly on the food service supply chain in their region, all they could do was cross their fingers and hope the public wouldn’t know the difference.

Workers Comp Claims
Son Number Two took a chunk out of his finger while messing around with a bike chain during a wash, and a lost-time accident occurred. He was rushed to the kitchen first-aid station and was allowed to return to work later that day, but the damage was done. The “Days Without an Injury” sign went to zero, and upper management was not pleased. Neither was Son Number Two!

Health Code Violations
Shortly after his return to work, Son Number Two’s Band-Aid came off and he ended up bleeding on the lemonade stand. Thankfully there were no customers present at the time, but upper management was not pleased.

Disaster Recovery
In the late morning, the wind picked up a little and blew the cardboard lemonade stand down the street. All business activities ceased as the employees rushed to re-build their storefront, weigh it down with rocks, and get their mom to make them some more Crystal Light.

Human Resource Issues
The two main business partners had some tough decisions to make regarding a certain employee. Their younger brother, Son Number Three was simply not pulling his weight. At four years old, he could not be trusted to serve lemonade or make change, and instead of helping with the bike and scooter wash, he would tend to just splash in the buckets, put soap in his hair, and wander off during the slow times. They really needed self-starters.

Staying Focused
The long-term sustainability of their business model was brought into question when two of their friends came over and the entire organization abandoned the business to go on a scooter ride. Upper management was not pleased.

For all the challenges they faced, there was one area where they excelled: Sales.

The Art of the Sales Pitch
It helps to have a diversified product line, but you have to know how to sell it. A week earlier we had been given a large box of individually wrapped gummy treats in the shape of spiders, and my wife and I did not want the kids to eat all of them, so she suggested they offer them for sale along with the lemonade as a way to make more money. When the first customer pulled over and got out of her car, Son Number One looked her square in the eye and asked, “Would you like to buy a glass of lemonade or a tarantula?”
Who could resist that sales pitch? She bought two lemonades and eight gummy spiders.

Unfortunately, besides being good at sales, they were also a little shady with their business practices.

The Bait and Switch
The sign for their bike and scooter wash operation advertised a bike wash for 50 cents and 25 cents for a scooter wash, but when I pulled my mountain bike out of the garage, they charged me three dollars! They claimed that the 50 cent price tag was only for kid-sized bikes, but later in the day when their grandparents showed up, they only charged them two dollars to wash their Toyota! Upper management was not pleased.

Besides being mildly worried about their business ethics, I was also concerned that they might get an inflated sense of value and worth, since every single adult who came to purchase lemonade and spiders ended up paying them 3-5 times the asking price of 25 cents. Because of that, they ended up having a pretty good day, despite a pretty low sales volume. They brought in $21.75, and to make it even better for the two business partners who were really pulling their weight, their mom was able to convince their younger brother, the soap-haired slacker, that his take-home share of 25 cents was a pretty good deal. Four-year-olds are really gullible. (I wonder where they get the questionable ethics from?)

Not wanting them to have an overly Pollyanna view of doing business in the great state of California, I stepped in before the money went in the piggy banks. Time for the real lesson of the day.

I explained that before they counted their “profits,” there were still a few costs to deal with. They still owed me for lemonade stand set-up construction costs, driveway rent, leasing the $20 cardboard lemonade stand, sidewalk rent, water costs, soap costs, sign rental, material costs for the Crystal Light, and of course, consulting fees. While they thought that they had each made $10.75, in reality, they each owed me $734.

To make it even more realistic for them, I also charged them a business license application fee, deducted income tax, slapped them with an excessive wastewater output fine, and then sued them for fraud and false advertising.

I also threw in lawsuit for emotional distress, claiming that I had spilled some of their excessively cold lemonade on my pants.

That will teach them!

See you soon,


Copyright © 2012 Marc Schmatjen

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