If there was a near-perfect analogy for all businesses, it would be the lemonade stand. Did you ever play the computer game growing up or did you ever operate a lemonade stand? It was pretty easy to get, right? Buy cups, buy lemonade, build a stand, advertise, and sell for more than it cost - make money. Shouldn’t all businesses be intuitive and easy to understand? What is your business like? A lemonade stand or Enron? I still don’t get Enron. Get back to the basics.
Let’s start with an almost-true Lemonade Stand story. Sara, a budding entrepreneur at the age of 9, started a lemonade stand just over a year ago. Each month, she runs the stand on the weekends asking everyone who was nearby to buy. It happens to be a very profitable business, making almost $40 month and going up every month.
She was able to buy herself a bike and any toy she wanted on her own. In fact, business was so strong, she decides that she wants to buy more cups and more lemonade for the month of January. However, her Dad being a wise and experienced businessman warns her daughter that the country is in recession and that less people will be buying lemonade in this environment - perhaps, she should save her money and wait to grow the business later in the year. The daughter listens, pulls the signs and lowers her inventory, sure enough her sales slow. She responds to her Dad with pride - “you were right, thanks for letting me know there was a recession!”
I love this story for a few reasons - I love the fact that she was an entrepreneur, she was able to build a profitable business when so many big businesses are unable to, and that she was ambitious. What do you think would have happened had Sara ignored her Dad’s advice and went ahead and invested more into the business? What if instead of pulling back, she built more signs and spoke louder on her corner to anyone who was within shouting distance? I don’t think there is a wrong answer, but I would have pushed her to be more aggressive with signs and pounding the pavement and speaking with potential customers farther away. I’m sure other lemonade stands were facing the same issues. She just may have seen her business grow instead of contract.
I took away some key learnings and great reminders:
1) Resist Knee-Jerk Reactions. Sure, we are in recession. That doesn’t mean you should pull back everything. Think strategically, you just might want to increase inventory if your competitors are going out of business. You might want to advertise, you might want to increase your hours and get in front of more customers.
2) Make your Business Simple. The lemonade stand business is great - it’s an easy to understand business. Take complexity out of your business - collect cash upfront, advertise, sell, make sure there is profit, optimize. Get back to the basics. Revenues minus expenses equals profit. Which part of the equation are you working on today?
3) What are you spending time on? How much time do you think Sara spent on the phone and responding to email? None. She knew what she had to accomplish and she did it. Stay focused, set specific times to answer voicemail and email - stick to it. Get back to work on the basics.
4) Start. I’ve mentioned this on my blog before, start the business, get in the game. If a 9-year old can do it, you can too. Not only that, she’s profitable. If you’ve already started a business, start getting profitable immediately, if you’re profitable, start getting more profitable. Pretty basic stuff.
5) Consistency. Sara built her business over months and stayed consistent. Entrepreneurs are generally impatient (including me), and often quit too soon. We can all learn a lesson from her to stay consistent and build a long-lasting sustainable business.
Our businesses would be so much easier to run and we would be less stressed if we would just get back to the basics and focus on those things that directly impact profit. Sure, there are times to be creative and do biz dev deals, but be judicious especially in these times. If it doesn’t directly impact profit immediately, should there be something else you could be working on that would?
What would your advice be to Sara? How would you take Dad’s advice? How are you getting back to the basics?
Thanks Matt W for the inspiration!
Haha, a 9 year old responding to her Dad by saying ““you were right, thanks for letting me know there was a recession!”. That’s cute.
I would have Sara start talking to friends and get them to spread the word at her school. It would be a free method of advertising the lemonade stand, and if it really worked perhaps Sara could tip her friends a little commission for their work.
Or, she could try to get the school to sponsor a stand run by her and her friends with a percentage of the profits going to a charity or a non-profit organization. People would be more apt to pitch in and donate some money for a cute little kid’s cause, and Sara could offset some of her operating costs through this as well.
My advice to Sara would be to keep testing and experimenting with ways to improve the business. She’s very young, has a lot of time on her hands, and is turning up a steady profit. She should think outside the box and continue to develop her lemonade business to the point where it truly becomes something significant in the real world.
great comment and advice - test, test, test!
Ha, I forgot about the game. Yeah that was some serious fun. Those cloudy days were torture.
A little planning goes a long way, so I would have agreed with the Dad’s advice. I suppose a knee jerk reaction would be to close until May.
Turns out you can’t really believe most of the media publications on the “bad economy”. If you look at the actual numbers from the government GDP has grown each quarter (through Q308) and it is funky number jiggering & estimates that create the -0.5% to -5.0% numbers you see today.
I am trying to do all of your 5 points right from the get go. I have made a plan, started, and am hoping to build it over time.
Funny - yeah, that game rocked - cloudy days really sucked. Proves another point, we’re not in total control of the outcome as much as we’d like.
I’m excited for you! Go get ‘em…
I would have advised Sara to quit blowing her money on fancy bikes and candy when times are good. Save that “extra” money so when times are bad you can afford to weather the storm & or expand into other markets (either through acquisition or by still being around).
- sorry chuck)
Just think if “chuck” in the next subdivision didn’t have any money to keep his stand running with the decreased sales and Sara could expand her footprint and basically take over his business (keeping him and his inventory at bargain prices
The guys w/ the capital when the money is hard to get can make their own terms - just look at Warren’s acquisition/loan to Constellation Energy - he got back several times what he put in just because he had $1 billion on hand to help them out.
great point to save for the rainy day and keep some dry powder on the sidelines for opportunities…
I would advise her to incorporate. Then hire a team of 100. Take this thing global. I’m talking bigtime. Web 3.0 style. Start having daily status meeting. Microsoft Project. The works. The sky is the limit.
Just kidding. Keep it simple.
i’d love to hear if anyone’s been more successful by making things more complicated
Sara has a business with no fixed costs and her variable costs (lemons, sugar and cups — all commodoties) should go down in a recession. She can maintain her unit volume and gross margin while lowering prices. Dad screwed up.
don’t listen to dad always
Thanks for the wonderful post Andy. I really resonated with your last two points “start” and “consistency”, there’s definitely something to be said about jumping into the game and showing some staying power.
thanks brett!
My favorite bullet point was Resist Knee-Jerk Reactions. - more often than not we react to quickly to fear and other emotions instead of using our common business sense to make the necessary choices - we cannot allow our environment to dictate how we will succeed we should actually tell it how we are going to do - If I was Sara, I probably would have been an obedient kid and did as my father told me.
If I was the father I would have advised my Daughter that because we are in recession its time to push harder and increase our efforts, maybe we can up the price of one lemonade by 50% and offer a 2 for 1 special so that we can get at least 50% of the lemonade belonging to that guy/gal that’s not shopping at the moment…
I’m getting back to the basics by basically providing what the market wants; its not that complicated - give to them and they will give to you, be creative, unique and business will start rolling in…and of course it will require being in the forefront a bit more….
Thanks for the post Andy!!! I can totally relate this to the blogosphere business.
ruben - good comment. i think that’s a well thought out response to the recession - push harder!
Excellent, Sara needs to make a video calling it “The best damn lemonade ever” and put it you YouTube, then throw up a blog, then sell the video, then use the proceeds to buy a lemon farm in Florida, then corner the market, then rub her hands together with devious laughter, then do an ipo, then fight the lemon farm union, then apply for a government bailout, then sell the stock for a truckload of money, then start over with acai berries and repeat process.
Killer post Andy!
love it!
Great advice there Andy, and we could all learn something from the “simple” ideology. Hey if a 9 year old can do it, why can’t we!?
It’s good that she probably hasn’t learned self doubt yet. This is inspiring, it’s something I think many struggle with and could learn a bit about.
Thanks again for the article!
self-doubt is probably the worst thing to happen to adults - we’ve been trained to look for trouble around every corner rather than opportunity.
Andy,
Great post (again)… I’m struggling with the keep it simple part of my business concept. Sure, that’s the classic start-up mantra - keep it simple, stay focused, start small - keep it simple, stay focused, start small… My problem or, better stated, issue (challenge, better still) is that my concept is not small. It is rather complex, to be honest…
I’m a social entrepreneur, though, driven by my social and environmental missions, with the financial mission simply being to stay in business, with multiple streams of income combining to cover costs even as those streams serve the mission. Pick a name: social enterprise, triple-bottom-line business, for-benefit, low-profit (try selling that one to a landlord) mission-driven, values-based business (talk about complicated… the variety of names can make your head spin).
Call it what you will, mine is a business concept that I feel a sense of obligation to pursue, the potential for positive impact being too important to ignore. My vision is so clear and will take patience and hard work before I will even begin to see even a basic salary from it. I honestly feel that I’m the only one “crazy” enough to do it. But, if I can make my vision a reality, others can follow my example and make a real difference in their own communities…
So, I’m boldy breaking the golden rule of keeping it simple… Bold or foolish? I guess time will tell. But, I’ll never know the answer to that without “just doing it” (with nods to Sara, your Lemonade Magnate, and Nike).
One things for sure, I’m going to keep checking in here (the “removing obstacles” post was fabulous!). Thanks for giving so much thought and time to the blog.
Nancy
Time Well Spent/MA
nancy - thanks for reading and contributing to the community. i’m definitely anxious to hear more about your adventure and look forward to hearing about your launch.
Like Sara if your business was strong and your gut was for expansion then one could pilot the idea of a limited period expansion and see how it works. Because if it does then the payout for a full blown expansion would be much higher!
test, experiment, then scale the ideas that work. thanks for the post.
Invest in cups and signs while they are cheap. Once the recession is over you’ll have lots of cheap materials
great idea… also, invest when no one else is…
Right! Back to basics! I knew that (but I needed to hear it again). Thanks Andy!
Basics!!!!!!! or in sports terms Fundamentals. Since our passion is Sport…… This post is right on. We recently coached a High School Football Team this past season. There is this head coach that has this goal that they are going to be undefeated last year. However he never allowed his coaching staff to set any type of goals for teaching the team any type of fundamentals (like how to tackle) to get to that level. So what happens when the team doesnt know any fundamentals? They win one game the whole year. So our point. Master the fundamentals and you will master your goals.
iTS UR LiFE - Pursue your passion.
thanks for the comment!! goals for the sake of goals are just hollow words - like you said, you need an action plan or fundamentals to accomplish those goals.
I love a lot of the comments. They’re great. This post was something that struck a chord with me. I believe my business is getting to complicated. I should have an additional 2009 goal of reducing the complexity of my business.
we’re also working on this too, please post back how you plan on doing it!
When I first started my business, it was a local IT consulting firm. If I condense our story, essentially, we started off by doing anything for money that involved tech. We would fix computers, cell phones, web pages, etc. etc. As our reputation grew, the demand for each facet grew and quickly outgrew what two people could do. Eventually my business partner had a melt down and I had to buy him out, so I was alone doing all of the work. Full time tech support/help desk, full time website and database design, and full time SEO and marketer. On top of all that, somewhere along people started coming to us for accounting and business advice. We also do a fair amount of affiliate marketing as well. Right now it’s my wife, another employee, and myself. The other employee is strictly a web developer, and my wife is strictly an office manager. There is way too much demand across too many niches (and we charge differently for each niche too, which complicates billing). I’m handling everything else. I’m interested in SEO, Internet Marketing, and Website Design, but profit a great deal from the other areas. This year, what we’re planning to do is: play the demand curve and increase all of our prices across all of our services to the same level - $125 an hour (for customers going forward). That will help keep my wife’s stress level down with billing. After we simplify our income streams, we will begin to identify profit/loss centers and cut the fat. 2009 will surely be an interesting year.
Thanks for this inspiring example! I’d recommend Sara to hold on a few weeks to see how competitors try to lower recession’s effects - if they’re cutting back, she could try to convince some competitors to sell her own lemonade and this way help to strengthen her brand - some sort of lemonade stand franchising.
i love the creativity! thanks gert!
Very interesting story about Sara there, Andy. Yes, you are right, recession or no recession, she would surely have made more money if she hadn’t listened to her dad and lowered your inventory. That’s a fact of this so-called recession - do more instead of doing less, but find ways to spend less in doing more,
Thanks for sharing, Andy. Loved it!
What is recession ?
Yet to earn money to know what is recession.
Sometimes it’s hard to stay consistent when you don’t immediately see positive results, and after working in the industry where I experienced overly-complex systems and procedures, keeping a business simple has always been one of my key values.
Great post.