The Lemonade Principle – What Entrepreneurs Can Learn From Eight-Year-Olds

What motivates busy people to make dangerous u-turns on busy streets to patronize a lemonade stand? Is it simply for the opportunity to sip overly sweet drinks made under questionable health conditions? Doubtful.

The psychological rewards received from helping childhood entrepreneurs meet their financial goals more than offset any indigestion customers might suffer from consuming a child’s culinary delights.

You would be well served to understand how to engender such exuberant consumer behavior.

How could you drive by Davis Brimer (pictured above) without purchasing one of his handmade reindeer? Not only is he braving the elements of a California winter, he also had the entrepreneurial forethought to create a product line of both large and small reindeer to better serve his drive-by market. Davis must have learned something from his time behind a Radio Flyer, as he is now the Co-founder and CEO of a thriving startup, Active Life Technologies.

As a kid, I loved selling junk in our front yard – broken toys, self-penned (and wonderfully self-illustrated) stories, bags of salty popcorn and, of course, sickly sweet lemonade. My parents finally put a moratorium on my front-yard Walmart as they were concerned that our neighbors would think that we were low on cash and that they were sending me out each weekend to get Mom and Dad beer and cigarette money. Given that my parents did not indulge in either of these vices, such a misperception was of particular concern.

Even though I was ultimately shut down by The Man (and The Woman), my stint behind the lemonade counter was invaluable. Not only did it allow me to experience the adrenaline rush that comes from raking in cold, hard cash, it also reinforced the importance of satisfying my customers’ wants, including their desire to help the underdog.

Lemonade stands are great mini-ventures for mini-entrepreneurs. As described in Small Ideas, Big Benefits, the basic issues involved in running a successful lemonade stand are highly transferable to a managing larger, more complex businesses. Such entrepreneurial skills include:

  • Promotion – signage can make all the difference and waving to passing cars does not hurt either
  • Product Mix – salty popcorn promotes lemonade sales
  • Pricing – cookies priced at 50-cents apiece or three for $1 drive overall sales
  • Location – steady traffic with a convenient place to park is key
  • Accounting – tracking pennies quantifies the opportunity cost of not playing with your friends
  • Operations – simple works best, focus on doing a few things really well

Leverage Your Startup’s Endearing Qualities

Do not run from your startup status. Some entrepreneurs believe that they must disguise themselves as a Big Dumb Company (BDC) to enhance their credibility. These misguided adVenturers mistakenly assume their customers will be less likely to buy from them if they know the relatively early stage of their startup. Although you will undoubtedly scare away potential customers if your adVenture appears unsophisticated or financially unstable, positioning your startup as a BDC is a risky strategy, as your customers may feel duped once they learn your organization’s true status. People like to know who is benefiting from their hard-earned dollars. A BDC façade could preclude customers from establishing an emotional relationship with your company.

There is an endearing quality to startups; if properly positioned, they can attract customers in much the same way as a child’s lemonade stand stirs customers’ emotions. As noted in Your Personal Pitch, startups must make the most of their nascent condition. If you pretend to be a BDC, you will forgo one of your startup’s innate advantages.

Ironically, just as startups sometimes attempt to emulate BDCs, large companies often try to cast themselves as the “little guy.” Apple, which has enjoyed a market capitalization in excess $100 billion for the past several years, effectively contrasts itself with Microsoft, in an attempt to engender the underdog emotional appeal commonly associated with startups. Another common approach used by BDCs to humanize their organizations is to utilize the Founder as a pitchman. From Walt Disney to Charles Schwab to Dave Thomas of Wendy’s, each of these enormous companies benefit from the emotional relationship consumers establish with these figureheads.

Companies such as College Movers and College Pro Painters have effectively leveraged consumers’ innate desire to assist the underdog – starving college students. Although the true academic standing of the employees at these various ventures may be in question, it is appealing to think that your moving or painting costs will partially offset a struggling college student’s tuition.

Similarly, consumers are aware that Girl Scout cookies are produced in huge factories by the millions and are not significantly different than many products available at grocery stores year-round. However, the powerful emotional appeal of the “help-the-cute-little-girl” sales approach is crucial to selling over 200-million boxes Girl Scout cookies annually; as it drives consumers to pay a premium for a product that has numerous substitutes. Fortunately, you do not have to don a little green skirt to successfully emulate this approach.

Lemonade As Career Planning

The next time you drive by a lemonade (or reindeer) stand, take the time to reward the children for their Horatio Alger spirit by dropping a few bucks in their coffee can. You never know … one of these young entrepreneurs might just repay you someday by giving you a job at her hot startup.

Copyright © 2008 by J. Meredith Publishing. All rights reserved.


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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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