Startup Children – How To Parent An Entrepreneur (Part I)

Note: This is part I of a five part series. Access the second installment HERE, part III HERE, part IV HERE and part V HERE.

Stone SoupI recently answered the question “What are good ways to raise your children to be entrepreneurs?” on Quora. My response was brief and straightforward, which is common of popular Quora answers (as discussed in How To Write An Effective Quora Answer). Although my answer was off-the-cuff, the question caused me to consider the issue of raising entrepreneurial children in greater depth, which led me to write this series.

I am not a parenting expert and I do not profess to have all the answers. I believe that you cannot teach someone to be an entrepreneur, but that you can teach entrepreneurs. Thus, my goal is to highlight a few books, games and other activities parents can share with their children. If your offspring are entrepreneurially inclined, these activities might nudge them in the direction of a lifetime of startups. If your child is not an entrepreneurial Bank Robber, no worries; the world needs ATM Operators too.

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No Paychecks

One simple step parents can take to encourage their children to become creative and resourceful is to not give them an allowance, which is akin to a paycheck. An allowance establishes the ATM Operator mentality of completing a repetitive set of tasks for a finite amount of money.

Light the flame of entrepreneurship in your child by showing them that Mini-ventures, such as selling coffee at youth soccer games, walking dogs, babysitting, mowing grass, shoveling snow, etc., allow them to make an amount of money that is only limited by their energy and ambition. This approach will instill the empowerment endemic in making a job, rather than taking a job.

The goal of allowing your children to create wealth, rather than simply trade their labor for it, is not to make them entrepreneurs. Rather, by giving your children the opportunity to create something from nothing, they can assess whether they enjoy the ambiguity and stress that comes with open ended-opportunities.

Western societies value entrepreneurship, which causes people who are really Wantrepreneurs to place themselves in situations which are incongruent with their risk profiles. Clearly, this is a recipe for high anxiety and unhappiness. Exposing your children to the pleasure and pain of entrepreneurship in the safe confines of their youth is preferable to learning this life lesson as an adult.  

In addition to eliminating your children’s allowance, there are a number of books which reinforce entrepreneurial messages. In particular, Marcia Brown’s 1947 retelling of the classic French folktale Stone Soup is a veritable playbook for how to start a venture. More valuable, hands-on startup advice can be found in this slim volume than in the entire Harvard Business School library.

Plot Summary

In Ms. Brown’s version of this oft-told tale, three soldiers enter a small town during a time of war. Initially, all of the villagers flee into their modest homes and shun the soldiers’ request for food and lodging. However, the villagers do not realize that these travelers are not merely foraging soldiers. They soon learn that they are entrepreneurs who will launch a magical “venture” that involves a filling meal, a communal celebration and reassurance that better days are ahead.

While gathering stones with which to make “stone soup,” the soldiers audibly describe to each other how delectable their soup will be, piquing the villagers’ curiosity. Intrigued, the villagers individually make small contributions to the pot of stones and boiling water: a few radishes, a couple of carrots, a handful of potatoes, eventually resulting in a meal that surpasses anything the townsfolk have eaten in recent memory.

Depending on your child’s age, you can either overtly or subtly communicate the various start-up lessons described below as you share Stone Soup with them.

Something From Nothing

Lesson: Creating something from nothing is intoxicating and contagious

One of the most powerful lessons from Stone Soup is also the most obvious. Every entrepreneur is faced with making something out of nothing. When a venture is conceived, it is merely an idea. As the story illustrates, entrepreneurs manifest their ideas by rallying a motivated team and supplying them with necessary resources.

When the soldiers carefully gather the pile of stones and announce that they will make stone soup, the villagers respond, “Stone soup? That would be something to know about.” Entrepreneurial leaders must communicate a similar aspirational vision. Through your enthusiasm and optimism, convince your team members that they are capable of accomplishing extraordinary things and that your venture is an inspiring and meaningful endeavor worthy of their involvement.

Just like the soldiers, entrepreneurs must ask their stakeholders: employees, vendors, suppliers and investors to join their team, throw their resources into the pot and share in the resulting creation. If you do your job properly, your venture will create wealth in excess of the sum of the participants’ individual contributions.

The Prototype

Lesson: Prototypes bring your venture’s story to life

Your child will also learn the value of a tangible representation of a venture. In a pivotal scene from his book Start-up, Jerry Kaplan describes how he mesmerized a group of jaded Kleiner Perkins venture capitalists (VCs) by throwing his leather portfolio onto a conference table and dramatically describing it as a handheld device that could digitize handwriting. As Kaplan spoke, the VCs passed around his ordinary portfolio, envisioning the future of handheld devices.

In Stone Soup, the soldiers’ prototypes are the stones. As the soldiers collect the rocks and describe the delectable soup they are making, the villagers begin to view them as something more than mere stones, just as the otherwise sophisticated Kleiner Perkins team’s imagination was ignited by Kaplan’s humble portfolio. Prototypes bring the entrepreneur’s story to life by giving stakeholders a foundation upon which they can anchor their imaginations.

Ask For No Money

Lesson: People contribute to exciting, dynamic ventures, not those in need

Stone Soup will also instruct your child that one of the most effective techniques for acquiring an investment is to not ask for money. As the saying goes, “Investors want to give you an umbrella when the sun is shining and then they take it away at the first hint of a coming storm.”

If you are able to self-fund your venture, then you might be able to eventually acquire an institutional investment by initially not asking for money. The process is simple, but the key to its success is your ability to instill confidence and convey a desirability that VCs seldom experience.

Meet with potential VCs, and make it clear that you are not currently seeking funding. Instead, tell them you want to preview your venture and seek their input. It is flattering to be asked to share your insights and VCs are as subject to flattery as anyone. In fact, most VCs immensely enjoy sharing their input, as discussed in Brian Epstein Is Not John Lennon And Neither Is Your VC.

The goals of a preview meeting are to: (i) alert the VC to the existence and nature of your venture, (ii) obtain some free consulting (it may be Free Advice Worth Half The Price, at least it is free), and most importantly, (iii) pique the VC’s curiosity so they will be receptive to your future updates.

During such meetings, make the VCs aware of your near-term and intermediate milestones. As discussed in Great Expectations, under-promise regarding such accomplishments and discuss only those that you know you can deliver. For instance, if you think that you will close three paying customers in the next two months, tell the VC that you plan on signing-up two paying customers during the following three months. By conservatively forecasting your achievements, you will consistently exceed the VC’s expectations.

As you accomplish each milestone, send the VC a brief email update. In this way, you will earn their trust by delivering on your stated objectives, demonstrating your ability to properly forecast and execute, and reminding them that your venture is gaining momentum and creating substantial value.

Once you create sufficient value and the timing is appropriate, leverage your rapport and invite the VC to join you as a partner in your venture. Welcoming a conscribed set of well-informed institutional investors to participate, as opposed to seeking cash from any and all sources, will generally result in a healthier valuation, as well as a cadre of investors whom you mutually trust and respect.

The soldiers utilize a similar approach, once they realize that requesting food door-to-door is not working. They regroup, set up camp in the middle of town, and proceed to launch their venture by selectively collecting stones.

Once their venture is launched, the townspeople’s curiosity is heightened. Eventually, one of the bolder villagers asks the soldiers what they are doing. After the soldiers tell their venture’s story, they invite the townspeople to participate. The gathering of the rocks sparks the necessary momentum which causes the townsfolk to believe that the soup will be made with, or without, their involvement.  

Start With A Big Pot

Lesson: A big opportunity allows all stakeholders to be adequately rewarded

After the stones are gathered, the soldier’s initial requests are innocuous. Instead of asking for food, they simply request a large pot and water. It is unlikely a small pot would have adequately captured the villagers’ imaginations, as they would have assumed that the ensuing meal would be solely for the soldiers’ benefit. A large plot implied that there would be plenty of soup to be shared by all who assisted the soldiers. 

Since hard work is required to make any venture successful, you might as well enter into one that has a reasonable possibility of a large payoff. In addition, the larger the potential opportunity, the more likely you and your team will retain a meaningful equity stake as your venture matures.

Just like a startup employee who contributes their labor to a venture, the villagers who put items in the pot risk that their investment in the collective endeavor will be worthless. Once the food they contribute is placed into the pot, they lose their ability to consume it at the time and place of their choosing. However, as with a successful venture, each contribution becomes more valuable when the sum of the individual components exceeds the value any one villager’s donation.

Share The Bounty And Celebrate

Lesson: Feed your stakeholders before you feed yourself by creating a celebratory culture

Once the soup is prepared, the soldiers first share it with the villagers before they partake themselves. To ensure the satisfaction of all your stakeholders, use the same approach with your venture. One way to share the wealth created by your venture is to grant every employee an ownership stake. The most conventional method of sharing equity is via stock options that vest as the employees contribute their time and energy to the company’s success. Even a small number of options can serve to significantly motivate and align your team, as described in What The Heck Are My Options Worth?

The soldiers do not just stand around the pot slurping the soup and then trudge off to bed. Instead, they encourage the villagers to bring out a large table, and thus turn the preparation and consumption of the soup into a communal celebration.

Entrepreneurs often get caught up in day-to-day challenges and do not allocate sufficient time to celebrate their venture’s small victories. Company Meetings, picnics, and holiday parties all require an investment of time and energy by your senior team, but it is time well spent. See How To Create A Culture Of Celebration for economical ways you can keep your startup “villagers” happy and motivated.

Sell The Smell

Lesson: A limitless future is easier to sell than yesterday’s finite reality

Most people are motivated by the smell of money. It is seductive because it is bound only by the limitations of the entrepreneur’s ability to craft a word-picture of the future wealth to be created by their venture. Much like the impoverished soldiers, in the early stages of your venture, you often have to sell the sizzle, because you have no steak. The soldiers understand the power of selling the smell, as evidenced by their colorful description of the soup, which causes the villagers to imagine a fantastic meal and motivates them to contribute to the venture.

Fool No One

Lesson: Deliver equitable value to all stakeholders

A cynical adult might conclude that the soldiers duped the unsuspecting villagers into sharing their food and gave nothing of value in return. To ensure that your children do not reach this erroneous conclusion, make it clear to them that the soldiers do not con the villagers out of their food and hospitality. In return for the meal, the soldiers give the villagers several gifts which are acutely absent – a temporary respite from their war-weary existence, hope for the future and a timely reminder of the power of a cohesive community. They demonstrate that if the townsfolk can make a fantastic meal from stones, anything is possible.

Dishonest entrepreneurs are unsuccessful in the long run. They may be able to temporarily fool their employees, investors, and other stakeholders, but their dishonesty will eventually become evident. As noted in Time Wounds All Heels, successful serial entrepreneurs treat their stakeholders with respect and communicate with them in an honest and transparent manner.

Confirm to your child that the villagers believe a fair trade was made by highlighting the illustration on the book’s final page. Rather than waking up with an emotional hangover and running the soldiers out of town the day after the feast, the villagers provide the travelers with generous provisions and grant them a warm farewell.

On Every BushOn the last page, below a drawing of the villagers saying goodbye to the soldiers, are the words, “Such men don't grow on every bush.” This is exactly the sentiment you want to impart on your stakeholders. Serial entrepreneurs ensure that their ventures appropriately benefit everyone. Their goal is that once the venture achieves a liquidity event, the stakeholders will collectively shake their heads in admiration and think, “Such entrepreneurs don’t grow on every bush.”

If you who have not yet read Stone Soup to your children, I strongly encourage you to do so. It is a worthwhile addition to your children’s entrepreneurial education. If you have already done so, consider reading it again while annotating the text with the entrepreneurial lessons noted herein. For more suggestions regarding parenting an entrepreneur, check out parts II, III, IV and V of this series.  

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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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