Teaching Kids Entrepreneurship pt 2

By Ismail Abdur-Rahman, CEO iVIBES Consulting

Since I've been inundated with all sorts of 'how to' questions since my last post, I figured it might be a good idea to provide a couple of brief examples of how simple projects can be used to teach kids about entrepreneurship. This is in no way an exhaustive list, just a few things that immediately come to mind, without turning this post into a dissertation.

Learning Lessons from the Lemonade Stand

I'm sure you all remember seeing lemonade stands pop up in your neighborhoods as children, right? OK, I'll grant you that perhaps everyone has not seen a real life lemonade stand, but you have at least heard of the concept, right? It goes like this: an industrious kid sets up small stand or folding table in a relatively high traffic area on a summer day to hawk lemonade to passersby. Simple enough. However, there are at least 3 major business skills that can be developed from a simple pop-up lemonade stand.

  1. Supply Chain Management and Procurement. All lemons are not created equal, and neither are lemon prices. Teaching your child how to differentiate lemon lemon quality is a skill that will undoubtedly impact other areas of life and send a subliminal message that quality should be a core business value. Additionally, there are myriad ways to source lemons, even after accounting for quality. Will you have the lemons delivered? How far in advance of the lemonade stand launch will you get the lemons? Where will you store the lemons in order to preserve their quality?

    Similar questions can be asked regarding bottled water and sugar, or a sugar substitute. Is there a single distributor from whom you can purchase the core product components? What is the opportunity cost of using one distributor instead of several? What quality measures do the distributor have to make sure that you get the quantity and quality of lemons, sugar, and water you need to deliver a consistent product?
     
  2. Strategic Analysis. Helping kids understand that there are multiple factors that can affect the performance of their business on any given day is important. Perhaps you sit down together and read the weather forecast for the coming week. You can point out that, although it's summer time, people are less likely to want to buy lemonade on an overcast or cloudy day, and rain will close the business for the day. Also, be sure to make note of any upcoming events that could generate lots of pedestrian traffic. July and August are noted for frequent festivals and large-scale public gatherings, and this means that the target audience for the stand could increase exponentially.

    Related to this is that the weather could also impact people's taste preferences. For example, if it's a scorching hot day, people might want their lemonade a little sweeter, and that means using more sugar in the recipe. On the other hand, people might enjoy a more tart flavor on days that are not as hot, so you could use less sugar and more lemon and water to accommodate theses divergent tastes.
     
  3. Product Pricing / Budgeting / Profit Expectations. Just because all of the signs you see of suburban kids working lemonade stands indicate that they're selling a cup of lemonade for a quarter doesn't mean that that's where you want to have your child price their products. In fact, developing pricing a strategy is key skill for any entrepreneur. 

    Let's say you decided to start your kid with $100 in seed funding for this venture. *Sidebar* While I do believe that kids should receive information in bite-sized chunks appropriate for their age, I also believe that they should start to acquire key terminology as early on as possible in order to give them confidence in speaking the language of business. You could start a basic cash flow sheet that tracks how much money is coming in and where it goes when it is spent. Comparing distributor prices can help influence the supply chain decision, and understanding the cost of supplies can influence the recipe used to produce the optimal sweetness/tartness ratio, along with the retail product price. I mentioned retail product price because there might be opportunities for wholesale agreements, for example for little league sports teams, corporate picnics, or family reunions. Agreements of this type can allow you to experiment with volume discounting strategies while enhancing brand image.

    After taking into account the various market factors that affecting supply and pricing, you can then extend the study to make a market hypothesis about the volume of customers that might be expected on a given day. This will help you guide your child to make decisions about the volume of component items and supplies to order each week or every few days, and this can help you start to make predictions about profit. Cost accounting principles are too detailed to push to young entrepreneurs, but you can introduce the concept of profit by telling them that they want to target making, for example, 25% more than they spend on product supplies and any other expenses. Setting a specific target for the performance of the business will encourage them to continuously look for ways to reduce expenses and maximize profits and scale up the business.
     

Generally speaking, most small scale ventures can be used to teach your kids about entrepreneurship and develop key skills that will be useful for the rest of their lives. Financial literacy is a necessary life skill that can significantly influence the fortunes (pun intended) of the youth and help pave the way towards financial freedom.