Tuesday, July 9, 2013

Lemonade Stands and Entrepreneurship

This article in Slate appeared this morning and soon after an email pointing to it appeared in my inbox. The sender thought the article's author, , was just baiting me. They were right.

The article claims that having kids run a lemonade stand teaches them nothing about capitalism, entrepreneurship or, I guess, hard work. The evidence for this comes from a single experience from the writer's own children. 
My kids had a lemonade stand, and it didn’t look like any version of capitalism I’ve ever seen. If we really want our kids to learn how the modern American economy works, we’re going to have to take off the kid gloves.
Here is what happened. Her kids aged 4 and 6 wanted to set up a lemonade stand. With what appears to be a considerable amount of help from their father, they set up their stand and were charging 50 cents per glass. No explanation is given as to where they got that price point but as it turned out lemonade was only part of the product these kids were selling.

The kids then just started shouting out their ads onto the street. But it was the location that proved important. 
I suspect that location may have had more to do with their success than advertising. We set up the stand across the street from our house, in front of a community center with a park and heavily used basketball courts. On that busy corner, their lemonade sold out in less than half an hour. 
There was no explanation also given as to location choice. Again, I suspect there was no thought given to that, it was the parent's choice of convenience. 

But it turned out the sold out lemonade was no barrier to profits.
One woman stopped her car, rolled down the window, handed over a dollar, and then refused to take the plastic Solo cup offered to her. An older couple out for a stroll bought a round for three twentysomething strangers who were already on their way to the corner 7-Eleven to get change. The pitchers were empty by the time the three guys got back, but one of them handed my daughter three bucks anyway. And not a single person who bought lemonade from my children would take the change owed them.
And apparently with that, capitalism died. Lemberger claims that when their kids were obviously making money from a combination of cuteness and community, they then didn't get to learn the lessons of capitalism. But I have to ask, in what friggin' world did they not learn those lessons. They learned that they only have to stand outside a look cute and life will be a lot easier. And from the economics of the labour market this is pretty much borne out everywhere. Just check out this book by Dan Hamermesh, aptly titled Beauty Pays, if you want evidence of that.

This happens all of the time. We were once at a bakery buying bread. I was with my then 7 year old and 13 year old daughters. The baker then asked me: "She is so cute, can I give her a cookie?" She was talking to the 7 year old with dimples blaring. I said sure. The 13 year old then exclaimed, "you know I am right here!" I said, "I know. Cuteness wears off. Your time has passed." Now that is how you teach your kids about the harsh realities of capitalism.

In any case, Lemberger never really set out to teach his kids about capitalism or entrepreneurship. The only idea her kids had was to have lemonade stand. First, she doesn't appear to have let them set the price. That would require them to understand and pay for the costs of their business but there appeared to be a complete family endowed subsidy -- although in a Mitt Romney way that is pretty much how many entrepreneurs get started. Nonetheless, when my kids went to the streets, they set the price and, as it turned out, did it innovatively as well. There wasn't even a maths lesson there.

Second, the kids didn't choose location. This is the other dimension of entrepreneurial choice for the lemonade business. Worse than that, she knew that they had an easy location near a park. So it just wasn't going to be hard. The same applies to the time the stand was open. In other words, there was hardly any risk of failure here. Again, when my son took to the streets last year, location was the thing he had to consider.

Third, if your concern is that the kids were plying their wears for charity, then send them out to do it again. I am pretty sure, the cuteness factor will wear off if they are out there everyday. There was no return outing and Lemberger appeared reluctant to ever let it happen again. But it was doing it again and again that would teach them what was going on here. The problem with most kid-entrepreneurship is that it is once off. Real entrepreneurship is about sustainability but these kids were given no opportunity to work that out.

Finally, in the end, Lemberger, apparently disgusted at the lack of true capitalism, ended up taking the kids profits and donating it to charity. In what world would that teach them about capitalism? It might teach them about socialism. But in any case, as Lemberger found out, the kids actually didn't think of this at work at all. Despite having no profits, they wanted to do it again. But denied the opportunity to continue until it was out of their system, they even failed to get a lesson about over-consumption (that is, the law of diminishing marginal utility).

These days there are many opportunities for kids to learn about entrepreneurship. From the traditional lemonade stand to the new application development. But don't dress up a parenting activity as some broad statement about the world and how it has changed. That is what Lemberger did here and I suspect she was the one distressed that her kids had an easier road in life. The point here is that one of the key parenting choices is how to make that road a little harder when it is in your control. Lemberger has not exercised that choice and should be ignored.