Not long ago, my three kids approached me about setting up a lemonade stand at the corner of our street. How cute. I imagined a painted sign and a jug of lemonade, dripping with condensation on a hot day. All this backed by three little blondes working their smiles all the way to the piggy bank.
Then all of a sudden, I fast forwarded to the HSBC commercial I’ve seen a thousand times on Air Canada flights and panicked. I started worrying about how to get the kids a credit card merchant account, build a social media campaign and set up a reliable supply chain beyond the corner store.
“Relax,” I said to myself (and I knew it was me because I recognized the voice). “It’s just kids having summer fun for some pocket money.”
As the four of us talked about options, I realized they were really taking this seriously. If they were going to invest the time and money, they wanted it to be successful. Our discussions brought me back to the basic principles of business.
First, they saw a market opportunity: The main road in front of our house sees hundreds of cyclists, bikers and casual drivers on the weekends as it runs along Lake Ontario. As a result, they had discovered their target market. They didn’t even mention selling to the other kids or parents in the neighbourhood. They focused on the larger opportunity of pocket books passing by.
In terms of location, we’re a significant distance from our community’s little convenience store. I explained that meant they were going to use their location as a competitive advantage. It’s a long way to another source of a cool refreshing drink.
Next came product development. My daughter -- who’s paid her dues shopping with her mother -- insisted that the lemons they used were to be organic. “People know organic is better for you and they already know it costs more,” she explained. I could sense a pricing conversation in our future.
“What about people who don’t want lemonade?” I inquired. “Is there anything else you could offer that wouldn’t be much more trouble?” My youngest son suggested ice water and my oldest son suggested iced tea. Both additions were appropriate and doable without complicating things too much. They had just tripled their product offering, hopefully attracting more buyers.
Next came advertising. There was not much on their radar besides a nice sign and their healthy lungs to do the broadcasting. One child wanted to design a sign on the computer while another wanted to paint it by hand. I voted for the painted sign. It would be imperfect and adorable and that would support their ‘three innocent young kids on the side walk’ brand positioning. The group also decided they needed one sign on each side of the road about 500 metres from our house. One on the east side and one on the west. That would give motorists and others the chance to slow down, knowing there was a lemonade/water/iced tea stand in their future. Having them stop and turn around was too much too much to ask and not likely to happen. Nice.
Last on the agenda was pricing. What were these drinks worth? The dollar figures my kids shouted were all over the map. Finally, we compared what you would pay for a soft drink from a vendor at a fair or other temporary location. We discussed the quality of the product and whether it deserved a premium (I reminded our kids that water is the main ingredient in all three products and that we were on a spring fed well followed by an eight-stage filtration and reverse osmosis machine – we like good water!). They decided that the prices would be $1 for a large ice water and $2 for a large iced tea or lemonade. In the absence of a cost of goods analysis, I thought they were in the ballpark.
We concluded our conversation on their startup and I started to think about the number of times I have seen business owners absent of even the basic of plans. My kids had very little to lose, but they felt better having a plan. Those that fly by the seat of their pants often wonder why their results are less than spectacular.
If you aren’t willing to invest your time and thoughtfulness and energy into crafting a plan before you start, where do you think you’ll get the energy to survive the day to day challenges of actually owning a business?
Even kids know you need to know your customer, competitive advantages, product benefits and pricing rationale before you start. Not only should you understand the same before you start your business, you need to revisit these as your business grows and matures. Sometimes, it really does come down to the fundamentals.
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.