What Running a Lemonade Stand Can Teach Budding Entrepreneurs About Business

Tech entrepreneur Michael Holthouse is often surprised by how unfamiliar many adults are with the basics of business. “Many Americans believe revenue and profits are the same thing,” he says.

Holthouse aims to change that through Lemonade Day, a fast-growing program to educate kids about running a business long before they enter adult life. The annual Lemonade Day event, which takes place on different dates throughout the year in 56 cities in the U.S., Canada and South Africa, walks children through a 14-step, month-long process to create a business plan for a lemonade stand and turn it into a real, money-making venture, with a parent or mentor’s guidance. Typically the stands go up each year the first Sunday in May, but there are some exceptions. “Some of our cities are Aspen and Anchorage,” Holthouse says, “There are still 14 feet of snow in some of those cities.”

Holthouse dreamed up Lemonade Day in 2007, after seeing how excited his daughter Lissa got about starting her own lemonade stand when he said he wouldn’t just buy her a pet turtle she wanted and challenged her to raise the money herself. “It was one of the most amazing days we had,” he recalls. “I couldn’t get the whole thing out of my head.” The following year, participants put up 2,600 stands. Since then, the event has grown rapidly, with support from partners such as Google for Entrepreneurs.

While Lemonade Day is meant to help children, it holds powerful lessons for adults, too, says Holthouse, who sold his computer network services company Paranet, to Sprint in 1997 after building it to more than $100 million in revenue, and began devoting much of his time to philanthropy through The Holthouse Foundation for Kids, which focuses on helping at-risk young people.

“There are so many conversations that are straightforward when you think about a lemonade stand but they apply apples to apples to every other business on the planet,” Holthouse says. Often, parents who started out unfamiliar with entrepreneurship prior to participating in Lemonade Day come away with a brand new understanding. “Having a simple vocabulary about revenue, expenses and profit is really enlightening,” he says.

Money spoke with Holthouse recently about what entrepreneurs of all ages can learn from the event.

What are some of the lessons children learn from running lemonade stands?

Holthouse: What we’re teaching is how to start, own and operate their very own business using a lemonade stand. Yes, they are going to learn a whole bunch of business concepts and vocabulary and elements that make up a business, a business plan and a budget and all of those things, but more than anything what we’re trying to bring to life is a set of social and emotional skills that build self-confidence, motivation and grit--the kind of things that will really carry them through life.

We set three big goals up front: a spending goal, a savings goal and a sharing goal. Spending is, after all, why we become entrepreneurs. We all have wants and needs as human beings. We have to figure out how to meet them. [As organizers of Lemonade Day], we believe everyone needs to save some amount of their money. In the lemonade business, some days it rains. As for the sharing goal, the kids make a decision about how much they want to give and whom they want to give it to.

What is wild to me is some of our youth, when the start Lemonade Day, don’t have two nickels to rub together. By the end of the whole process, they are giving material amounts of money to someone they believe is less fortunate. It could be $20 or $50.

Have any of the stands struggled?

Absolutely. Does every business in the world make it? Heck, no. Some of the stands don’t make it, and you’ve got to put that under the category of some tough love. I’d much prefer a child learn early in their life that you don’t always get it right the first time. You may have to do it a second or third time to get it right. The amount of risk they’re taking is so low we say “Get up, dust yourself off and let’s make the next one twice as successful.”

Where do kids go wrong with their stands?

The place where kids go wrong is to set unrealistic goals. The child will say, “My goal is to get an iPad.” That’s a big goal. Perhaps it’s attainable, but when they figure out how many glasses of lemonade they need to sell, they’re going to learn there are ways this doesn’t work.

We spend a fair amount of time with these kids on their business plan--which is a culmination of the answers to the questions we ask them. They put it together in a budget: What are your line items for costs? What are you going to be able to borrow or get for free? What will you have to buy?

When planning a lemonade stand, a trip to the grocery store is a great experience. If they want to market fresh squeezed lemonade, it is labor intensive. We ask them, “Will your market and price be able to support doing this?”

Parents that participate in Lemonade Day with the kids often learn more than the kids do. You want to learn something in life? Try and teach somebody. It becomes very real.

What can adult entrepreneurs learn from the challenges the children encountered?

With the kids we are trying to help, they crawl before they walk and walk before they run. We are helping them start with a business that is sized so that they can be successful. When they are able to save $20 out of their business, they can turn around and be their own investor in the next business they do, whether they repeat the lemonade stand or branch out into whatever business they want to do.

In a lemonade stand, you want to create a great product, have great customer service, and have a way to get repeat customers. These early lessons focus them on thinking about what are the really important things vs. the unimportant things.

For would-be adult entrepreneurs who never had a lemonade stand, how can they get a similar crash course in running a business?

Experiential learning is the hardest kind to do--it’s the most time consuming--but the impact is exponential, compared to sitting in the classroom and just hearing about it. It may sound silly or even self-serving, but if adults who would like to run a business find some child in their life and go through Lemonade Day with them, they will see all the aspects of what it take to start a business. How much money can you lose on a lemonade stand? All you have to do is substitute whatever your business happens to be for lemonade. There are 10,000 books on entrepreneurship, but the way to start a business is to jump in there and make some mistakes.