What a Lemonade Stand Can Teach You About Starting a Business From Home
Lemonade stands are often the first introduction children have to the world of business. They can teach them important lessons about handling money as well as supply and demand. But lemonade stands can also teach entrepreneurs a great deal, from knowing what kind of business is right for a person to how to market and make money. Here’s what a lemonade stand can teach you about starting a business from home:
- The broad strokes of business
- How to get started
- How to grow your brand
- Legal considerations
- Understanding earning potential
- Other tips
The Broad Strokes of Business
Before starting up a moneymaking venture, you must consider the broad strokes of that venture. There are a few questions you should ask yourself to help you understand this:
- Who is the business for? While we tend to simplify business when it comes to kids, the complexities of the lemonade model are actually quite deep. Why is a lemonade stand ideal for kids? Because it’s low cost, low effort, and easy to profit from. Apply these criteria and more to yourself when considering starting a business from home, to understand if the idea is right for you.
- What happens during a typical day? For a child running a lemonade stand, a typical day probably starts with them making the lemonade. Then they set up some sort of stall outside, bring out the lemonade and cups, and put up a sign advertising lemonade for a specific price. Depending on how long they spend selling to customers, the whole venture might only take a couple of hours per day, which is reasonable for a child. Now apply this concept to your own idea: what will be involved in your typical day? Will you be able to accomplish all of the work on your own, or will you need help? Can you work reasonable hours, or will success come at the cost of working yourself to exhaustion? By understanding your usual day, you’ll know how viable your plan for starting a business from home is, or if you should make some tweaks.
- Who is your target market? The usual market for a lemonade stand is hot and thirsty passersby. It’s a very clear market which helps make lemonade stands successful. By identifying a clear market for your own venture, you help increase your chances for success, because you know who to target. The next consideration is how to reach your market. The lemonade stand is able to passively wait for customers to find them, often by accident. Your at-home business is more likely to require active marketing, through social media and paid ads.
- How does your business make money? A lemonade stand makes money by selling lemonade. Simple as that. When starting a business from home, you also need to understand how you’re going to make money from it. It might be as simple as the lemonade stand model, or could be somewhat more complex.
- What is the growth potential of your venture? When it comes to a lemonade stand, the growth potential is fairly limited. To open up more stalls requires more money for ingredients and more people to run that other stall, both requirements that kids might struggle to meet. However, your own at-home business might not be subject to those restraints. Before you launch, consider what your growth potential is, and outline a plan for meeting and even increasing that potential.
How to Go About Starting a Business From Home
Once you understand the overview of your business, be it an actual lemonade stand or something else, you can start setting the actual venture up. There are a few steps to take to get there:
- Consider the skills or experiences you will need: While it’s certainly possible to start a business with no prior experience, you should have a few skills to bring your idea to life. In the lemonade stand model, the skills required are the ability to make lemonade, and often the mathematical ability to make change. Skills required for a different business may include the ability to make your product, the ability to set up a website, knowledge of marketing, and general business knowledge. If you find that you’re lacking in a certain area, take some time to brush up your skills.
- List start up costs: All lemonade stands need a little bit of money to start. They have to be able to buy ingredients, some choose to offer disposable cups, and some spend money to create an eye-catching stand to sell from. All-in-all, the costs are usually very low, but they’re still important to understand. This becomes especially important for your own at-home business, when start up capital might be higher than it is for a lemonade stand. Knowing the initial costs you will incur will help you understand the financial success of your business down the road. If the lemonade stand doesn’t make any money and the piggy bank runs dry, the child must either stop running the stand or come up with a better way to make money.
- Start up steps: A lemonade stand probably doesn’t take many steps to start. After the business plan is conceived, supplies need to be bought, the product needs to be made, and a stand needs to be set up. Very little else is required. Other businesses may have more to contend with, in the form of forming a legal entity and registering for taxes and other financial necessities, acquiring necessary permits, and registering a website. Knowing the steps you will need to take will help you smoothly launch your business.
- Insider tips: If you can reach out to other business owners in your field, or even find a mentor, that can help you immensely. Many lemonade stand owners tend to consult their parents (what do you expect; they’re seven), but finding a professional who has been in the field for a long time can open you up to insider tips you may not have known before. For example, a lemonade stand owner might not know how to pick out the freshest lemons but their parent-professional, can help with that, which will make their stand more successful overall.
How to Grow Your Brand
All businesses have the potential to grow. All you have to do is understand how to unlock it. There are a few tips that can help:
- Understand promotion: One of the best ways to grow a business is to promote it. One of the goals of marketing efforts is to make more people aware of your brand. A lemonade stand might do this by posting signs to mail boxes or street poles. Most of their customers just happen to pass by, but by posting the signs, the stand increases how many people in the neighbourhood know of its presence. Your brand might use social media, broadcast media, print ads, and more. Studying each method and understanding how customers come to you will make you a pro at promotion in no time.
- How will you keep customers coming back? Many kids rack up a long list of repeat customers. How do they do this? Yes, being darn cute helps, but the more likely reason is that their lemonade is good. Few people will go back if the lemonade is awful. Take this practice and use it in your own business. By doing something better than your competitors (whether you have a better quality product, better customer service, better sales, etc.), you’ll bring customers back time and time again.
- Do you know how and when to build a team? When the work of a lemonade stand becomes too much for a kid, they’ll often ask their parents, siblings, or friends for help. They understand when it’s time to create a team and they know how to get one. Follow their lead on this, and decide in advance when the time for you to ask for help will be. As for where you’ll get it, friends, family, and online job posts can all help you find the assistance you need to keep your brand running strong.
We’ll be blunt: most lemonade stands aren’t going to be beholden to the laws that might affect your home business. However, there are considerations you’ll have to be aware of so we thought it would be prudent to list them here anyways:
- Maintain Personal Asset Protection: When you run a business from your own home, it often seems easier just to run it all from your personal bank accounts, using your personal assets (including your car, and home itself). However, you should maintain protection for those assets. If your business comes into legal trouble, maintaining that separation will prevent the assets from being confiscated from you. Be sure to open up a business bank account, and get a business credit card as well.
- Acquire All Necessary Licenses: Every brand is different and will have different licensing requirements, so do research based on what’s applicable to you. However, some common ones include Certificates of Occupancy, tax registrations, state/province and local licensing, food safety permits, etc.
Understanding Earning Potential
Now we get to the bread and butter of running a business: to earn money from it. Many lemonade stand-owning kids wants to supplement their piggy banks, but adult entrepreneurs might be hoping to earn a part or full-time income from their home business. Here are the things you should consider:
- How much can you charge? There are a couple of considerations while trying to come up with this number. First, how much does it cost to produce your goods? You’ll have to charge enough to turn a profit. Be sure to factor in ongoing costs as well (like resupply costs, the cost of maintaining your business, etc.). Second, how much do people expect to spend on the product? Usually there’s a range that you can work within. Back to our lemonade reference: the cost of making lemonade isn’t very expensive. Charging a dollar or two per glass is typically enough to make a profit. However, charging $5 per glass is likely to drive customers away, leaving you with almost no profit.
- How can you be more profitable? Once you know how much you can charge, you can figure out how to be more profitable. A lemonade stand could sell more products, like iced tea and baked goods, or put up more signs to bring in more customers. All businesses should consider this question carefully, however, because many ways to increase a business’ profits first require an upfront cost that could lead to lost money if the expansion isn’t successful.
Finally, there are a few best practices you can learn from the lemonade business model:
- Deliver the best possible product: In a competitive market, you should strive to sell the best product you can. After all, why would anybody buy bad lemonade when they can get a much better glass from the stand one street over?
- Location matters: A lemonade stand on a quiet street might not perform as well as a stand near a public park or local market. When you start your own business, sell in the best possible location for your brand, whether that means a physical or digital location (ie website).
- Be wary of brand extensions: Although adding more products to your brand might bring you in more money, you run the risk of diluting your original brand which is what made your business popular. Sometimes it’s best just to stick to lemonade.
- Add a human touch: A lemonade stand brings you face to face with the person making the drink. Even if you can’t do the same with your customers, add a human touch like handwriting thank you notes to go along with every purchase.
- Use the language of your customers: The sign at a lemonade stand says “delicious, fresh lemonade” for a reason. A sign that says “dihydrogen monoxide, citric acid, and glucose crystals” likely doesn’t speak to your customers and will probably turn them off of buying from you altogether. Understand who buys from you and deliberately use words that will appeal to them.
- Plan an exit strategy: While you should of course plan for success, you should also plan for failure, or at least for the day when keeping your business running isn’t feasible any longer. For example, a lemonade stand isn’t likely to be successful in the winter, so they usually call it quits at the end of the summer.
By understanding how the lemonade model -one of the world’s simplest business models- works, you can scale that knowledge up to understand more complex businesses. That knowledge will make the task of starting a business from home much easier overall.
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