Teaching Entrepreneurship to Kids

A Star is Born

It is never too early to encourage and foster entrepreneurship.

A few months ago, it was a rainy day and the girls were bored. They had just finished another game of Monopoly and they were desperate to find something else to do. That's when my significant other's 7-year-old daughter remembered that she had a collection of Perler Beads in a craft box, and she suggested that we try our hand at that.

To the uninformed, the craft involved carefully placing small cylinder-shaped plastic beads on a pattern, then using an iron to fuse them together. It is quite fascinating to see just how creative kids can be with something so simple.

After a while, we had several stars, peace sign circles and hearts to show for our efforts. That's when my 10-year-old daughter, who is always eager to cook up money making schemes, asked if they could go door to door selling the bead creations. Both girls, who are participating in the Bank of Dad concept, were ecstatic about the idea of making some extra spending money.

The parents agreed, feeling quite impressed with their initiative. My significant other, who also has an MBA, had the bright idea to use this endeavor to teach the girls about being entrepreneurs. This is one of the rewards of being in a relationship with another business school graduate (she was also the catalyst for our highly successful Bank of Dad initiative).

Let's begin with a basic understanding of what it takes to be an entrepreneur. The Merriam-Webster Dictionary defines an entrepreneuras "one who organizes, manages, and assumes the risks of a business or enterprise."

We decided to involve the girls in all the aspects associated with starting up a business. The girls were allowed to use the initial beads to make their first items for sale. After that, however, we made it clear that any additional beads or patterns would have to come out of their revenue. Thus, the girls would be assuming any future risk for the enterprise.

What about organization and management? We asked the girls how much they wanted to charge for the hand-made crafts. They collectively shrugged their shoulders. "Maybe a dollar or two?" one of the girls responded with some hesitancy. So we got out a notepad and began making calculations, getting both the girls involved in the math.

A starter kit costs about $5 and includes 2,000 beads. A standard star-shaped pattern, as seen above, requires roughly 150 beads. So our aspiring entrepreneurs would be equipped to make about 13 crafts with that kit, more or less. Based on those numbers, it was going to cost about 39 cents in materials to make one item. They girls decided to charge $1 for each craft, netting 61 cents profit for each sale. Even if they got bored and only sold half of the crafts, they realized that they would come out slightly ahead.

To quickly placate finance and econ students, we realized that our daughters were also devoting time and labor to the business. We opted against getting into the concept of opportunity costs, given their limited options to raise money elsewhere (and playing Monopoly unfortunately deals in fake cash). So we'll save the discussion on opportunity costs for their next venture.

Let It Snow!

Finally, we encouraged the girls to brainstorm about any practical uses for their bead creations. Sure, they're cute home-made crafts, but we thought the girls might have better luck with sales if people found use for them.

The girls experimented with making "sets," or a collection of similar themed items to sell as a group. My significant other glued magnets on the back of their crafts to display on the refrigerator, but she was quick to note that magnets are expensive and would have put a major dent in profits.

Another idea that eventually proved useful: tying strings to the top of the star-shaped crafts to make Christmas ornaments, which were sold at a premium during the holidays.

To recap; it is easy to teach kids how to be thoughtful entrepreneurs. Using the definition of an entrepreneur and our own personal experience, there are three key takeaways.

• Assuming Risk: Get your kid involved in the actual funding of the project. Make it clear that he or she will use revenue from the endeavor to buy new materials, advertise, etc.
• Organization: Have them build a business model. Help them gain an understanding of fixed and variable costs, and use those projections to develop a reasonable pricing structure.
• Management: Teach your kid to always look to innovate. Find new uses for old products. Sometimes it can expand the customer base. It can also help the entrepreneur justify a slight higher price, and thus higher revenue/profit.

Managing Changes to Customer Loyalty Programs

Photo: Starbucks.com

The prolonged economic slump has businesses of all shapes and sizes rethinking, and retooling, customer loyalty programs.

I recently stopped into a nearby Starbucks for coffee. Admittedly, it had been a while since my last visit but, in my prime, I was feeding a pretty heavy caffeine habit. I asked the barrista for a seasonal syrup and soy milk, whipped out my gold card and got ready to pay.

It was only then that I found out that Starbucks had dropped free soy milk and syrups from its reward program. I stood there open mouthed (figuratively), let out a sigh and walked to the other side of the counter to pick up my considerably higher priced beverage. It was a small hit in the grand scheme of things, but it got me thinking about how to effectively manage customer loyalty.

Starbucks did officially announce the change, though it did so in a rather ill-advised way. In a September blog post, the company touted how it was "revamping" the rewards program. But the emphasis was clearly on what the coffee giant was adding ... the subtractions seemed a mere afterthought.

In fact, I went home and went online to double check the change. One of the first hits on Google was another blog post, but this one clearly singled out the company's deletions. There was even talk about the retracted benefit equating to a "tax on vegans." Yikes!

This isn't the first time I have found out (too late) that a business has ended a customer benefit. There is a winery that I enjoy visiting from time to time. It has a great view, decent wines and a now-defunct enticement to keep coming back - a free tasting if you brought your branded wine glass with you.

I showed up at the winery a couple of weekends ago, glass in hand, and walked up to the counter, only to be told that the promotion was longer in effect. I never asked why, but I would surmise that the increasing need to lathe expenses had to factor into the decision.

So here are a few suggestions to companies that are considering starting, or changing, their loyalty programs.

• When you are developing a program, try to come up with incentives that you can offer regardless of where the country is in the economic cycle. Forecast the cost of the program over years of promotion.  Picking your reward wisely could keep you from taking them away if times get tough.
• Make sure you clearly communicate changes well in advance of the effective date. Starbucks made its announcement one month before it ended free syrups and soy (the company also axed a reward where customers got a free coffee if they bought beans). Make sure people sign up for email notices and make sure both additions and subtractions are clearly outlined.
• If you issued rewards cards, punch cards, etc., consider a grandfather provision that lets people complete the card they are working on but stop handing out new cards. This allows for a phase out approach that lets you eliminate an incentive over time.
• Get feedback in advance. Planning to take away a reward? Ask people well in advance to choose from a list of potential replacements. Getting consumer participation could help you in the psychological battle of keeping them happy!

I am certainly interested to hear what other people have to say on this issue. Businesses rely on loyal customers, and word of mouth, to grow, so managing these programs is a very critical component for success!