Lemonade Stands, Business Instincts, and Surviving the Recession

Michael Medved
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Posted: Jul 29, 2009 12:01 AM
Lemonade Stands, Business Instincts, and Surviving the Recession

UNEQUIVOCALLY VALUABLE TO SOMEBODY ELSE

On the way home from work on a summer afternoon, I pulled over to do business with a group of young entrepreneurs who had set up their temporary enterprise not far from our house. On the edge of a forest preserve and in the shadow of towering Douglas firs, four excited little girls dispensed lemonade in plastic cups, along with home-baked cookies contributed by their moms. They appeared to range in age from seven to about twelve, and the two younger girls waved at passing motorists to call attention to the colorful, hand-lettered cardboard signs on three sides of the card-table that comprised their base of operations. The older children sat on folding chairs, handling customers, emphasizing the difference between a small cup for fifty cents and a large cup for just a quarter more. They collected their money in a shoe box and the presence of numerous dollar bills along with all the quarters and dimes suggested a productive and successful day of work.

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As I completed my transaction and sipped at the ice-cold refreshment I told the budding capitalists that I used to run my own lemonade stands when I was a kid, and so did our three children when they were younger. To my disappointment, the girls didn’t seem to hear me: they were already concentrating on other customers who’d been waiting their turn and in any event they seemed so thrilled with their afternoon’s endeavor that they probably preferred to believe that they had personally invented the street corner lemonade business. To them, the experience seemed fresh and exciting rather than timeless and nostalgic.

Nevertheless, they almost certainly shared some of the common characteristics of youthful lemonade vendors of prior generations. For one thing, the children who participate in this neighborhood rite seldom focus on the money they produce. I’m proud to say that our daughters always designated all proceeds to charity, selecting various causes that benefited “cancer kids.” The enjoyment of the process never stems from the coins or bills collected in the shoe box but from the genial, generous connections with friends, neighbors and even strangers. When you give a cold drink to a passing patron and he hands you money in return, it’s an indication that an adult is taking you seriously, transacting business as an equal.

You’ve done something useful for that grown-up and the payment confirms that he appreciates it. There’s also something hugely satisfying in serving other people and watching their pleasure (some of it deliberately exaggerated, no doubt) when they drink their cold lemonade on hot days or savor their cookies. It’s the same sort of satisfaction pursued by countless Americans of every age and station (including famous movie actors and sports stars) who nurture the dubious but deathless dream of opening a popular restaurant and drawing mobs of eager, happy diners. Why else would celebrities who already earn tens of millions of dollars risk time, money and reputation to start steak houses, rib joints or high end bar-and-grills? That thrill of building a business, of creating an enduring institution that others will patronize and cherish, provides emotional and even spiritual (if not financial) rewards distinct from the evanescent glories of throwing touchdowns or starring in comedy blockbusters.

The commercial impulse to trade service to others for financial reward remains virtually unquenchable in the human spirit, and will triumph inevitably over all those who celebrate or lament “the death of capitalism” with each new economic crisis. Banks may crumble and investments may tumble (to paraphrase Ira Gershwin) but the entrepreneurial impulse is here to stay. Even in sour economic circumstances, kids will still want to sell sweet lemonade on summer days and their parents will dream of creating some business or another that may make them famous, appreciated or, very simply, useful. People feel a deep need to make money not just for the options and opportunities the dollars can provide, but as a signal that they’ve done something that’s unequivocally valuable to somebody else.

THE UNQUENCHABLE URGE

At a time of economic hardship, that desire to create wealth through the business system seems to increase due to both practical and psychological factors. Experts see a sharp increase in small business start-ups at the depths of the present downturn, in part because workers who have lost their jobs and find it difficult to get re-hired will feel ready to strike out on their own, and in part because the unpredictability and shakiness among even the largest corporations encourages venturesome souls to take control of their own circumstances. If all work positions look uncertain and insecure, according to one line of reasoning, you might as well toil yourself as some remote company.

Surprisingly enough, the rigors of the recession have increased rather than diminished the number of university students pursuing graduate educations in business. Despite widespread cutbacks in educational funding almost everywhere, MBA programs showed explosive growth in applications in 2009. One typical headline (from the Orlando Business Journal) proclaimed “MBA enrollment spikes as economic woes mount.” Meanwhile, Business Wire (January 31, 2009) reported from the other side of the country: “Mirroring a national trend, applications to the University of California Davis Graduate School of Management’s two-year Daytime MBA program are up 50 percent from last year, the school’s admission office reports.” These applicants include some laid-off workers who seek new qualifications before re-entering the workforce, as well as worried undergraduates who conclude they need more than a BA to get a decent position in a struggling economy. Nevertheless, the growing eagerness to concentrate on business as a field for advanced study shows that many young people emphatically reject the conventional wisdom that capitalism’s fate is dire or, at best, cramped. The growing popularity of business degrees among university students, even at a time when scholarships and loans have become more difficult to secure, amounts to an unexpected vote of confidence in the market economy from the hippest, most future-oriented segment of the population.

The yen to build wealth in a market economy not only survives every sort of economic crisis and business scandal but also endures the most ferocious attempts at political repression. The Cultural Revolution in China raged between 1966 and 1976 and represented one of history’s most savage efforts to uproot and obliterate the business instinct. Literally millions of those identified as “class enemies,” “revisionists” or “running dogs” suffered violent attack, imprisonment, torture, rape, confiscation of property, and execution. Senior Communist Party historians now acknowledge that “in a few places, it even happened that ‘counterrevolutionaries’ were beaten to death and in the most beastly fashion had their flesh and liver consumed by their killers.” The most authoritative estimates of the number of murder victims suggest 500,000 in the years 1966-69 alone --- a total collection of corpses easily exceeding in number the well publicized hordes who simultaneously partied at the Woodstock Festival. Nevertheless, a quarter century later the Chinese regime not only tolerated but celebrated the same business values and pursuit of profit that had formerly provoked unspeakable persecution and even mass cannibalism. As the brilliant French economist Guy Sorman observes in his latest book, “Economics Does Not Lie” (2009): “It is a remarkable historical event that the largest country in the world, under the guidance of a Party that tried to reinvent economics from scratch in the 1960’s, has admitted that, after all, there is only one economic system that works: the market economy.”

While others might claim that the survival of business values in China stems from the long national tradition of honoring merchants and artisans, Sorman asserts that the impulse to seek profit and self-improvement is entirely transnational. “After banishing the pursuit of wealth for fifty years,” he writes, “the Party now encourages it. It is once again permissible in China to work in order to make money. Indeed, this is the only authorized and encouraged activity. We see that the Chinese have the same aspirations as other peoples. From the poor peasant to the dynamic entrepreneur, everyone wants to improve his lot and that of his children. The homo economicus is a universal being, found in all civilizations.”

The Soviet Empire in Eastern Europe may have shed even more blood in its futile effort to wipe out that “universal being.” The Nobel prize-winning novelist and historian Alexander Solzhenitsyn suggesting that some 60 million “kulaks,” or independent farmers, died at the hands of Lenin and Stalin for the crime of working for themselves rather than the state; official Soviet-era low-range estimates say “only” 700,000 met their doom. In any event, the survivors and heirs of that nightmare regime now co-exist with an aggressive business elite more flamboyant, corrupt, and ambitious than the most notorious captains of industry in America’s gilded age.

Just five years after the collapse of the old Soviet Union and the new independence of its one-time satellite states, I traveled to Warsaw for a lecture to an international media conference at the Palace of Science and Culture. This monstrous building, the tallest in Poland and the eighth tallest in the European Union, has dominated the local skyline since its construction began in 1952, and it sprawls over four square blocks with its various wings and subdivisions. Originally known as the “Joseph Stalin Palace of Science and Culture,” it featured a special throne room from which later Soviet dictators could watch the proceedings of Community Party congresses that convened regularly in the Congress Hall.

By 1994, the Poles had discovered the best possible way to insult Stalin’s evil ghost. Every day a veritable army of peddlers and merchants surrounded the Palace, setting up literally thousands of booths to sell every sort of merchandise from shoes to food to cameras to wigs to cigarettes to pirated CDs to traditional handicrafts. The intense haggling exemplified capitalism in an especially vital, even elemental form; after nearly fifty years of ideological efforts to suppress these instincts, the mobs around Stalin’s former Palace reveled in their newfound ability to buy and sell.

The people of every age who came out every day to sell all manner of junk in 1990’s Warsaw didn’t intend to make a self-conscious, pro-capitalist statement, or with the expectation that they’d get rich. They seized the chance to do business in the public square to earn a few zlotys, and to savor the festive communal atmosphere and the unstoppable energy of that moment in their history.

BUILDING RELATIONSHIPS

My own singular adventure in ground-level business building similarly stemmed from a lust for personal adventure and experimentation rather than any conscious commitment to a free market agenda. At age 17 in the summer of 1966, having completed my freshman year at Yale, I needed to earn some serious money for my continued education to supplement my parents’ contribution and my National Merit Scholarship. I initially used the university’s alumni association to secure a minimum-wage bank job near my family’s home in West L.A., but my boredom in the institution’s copy room quickly led to disaster. I liked to play around with the bank’s bulky, primitive Xerox machine, trying to produce some artistic photographic collages, but managed during my second week of employment to set the contraption on fire. The resulting blaze did no serious damage to the building but it definitively ended my banking career and led to desperation regarding my wealth-generating prospects for the rest of the summer.

Rather than doing nothing while I checked the want ads, I began auditing an American history class at the summer session at UCLA and quickly devised a scheme to try to sell notes and “study guides” to the more than 500 students who attended the lectures. I took class notes in the morning, walked over to the library to type them up on master mimeograph sheets (in a barbaric era long before the advent of laptops) and then made enough copies to hand out to every student in the class during the first week. At the bottom of the thorough notes I also began a countdown till the end of the free notes—hoping that the bulk of the huge class would become so addicted to my services that they’d buy a subscription to my newly launched company, “Stratford Study Guides.” (named for the Bard of Avon, and the classy anglophilic sound of the designation).

Everything worked beautifully and I began to sell subscriptions, but the entire scheme came close to collapse when the professor (very reasonably) objected. He could have thrown me out of the lecture hall since I’d never registered to attend or even audit his course, but instead he merely protested that my virtually word-for-word transcriptions of his talks violated his copyright and led students to ignore him since they could count on my very detailed notes. To settle the dispute, I suggested that Stratford Study Guides would become real study guides – still transcribing his lectures more or less verbatim, but leaving at least four blanks in each sentence that the students would need to fill in for themselves. For instance, I might report that: “To support the ratification of the Constitution, ____________, James Madison, and ______________ wrote a series of brilliantly argumentative essays known as ____________.”

The lecturer loved (and, more importantly, authorized) the new approach and by the middle of the summer term the overwhelming majority of students in the class had purchased one of my subscriptions. By working frantically and constantly (I can still smell the sharp alcohol tang of the master mimeograph sheets and recall their slimy feel) I managed to hand out the previous day’s lecture notes to all subscribers (as I punched their cards) at the conclusion of every daily lecture. I also began offering tutoring services (at the suggestion of some of my customers) to assist in preparation for midterms and finals. These personalized sessions led to a brief but thrilling summer romance (unfortunately not with my wife Diane, who was still in Middle School at the time and didn’t start UCLA till four years later).

The summer’s experiment with Stratford Study Guides did wonders for my self-confidence, selling ability, historical knowledge and bank account. As the term came to an end and I prepared to return to New Haven, several satisfied customers and even the initially dubious professor approached me as potential investors with the idea of perpetuating and expanding my little business. If I stayed behind at UCLA, why not replicate my successful formula in other large lecture courses by hiring a group of note-takers who could prepare study guides at my direction? Perhaps I could make some deal with the university book store to help distribute the lecture-based material, plus other student aids that I could generate to help prepare for tests and even term papers.

In one sense, I loved the idea of staying back in California and building my own business but my mother persuaded me that it made no sense to suspend my own college education so I could help other students make easier progress toward their degrees. I did hope to keep “my company” (there was no incorporation or anything of the kind) going until I could resume directing its operations the following summer, so I sold it to a friend of mine with the understanding that he’d continue running Stratford Study Guides in some capacity. I believe the purchase price for my going concern amounted to the princely fee of $50, which ended up as a total waste for the new tycoon who quickly abandoned the whole effort due to lack of focus as his UCLA course demands intensified.

Like my mom, my father wanted me to return to Yale but he watched my business develop with particularly keen interest. He had begun plotting to leave his corporate and government jobs to open his own high tech business providing “hybrid opto-electronic devices” – a far more sophisticated line of products than mimeographed lecture notes. Within three years, he’d successfully launched MERET (MEdved REsearch and Technology) and then my kind brother Jonathan also caught the entrepreneurial bug. At the University of California, Berkeley, he enjoyed conspicuous success with a company called “Meshuggeneh Brothers”--- even though none of his real life meshuggeneh (crazy) brothers managed to help him with it. He delivered over-stuffed, over-priced deli sandwiches he made from food he bought in bulk to dorm rooms and frat houses at Cal to help fortify his fellow students who needed nourishment during late night study. Jonathan has gone on to build a fruitful and internationally recognized career as a venture capitalist in Israel.

In all of these oddly assorted family enterprises we certainly hoped to make money but, like most others inspired by the romance and adventure of business, we also looked for other sorts of pay – for my father, the respect (and in fact awe) of his physicist colleagues when he turned out products they deemed impossible to produce, for Jon the grateful joy of a hungry dorm bound fellow-student into a huge, freshly prepared pastrami and rye at two in the morning before a major test, and for me the heart-fluttering experience of offering a tutoring session about Henry Clay, Daniel Webster and the Great Compromise of 1850 while a buxom California co-ed listened with rapt attention and dewy, admiring eyes.

Business, even in its most rudimentary sense, builds more than profits – it builds relationships.

BRINGING ORDER OUT OF CHAOS

The importance of those relationships intensifies during periods of financial turmoil and uncertainty, helping to explain the stubborn survival of the business ethos through every crisis and challenge. “Considerable courage and perseverance are required to start and keep a good shop running,” writes Joseph Epstein of Northwestern University. In responding to Napoleon’s ill-considered dismissal of the British as a “nation of shopkeepers,” Epstein extolled the skill and determination required to “keep shop” – reminding me that even my dad, with his several dozen employees, referred to his fiber optics company as his “shop.” As Epstein wrote (in the Wall Street Journal, July 16, 2009): “Running a good shop is a service to one’s community, of much greater value, in my view, than the work of two hundred social workers, five hundred psychotherapists, and a thousand second-rate poets – and more honorable than the efforts of the vast majority of the members of Congress. A nation of shopkeepers, far from being the put-down Napoleon thought, sounds more and more like an ideal to which a healthy country ought to aspire.”

That aspiration to build and defend businesses arises from the very core of our humanity and for many Americans involves an important religious component. One of the most famous of all Biblical verses (Genesis 1:27) declares: “So God created Man in His image, in the image of God he created him…” Jewish sages have never understood the reference to connote a physical resemblance between man and God, but rather to emphasize the Godlike gift of creativity. As the Creator busies Himself eternally with the business of constant making and shaping, bringing order out of chaos (a universe once “formless and void”), so human beings, in His likeness, feel the constant urge to create, to connect and organize.

This creative urge gave rise to capitalism, with artisans and craftsmen (who used their own divine power to shape precious things with their hands) playing a decisive role. Historians often cite the 13th Century development of the Hanseatic League in Northern Europe along the Baltic and North Sea as the beginnings of medieval mercantile system. Certainly, goldsmiths (who skillfully shaped the most precious of metals according to their will) became the first bankers, making clear the creative essence of a modern financial system.

The current system will adjust to its shocks and catastrophes and continue to create, harnessing the God-given impulse of humans everywhere. Fareed Zakaria of Newsweek put the turmoil in an appropriate perspective: “What we are experiencing is not a crisis of capitalism. It is a crisis of finance, of democracy, of globalization and ultimately of ethics,” he writes. “The simple truth is that with all its flaws, capitalism remains the most productive economic engine we have yet invented. Like Churchill’s line about democracy, it is the worst of all economic systems, except for the others.”

On a more ebullient note, Bertie Charles Forbes (1880-1954), the Scottish immigrant founder of Forbes magazine, once memorably declared: “Business was originated to produce happiness.”

To produce happiness, maybe not, but to pursue it--- most certainly.