
My dad taught me cashflow with a soda machine - robfitz
http://blog.thestartuptoolkit.com/2011/10/my-dad-taught-me-cashflow-with-a-soda-machine/
======
DanielBMarkham
My 11-year-old daughter for Christmas last year asked for a bubble-gum vending
machine. She got the idea from hearing stories about a family member who had
over a hundred machines placed at one time.

I thought it was a great idea. She placed one machine, then another. Now she
has four machines, but she has only placed 2 of them. Each machine makes about
a buck a day gross, 70 cents or so net.

I'm purposely not doing any of the stuff this guy's dad did -- charge for gas,
insist on doing the math, etc. For now all she has to do is buy the inventory.
Once a month or so to pick up the "haul."

I think if you push these things then you lose track of the point. Right now
it's something she enjoys -- who wouldn't want to take a trip each month and
come back with tens of dollars? If we were to get into marketing, sales, cash
flow, or any of that? I think it would turn it into a chore. After all, geesh,
the kid is only 11. The only thing I've told her is that she has to save up if
she wants another machine, and the more machines she has placed in good spots
the more money she will make.

Looking back over the previous year, I think this Christmas gift might turn
out to be one of the best presents we've ever given. It has the potential to
teach so many lessons. The coolest part is that it is all driven by motivation
on her side -- she was the one asking for the machine, she is the one picking
out the product, she is the one saving up for new machines, she is the one
responsible for scouting out new locations and making the pitch to store
owners, etc. If she pushes a lot, she could make some real cash. If not, then
she knows more about how these things work. It's a win either way.

~~~
hugh3
What was the initial investment?

~~~
DanielBMarkham
As I remember, $160 covered the first machine and bag of gumballs. We don't
spend a lot on Christmas, so this was her "big" present that year. It was
interesting listening to her telling her friends about what she got!

It took her about six months of operating to save up enough for the second
machine. Once that machine was operational, it took another 4 months for the
third machine, and so on. (I think the fourth was a birthday present). It's
been a great applied lesson in exponential growth.

To answer the other commenter's question, she placed the machines in places
she visited once a month anyway. Civic groups, local hairstylists, etc. A
couple of these spots didn't work out, so she had to find new places.

I would be lying if I said I wasn't disappointed that these two are sitting at
home (even though she _still_ manages to weasel 1 or 2 sales a day from the
family, the little rascal) and I've wanted to talk to her about placing her
machines where there is lots of foot traffic, but I've been biting my tongue.
Mostly. I figure you can't motivate somebody from the outside. Every month
when she comes back home with her and mom holding a big bag of quarters, I
feel like that should be feedback enough.

~~~
hugh3
Whoa. $160 initial investment for seventy cents a day profit? Your kid is
investing at 160%!

If I spent $50K on these, I could retire! (Except I wouldn't be retired, I'd
be driving around all the damn time taking care of my three hundred and twelve
gumball machines. But still!)

~~~
DanielBMarkham
Don't forget it's all cash income -- no waiting on invoices to post or people
to write checks. You crack open the machine, and it's like Christmas.

I think if you did this with a higher-margin item, say DVDs or electronics,
you could retire. But the trick is, as you note, scaling all the footwork and
overhead. It's not like you can farm out the collection and restocking, not
unless you really, really trust somebody. And chasing around 100-300 machines,
the people that manage the site, and the product that works? It's not a
trivial thing to do at all.

Not only maintenance, there's also always moving the machines around, and
pitching store owners to put a machine onsite. Some of them look at it like
competition. A couple guys refused to place them unless they got a piece of
the action! After she finished pitching, they decided they would go out and
buy their own machines. All for 20 bucks a month. Dang cheapskates. And don't
forget there are big, serious players out there who wouldn't think twice of
using dirty tricks (and the know them all) to quash you like a bug. She's
lucky she's under the radar. Somebody dropping a couple hundred thousand for a
few dozen high-end machines would not go unnoticed.

I actually like the business model a lot. It encourages direct selling,
there's lots of business math, and there aren't a lot of tricky issues
involved.

So yes! Kinda. If you could retire on 400-1200 bucks a month, I think it would
work. Past that point, though, it gets ugly. Small scale? It rocks. Large
scale? It looks much better on TV than it actually is.

~~~
anigbrowl
_A couple guys refused to place them unless they got a piece of the action!
After she finished pitching, they decided they would go out and buy their own
machines. All for 20 bucks a month. Dang cheapskates._

This one part of your comment baffles me. Exactly why should they share their
business traffic rent-free with your daughter? Sure, she's young and
presumably cute and it's just a gum machine, but it seems to me that she
should be splitting the take with them or at least offering them a few bucks
as a nominal rental payment. This is, after all, the situation that most
business owners are in with regard to a commercial landlord. Sure, for such
small sums it seems silly, but the marginal profit on most retail purchases is
tiny. If the machines cost $160, the retailer sensibly sees that the capital
expenditure is covered after 8 months.

I think you missed an opportunity here. If you had encouraged her to negotiate
and hit on a business with more than one branch, the vending machines could be
in multiple locations; if not, a quid pro quo still generates a lot of good
will. My local corner store owner has a kid of 8 or 9; I suspect that his
response to a proposal of this sort would be to buy his own kid his own
vending machine, rather than hand 100% of the profits to your daughter. Maybe
I'm missing some part of your story?

On a side note, I wish you would consider vending some other product besides
gum, which isn't much good for kids' teeth. You wouldn't have bought her a
cigarette vending machine if those were still popular, or at least so I
assume. On a small scale, it's a classic example of externalizing the cost of
the product you sell.

~~~
mattm
> On a side note, I wish you would consider vending some other product besides
> gum, which isn't much good for kids' teeth.

It's unfortunate but the highest margin food products with a long shelf-life,
thereby making them more suited to vending machines, tend to be full of sugar
and very unhealthy.

~~~
fennecfoxen
Not to mention the impulse-buy angle.

------
Tyrannosaurs
Anyone else here think that kids should be allowed to spend their childhoods
being, well, kids?

A lot of people seem to spend their time as parents trying to teach the things
they think their kids should know, but too often these seem to be things that
kids need to know to fulfil their parents aspirations for them. Sure cash flow
is a useful lesson (though one that I'd suggest could be taught more
efficiently) but this feels a bit like a parent pushing someone down a
particular line.

Now I'm not saying that this is a bad story, and certainly not a bad parent,
just that IMHO the absolute best bit of this story - by a country mile - is
that it's something they did together, parent and child spending time with
each other. If he learned about cash flow then that's great, but it's not
nearly as great as him learning about his dad and his dad learning about him.

~~~
Terretta
No.

Not if the definition of "letting kids be kids" is to let them do what
everyone else's kids are doing these days, mollycoddling their every whim and
when not acting as chauffeur or butler, letting them babysit themselves with
TV and video games.

Or, yes...

If the definition of letting them be kids is shutting off the TV, on sunny
days pushing them out the door to go play in the dirt, and on rainy days
taking them to the library, coupled with spending time to encourage and
support them in the interests they develop and express. The key is engagement.

I don't see any indication in this story that the boy didn't enjoy it. Sounds
as though he found it an engaging challenge, and that it didn't take too much
of his time. If he wasn't doing that, he could have been playing Lemonade
Stand on a Commodore 64 or Apple II. If the story was about Lemonade Stand,
nobody would say "let kids be kids", so what's the problem here? Is it that
this sounds like "work"?

Work, even real work, can be fun, and figuring out how to enjoy something that
returns financial gain may be the lesson with the most payoff a parent could
provide, given the ratio of time most adults have to spend in work versus
leisure.

~~~
Tyrannosaurs
The definition is either of those or something different altogether. The point
is that it should depend on the kids and the parents involved and revolve
around something mutually enjoyable (rather than "improving").

I agree work can be fun and so can learning, and I agree that Rob probably had
a great time and certainly had a great dad. My point is that he had a great
time because he had a dad who was interested in him and engaged with him, not
because he had a dad who tried to teach him cash flow.

~~~
jerf
'(rather than "improving")'

Are you raising a child, or raising an adult?

You seem horrified by the idea that we might try to "improve" kids; I'm
horrified by the idea that I might turn my kids loose in the world without any
"improvement". My mind can not even express the theory of parenting you are
operating under in which improvement is some sort of anathema.

~~~
Tyrannosaurs
I'm horrified by the idea that we might improve a child at the expense of
everything else. Clearly I'm not against children learning.

~~~
clarky07
You seem to be against them doing any work though. That is part of learning
how to survive in this world. Look at OWS. They must have all had "great"
parents who let them be kids. They still are.

------
camtarn
Reminds me of a story of a similar family, posted on everything2.com a while
ago after a long discussion of how to rip off soda machines by using coins
stuck to fishing line or pouring salt water through them:

[http://everything2.com/user/Trilateral+Chairman/writeups/Rip...](http://everything2.com/user/Trilateral+Chairman/writeups/Ripping+off+soda+machines)

Lots of life lessons there.

------
achristoffersen
A beautiful story. I myself was raised by two academics in safe middle class
public sector jobs their whole life. Only at my 30th year did I consider
starting my own business. Looking back on friends who started on their own, I
do not doubt that either being an entrepreneur is 1) in the bloodline (nature)
and in the upbringing (nurture).

I had a wonderful childhood - but I think I would have started my own business
much earlier, had I had a father like yours. And it just goes to show, that
valuable life lessons does not need to be boring chores and stern rants from
the elderly.

Thanks for an inspiring read.

------
gallamine
When I was 9 or 10 we'd go to Costco and purchase the big flats of large
muffins. We'd sit around the dinner table and wrap them in cellophane and then
send them with my dad to put in his office's kitchen. We sold those things for
$50/each on the honor system and made a tidy profit. I hadn't thought of that
in a while, but it definitely was a fun adventure.

~~~
chadgeidel
LOL - I assume you meant $0.50 each?

~~~
gallamine
Whoops! Yes, $0.50!

------
Hitchhiker
The simplest lessons are often the most difficult to learn and internalize to
the limit of it becoming second nature ( or intuition ). Brilliant dad. What a
great story. Thank you kindly.

Fathers are so, so, so important.. here's an interesting excerpt from the
recent Steve Jobs bio :

" It was important, his father said, to craft the backs of cabinets and fences
properly, even though they were hidden. He loved doing things right. He even
cared about the look of the parts you couldn’t see. "[1]

Connect the above with the speech Johnny Ive gave at the recent memorial :

" we shared a giddy excitement spending months and months on a part of a
product that nobody would ever see, well not with their eyes. "[2]

[1] - [http://www.amazon.com/Steve-Jobs-Exclusive-Biography-
ebook/d...](http://www.amazon.com/Steve-Jobs-Exclusive-Biography-
ebook/dp/B005J3IEZQ/)

[2] -
[http://www.youtube.com/watch?v=nPUsuY8JZJI&t=2905](http://www.youtube.com/watch?v=nPUsuY8JZJI&t=2905)

------
dimitar
This is amazing. Usually parents try to teach kinds about mature life by
making them do chores or get higher marks in school. And yet what do you learn
this way?

That life doesn't reward you for this no matter how many chores you do and how
good marks you get.

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jmj4
Empowering people to figure stuff out on their own is the best way to teach.
My Dad handed me the reins to out a small stock account with my own, my
siblings and some of his money when I was 11. Man, can that motivate you to
learn. I'd read 20 investing books by the time I got into high school. And
fundamentally the most important thing it taught me was how to think about
money. And its was so effortless on his part.

On a similar note, Warren Buffet made around $50,000 by the time he graduated
high school by owning several vending machines, among other things.

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dsandrowitz
Great story. I'm always looking for new ideas on how to teach these concepts
to my own children and I love this approach. Now, I just need to find a good
place for a vending machine...

~~~
robfitz
I looked into this a bit (I wanted to take the same ideas and package them for
elementary schools to teach to students).

Vending machines are far from ideal, although they're still plausible if you
have a friend who owns a car repair shop or something similar with a few
steady workers plus customer traffic.

If I was doing it today, I would take one of the single-serving coffee
machines. Some of them have coin slots, pricing controls, and protected
inventory. They're a bit expensive to buy individually (a couple grand) but
might make sense to share the responsibilities and decisions among a class or
a group of family friends.

Because of the smaller footprint, also easy to add to a teacher's lounge,
office, etc and it's possible the manufacturer would cut you a break for doing
something so PR-able, especially if you turn it into a repeatable school
program.

Drop me a note if anyone decides to pursue something like this -- I'd be happy
to help where I can: developing the curriculum, yelling at suppliers, or
coming up with new lower-cost hardware.

~~~
joelhaus
My father leases/finances equipment and occasionally gets the used machines
back after the term expires. Was thinking that a website positioning the
vending machines as a great learning tool for kids would be an interesting way
to sell them. Depending on the popularity, I imagine you might even be able to
build some web applications that would help the kids manage and find locations
for the machines (a sort of marketplace for machine owners and location
owners). There's the possibility of upgrading the machines and even adding NFC
support to older ones too.

Am looking into how many machines I can get my hands on now...

~~~
joelhaus
It turns out that they don't lease vending machines, but he does have
connections with manufacturers. Feel free to reach out if anyone is
interested.

------
wastedbrains
That is a great story. Shorter and simpler after mowing the lawn one dad. I
told my dad I wanted to invest in stocks. He thought this was a great
opportunity to teach me about money. So he loaned me money to invest in the
stock market. Help me pick and buy stocks, track their values. Eventually to
sell them and pay back the loan keeping profits for myself...

The only real issue was it was the start of tech bubble and I was a computer
nerd. I bought all tech stocks which soared, my older brother buy shoe
companies and the like...

I nearly tripled my investment while my brother lost 30ish% of his. Not sure
it was quite as real world learning opportunity as he was hoping.

~~~
fennecfoxen
I think the stock market is a lousy way to teach kids about investing. In
fact, I'm not even convinced that interest-bearing accounts are of much use to
kids.

The time value of money is significant to a kid. Consider a kid with, say,
$500 from babysitting or lawn-mowing. This could buy the kid, say, a really
nice bicycle (+ helmet, lock, rack, basket, chain lubricant, etc. Assume
they're old enough that they won't outgrow it for a while.) Alternatively, the
kid could wait a year and expect to have an extra $20 (given the 4% annualized
inflation-adjusted return on the market - what, you're investing, right? not
gambling? then you get 4%. :P)

Which would you choose: about $20, or a year with a bicycle? Opportunity cost!
And the $20 will just about cover the commission on trading. Ouch. Transaction
fees.

The reason that the stock market is attractive to _adults_ is that we
generally have an adequate supply of Things that we need to make use of our
time. There isn't another object we can spend $500 that will make that sort of
an impact on our lives. Diminishing returns!

(Also, we have tens of thousands of dollars, so we can invest without being
slaughtered with fees.)

------
tagawa
"I get the impression kids are a bit slippery in that regard."

True. Come to think of it, I'm middle-aged and I'm still like that.

------
kingkilr
I can't say my parents had lessons this cool, but I did spend some of my time
in my teenage years working at my cousins' vending machine warehouse, doing
various tasks: counting the take (and filling out the spreadsheet), filing
refill slips for the drivers, putting new inventory in the right place, trips
to purchase new inventory, and even refilling a machine once. It's a pretty
interesting business, and it's interesting to me to see how one can scale up
the "levels of responsibility".

------
wwdevries
Brilliant story. This model is much better than giving allowance.

------
koalemos
this is great- good thing your dad didn't pick up a slot machine, you could've
ended up in politics :)

------
amuhtar
Great Story. I think one thing I am realizing with my little daughter is that
kids - even at 1.5 years old - are curious and resourceful. My job as a parent
is not to make her happy... but to help equip her to fullfil her purpose and
passions to the fullest - that's when she'll be happiest.

That's perhaps why my parents stopped giving us an allowance early on.

My dad loves woodworking, and I remember at 5 years old, taking scraps,
nailing parts together to make a very crude looking airplane and actually sold
(yes, someone actually bought it) it to raise money for something - can't
remember what it was. But I do remember the work, I remember getting paid, and
I remember the satisfaction and fulfillment in a happy customer (even if he
did buy it out of compassion).

If I wanted a toy (birthday/Christmas aside), I had to work for it (not the
regular chores). It encouraged me to think... be creative... buy low, sell
high. Robert Kiyosaki had similar experiences as a kid in his book "Rich Dad,
Poor Dad". - As an aside the Cashflow game is really good and although it may
be expensive, it is totally worth it. There is a kids version too.

I did the lemonade... I tried selling baseball cards... As I got older, so
grew the ideas. In highschool video games were expensive. I started reviewing
them through a couple of companies (now owned by IGN) and got my games for
free to review them and write an HTML review page.

In university (ah, the advent of eBay), I started going to garage sales/thrift
stores/pawn shops and buying selective items. I'd clean and test the items,
put them up for sale. All my "toys" (games, computer parts, my Metcal Station,
DVDs, etc) were bought through the sale of items on eBay.

Of course, this is all besides running a Computer Consulting/VAR company,
creating applications, websites, and study/work.

Ah, the good old days. Forgive me for rambling... I got caught in the
nostalgia.

------
steve8918
I had a huge smile on my face while reading this.

This has got to be one of the best stories I've read in a while, and a
fantastic idea if I ever have kids. I love it. Especially the idea that the
dad would slowly start introducing charges to the kid. It's actually a
brilliant idea, and more real-world than giving a kid chores and allowance.

------
RJaswa
Thanks for writing this article. I really enjoyed it. When I was growing up, I
was terrible with cash management. My parents continuously subsidized my
various entrepreneurial endeavors (building and selling skateboard ramps,
selling people's stuff on eBay, manual labor...). So, I grew up really excited
about the upside potential of entrepreneurship, but learned little about what
it takes to manage the extraordinarily limited resources that you have when
you are building businesses in the real world.

Now I help invest in and build companies and work on projects of my own.
Learning the trade offs between pricing/volume, technology/cost, etc., is so
valuable and I'm only starting to understand them deeply now. I think I'll do
something like this when I have kids, whenever that may be....

------
bomatson
I love this story. Awesome awesome

I made plush South Park characters and sold them to my mom's fitness/spinning
clients. Learned a lot about pricing, investing, selling, creating at 10.

Highly encouraged to give children opportunities like this and not just have
them do soccer

~~~
wanorris
Of course, there are many worse things to spend your time on as a kid than a
combination of physical exercise and teamwork.

Do you see something wrong with playing soccer? Or was the key word in that
sentence the "just"?

~~~
bomatson
key word was 'just'. I played soccer and it was great, my point was to
diversify opportunities so kids can learn on their own what motivates them

------
alexholehouse
Great story. I did a similar thing with Pokemon cards - I lived in one school
region but actually attended school in another, so had access to two markets.
I kept track of inconsistencies in demand and used it to my advantage, taking
a plentiful card type from one area to the other and vice versa. Being a kid
is serious biznuz!

Reminds me of Barry Silbert (of Second Market)'s introduction to trading -
<http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2699>

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DanBC
I'm curious if this kind of youthful money making is still possible. It tends
to be much rarer in the UK anyway, but I'm pretty sure there are a gajillion
petty bureaucracies that would stop it - working age laws; minimum wage laws;
tax / benefit laws; insurance; health and safety; etc etc etc.

But, see also "The inexplicable war on lemonade stands" which is also
happening in the US.

([http://www.forbes.com/sites/erikkain/2011/08/03/the-
inexplic...](http://www.forbes.com/sites/erikkain/2011/08/03/the-inexplicable-
war-on-lemonade-stands/))

------
prawn
Brings to mind two ideas.

Could a parent do all of this without actually renting a machine? Not ideal
and a bit of a white lie, but would remove that cost. A father/mother could
come home each night or report back at the end of the week. A bit like playing
lemonade stand by proxy.

Could a simple app assist a parent in doing this and getting
imaginative/realistic situations to keep the child interested? Or even a
service renting physical vending machines specifically for parents and
children to try this?

~~~
alttag
... Because lying to your kids is a good idea?

From OP, part of the joy was using the key to open the machine and get a drink
when others were watching.

Removing the tangibility of the project (and the heavy lifting——are you
teaching your kids that you'll buy and move their inventory?) seems like it
might not be the best approach.

~~~
prawn
I acknowledged that it wasn't ideal and was merely wondering if it might be an
option for those without the means or imagination to arrange an actual vending
machine themselves.

------
aklemm
This is great. By the time I was 9 or 10, I was frustrated that for all my
playing with tools, reading, tinkering, etc., none of it was towards a
practical goal. Finding a way to give kids real-life responsibilities in such
an engaging way is awesome.

I wonder if script kiddies, for example, lean towards the nefarious because
there are no industrious outlets nor mentors for them to work with.

~~~
someone13
Regarding your comment about script kiddies - absolutely. So many of them have
no legitimate outlet for their curiosity and skill that they end up "learning
to hack" because they think it's cool. It's a really sad thing, and something
I wish there was a solution for...

------
zzygan
Very interesting idea. I need to figure out a way to teach my kids about money
and cashflow using something like this method. However, as cool as this story
is, I swear I read it in one of Rich Dad Poor Dad books. Maybe this is the
source of the books story. I'm not sure.

~~~
robfitz
From my perspective, it doesn't make a huge difference whether the idea was
independently discovered by my dad or inspired by something he read--what
matters is the effect it had on me.

------
bgraves
Rob - how old were you when this started and how long did this venture last?

~~~
robfitz
I'd have to ask my mom to be totally sure, but I'd estimate I ran the machine
for roughly 4 years beginning when I was 7 or 8.

~~~
bgraves
That's awesome. I have a 9 year old son right now (4 kids total ranging from
ages 16 to 4 years old) and think this is a great story. Thanks for sharing!

------
zoey564
Great story Rob. Your Dad was an amazing person. He taught not only the 8 year
old boy but the 20 something girl the same principles. He was truly an amazing
man and I miss him every day.

------
Hyena
How did the $0.55 price turn out? Did you keep it?

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ttcbj
Awesome and delightful!

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yonasb
Great example of why entrepreneurs don't need an MBA:)

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dave167811
Now I see the downside of having a socialist father.

