Lessons learned from watching a seven-year-old entrepreneur at the helm of a hot start-up.
I've always believed that each of us has an innate need to create. Just watch young children at play, and you can see that impulse writ large. But creativity isn't the only impulse you see in children. Lately, after close observation of my seven-year-old son, I've begun to think that each of us also has an innate need to maximize shareholder value.
The evidence comes from a computer game that my son, Zach, has been playing, one called Sim Theme Park, in which participants build and operate an amusement park. The simulated business model is fairly simple. There are revenues (from ticket sales at the entrance to the park), capital investments (the cost of building a ride, for example), and expenses (a payroll that includes janitors, mechanics, security guards, and "researchers" -- an R&D team whose job it is to design the next generation of attractions). The game also features some of the headaches involved in running a real-world business, such as disgruntled employees threatening a job action.
Zach has been playing the game on and off for several months now. Until recently, his attitude was similar to that of many first-time technology founders I've known. He couldn't have cared less about his P&L. He just loved the process of invention -- choosing the wildest rides, making sure there were plenty of junk-food concessions. His unspoken mission statement was "Build it and they will come, but if they don't, that's OK, 'cause I'm having a very cool time."
Not surprisingly, his theme parks weren't very successful as businesses. He would build one, attract some paying customers, and promptly run out of cash. That never seemed to bother him -- until a few weeks ago, when I detected a change in the young founder. Zach had begun paying attention to the numbers.
There was one number in particular that he fixated on. It appears in the upper-left-hand corner of his screen and records how much money a player has at any given time, a kind of cash-flow tracker for the 'N Sync crowd. Clearly, Zach didn't like what he saw. "This is no fun," he announced. "I'm tired of running out of money. I'm going to start a new game, and this time I'm going to make bazillions."
Up to that point, he'd always been a bootstrapper. He'd start building the park with only the $10,000 provided at the beginning of each game. Then he'd open the park to the public before finishing construction so that he could bring additional cash into the business as soon as possible. But the endless challenges of operations had quickly overwhelmed him. Rides had broken down, bathrooms had needed cleaning, employees hadn't performed. Time after time, the start-up would outgrow its inexperienced founder.
With his new determination to make money, Zach adopted a whole new launch strategy. Before installing a single ride, he got a $100,000 loan from "Mike." (Apparently, that's friends-and-family capital; banks don't lend to start-ups, even in the Sim world.) Then Zach refused to open the park to the public until every detail of construction was complete, despite the relentless urging of a little character who appears on the screen offering up one bit of questionable advice after another.
The new strategy was a resounding success, and the park was cash-flow positive from day one. "Congratulations," I said. "You can relax now and start having some fun again."
"Don't bother me, Dad," Zach replied, without taking his eyes off the screen. "I'm making money."
To keep his moneymaking park clean and crime-free, Zach invested in trash cans and surveillance cameras -- and promptly laid off his entire crew of janitors and security guards. When I asked him why he'd done that, he gave me the kid-to-parent "Duh!" look and said he was saving money, of course.
"Besides," he said, "the guys I fired were lazy."
"How could you possibly know they were lazy?" I asked. After all, they were just pretend workers. It turned out that Zach had used a "macro" feature of the game to zoom in on his people as they patrolled the park, and he found the janitors walking right past garbage on the ground without stopping to pick it up.
Having discovered the economic advantages of a temporary workforce, Zach proceeded to sack his entire team of mechanics. When a ride broke down, he would rehire the mechanics only for as long as it took to get the ride back in service, whereupon he would simply fire them again. So much for job security in Zachland.
By noon my son had discovered price gouging. Taking advantage of what he says is a glitch in the program, he would lower his ticket prices to build traffic and wait patiently for crowds to surge into the park. Then he'd jack his prices way up, count to 60, and lower them again. He claims it takes a minute or so for the computer to react to higher prices with fewer paying customers.
Watching Zach, I had to wonder whether inside each of us beats the heart of a Jack Welch or, worse, an Al Dunlap.
After several hours of free-market capitalism, Zach finally sat back in his chair, breathed a sigh of entrepreneurial satisfaction, and uttered a line worthy of Andrew Fastow and the Arthur Andersen audit team: "This business is making piles of money."
As for me, I was beginning to question the popular notion that CEO behavior is driven by the merciless demands of Wall Street. Watching Zach play the game of business, I had to wonder whether inside each of us beats the heart of a Jack Welch or, worse, an Al Dunlap.
Zach, on the other hand, wasn't bothered by such thoughts. He knew that his business was just a game. The people weren't real, the rides weren't real, and, above all, the money wasn't real. For him, the real stuff comes in the form of an allowance, and he was ready to get his weekly allotment right at that moment.
My wife, Sara, and I have tried to structure the allowance as an incentive-comp plan of sorts. In theory, Zach does extra chores around the house, for which he gets paid his weekly 25 cents. In fact, Zach consistently underperforms but gets paid anyway -- just like a real Fortune 500 CEO.
So I paid Zach his quarter, and we headed outside to shoot some hoops.