Sweets, business school, and what my younger sister taught me

It is my prerogative as an older brother to teach my younger sister things. You know, usual stuff like where does mom and dad hide the contraband, or how to avoid punishments, or ways of getting around certain inconveniences, or basically teenage life. I feel that I have fulfilled my brotherly responsibilities by influencing her in sufficiently bad ways that she has picked up most of my bad habits and none of my good habits.

But then again, I have not been a permanent resident at my own home for over eight years, so I did miss out on some of my younger sister's more formative years. And while we were talking about those years, and my younger sister is thinking of writing her personal statement for university, I sort of realized something about her that sort of puts to shame my entire graduate life in business school.

My younger sister has harnessed the essential business principles for a successful enterprise at the tender age of fourteen. Whether subconsciously or not, it does prove an interesting business case study. It is amazing, to realize that some of these things are so fundamental that even a teenager can think of it, yet we slave over it in business school, forking over thousands of dollars just to be taught common sense.

Sometimes things are just funny that way, no?

Anyway, the story begins as such. One fine day, my younger sister was eating sweets in school, a luxury my dad affords her, because she's inadvertently the youngest and most spoilt, when her friend approached her and asked for one. Now having the sort of business acumen that is somehow sometimes even absent among my college peers, she realized a few things. One, that there was a need for sweets and other confectionery items among her classmates as there was no tuck shop that sold such items in school. Two, her classmates were of the rich, spoilt brats sort, that have servants and chauffeurs and maids waiting on them hand and foot (I do mean this quite literally) and hence they do have the significant purchasing power for this market.

Putting two and two together, my sister realized that she could fulfill this market need by purchasing sweets from the shops outside, and selling it to her friends in school.

Now this is actually a more genius idea than it seems. Because first of all, my younger sister is providing a service, and a direct access to sugary goodness. Second of all, she is enabling these kids to circumvent their parents authority by letting them buy sweets in an environment where parents have no significant control over their children.

And so my sister's idea was put into motion. She first studied the market and realized that on the outside, people sold sweets by the weight. In school, she is able to charge 10 cents per sweet, as it is the smallest common denominator around. (No one cares to use 5 cents anymore.) By applying simple marketing principles, she is able to determined a price, and hence a profit in this business. So by taking advantage of this fact, she bought sweets wholesale, and broke them up into individual pieces and started selling sweets on her own.

Now, some of her customers are more than happy to pay a premium on these sweets, because I guess to some, they feel that 10 cents is cheap no matter how they look at it. Others are just glad to circumvent their parents' authority. And so my younger sister's business flourished.

But that wasn't good enough for her. The first step she took was to analyze her business and determine that she could obtain a better margin by decreasing her Cost of Goods Sold (CoGS). By doing so, she would then improve her gross margins and bottom line profits without increasing the price and pushing away the customers. So she sought out the cheapest supplier.

As sweets vendors are out there by the dozens, bargaining power of suppliers is low, and she is able to find a vendor who is able to sell her at the cheapest. And since sweets are more or less a commodity... Well, vendors usually sell the same brand of sweets, she is able to easily substitute her suppliers, hence the bargaining power of suppliers is very low.

So she has taken the first step to managing a good business.

The second step she took was to obtain a line of credit from my father. She effectively took out a 0% interest loan from my father to start her business without offering any of her own capital. In effect this would mean that her return on equity is in effect infinity, as she has gained profits without putting in any of her own money. And her cost of capital is effectively zero.

So with her business up and running, she began to take orders from her friends, as they would pre-order the number of sweets they want. This, in effect, guarantees a steady stream of income, as she has built up a loyal customer base. So with all that in the works, it seems like she has a profitable business on her hands. But that was not enough.

After that, she discovered she was beginning to have some surplus inventory, because not all her sweets were getting bought up, and she had to carry a more than a few different kinds of sweets to fulfill the tastes of her clientèle. So she started to manage her customers relationships properly by offering free samples of her excess surplus, and building more customer loyalty as well as increasing the likelihood of them doing business with her. This was basic Customer Relationship Management (CRM).

Now after that, she realized that her friends are more or less coming to school with not 10 cents in their pockets, but one dollar or more, she decided that she could move a bigger inventory, and hence having a larger turnover by packaging assorted sweets together in smaller packets, and selling them. This also allows her to move some of her less movable inventory, like sweets that aren't as popular.

At this point in time, she realized that other people were finding her activities profitable and decided to mimic her. As barriers to entry were low because of the low capital requirements, she soon found competition in this business. However, my younger sister has set up such an efficient business with the lowest CoGS and lowest operating margin, plus she also has first movers advantage as well as built a long and lasting relationship with her customers, these competitors quickly gave up and instead purchased from her.

I think, at this point here, my sister has effectively saturated the market, as there are only so many students you can sell sweets to each day. So she quickly decided to diversify her offerings in some conventional, but sometimes bizarre ways. But since she, herself is a student, she understands the needs of her customers best. So, she quickly decided to offer among other things, stationery, magazines and CDs. Of course, made to order, as those have a much higher cost. She wasn't about to risk her own capital with overstocking, instead utilizing Dell's marketing model of made-to-order even way before Dell began its revolutionary marketing model.

This, I think, makes a really good Harvard Business Case Study, even though the scale of her operation is quite small. But I think her operation embodies a lot of concepts that I've paid thousands of dollars to learn, and here she was, implementing those ideas with precise and cut-throat efficiency. So it does make me wonder, what the hell was my business education for, when a simple fourteen year old can figure such things out?

I must admit, the feeling of being ripped off is churning in my stomach.

However, in retrospect, through another perspective, I think my younger sister might have easily been perceived as nothing more than a money-grubbing, under the table, black market enabler. She simply found an opportunity, and used it to make money. And yes, despite the genius of her business acumen, such entrepreneurship was and still remains highly illegal in her school. Such trading was done on the utmost secrecy, when she would scurry to be the earliest at school to distribute her contraband, and then would be on the lookout for the necessary spot checks and random searches conducted by the authorities on her and her fellow classmates.

I'm very sad that her genius is to be discouraged in such a way. Her operations was one of a beauty; she even had inside informants who'd tell her where and when these spot checks and invasions of privacy would occur. But thus is the sad state of education, where personal creativity is to be crushed, individual expression is to be neutered and ingenious insights is to be stifled. And at the end of the day, it will all be sold back to us, at outrageous prices, at these institutions of higher learning in the form of a piece of paper called diplomas, after having robbed us of the very common sense that they claim as their own.

Choosing my difficult path

Hmm... Now.

All I got to say is that the Japanese really know how to make hilarious commercials. Just as I thought things couldn't get more ridiculous with the wounded superhero... Yeah, never mind, that's what I did too. I had to watch the same commercial six more times just to make sure that was Richard Clayderman on the white brake-less piano. Damn, he should get a speeding ticket for that. I'm pretty sure those things aren't meant to go that fast.

And no! I wasn't distracted by those distracting cyclists.

But this commercial got me thinking a little. It sort of implied that if I drove a Renault Megane, I pretty much can choose from a whole list of distractions available to me. After all, who wants to drive down a plain old boring road? Something unusual must have happened to make it an interesting journey, right?

Just to highlight my point, just on Monday, I was driving down the North-South highway from Penang to Kuala Lumpur, a journey that would have taken me about less than three hours, despite what all the skeptics say. And I got to say that it was a pretty boring journey. While it might have been a challenge with the low visibility and pouring rain, I was confidently making good time in reaching KL. So all it all, it was a pretty not difficult path. Then suddenly, about an hour away from KL, I just happened to zip by a Shell gas station.

My first thought was, "Oh, a gas station!"

Not quite a bright thought, I must admit with sufficient hindsight. Coz about a kilometer down the road, I glanced down at my dashboard, and noticed the low fuel indicator light flashing.

Now, a lesser mortal would have screamed, panicked, and try to back up to that missed gas station. But me? I buckled down, tightened my knuckles around the steering wheel, and gently eased my foot off the gas pedal, cutting to a more economical speed. I gingerly kept one eye on the fuel indicator, and another one scanning for signs for the next gas station.

It was about a good fifteen miles down the road at that law-abiding speed, when suddenly my parents who were dozing off in the back seat suddenly realized why I wasn't overtaking with my usual zeal, instead choosing to hunker down safely in the middle lane. I calmly told them that the fuel indicator light has been flashing for the past twenty minutes. Of course, they immediately bolted up in surprise, and I could feel my dad's breath washing down the nape of my neck as he anxiously craned his head to try and spy the next gas station ahead.

Of course, it didn't help calm their nerves, when I calmly mentioned that I saw a sign back there, that the next gas station was another twenty miles away. I also remarked that being that worried definitely doesn't help the car eke out the additional gas mileage.

During this whole time, my younger sister has rediscovered her faith, as she lapsed into a stunned silence, probably cursing me out with every known vulgarity in her vocabulary.

Now, strangely, I felt an adrenaline rush like never before. Not even when I was zooming down the highway at a quite illegal speed, accelerating on sharp turns and overtaking with blatant disregard for my own personal safety. I was driving an auto car, and trust me, when I have to switch to Neutral to go downhill, means its quite bad already.

And somewhere on the back of my mind, I was replaying all these horror stories I've heard about people getting killed on the highway when they had stopped on the shoulder of the road because they had gotten a flat. I keep imagining myself stepping out of the driver's seat and getting run over by this huge sixteen wheeler, and bouncing a good eighty feet into the air before hitting the road, somewhere between the 378 and 379 marker.

I guess there are worst fates.

But just as I thought all hope was gone, my eyes were firmly fixed on the signposts that said that the next gas station was a mere 2km away. And I rejoiced, and laughed for joy as I finally pulled into that gas station. And just as I stopped next to the pump, I laughed and laughed raucously. I laughed with reckless abandon, and I laughed harder than I have ever laughed before.

I had cheated death, and I have lived to tell the tale!

After I pumped gas into the car, we all stopped to have a late dinner. Moreso because we needed to calm all our nerves. The food has never tasted better, the soda has never tasted sweeter and the durian (yes, I had a durian in the trunk) had never smelt more fragrant. Yes, people, I am alive! And this is a celebration of life!

And sometimes, it is the little victories in life that count.

Now, thinking back, with that advertisement in mind, choosing the difficult path definitely has its perks. And dammit, I'm not talking about those distracting cyclists! I mean, metaphorically, choosing the difficult path in life definitely has its perks. And not because it leads to greater rewards, but sometimes just the journey itself is so rewarding.

Someone mentioned to me that I live a far more interesting life than I give credit for. I think, on one hand, while it is a matter of perspective, there might be some truth in that regards. After all, in certain aspects, my life has been one heck of an adventure, diving straight into the unknown, one waterfall at a time. Imagine jumping off the edge of a waterfall, screaming your lungs out above the roar of water and kissing the sky farewell. Sometimes it's like that.

But like I said, it's all a matter of perspective. Maybe it is just because I'm a good storyteller telling about mediocre experiences? With sufficient embellishments, even the most menial tedious task can seem as exciting as discovering buried treasure, dispelling the curse of the Ancient Gods, and rescuing the fair maiden from an untimely sacrifice.

Because, I've lived through this life. And I know I have spruced up stories a bit, and truncated the boring and painful bits. With reference to that waterfall, I never did tell of what it felt like when there were jagged rocks beneath the crashing falls. So it's kinda like that, I don't really tell about those parts, and sometimes maybe it's just that my life is only that interesting.

At the end of the day, I guess I'm satisfied with the difficult path I have chosen. I wonder if I will continue to make some of these interesting choices in life I have chosen for myself. After all, interesting people are inherently risk-takers, and it is the risks they take that makes their lives interesting. And as any actuary can tell you, given a long enough time scale, the house always wins, and Death gets paid his dues.