A Stanford professor once gave her class the following assignment: using a $5 investment as seed money, earn the largest amount of money you can, in just two hours. Each of the fourteen teams in the class was given a few days to plan what they would do, with the rule being that once they open the envelope with the cash, they have only two hours to run their scheme. Afterwards, the money would be tallied, and they would have to present their project to the class.
If you want, you can take a few minutes to think what you would do in this scenario before continuing. Otherwise, read on to see what happened.
When this assignment is presented, people’s first instincts usually fall under two categories. The first is to suggest something along the lines of “buy a lottery ticket” or “go to a casino”. While this could work in theory, the odds are inherently against you, and you’ll just be relying on dumb luck. The second is to suggest traditional business ideas, such as setting up a lemonade stand or a car wash, using the $5 to purchase the necessary materials. While this could work, the problem is that these solution are low risk, but also have a low potential for reward.
However, after giving it some thought, the teams often manage to come up with more creative solutions, which allow them to make much more money than they would otherwise, without having to take on any additional risks.
- One team identified a common problem in college towns: the frustratingly long lines at popular restaurant on Saturday night. Their idea was to help people solve this problem, for a fee. First, they walked around and made reservations at several restaurants. Once the time for their reservation approached, they went to customers waiting in line, and sold each reservation for up to $20, to people who were happy to pay in order to avoid the long wait. As the night went on, this team also noticed that they had an easier time selling their reservations in restaurants that use a pager to let customers know that their table is ready. They attributed this to people being more comfortable paying when they receive something tangible in exchange, which led them to focus on this type of restaurants. This new focus also offered an additional benefit: after switching the original pager with the new one which had a reservation for a later time, the team could wait a bit and then sell the newly-acquired pager to a new customer, who gave them a new pager in return, thus creating a profitable cycle.
- Another team set up a stand in front of the student-union building, where they offered to measure the tire pressure on people’s bikes for free. Then, if the tires needed to be refilled, they offered to do so for the price of $1. Initially, they were worried that they were taking advantage of fellow students, who could fill their tires for free at a nearby gas station. However, after serving a few people, the team realized that the students were grateful, because this service offered them a valuable degree of convenience, for which they were happy to pay a small price. Like the first team, this team also adjusted halfway through the two-hour period, and started asking for donations, instead of a fixed payment. Because students were grateful for this service, the team’s income soared.
- The team that made the most money took a completely different approach. They realized that the most valuable asset they have wasn’t the $5 or the two hours, but the three-minute class presentation, where they hold the attention of all the students in their class. This group sold their presentation time to a company that wanted to recruit students from the class, and spent the three minutes pitching the company to their fellow students.
All these teams had one thing in common: instead of trying to solve the solution within the constraining $5 framework, they took a completely different approach, and managed to make much more money than they would have otherwise.
Summary and conclusions
- Students were given a simple task: using $5 and two hours, make the largest amount of money possible.
- The winning teams were those who ignored the $5 completely, and who were therefore not constrained by this limiting amount.
- One team made reservations to restaurants during peak times, and then sold them to people waiting in line. Another team offered to add air to people’s bicycle tires, for a fee. The team that made the most money was the one who sold the time allotted for their class presentation to a company that wanted to recruit students from their class.
- The lesson here is that sometimes, when trying to find a solution to a problem, you can benefit from attacking the problem from a completely new angle that bypasses any limiting constraints, rather than trying to work within the framework of these constraints.
- Another lesson from the winning teams is that you should adjust your solution as you go along. For example, the team selling the reservations realized that their scheme works better at restaurants which use a pager to alert customers about their reservations, while the team filling tires realized that they can make more money by asking for a donation, instead of for a fixed-fee payment.