Why Is This Family Smiling?

One of the interesting dilemmas of life in America is that we are all pro economic growth and progress, but we are not necessarily in favor of what that progress requires, which in short is, consumption.  The world economy grows if Americans consumers keep consuming and that's exactly what they do.  After all, if you are a "consumer' then by definition you consume.  And consumption is turning energy from a useful form into a less useful form, creating entropy.  Not very nice.

Well, the family in this picture has solved this dilemma, and that's why they are smiling.  They are also smiling because I told them to do so when I took this picture last August in Cesme, Turkey.  Alacati to be exact, one of the most popular vacation resorts in Turkey.

Popular vacations resorts mean traffic and parking problems, and that's the genesis of this story.  Every night, when we went out my brother and sister-in-law, in their infinite kindness dropped us off in Alacati and when looking for parking.  That means we had to wait right next to the numerous stands where local merchants sell corn. This picture is of one of those stands, and my latest friend in Cesme, M for short, is the father in the background (his real name is unpronouncable for most of my readers).

Since I had 15 minutes every day to kill waiting for my brother to park, I talked to M about life in general, not unlike Kramer and the soup Nazi.  But perhaps I've been a VC for too long, inevitably the conversation got to: "soo what's your cost of goods on the corn?" and "how many ears do you sell per day?".  So it turns out the retail boiled corn business is interesting.  M sells each corn for $4 to tourists, and $2.5 to locals which is a more than fair ripoff rate (assume for arguments sake one US Dollar equals one Turkish Lira. It is actually 1.2 right now, but given the way the dollar is going, by the time you read this, it will be 1).  Let's assume all corn goes for $2.5 just to be conservative.  He buys his corn every morning from Urla which costs him $0.8 to $1 per ear depending on quality.  Let's again assume M uses nothing but the best for his customers.  It costs him slightly less than $0.5 per corn on transportation, heating, lighting and other variable costs.

This results in $1 of contribution margin per ear of corn.  His extended family operates five such stands.  They are all in strategic places because M's day job is at the local municipality where he's been working for 27 years.  That's his sustainable competitive advantage.  The five stand sell 100 ears of corn per day and as a result he makes $500/day on corn.  There is no other costs because all members are family and they don't draw salary, they all work for equity.  Taxes are immaterial in his case, what the government asks from these merchants is $70/year.  They don't need their taxes, a booming touristic place more than makes up in taxes from tourism.

The season in Cesme is longer than most other vacation results starting from the 1st of June going well into September.  M, has a good 100 days where he hits 500 ears a day.  Long story short, during his summer vacation M, family makes a clean $50,000 that they put straight into savings.  His day job covers living expenses.

So the family you see in this picture saves at least $50,000 per year.  That's $4000/mo in a location where expenses are much much lower than in America.  The average savings rate in America is nearly zero dollars per family.  When you read the news about the subprime turmoil and overall "credit card debt" culture in America, you can probably now see why this family is smiling.

The secret to freedom is not making a lot of money but spending little.  M and his family have gotten that, and that is the solution of the very first dilemma I talked about.  First stop consuming and save, then think about how much progress you can do with that.  That's the way out.

Next time you buy corn in Cesme, you think about that.

Comments

[Juan Luis]

Very interesting post Baris.
Here in Spain there are also a lot of this stands in vacation resorts.
I always thought about their numbers, as of the ones of the restaurants and cafeterias.
Anyway, in Spain taxes and municipality costs are much higher than in Turkey, but also prices.
You can expect to pay 2.5 - 3 euro for a corn here.No price difference between locals and tourist.

[Baris Karadogan]

Juan Luis,
At 3 euros per ear of corn, you definitely don't need to differentiate between locals and tourists :-)

I didn't get to it but they sell corn in downtown Istanbul at 1YTL...shows you how little margins they have in big cities vs. tourist spots.

[Anthony Kuhn]

Barisbey:

Thanks for bringing back so many fond memories of my time in Alacati and also for your lesson that "less is more" when it comes to saving and consuming. I especially like the part about the two-tier pricing system, that I frequently encountered at museums, stores, and corn stands, but was able to bypass on occasion with the information that I lived and worked in Turkey and wasn't "yabanci." I cross-posted on your piece to http://blog.innovators-network.org The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grown our community!

Best wishes for continued success,

Kolay gelsin ile iyi calismalar!

Anthony Kuhn
Innovators Network

[Emre Sokullu]

or use mint (or wesabe) :)

[Rosa]

Hi Baris,

The corn looks so yummy...I went to Germany a few years back and fell in love with the donner kabobs...a couple of our friends just came back from Turkey and talked the great food, people and beaches...can't wait to go visit...

BTW, thanks for your feedback at Orrick yesterday. I really enjoyed your input and lively personality:-)

[Baris Karadogan]

Rosa,
The pleasure was mine. Hope you found the event useful.