Like many people I don’t mind the movies, now days with a young family this often means Friday or Saturday night catching up on watching a DVD or now days by renting via the internet. A movie I had been meaning to watch for a while was The Founder. This is the story of Ray Kroc and the McDonald brothers who had come up with a speedy system in their burger business. Kroc entered an agreement and franchised the system, eventually forcing the McDonald brothers from the ‘McDonalds’ business. The rest is rather self-evident in most larger towns you visit.
Personally I found this an entertaining and excellent movie and would happily recommend it to anyone, however our blogs generally have nothing to do with movie reviews. Even with Hollywood involvement in the story telling, movies such as The Founder offer many great lessons in life and business, a few of which I intend to share with you here.
At the start of the movie we see Ray at a typical drive up dinner experiencing as referenced in the movie, long waits for orders, incorrect orders, poor service, atmospheres not conducive to family or good moral behaviour etc. The McDonald brother saw this in their own past restaurants and believed they could change that. From this they evolved to their ‘speedy service system’ by looking at how they could cut down the times taken to make food, change from delivery on plates to disposable paper bags, had people walk up rather than serving staff attend them in their cars etc. They also ensured team members served with a smile and all these initiatives attracted the desired clientele.
What Ray Kroc saw with the McDonald brothers was a brilliant system. The brothers had taken a lot of effort to ensure the system was designed just right, down to the temperature and duration of cooking fries (chips!) to ensure they were just right, making sure each hamburger had exactly the right number of pickles, every product looked the same every time and that stage of production was placed in the perfect location to ensure a correct workflow. They were then regimented to the system and continual improvement.
The McDonald brothers had already tried franchising when Kroc came into their lives. The challenge they had was that the systems were not adhered to. Kroc believed he could ensure quality control around the system over the various stores. Initially Kroc built his own McDonalds and he ran it to the system, along the way finding some team members were not right for the job but also there were some he could see massive potential in.
In addition to team members the biggest challenge was future franchisees. Initially he bought on his more affluent friends, however he soon found on his random store visits they simply viewed the business as an investment and paid no attention to the system selling fried chicken and with very poor quality control and cleanliness.
Kroc had the realisation that he needed hard working younger husband and wife teams. People that wanted to get ahead in life as they had the desire to ensure the system was followed and were more easily instructed than mature aged more wealthy franchisees. At the end of the day it was about willingness and desire to succeed.
Over time Kroc was going broke, although he had been exceptionally successful in getting franchises operating he was not making enough from it to meet his commitments. This is when he came across advice that he needed to own the land upon which the McDonalds restaurant stood.
This had two benefits, one it meant he got the capital growth of land ownership and income from the rent, however it also meant the franchisee was the tenant not the land owner. McDonalds owning the land putting the franchise in a more powerful position should the franchisee not be meeting expectations they could be simply removed and a new franchisee put in that store. For Kroc it was also outside his agreement with the McDonald brothers.
In the movie Kroc was busting to get a piece of the McDonalds action and entered into a binding agreement with the McDonald brothers. This was the whole premise of the movie as the brothers would not let Kroc change systems and processed. Kroc found the brothers to be inflexible and not adaptable to the opportunities within the business. Distrust was grew between the brothers and their business partner which also lead to angst between the brothers. In the 1961 Kroc bought out of the contract with the brothers for $2.7m USD, currently equivalent to just under $22m USD in todays money terms.
In addition to the written buy-out contract with the brothers, there was a handshake deal to pay the brothers a 0.5% royalty. Since this was unable to be proved the brothers never received their royalties. The sting in the detail of contract was that the McDonald brothers lost the rights to the McDonalds brand and name which Kroc said was the special ingredient he needed to own. He could replicate the systems and process himself but he needed to own the name ‘McDonalds’, no one wanted to buy from Kroc’s. The brothers’ original store had to remove its own McDonalds branding.
The movie centres on Ray Kroc and it is fair to say he was persistent. At the end of the day Ray was a salesman, but was driven and overall his persistence paid off. He never gave up and had self-belief. So too did the McDonald brothers, they were persistent in their attention to detail and sticking to their morals and strict process for better or worse. Ray on the other hand was strict to the process but was continually looking for improvement and cost reduction without sacrifice of the ingredients that made them successful.
While reading further for this blog I found there are a number of other good reads referencing the McDonalds story that can help any business entrepreneur. Some of these include Grinding it Out, McDonalds behind the Arches and Everything I know about business I learned at McDonalds.
At the least watch the movie and take from it what you will.
