May 6, 2024 • 25 mins
Discover how relentless ambition and a strategic mind can build an empire, as we unravel the exceptional life of Ray Kroc on the Profitable Painter Podcast. From a lemonade stand to pioneering the McDonald's franchise, Kroc's tale is a masterclass in unwavering commitment and business acumen. We track his journey through the varied landscape of his early career, learning how each endeavor, be it piano playing or paper cup selling, honed the focus and dedication that would later define the McDonald's success story. It's an episode that promises entrepreneurs the blueprint for harnessing their passion into profitable ventures, all while celebrating the grit that turns dreams into reality.
Hear firsthand the pivotal strategies that transformed McDonald's into a global phenomenon, including the $2.7 million deal that shifted the balance of power and the innovative approach to franchise real estate. Kroc's leadership style, which blended authority with responsibility and encouraged big thinking, sets the stage for a discussion on growth and success in any business setting. And if you're looking for wisdom to revolutionize your own business practices, we'll tell you why "Grinding It Out" is your next must-read. Join us as we dissect the entrepreneurial spirit that not only changed the fast-food industry but also offers enduring lessons for today's business owners.
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Episode Transcript
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Speaker 1 (00:00):
Welcome to the Profitable Painter Podcast
biography edition, where wedelve into the lives of some of
history's most successfulindividuals to uncover
strategies, tactics, mindsetsthat propel them to greatness.
Today, we delve into theremarkable journey of an
individual whose unwaveringdetermination and pursuit of
excellence revolutionize thefast food landscape.
(00:21):
Join me as we navigate thejourney of this remarkable
individual and extractinvaluable lessons you can apply
to elevate your professionalpainting business.
Get ready to be inspired, tolearn and to transform the way
you think about success andleadership in your own
entrepreneurial journey.
Ray Kroc was an Americanentrepreneur renowned for
(00:41):
transforming McDonald's into theworld's leading fast food chain
.
Initially a salesman, krocdiscovered a small but efficient
restaurant run by the McDonaldBrothers and saw it as a
franchise opportunity.
After becoming their franchiseagent, he eventually bought the
Brothers out and revolutionizedthe fast food industry with his
(01:05):
focus on standardization,franchising and global expansion
.
Kroc's visionary leadershipmade McDonald's a symbol of
quick service dining worldwide.
I recently read the bookGrinding it Out, which is an
autobiography by Ray Kroc.
Ray Kroc was born in 1902 inOak Park, illinois.
(01:27):
As a kid, he was described assomeone who daydreamed a lot,
but once he got an idea he actedon it, and he gives an example
of when he started his lemonadestand.
When he was a kid.
At age 15, kroc lied about hisage to serve as a Red Cross
(01:47):
ambulance driver during WorldWar I, and through that war he
ended up going overseas, andhere's a quote from the book.
As school ended that spring,the United States entered World
War I.
I took a job selling coffeebeans and novelties door to door
.
I was confident I couldn't makemy way in the world and saw no
(02:08):
real reason to return to school.
Besides, the war effort wasmore important.
My parents objected strenuously, but I finally talked them into
letting me join up as a RedCross ambulance driver.
I had to lie about my age, ofcourse, but even my grandmother
could accept that, and mycompany was another fellow who
(02:33):
had lied about his age to get in.
He was regarded as a strangeduck, because whenever we had
time off we went out to the townto chase girls.
He stayed in camp drawingpictures.
His name was Walt Disney.
So that's kind of cool that heactually met Walt Disney while
serving during World War I.
Now, after the war, in the 1920s, kroc held various jobs,
(02:57):
including playing piano andbands, selling paper cups and
working as a real estate agentand he describes his schedule as
, basically, he started workingat seven o'clock in the morning
and all the way until 2 am, withlike a couple hours off in that
period to have dinner, and hedescribed it as he loved to work
(03:20):
.
It wasn't work to him, it wasplay.
So he loved to work, but he wasvery.
He had a lot going on.
He was working severaldifferent jobs and and this was
during the 20s he ended up hewas in Florida.
He was playing at piano atnight for basically some
gangsters who were this isduring prohibition they were
(03:44):
Selling alcohol illegally and hewas playing piano at like this
bar and ended up getting busted.
He went into jail for a shortperiod it was like for a couple
days but he ended up getting outand and he Decided to go back
to Chicago, which is where he'soriginally from, and he decided
(04:04):
that he was gonna focus on doingone thing.
So this is a quote from the book.
When I returned to sellingpaper cuts, I vowed that this
was going to be my only job.
I Was going to make my livingat it and to hell with
moonlighting of any kind.
I intended to devote everyounce of my energy to selling
and that's exactly what I did.
So I think the lesson helearned here was to focus on one
(04:27):
thing, because before he wasdoing so many things and his
energy was being zapped Ispretty exhausting.
So that's what he does when hegets back to Chicago.
From the 1930s and the 40s, crocbecame a successful salesman at
Lily tulip cup company and heeventually comes across he, so
(04:51):
he's very successful in doinghis sales role.
He actually becomes a salesmanager and he's bringing a lot
of business to the Lily tulipcup company.
And this is during the timewhen a lot of the stores were
we're doing fountain drinks andand milkshakes and that sort of
thing, and so he'd go around andbasically sell paper cups to
(05:14):
them and so that was a pretty.
He built up a lot of accountslike Walgreens.
He got that account and theneventually he came across
Someone who'd invented the multimixer, which is basically
something that mixes milkshakes,and he thinks it's a great idea
(05:34):
and he takes that and he wantsto quit his job because he was
getting kind of annoyed withworking at Lily cup.
He felt like he wasn'tappreciated and he was really
inspired by this idea for the,the milkshake mixing machine.
His company actually had themulti mixer contract because
(05:57):
when croc initially got thecontract, he he brought it to
his company.
He thought it as an opportunityfor them to invest in it and
they weren't interested.
And so he's like, okay, ifyou're not gonna do it, I'm
gonna do it.
But then the his companywouldn't give the contract back.
They basically ended up being a60% owner in the business that
(06:17):
croc started, which was a prettybad deal because he was
actively running the businessand doing everything and his
former employer, the lily cupcompany, owned 60% of that and
he ended up telling his wife who.
He married his wife back whenhe was like 18 years old and
he's pretty much a workaholicand he's so he this is a quote
(06:42):
from the book Ethel wasincredulous at the idea that I
would give up my position and gooff on a flyer like this.
We had just moved into a finehome.
We were extremely comfortablethere.
Ethel loved it and she feltthreatened by this proposal.
You are risking your wholefuture if you do this.
Ray, she said you are 35 yearsold and you're going to start
all over again as as if you're20.
(07:04):
This multi makes her seems goodnow.
But what if it turns out thatit was just a fad and it fails?
You just have to trust myinstincts.
I said I am positive, this isgoing to be a winner.
So he basically quits hisstable job at the paper cup
company to sell this multi-mixer.
(07:25):
And here's another quote fromthe book For me, this was the
first phase of grinding it out,building my personal monument to
capitalism.
I paid tribute in the feudalsense for many years before I
was able to rise with McDonald'son the foundation that I lay.
Perhaps without that adversityI might not have been able to
persevere.
Later on, when my financialburdens were redoubled, I
(07:47):
learned then how to keepproblems from crushing me.
I refused to worry about morethan one thing at a time and I
would not let useless frettingabout a problem, no matter how
important, keep me from sleeping.
And so basically he has to takeout a mortgage on his house to
fund his multi-mixer businesshe's running.
(08:09):
The multi-mixer business isvery difficult because his
former employer has 60%, so he'sbasically not making much money
at all.
And around 1954, he hears aboutthis restaurant in San
Bernardino, california, thatuses eight multi-mixers, which
was a lot of multi-mixers andone restaurant.
(08:30):
So he's really intrigued and sohe goes out to visit the
McDonald Brothers who had thisoriginal restaurant in San
Bernardino, and he saw a lot ofpotential for a nationwide chain
when he visited it.
The operation was veryefficient.
There's loads of people waitingin line to get hamburgers and
(08:53):
fries at this McDonald'srestaurant, and he was super
impressed and he thought itwould be an amazing thing to
have these McDonald's all acrossthe United States.
And so here's a quote from thebook.
It was a restaurant strippeddown to the minimum in service
and menu, the prototype forlegions of fast food units that
later would spread across theland.
(09:14):
Hamburgers, fries and beverageswere prepared on an assembly
line basis.
The simplicity of the procedureallowed the McDonald's to
concentrate on quality in everystep, and that was the trick.
Basically, they simplified thisprocess of making hamburgers,
fries and drinks.
They provided just those threethings.
(09:36):
It's very simple, but then thatallowed them to perfect that
process, and so I think this isa good lesson for us.
If you can dial in your processfor cabinet refinishing or
exterior painting or interiorpainting, whatever it is, really
focus on that one service lineand and just perfect that
(10:00):
process Instead of trying to goafter many different service
lines, like you do everything,like I'll paint anything into
your exterior cabinet, orrefinishing, staining, all these
different things.
Instead, maybe it might be anapproach to just really simplify
your offer and then go in andperfect it to make customers
(10:22):
super impressed and delightedwith the service that you're
offering.
So he ends up talking to theMcDonald's brother seeing how he
could franchise this businesswith them, and so here's a quote
from the book I would haverights to franchise copies of
their operation everywhere elsein the United States.
The buildings would have to beexactly like the new one their
(10:45):
architect had drawn up, with thegolden arches.
The name McDonald's would be onall of them, of course, and I
was 100% in favor of that.
I had a feeling that it wouldbe one of those promotable names
that would catch the publicfancy.
I was for the contractualclauses that obligated me to
follow their plans down to lastdetail too, even to signs and
(11:08):
menus, but I should have beencautious there.
The agreement was that I couldnot deviate from their plans in
my units unless the changes werespelled out in writing, signed
by both brothers and sent to meby registered mail.
This seemingly innocuousrequirement created massive
problems for me.
There's an old saying that a manwho represents himself has a
(11:30):
fool for a lawyer, and itcertainly applied in this
instance.
I was just carried away by thethought of McDonald's drive-ins
proliferating like rabbits witheight multi-mixers in each one.
So at this point, when he doesthis initial agreement with the
McDonald's brothers, he's stillkind of thinking about the
multi-mixer business that he hasand the fact that it's gonna
(11:51):
have a lot of multi-mixers.
So he doesn't quite have thevision that his money's gonna be
made just with McDonald's.
So the terms of the contractaren't super favorable to him.
He just described there thatthey would have any changes in
the units that he doeseverywhere else in the United
States.
He had to get writtenpermission from the McDonald's
(12:15):
brothers and they signed it andsent it via registered mail,
which obviously is an issue.
But he's also only getting 1.4%of revenue from the franchises
that he's opening up across theUnited States, which is not that
much.
So it's not a very good deal.
So here's another quote "'Ethelwas incensed by the whole thing
(12:38):
.
We had no obligations that wouldbe jeopardized by it.
Our daughter Marilyn wasmarried and no longer depended
on this.
But that didn't matter to Ethel.
She just didn't want to hearabout the McDonald's or my plans
.
I had done it again, and oncetoo often.
As far as she was concerned,the quarrels we'd had when I
took over Prince Castle and thenwhen I extended the mortgage on
(13:01):
our house to buy out John Clarkwere mere preludes to this one.
This was a veritable Wagnerianopera strife, the opera of
strife.
It closed the door between us.
She dutifully attendedMcDonald's gatherings in later
years and was well liked byoperators' wives and by women on
the staff, but there wasnothing more between us.
(13:23):
Our 35 years of holy matrimonyendured another five in unholy
acrimony".
So, basically, mcdonald's killshis marriage and by the next
year Ray Kroc opens up his firstMcDonald's franchise under his
management in Illinois.
And so this is marks thebeginning of the McDonald's
corporation.
(13:44):
Here's a quote from the book"'It was a messy way to start
being in default on the firstunit, but there was no choice.
I went ahead with the building,telling myself that when I got
breathing space I would fly outto see the McDonald's and get
all the contractual wrinklesironed out at once.
That would have worked had theMcDonald's been reasonable men.
Instead they were obtuse.
(14:05):
They were utterly indifferentto the fact that I was putting
every cent that I had and allthat I could borrow into this
project.
When we sat down with ourlawyers in attendance, the
brothers acknowledged theproblems but refused to write a
single letter that would permitme to make changes".
So he needed to control to makethese changes in the different
(14:28):
franchises he was building,because there's just slight
differences.
But he wasn't getting thewritten permission that he
required by contract.
So this was definitely an issueand the McDonald's brothers
weren't really working with himon that.
Here's another quote from thebook it would drive down to the
planes Each morning and, inhealth the place get ready to
(14:50):
open.
The janitor would arrive at thesame time I did and if there was
nothing else to be done I'dhelp them.
I've never been too proud tograb a mop and clean up the
restrooms, even if I happened tobe wearing a good suit, but
usually there were a lot ofdetails to be taken care of in
terms of ordering supplies andkeeping the food operation going
.
So I'd write out the detailedinstructions for Ed Mac Lucky
(15:11):
Concerning them.
Ed came in about 10 o'clock inthe morning to open the store at
11.
I would leave my car at thestore and walk three or four
blocks to the Northwesternstation where I'd catch the 757
Express to Chicago and be in myPrince Castle office Before 9
o'clock and the evenings I wouldcommute back to Displanes and
(15:32):
walk over to the store.
I was always Eager to see itcome into view, my McDonald's,
but sometimes the site pleasedme a lot less than other times.
Sometimes Ed would haveforgotten to turn off the sign
when Dust became to fall andthat made me furious, or maybe
the lot would have somelittering on it.
(15:53):
That Ed said that he hadforgotten to pick up those
little things didn't seem tobother some people, but they
were gross affronts to me.
I'd get screaming mad andreally let Ed have it.
He took.
He took it in good part.
I Know he was as concernedabout the details as I was
Because he proved it in his ownstore, stores in later years.
(16:15):
But perfection is very difficultto achieve and perfection was
what I wanted in McDonald's.
Everything else was secondaryfor me.
So I think a couple lessonshere, so and in themes that I've
seen in and other founders andand leaders.
So first of all is he Leadsfrom the front.
(16:35):
You know he's not afraid to gethis hands dirty, get in.
You know he was doing thejanitor's work At certain points
, so he's not afraid to to gethis hands dirty.
And you know, if your employees, your workers, see that you're,
you're striving for perfection,they're gonna model their
behavior after you.
(16:55):
And this is something that Jeffbasis did.
Alexander the great even, heled his troops from the front,
which, which, which was notnecessarily common he wouldn't
be in the back just doing thestrategy who would be actually
leading, you know, a contingentof his force.
And then at this point he'sactually still has a multi-mixer
(17:16):
business that he's he's doingand he has that one McDonald's
store.
So that's why he's travelingback and forth.
But eventually he's gonnafigure out a way to make some
real money with the McDonald'sfranchises and he ends up hiring
someone the Scott and Perry andand here's a quote from the
book, this is the real, this wasthe beginning of real income
(17:39):
for McDonald's.
Harry devised the formula forthe monthly payments being made
by our operators that paid ourown mortgage and other Expenses
plus a profit.
We received this set monthlyminimum minimum or percentage of
the volume the operator did,which, whichever was greater.
After time we began realizingsubstantial revenues from the
(18:00):
formula and we could see thatwe're Mear, merely nibbling
around the edges of this hugehamburger frontier we were
exploring.
So, basically, once they startgetting more, once Ray starts
getting more franchisees opened,more McDonald's stores open, he
realized working with Harry,that owning the real estate and
(18:22):
Getting the payments from thefranchisee was a lot more
profitable than just relying onthe royalties because, like I
said before, he Only was gettinglike 1.4%, and so it's kind of
demonstrates just one littletweak and the way you're doing
things can really have outsizedresults, and I kind of think of
(18:43):
this.
As for painting businesses forgross profit, gross profit is
like the number oneprofitability measure you should
be looking at, and If you canjust get your gross profit up by
a few percentage points, it'sreally gonna have an outsize
impact on your bottom lineprofit.
So that is something that youcould really hone in on.
(19:05):
Take a look at changing yourprocess for how you produce the
work to get a Little bit biggerof a gross profit margin or
change your pricing structure orboth To get a higher gross
profit, and that's gonna greatlychange how much profit you're
getting, because gross profit isjust a huge lever for profit,
overall profitability.
So a few years ago, go past,he's opening up multiple
(19:27):
locations throughout the UnitedStates and eventually the he's
trying to figure out Okay, Ineed to get out of this contract
With the McDonald's brothersbecause it's just not working.
So he ends up basically callingthe McDonald's brothers and
saying what price do you want,how much do you want for your
(19:47):
share of the business?
And they basically they givehim a number of $2.7 million,
which is a lot of money.
Especially is a lot of moneynow, but it's especially a lot
of money back in 1961.
So they asked for $2.7 millionand he's basically he doesn't
(20:09):
have that money at all.
So he's his jaw drops to thefloor when he hears how much
money they want.
But he wants to figure out away to get out of this, this
deal with them, and he wants toown, you know, mcdonald's
completely.
So he figures out a way tofinance it.
So here's a quote from the book.
I was an extremely it was anextremely successful deal.
(20:29):
All concerned were happy.
The 12 apostles, which is the12 apostles, is the, the group
that helps them finance this.
The 12 apostles wound up making$12 million on it and while
that seemed like a terrificprice to pay, remember, remember
that we had been forking over0.5% to the McDonald's brothers
all along.
(20:49):
Anyhow, the total cost of thetransaction to us, about 14
million, was peanuts compared towhat the corporation earned in
the years that followed byretaining that 0.5% instead of
paying it to Mack and DickMcDonald.
On today's system-wide sales ofmore than 3 billion, that 0.5%
(21:09):
would be up there over 15million a year.
And so this this was writtenback in 1977 and they were doing
3 billion then.
Mcdonald's now is doing, youknow, 10 X.
That at least.
So it's.
You know they asked for 2.7.
(21:31):
He does some financing with 12apostles, and 12 apostles
basically got a percentage ofthe revenue which was 0.5%,
which was what the McDonald'sbrothers were getting anyway,
and so they pay off 12 apostlesover the course of a few years.
It ends up costing Ray 14million to buy out the
(21:54):
McDonald's brothers.
But as he says, you know,getting them out saved him a
whole bunch of money becauseotherwise he would have had to
have paid the McDonald'sbrothers like 15 million a year
by 1977.
So from the 1960s, 1970s,mcdonald's expanded rapidly
across the United States andthen internationally.
(22:14):
And here's a quote from thebook.
I maintain that authority shouldgo with a job.
Some wrong decisions may bemade as a result, but that's the
only way you can encouragestrong people to grow in an
organization.
Sit on them and they will bestifled.
The best ones go elsewhere.
I knew that very well from mypast experience with John Clark
(22:35):
at the Lily Cup company at theLily Tulip Cup.
I believe that less is more inthe case of corporate management
.
For its size, mcdonald's todayis the most unstructured
corporation I know and I don'tthink you could find a happier,
more secure, hardworking groupof executives anywhere.
So basically, he has a structurewhere he has a team that has a
(23:00):
lot of authority the franchisees.
They have to run their ownstores and he tries to
incentivize them and give themguidelines in a system, but he
lets them kind of take the reinsand go with it.
He doesn't have a lot of rules.
He has a more decentralizedstructure.
Here's another quote that stuckout to me is he says I believe
(23:23):
that if you think small, youstay small, and that's just a
common thing that we keep seeingover and over again from
Alexander the Great, jeff Bezos,napoleon.
You have to have a big vision.
If you put limits on yourthinking you're going to, you're
not going to do big things.
Here's another quote from thebook.
The key element in theseindividual success stories, and
(23:43):
of McDonald's itself, is not NACor education, is determination.
This is expressed very well inmy favorite homily Press on
Nothing in the world can takethe place of persistence.
Talent will not.
Nothing is more common than theunsuccessful men with talent.
Genius will not.
Unrewarded genius is almost aproverb.
(24:04):
Education will not.
The world is full of educatedderelicts, and determination
alone are omnipotent.
Coming from Ray Kroc himself,determination is the key and he
definitely had determinationthroughout his life, as we just
went through.
So I definitely recommend youyou pick up the book grinding it
out by Ray Kroc.
(24:25):
It was definitely a good read.
I think some of the lessonsthat we can take from him is
determination, not giving upcreative thinking, trying
getting you know, setting upthese systems and figuring out
the best way to to win insituations where you know it did
(24:48):
not look good for him.
Plus, he, he saw the the valuein stripping down processes and
and perfecting them, and thenthat that allowed him to really
scale his business and repeat itover and over again, and with
that I'll see you next week.
Welcome to the Profitable Painter Podcast
biography edition, where wedelve into the lives of some of
history's most successfulindividuals to uncover
strategies, tactics, mindsetsthat propel them to greatness.
Today, we delve into theremarkable journey of an
individual whose unwaveringdetermination and pursuit of
excellence revolutionize thefast food landscape.
(00:21):
Join me as we navigate thejourney of this remarkable
individual and extractinvaluable lessons you can apply
to elevate your professionalpainting business.
Get ready to be inspired, tolearn and to transform the way
you think about success andleadership in your own
entrepreneurial journey.
Ray Kroc was an Americanentrepreneur renowned for
(00:41):
transforming McDonald's into theworld's leading fast food chain
.
Initially a salesman, krocdiscovered a small but efficient
restaurant run by the McDonaldBrothers and saw it as a
franchise opportunity.
After becoming their franchiseagent, he eventually bought the
Brothers out and revolutionizedthe fast food industry with his
(01:05):
focus on standardization,franchising and global expansion
.
Kroc's visionary leadershipmade McDonald's a symbol of
quick service dining worldwide.
I recently read the bookGrinding it Out, which is an
autobiography by Ray Kroc.
Ray Kroc was born in 1902 inOak Park, illinois.
(01:27):
As a kid, he was described assomeone who daydreamed a lot,
but once he got an idea he actedon it, and he gives an example
of when he started his lemonadestand.
When he was a kid.
At age 15, kroc lied about hisage to serve as a Red Cross
(01:47):
ambulance driver during WorldWar I, and through that war he
ended up going overseas, andhere's a quote from the book.
As school ended that spring,the United States entered World
War I.
I took a job selling coffeebeans and novelties door to door
.
I was confident I couldn't makemy way in the world and saw no
(02:08):
real reason to return to school.
Besides, the war effort wasmore important.
My parents objected strenuously, but I finally talked them into
letting me join up as a RedCross ambulance driver.
I had to lie about my age, ofcourse, but even my grandmother
could accept that, and mycompany was another fellow who
(02:33):
had lied about his age to get in.
He was regarded as a strangeduck, because whenever we had
time off we went out to the townto chase girls.
He stayed in camp drawingpictures.
His name was Walt Disney.
So that's kind of cool that heactually met Walt Disney while
serving during World War I.
Now, after the war, in the 1920s, kroc held various jobs,
(02:57):
including playing piano andbands, selling paper cups and
working as a real estate agentand he describes his schedule as
, basically, he started workingat seven o'clock in the morning
and all the way until 2 am, withlike a couple hours off in that
period to have dinner, and hedescribed it as he loved to work
(03:20):
.
It wasn't work to him, it wasplay.
So he loved to work, but he wasvery.
He had a lot going on.
He was working severaldifferent jobs and and this was
during the 20s he ended up hewas in Florida.
He was playing at piano atnight for basically some
gangsters who were this isduring prohibition they were
(03:44):
Selling alcohol illegally and hewas playing piano at like this
bar and ended up getting busted.
He went into jail for a shortperiod it was like for a couple
days but he ended up getting outand and he Decided to go back
to Chicago, which is where he'soriginally from, and he decided
(04:04):
that he was gonna focus on doingone thing.
So this is a quote from the book.
When I returned to sellingpaper cuts, I vowed that this
was going to be my only job.
I Was going to make my livingat it and to hell with
moonlighting of any kind.
I intended to devote everyounce of my energy to selling
and that's exactly what I did.
So I think the lesson helearned here was to focus on one
(04:27):
thing, because before he wasdoing so many things and his
energy was being zapped Ispretty exhausting.
So that's what he does when hegets back to Chicago.
From the 1930s and the 40s, crocbecame a successful salesman at
Lily tulip cup company and heeventually comes across he, so
(04:51):
he's very successful in doinghis sales role.
He actually becomes a salesmanager and he's bringing a lot
of business to the Lily tulipcup company.
And this is during the timewhen a lot of the stores were
we're doing fountain drinks andand milkshakes and that sort of
thing, and so he'd go around andbasically sell paper cups to
(05:14):
them and so that was a pretty.
He built up a lot of accountslike Walgreens.
He got that account and theneventually he came across
Someone who'd invented the multimixer, which is basically
something that mixes milkshakes,and he thinks it's a great idea
(05:34):
and he takes that and he wantsto quit his job because he was
getting kind of annoyed withworking at Lily cup.
He felt like he wasn'tappreciated and he was really
inspired by this idea for the,the milkshake mixing machine.
His company actually had themulti mixer contract because
(05:57):
when croc initially got thecontract, he he brought it to
his company.
He thought it as an opportunityfor them to invest in it and
they weren't interested.
And so he's like, okay, ifyou're not gonna do it, I'm
gonna do it.
But then the his companywouldn't give the contract back.
They basically ended up being a60% owner in the business that
(06:17):
croc started, which was a prettybad deal because he was
actively running the businessand doing everything and his
former employer, the lily cupcompany, owned 60% of that and
he ended up telling his wife who.
He married his wife back whenhe was like 18 years old and
he's pretty much a workaholicand he's so he this is a quote
(06:42):
from the book Ethel wasincredulous at the idea that I
would give up my position and gooff on a flyer like this.
We had just moved into a finehome.
We were extremely comfortablethere.
Ethel loved it and she feltthreatened by this proposal.
You are risking your wholefuture if you do this.
Ray, she said you are 35 yearsold and you're going to start
all over again as as if you're20.
(07:04):
This multi makes her seems goodnow.
But what if it turns out thatit was just a fad and it fails?
You just have to trust myinstincts.
I said I am positive, this isgoing to be a winner.
So he basically quits hisstable job at the paper cup
company to sell this multi-mixer.
(07:25):
And here's another quote fromthe book For me, this was the
first phase of grinding it out,building my personal monument to
capitalism.
I paid tribute in the feudalsense for many years before I
was able to rise with McDonald'son the foundation that I lay.
Perhaps without that adversityI might not have been able to
persevere.
Later on, when my financialburdens were redoubled, I
(07:47):
learned then how to keepproblems from crushing me.
I refused to worry about morethan one thing at a time and I
would not let useless frettingabout a problem, no matter how
important, keep me from sleeping.
And so basically he has to takeout a mortgage on his house to
fund his multi-mixer businesshe's running.
(08:09):
The multi-mixer business isvery difficult because his
former employer has 60%, so he'sbasically not making much money
at all.
And around 1954, he hears aboutthis restaurant in San
Bernardino, california, thatuses eight multi-mixers, which
was a lot of multi-mixers andone restaurant.
(08:30):
So he's really intrigued and sohe goes out to visit the
McDonald Brothers who had thisoriginal restaurant in San
Bernardino, and he saw a lot ofpotential for a nationwide chain
when he visited it.
The operation was veryefficient.
There's loads of people waitingin line to get hamburgers and
(08:53):
fries at this McDonald'srestaurant, and he was super
impressed and he thought itwould be an amazing thing to
have these McDonald's all acrossthe United States.
And so here's a quote from thebook.
It was a restaurant strippeddown to the minimum in service
and menu, the prototype forlegions of fast food units that
later would spread across theland.
(09:14):
Hamburgers, fries and beverageswere prepared on an assembly
line basis.
The simplicity of the procedureallowed the McDonald's to
concentrate on quality in everystep, and that was the trick.
Basically, they simplified thisprocess of making hamburgers,
fries and drinks.
They provided just those threethings.
(09:36):
It's very simple, but then thatallowed them to perfect that
process, and so I think this isa good lesson for us.
If you can dial in your processfor cabinet refinishing or
exterior painting or interiorpainting, whatever it is, really
focus on that one service lineand and just perfect that
(10:00):
process Instead of trying to goafter many different service
lines, like you do everything,like I'll paint anything into
your exterior cabinet, orrefinishing, staining, all these
different things.
Instead, maybe it might be anapproach to just really simplify
your offer and then go in andperfect it to make customers
(10:22):
super impressed and delightedwith the service that you're
offering.
So he ends up talking to theMcDonald's brother seeing how he
could franchise this businesswith them, and so here's a quote
from the book I would haverights to franchise copies of
their operation everywhere elsein the United States.
The buildings would have to beexactly like the new one their
(10:45):
architect had drawn up, with thegolden arches.
The name McDonald's would be onall of them, of course, and I
was 100% in favor of that.
I had a feeling that it wouldbe one of those promotable names
that would catch the publicfancy.
I was for the contractualclauses that obligated me to
follow their plans down to lastdetail too, even to signs and
(11:08):
menus, but I should have beencautious there.
The agreement was that I couldnot deviate from their plans in
my units unless the changes werespelled out in writing, signed
by both brothers and sent to meby registered mail.
This seemingly innocuousrequirement created massive
problems for me.
There's an old saying that a manwho represents himself has a
(11:30):
fool for a lawyer, and itcertainly applied in this
instance.
I was just carried away by thethought of McDonald's drive-ins
proliferating like rabbits witheight multi-mixers in each one.
So at this point, when he doesthis initial agreement with the
McDonald's brothers, he's stillkind of thinking about the
multi-mixer business that he hasand the fact that it's gonna
(11:51):
have a lot of multi-mixers.
So he doesn't quite have thevision that his money's gonna be
made just with McDonald's.
So the terms of the contractaren't super favorable to him.
He just described there thatthey would have any changes in
the units that he doeseverywhere else in the United
States.
He had to get writtenpermission from the McDonald's
(12:15):
brothers and they signed it andsent it via registered mail,
which obviously is an issue.
But he's also only getting 1.4%of revenue from the franchises
that he's opening up across theUnited States, which is not that
much.
So it's not a very good deal.
So here's another quote "'Ethelwas incensed by the whole thing
(12:38):
.
We had no obligations that wouldbe jeopardized by it.
Our daughter Marilyn wasmarried and no longer depended
on this.
But that didn't matter to Ethel.
She just didn't want to hearabout the McDonald's or my plans
.
I had done it again, and oncetoo often.
As far as she was concerned,the quarrels we'd had when I
took over Prince Castle and thenwhen I extended the mortgage on
(13:01):
our house to buy out John Clarkwere mere preludes to this one.
This was a veritable Wagnerianopera strife, the opera of
strife.
It closed the door between us.
She dutifully attendedMcDonald's gatherings in later
years and was well liked byoperators' wives and by women on
the staff, but there wasnothing more between us.
(13:23):
Our 35 years of holy matrimonyendured another five in unholy
acrimony".
So, basically, mcdonald's killshis marriage and by the next
year Ray Kroc opens up his firstMcDonald's franchise under his
management in Illinois.
And so this is marks thebeginning of the McDonald's
corporation.
(13:44):
Here's a quote from the book"'It was a messy way to start
being in default on the firstunit, but there was no choice.
I went ahead with the building,telling myself that when I got
breathing space I would fly outto see the McDonald's and get
all the contractual wrinklesironed out at once.
That would have worked had theMcDonald's been reasonable men.
Instead they were obtuse.
(14:05):
They were utterly indifferentto the fact that I was putting
every cent that I had and allthat I could borrow into this
project.
When we sat down with ourlawyers in attendance, the
brothers acknowledged theproblems but refused to write a
single letter that would permitme to make changes".
So he needed to control to makethese changes in the different
(14:28):
franchises he was building,because there's just slight
differences.
But he wasn't getting thewritten permission that he
required by contract.
So this was definitely an issueand the McDonald's brothers
weren't really working with himon that.
Here's another quote from thebook it would drive down to the
planes Each morning and, inhealth the place get ready to
(14:50):
open.
The janitor would arrive at thesame time I did and if there was
nothing else to be done I'dhelp them.
I've never been too proud tograb a mop and clean up the
restrooms, even if I happened tobe wearing a good suit, but
usually there were a lot ofdetails to be taken care of in
terms of ordering supplies andkeeping the food operation going
.
So I'd write out the detailedinstructions for Ed Mac Lucky
(15:11):
Concerning them.
Ed came in about 10 o'clock inthe morning to open the store at
11.
I would leave my car at thestore and walk three or four
blocks to the Northwesternstation where I'd catch the 757
Express to Chicago and be in myPrince Castle office Before 9
o'clock and the evenings I wouldcommute back to Displanes and
(15:32):
walk over to the store.
I was always Eager to see itcome into view, my McDonald's,
but sometimes the site pleasedme a lot less than other times.
Sometimes Ed would haveforgotten to turn off the sign
when Dust became to fall andthat made me furious, or maybe
the lot would have somelittering on it.
(15:53):
That Ed said that he hadforgotten to pick up those
little things didn't seem tobother some people, but they
were gross affronts to me.
I'd get screaming mad andreally let Ed have it.
He took.
He took it in good part.
I Know he was as concernedabout the details as I was
Because he proved it in his ownstore, stores in later years.
(16:15):
But perfection is very difficultto achieve and perfection was
what I wanted in McDonald's.
Everything else was secondaryfor me.
So I think a couple lessonshere, so and in themes that I've
seen in and other founders andand leaders.
So first of all is he Leadsfrom the front.
(16:35):
You know he's not afraid to gethis hands dirty, get in.
You know he was doing thejanitor's work At certain points
, so he's not afraid to to gethis hands dirty.
And you know, if your employees, your workers, see that you're,
you're striving for perfection,they're gonna model their
behavior after you.
(16:55):
And this is something that Jeffbasis did.
Alexander the great even, heled his troops from the front,
which, which, which was notnecessarily common he wouldn't
be in the back just doing thestrategy who would be actually
leading, you know, a contingentof his force.
And then at this point he'sactually still has a multi-mixer
(17:16):
business that he's he's doingand he has that one McDonald's
store.
So that's why he's travelingback and forth.
But eventually he's gonnafigure out a way to make some
real money with the McDonald'sfranchises and he ends up hiring
someone the Scott and Perry andand here's a quote from the
book, this is the real, this wasthe beginning of real income
(17:39):
for McDonald's.
Harry devised the formula forthe monthly payments being made
by our operators that paid ourown mortgage and other Expenses
plus a profit.
We received this set monthlyminimum minimum or percentage of
the volume the operator did,which, whichever was greater.
After time we began realizingsubstantial revenues from the
(18:00):
formula and we could see thatwe're Mear, merely nibbling
around the edges of this hugehamburger frontier we were
exploring.
So, basically, once they startgetting more, once Ray starts
getting more franchisees opened,more McDonald's stores open, he
realized working with Harry,that owning the real estate and
(18:22):
Getting the payments from thefranchisee was a lot more
profitable than just relying onthe royalties because, like I
said before, he Only was gettinglike 1.4%, and so it's kind of
demonstrates just one littletweak and the way you're doing
things can really have outsizedresults, and I kind of think of
(18:43):
this.
As for painting businesses forgross profit, gross profit is
like the number oneprofitability measure you should
be looking at, and If you canjust get your gross profit up by
a few percentage points, it'sreally gonna have an outsize
impact on your bottom lineprofit.
So that is something that youcould really hone in on.
(19:05):
Take a look at changing yourprocess for how you produce the
work to get a Little bit biggerof a gross profit margin or
change your pricing structure orboth To get a higher gross
profit, and that's gonna greatlychange how much profit you're
getting, because gross profit isjust a huge lever for profit,
overall profitability.
So a few years ago, go past,he's opening up multiple
(19:27):
locations throughout the UnitedStates and eventually the he's
trying to figure out Okay, Ineed to get out of this contract
With the McDonald's brothersbecause it's just not working.
So he ends up basically callingthe McDonald's brothers and
saying what price do you want,how much do you want for your
(19:47):
share of the business?
And they basically they givehim a number of $2.7 million,
which is a lot of money.
Especially is a lot of moneynow, but it's especially a lot
of money back in 1961.
So they asked for $2.7 millionand he's basically he doesn't
(20:09):
have that money at all.
So he's his jaw drops to thefloor when he hears how much
money they want.
But he wants to figure out away to get out of this, this
deal with them, and he wants toown, you know, mcdonald's
completely.
So he figures out a way tofinance it.
So here's a quote from the book.
I was an extremely it was anextremely successful deal.
(20:29):
All concerned were happy.
The 12 apostles, which is the12 apostles, is the, the group
that helps them finance this.
The 12 apostles wound up making$12 million on it and while
that seemed like a terrificprice to pay, remember, remember
that we had been forking over0.5% to the McDonald's brothers
all along.
(20:49):
Anyhow, the total cost of thetransaction to us, about 14
million, was peanuts compared towhat the corporation earned in
the years that followed byretaining that 0.5% instead of
paying it to Mack and DickMcDonald.
On today's system-wide sales ofmore than 3 billion, that 0.5%
(21:09):
would be up there over 15million a year.
And so this this was writtenback in 1977 and they were doing
3 billion then.
Mcdonald's now is doing, youknow, 10 X.
That at least.
So it's.
You know they asked for 2.7.
(21:31):
He does some financing with 12apostles, and 12 apostles
basically got a percentage ofthe revenue which was 0.5%,
which was what the McDonald'sbrothers were getting anyway,
and so they pay off 12 apostlesover the course of a few years.
It ends up costing Ray 14million to buy out the
(21:54):
McDonald's brothers.
But as he says, you know,getting them out saved him a
whole bunch of money becauseotherwise he would have had to
have paid the McDonald'sbrothers like 15 million a year
by 1977.
So from the 1960s, 1970s,mcdonald's expanded rapidly
across the United States andthen internationally.
(22:14):
And here's a quote from thebook.
I maintain that authority shouldgo with a job.
Some wrong decisions may bemade as a result, but that's the
only way you can encouragestrong people to grow in an
organization.
Sit on them and they will bestifled.
The best ones go elsewhere.
I knew that very well from mypast experience with John Clark
(22:35):
at the Lily Cup company at theLily Tulip Cup.
I believe that less is more inthe case of corporate management
.
For its size, mcdonald's todayis the most unstructured
corporation I know and I don'tthink you could find a happier,
more secure, hardworking groupof executives anywhere.
So basically, he has a structurewhere he has a team that has a
(23:00):
lot of authority the franchisees.
They have to run their ownstores and he tries to
incentivize them and give themguidelines in a system, but he
lets them kind of take the reinsand go with it.
He doesn't have a lot of rules.
He has a more decentralizedstructure.
Here's another quote that stuckout to me is he says I believe
(23:23):
that if you think small, youstay small, and that's just a
common thing that we keep seeingover and over again from
Alexander the Great, jeff Bezos,napoleon.
You have to have a big vision.
If you put limits on yourthinking you're going to, you're
not going to do big things.
Here's another quote from thebook.
The key element in theseindividual success stories, and
(23:43):
of McDonald's itself, is not NACor education, is determination.
This is expressed very well inmy favorite homily Press on
Nothing in the world can takethe place of persistence.
Talent will not.
Nothing is more common than theunsuccessful men with talent.
Genius will not.
Unrewarded genius is almost aproverb.
(24:04):
Education will not.
The world is full of educatedderelicts, and determination
alone are omnipotent.
Coming from Ray Kroc himself,determination is the key and he
definitely had determinationthroughout his life, as we just
went through.
So I definitely recommend youyou pick up the book grinding it
out by Ray Kroc.
(24:25):
It was definitely a good read.
I think some of the lessonsthat we can take from him is
determination, not giving upcreative thinking, trying
getting you know, setting upthese systems and figuring out
the best way to to win insituations where you know it did
(24:48):
not look good for him.
Plus, he, he saw the the valuein stripping down processes and
and perfecting them, and thenthat that allowed him to really
scale his business and repeat itover and over again, and with
that I'll see you next week.
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