Orrin Woodward on LIFE & Leadership

The following is a portion of an article that will be posted in full on the TEAM site.  Ray Kroc was a visionary leader who made an impact through his unyielding determination to finish what he started. God Bless, Orrin Woodward

Early in 1954, a 52 year old salesman, whose business had plummeted from 9,000 mixers per year sold in the late 1940‘s units to under 2,000, contemplated his future plans.  Having laid off his two fellow salesman, cutting back on all extraneous expenses, his business barely produced enough for him to support his country club lifestyle.  Later that year, after receiving yet another order for his Multi-mixers, making it an unprecedented ten total for the San Bernandino based fast food establishment called McDonald’s, the intrigued Ray Kroc payed his customer a visit.  What happened on Ray Kroc’s California boondoggle changed the course of franchising history.  Kroc had seen the future and wanted in on the action, in his autobiography, Grinding It Out, he wrote, “This had to be the most amazing merchandising operation I had ever seen!”   His thirty years of preparation for his moment of destiny was not in vain, having perfected the skills needed to take the single McDonald’s store into the largest restaurant chain in the world.  Kroc formulated a plan, hoping to sell thousand of multi-mixers to the burgeoning restaurant chain, recalling his conversation with the McDonald’s brothers at their restaurant, “I’ve seen kitchens of a lot of restaurants and drive-ins selling Multi-mixers around the country and I have never seen anything to equal the potential of this place of yours. Why don’t you open a series of units like this? It would be a gold mine for you and for me, too, because everyone would boosts my Multi-mixer sales. What d’you say?”  After a long silent stare from the taciturn New England brothers, Maurice answered, “See that big white house with the wide front porch? That’s our home and we love it. We sit on the porch in the evenings and watch the sunset and look down on our place here. It’s peaceful. We don’t need anymore problems. We are in a position to enjoy life now, and that’s just what we intend to do.”  The McDonald’s brothers lives confirm that the biggest enemy of great is the belief that one is doing good, losing the hunger to improve further.  Kroc, flew back to Chicago, but couldn’t get McDonald’s out of his mind, eventually calling the brothers back a week later.  In John Love’s fascinating book, Behind the Golden Arches, he writes, “He called Dick McDonald. ‘Have you found a franchising agent yet?’ he inquired. ‘No, Ray, not yet,’ was McDonald’s response. ‘Well then,’ asked Kroc, ‘what about me?’”  Ray realized that he could sell McDonald’s franchises, saying, “This will go anyplace. Anyplace!” Neal Baker, a fast food competitor in California said, “Ray Kroc was always traveling, and when he thought of McDonald’s, he thought big. He had seen cities all over the country, and he could just picture a McDonald’s in every one of them.”

The McDonald brothers were system gurus. In the late 1940’s, Dick and Maurice McDonald were searching for away to improve profitability while reducing complexity at their drive-in restaurant in San Bernandino, California.  They pulled the sales receipts for the last three years of business. In studying the data, the McDonald’s brothers realized that 80% of their business was hamburgers, not barbecue, leading to a revolutionary conclusion. They drew out an assembly line for hamburger production, just as Henry Ford would have for automobiles, requisitioning   their tennis court to draw the chalk lines of the optimized system. In a tribute to Frederick Taylor, the management guru or the early 20th century, the McDonald’s brothers placed the equipment most efficiently by studying the motions of the crew members in the process of assembling the various foods.  They eliminated the car-hop, replacing it with a self-service counter.   Eliminating the barbecue pit completely, they reduced their 25 item menu down to 11 items: hamburgers, cheeseburger, french fries, three soft drink flavors, milkshakes, milk, coffee, potato chips, and pie.  With a fully re-engineered stainless steel kitchen, capitalizing on the advantages of speed and quality in the mass production process, the McDonald’s brothers slashed the price of their hamburger from a competitive 30 cents to an unbelievable price of just 15 cents.  They hadn’t just improved their old restaurant, but had created the future of fast food, taking a healthy $200,000 revenue business and increasing it to $350,000 with the reduced menu and improved performance. Love writes on the strategy, “The brothers refused to let even the choice of condiments impede their fast food format. All hamburgers were prepared with ketchup, mustard, onions and two pickles. Any order deviating from that was penalized by a delay in service. That not only allowed the McDonald’s to streamline their production techniques, it opened the way for preparing food in advance of the order. That was a major break from conventional food service practices, but the brothers believed it was vital to their concept of volume through speed. ‘If we gave people a choice,’ explains McDonald, ‘there would be chaos.’”   The McDonald’s brothers, with a twelve man crew, crowded into a twelve-by-sixteen foot kitchen, created assembly line techniques for food production, that, with the help of Kroc’s vision, revolutionized the fast food industry.

Kroc, was a top notch salesman and leader, not a systems genius, but he had thirty years experience in the food service industry, and knew a winner when he saw one.  The McDonald’s system was a winner, a franchising system that Kroc was convinced he could sell all over the world.  In order to do so, Kroc intuitively understood that the business was more than just hamburgers, but a complete franchising system sold to entrepreneurs, promising results if they followed the turn key McDonald’s system.  According to Michael Gerber in The EMyth, “But Ray Kroc created much more than just a fantastically successful business. He created the model upon which an entire generation of entrepreneurs have since built their fortunes: the franchise phenomenon. . . But the genius of McDonald’s isn’t franchising itself. The franchise has been around for more than a hundred years. . . The true genius of Ray Kroc’s McDonald’s is the Business Format Franchise.”  The Business Format Franchise provides the franchisee with a turn key system for doing business that works for anyone who will work it.  The original franchises sold their name and product offerings, expecting the franchisees to develop a business system to sell the merchandise.  But Kroc, and his franchising system was different, Kroc understood that his first customer, the one he needed to sell, was the franchisee. In fact, if the franchisee didn’t believe in the McDonald’s system for producing results, no one would purchase the franchise, thus no hamburgers would be sold.  Kroc, became a salesman, not of hamburgers, but of the McDonald’s business itself.  His success or failure would depend upon creating a business system that worked, and his ability to sell the business format to hungry entrepreneurs.  Gerber elaborates, “At that point, Ray Kroc began to look at his business as the product, and at the franchisee as his first, last, and most important customer. For the franchisee wasn’t interested in hamburgers or french fries or milkshakes; he was interested in the business. Driven by the desire to buy a business, the franchisee only wanted to know one thing: “Does it work?”  Kroc believe the McDonald’s brothers had cracked the code for high speed and low cost fast food service, and that he would complete the package by providing vision, salesmanship, and leadership, to make the dream a reality.  He knew his business system had to produce results for the franchise owner, becoming the best choice for hungry and driven entrepreneurs in the competitive marketplace. Gerber writes, “If McDonald’s was to fulfill the dream he (Kroc) had for it, the franchisee would have to be willing to buy it. . . He wasn’t competing with other hamburger businesses. He was competing with every other business opportunity.”