Supported by Greenhaven Road Capital, finding value off the beaten path.
What can we learn from the man who delivered McDonald’s from sleepy San Bernadino to the world? A lot if we’re choosy. Kroc’s story, as told in Grinding it Out is full of warnings and wishes, gambits and gains. One thing to remember is that the McDonald’s of old isn’t the McDonald’s of today. Kroc writes about how towns welcomed him, especially small towns where going out to eat wasn’t easy. Anecdotally, I asked the older generations about McDondald’s and they had good things to say.
1/ Signals. Ray Kroc was many things before he owned McDonald’s. He played piano part-time. He was on the radio. He sold paper cups and Multimixers. In this last job Kroc noticed an odd referral. People would contact him and say they wanted mixers like they saw in San Bernadino. Kroc writes, “the fact that this was taking place in San Bernadino, which was a quiet town in those days, practically in the desert, made it all the more amazing.”
Kroc thought, that’s interesting.
If we pay attention to the world around us we can see Signals. Tim Ferriss recalled an early job in technology sales. He ate lunch with the engineers and as they talked he realized that the product – which he had to sell – was messed up. The engineers said there was no way it would be delivered as promised, on time, and on budget.
This forced Ferris to think about alternative incomes. He found a signal in his credit card statements. Ferriss saw that he was spending a decent amount of money on supplements and thought, why don’t I sell those?
If we pay attention, the world around us speaks.
2/ Hustle. The McDonald’s brothers allowed Kroc to expand the chain because they didn’t want to do that much work. “More places, more problems,” they told Kroc. This wasn’t how he saw it. “For me, work was play.” Kroc worked so much he didn’t have time to remain married. “Ethel used to complain once in a while about the amount of time I spent away from home working. Looking back on it now, I guess it was kind of unfair. But I was driven by ambition. I hated to be idle for a minute.”
People that change the world only do so because they want to see a change. These aren’t hobbies. John Boyd is one of our examples. A performance report for him read:
“His production comes from about 10% inspiration and 90% a grueling pace that his cohorts find difficult if not impossible to keep up with. He is extremely intolerant of inefficiency and those who attempt to impede his program.”
Bill Gates’s mother had to negotiate for him to leave work and visit. Gates said there were no weekends or vacation, he just loved to work.
3/ The backdrop to Kroc. Prohibition (1920) creates an ice cream culture in the United States. Dick Yuengling said that this was one way for breweries to remain in business. Prohibition ends (1933) but ice cream culture stays. Vendors refine their technique, flavors, and style. Kroc plays a role in convincing some Chicago soda shops to use his paper cups as a disposable and portable ice-cream vessel rather than a sundae glass.
The United States enters World War 2 (1941) and copper rations mean reduced Multimixer production. Kroc remains employed but realizes the fragility of his employment. He visits a McDonalds. “I was just carried away by the thought of McDonald’s drive-ins proliferating like rabbits.” The war ends (1944) and there is a population and production surge, especially in Southern California. With the growth of cars, we get the Interstate Highway Act (1956).
This is what made McDonald’s possible.
Milton Hershey had a good backdrop for chocolate (Rail, population, good ingredients). Tom Brokaw had a good backdrop for news. He was stationed in California and covered a rising politician. As the politician took on a larger role so did Brokaw, until both he and Ronald Regan had new jobs in Washington D.C.
4/ Hiring. Ray Kroc, like Danny Meyer looks for the 51% solution. When Kroc opened his first McDonald’s he wanted someone “fastidious with great endurance.” His hire was someone with no food service experience who had come from hardware sales. Meyer’s ‘solution’ is to get people who are 51% the right attitude and then teach them the rest.
Kroc also wanted to hire people for a decentralized command organization. “It has always been my belief that authority should be placed at the lowest possible level. I wanted the man closest to the stores to be able to make decisions without seeking directives from headquarters.”
“Hire the best people you can and leave them alone.” Tom Murphy
That didn’t mean Kroc trusted people completely. One franchisee in Cincinnati had a hard time convincing Kroc to expand the menu. He was getting killed during Lent. Kroc said he didn’t care if the Pope himself showed up, he could eat a burger just like everyone else.
The franchisee threatened to break their contract before Kroc relented and said they could experiment with a fish sandwich. By 1965 the Filet O Fish was nationwide. Other franchisees would come up with the ideas for the Big Mac, Egg McMuffin, and Shamrock Shake.
5/ Run your own race. “My way of fighting the competition is the positive approach. Stress your own strengths, emphasize quality, service, cleanliness, and value and the competition will wear itself out trying to keep up.”
You are your own competitive advantage. Focus on whatever you do well and copy anything else. Phil Jackson wrote to “lead from the inside out.”
Those are five things, and there’s more in the book, but there are things not to learn as well. Kroc wasn’t a present husband or father. He had a big ego. He was impulsive. He didn’t listen well.
The question is, can we tease out those things and leave the rest? Maybe, maybe not. McDonald’s as we know it could only have been created by someone with an ego that made him believe he could do it.
Thanks for reading.