#7 Grinding It Out The Making of McDonalds

Summary Notes


In this episode of the Founders Podcast, the host delves into the life and philosophy of Ray Kroc, the driving force behind the global success of McDonald's. Kroc emphasizes that perseverance and determination, rather than talent or education, are key to success, a theme he embodies through his own narrative of transforming from a milkshake machine salesman into one of the richest individuals on the planet. The episode also highlights Kroc's innovative approach to business, including his pivotal decision to create Franchise Realty Corporation, which financed McDonald's expansion by leveraging real estate. Despite challenges, such as a contentious relationship with the McDonald brothers and later with his partner Harry Sonneborn, Kroc's relentless focus on growth and quality control propelled McDonald's to over $200 million in sales by 1966. The host shares Kroc's candid reflections on his failures and successes, his commitment to hard work, and his criticism of the education system's disconnection from practical skills, underscoring the importance of adaptability and learning from mistakes in entrepreneurship.

Summary Notes

Hard Work and Obsession

  • Speaker A emphasizes the role of hard work and obsession over talent in achieving success.
  • The idea is that putting in time and effort will lead to reaching the top, regardless of talent.
  • Speaker A identifies themselves as obsessed rather than talented.

"There's no talent here. This is hard work. This is an obsession. Talent does not exist. We are all equals as human beings. You could be anyone. If you put in the time, you will reach the top, and that's that. So I am not talented. I am obsessed."

Speaker A is dismissing the idea of innate talent and instead is focusing on the importance of relentless work and obsession in achieving success.

Podcast Updates and Engagement

  • Speaker A has updated the podcast website and encourages listeners to visit for show notes and book links.
  • The podcast has an Instagram account, and Speaker A plans to live stream once a certain follower threshold is met.
  • Speaker A shares upcoming podcast topics, including entrepreneurs like Cornelius Vanderbilt and the founders of Hewlett Packard.

"Okay, so a little housekeeping before we get into today's book. I just recently redid the website for the podcast, so all show notes and links to the books that we cover are available@founderspodcast.com."

Speaker A is informing listeners about the new website and encouraging them to check out the additional resources provided there.

Upcoming Entrepreneurial Stories

  • Speaker A is reading about Cornelius Vanderbilt and plans to cover his story in an upcoming episode.
  • The inspiration for covering Hewlett Packard's founders came from Steve Jobs' biography.
  • Speaker A found a reading list by investor Keith Rabois, which includes books on entrepreneurship and business.
  • Upcoming podcasts will also cover the founders of Intel and Henry Ford, with Ford's autobiography recently received by Speaker A.

"I also have a podcast coming up on the founders of Hewlett Packard, and I got that idea by reading the steep jobs biography."

Speaker A is drawing inspiration from various sources, including other entrepreneurs' biographies, to select topics for future podcasts.

Podcast Support and Patronage

  • The podcast is ad-free and independent due to patron support.
  • Patrons receive exclusive access to certain episodes and early release of all episodes.
  • Speaker A encourages listeners to become patrons to support the creation of more content.

"And finally, before, as a reminder founders, this podcast is ad-free and independent due to patron support, so patrons receive exclusive access to patron only episodes."

Speaker A is explaining the podcast's funding model and the benefits of becoming a patron to support the show.

Ray Kroc's Autobiography and McDonald's

  • Speaker A introduces "Grinding It Out: The Making of McDonald's" by Ray Kroc.
  • The book is described as better than the movie adaptation, with plain language and informative content.
  • Speaker A plans to cover entrepreneurs from various industries, not just technology.

"So I want to get into today's book. It's called grinding it out, the making of mcdonald's, and it's an autobiography by Ray Kroc."

Speaker A is setting the stage for the main discussion of Ray Kroc's autobiography, highlighting its significance and the insights it provides.

Ray Kroc's Early Entrepreneurial Spirit

  • Ray Kroc exhibited entrepreneurial tendencies from a young age.
  • He believed in turning his dreams into reality through action and hard work.
  • Kroc found enjoyment in work, equating it to play.

"They called me Danny Dreamer a lot. Even later, when I was in high school and would come home all excited about some scheme I thought up, I never considered my dreams wasted energy."

This quote illustrates Kroc's early drive and determination to pursue his entrepreneurial dreams, showing that his success was rooted in a lifelong attitude towards work and initiative.

Ray Kroc's Later Success and Perseverance

  • Despite health issues and being 52 years old, Kroc was convinced that his best years were ahead of him.
  • Kroc's story is used to counter the idea that success must come at a young age.
  • Kroc's success with McDonald's came after a long career, including selling milkshake machines.

"When I flew back to Chicago that fateful day in 1954, I had a freshly signed contract with the McDonald's brothers in my briefcase."

This quote marks the pivotal moment when Kroc's career took a significant turn, leading to the massive success of McDonald's, and serves as an inspiration for late bloomers.

Ray Kroc's Business Philosophy

  • Kroc believed in the power of determination and the importance of taking calculated risks.
  • He encouraged entrepreneurs to commit fully to their beliefs and accept the challenges and fun that come with risk-taking.

"There's almost nothing you can accomplish if you set your mind to it."

Kroc's quote reflects his business philosophy that determination and a willingness to take risks are key components of entrepreneurial success.

One Man Band

  • Kroc describes his early struggles and determination to sell multimixers across the country.
  • He faced financial difficulties due to a partnership that restricted his earnings.
  • Kroc's experience with Sanitary Cup and his partner Clark taught him a hard lesson about business agreements.

"I was a one man marching band. I had a tiny office in Chicago. But I was seldom there."

This quote captures Kroc's entrepreneurial spirit and his solo journey in the early days of his business ventures, highlighting his dedication and self-reliance.

Phase of Grinding It Out

  • Ray Kroc describes the initial struggle to buy out his business partner to own 100% of his company.
  • He faced financial challenges and had to mortgage his new home, which caused distress to his first wife, Ethel.
  • Kroc views this period as the first phase of "grinding it out" and building his personal monument to capitalism.
  • He learned to manage stress and not let problems affect his sleep, which he considered crucial for dealing with customers effectively.
  • Kroc's perseverance during this time laid the foundation for his later success with McDonald's.

"In the end, most of the cash came from my new home in Arlington Heights. I managed to get an increase in the mortgage, much to Ethel's dismay." "For me, this was the first phase of grinding it out, building my personal monument to capitalism." "I refused to worry about more than one thing at a time. And I would not let useless fretting about a problem, no matter how important, keep me from sleeping."

  • Kroc leveraged his assets to raise capital, despite his wife's concerns.
  • He emphasizes the importance of focus and maintaining a clear mind for business.
  • Sleep and stress management were key to his daily business interactions.

Impact of World War II on Business

  • The outbreak of World War II and subsequent restrictions on copper supply disrupted Kroc's multimixer sales.
  • Kroc adapted by selling a low-fat malted milk powder and paper cups for a drink called "Multipleny."
  • Despite the war's challenges, Kroc managed to make a living and eventually returned to selling multimixers post-war.

"On December 7, 1941, we were thrown into the war by the Japanese sneak attack on Pearl Harbor. And I was thrown out of the multimixer business." "A salesman without a product is like a violinist without a bow."

  • The war forced Kroc to pivot from selling multimixers to other products.
  • Kroc likens the lack of a product to sell to being a musician without an instrument, highlighting the importance of product availability for sales.

Downfall of the Multimixer and Transition to McDonald's

  • Kroc observed the decline of the multimixer business due to internal company struggles and market changes.
  • He recognized the need to find a new, innovative product and became intrigued by the McDonald's brothers' operation.
  • Kroc's visit to the McDonald's in San Bernardino marked the beginning of his involvement with the fast-food chain.

"It was clear that multimixer's days were numbered." "What the hell? I thought, I'll go see for myself."

  • Kroc foresaw the end of the multimixer era and sought new opportunities.
  • His curiosity about McDonald's led him to personally investigate their business model.

Observations at McDonald's

  • McDonald's had a simplified service and menu, focusing on quality and efficiency.
  • Kroc was impressed by the assembly line approach and the potential for scalability.
  • The simplicity and attention to detail at McDonald's resonated with Kroc's business philosophy.

"It was a restaurant stripped down to the minimum in service and menu." "Make every detail perfect and limit the numbers of details to perfect."

  • Kroc highlights the streamlined operations at McDonald's.
  • He quotes a principle that aligns with McDonald's approach to perfecting a limited number of processes.

Franchise Agreement with the McDonald's Brothers

  • Kroc proposed to the McDonald's brothers to open similar restaurants, leading to a franchise agreement.
  • The agreement required strict adherence to the brothers' plans, with changes only permitted in writing via registered mail.
  • Kroc later faced difficulties with this requirement, which resulted in contractual disputes.

"The agreement that was that I could not deviate from their plans in my units unless the changes were spelled out in writing, signed by both brothers, and sent to me by registered mail." "This seemingly innocuous requirement created massive problems for me."

  • The franchise agreement had stringent conditions for modifications.
  • Kroc encountered significant issues due to the rigid terms of the agreement.

Financial Arrangement and Honesty

  • Kroc agreed to a 1.9% gross sales commission from franchisees, with the McDonald's brothers receiving 0.5% from his share.
  • Despite having access to the McDonald's business model, Kroc chose to partner with them rather than copying their concept without compensation.
  • Kroc viewed the partnership as a complete package that he could promote enthusiastically.

"The agreement gave me 1.9% of the gross sales from franchisees." "I saw it through the eyes of a salesman. Here was a complete package, and I could get out and talk up a storm about it."

  • Kroc negotiated a commission structure with the McDonald's brothers.
  • He respected the originality of the McDonald's concept and opted for a legitimate partnership over imitation.

Personal Sacrifices and Marriage Strain

  • Kroc's dedication to McDonald's strained his marriage to Ethel, who was opposed to his involvement with the franchise.
  • Despite no longer having dependent children, Ethel was against Kroc's business ventures, leading to the end of their marriage.

"Ethel was incensed by the whole thing." "Our 35 years of holy matrimony endured another five in unholy acrimony."

  • Kroc's business pursuits created tension in his personal life.
  • His marriage suffered as a result of his commitment to McDonald's.

Contractual Issues with the McDonald's Brothers

  • Kroc faced challenges with the McDonald's brothers regarding changes to the franchise plans.
  • Despite verbal agreements, the brothers refused to provide written confirmation, putting Kroc at risk.
  • Kroc's attorneys were concerned about the legal vulnerability, but he decided to proceed with the franchises.

"I called the McDonald's boys and told them about my problem." "That's your problem."

  • Kroc's attempts to resolve contractual issues with the McDonald's brothers were unsuccessful.
  • The lack of written confirmation from the brothers created a precarious situation for Kroc.

Ray Kroc's Work Ethic and Perfectionism

  • Kroc was hands-on with the operations of his first McDonald's store, even performing janitorial work when necessary.
  • He maintained a rigorous schedule, balancing his time between the store and his multimixer sales office.
  • Kroc's pursuit of perfection led to high standards and occasional frustration with his store manager.

"I've never been too proud to grab a mop and clean up the restrooms, even if I happen to be wearing a good suit." "But perfection is very difficult to achieve, and perfection was what I wanted in McDonald's."

  • Kroc was willing to do any task to maintain the standard of his McDonald's store.
  • His relentless drive for perfection was a key aspect of his approach to business.

Introduction of Harry Sonnaborn and the Franchise Model

  • Harry Sonnaborn's introduction to McDonald's brought a significant change to the franchise model.
  • The transcript ends before detailing Sonnaborn's contribution, leaving a cliffhanger for the reader.

"One of the most important things that ever happened to McDonald's is Ray hires this guy named Harry Sonnaborn."

  • Sonnaborn's role is highlighted as a pivotal moment in McDonald's history.
  • The exact nature of Sonnaborn's impact is not disclosed in the provided transcript.

Early Franchise Decisions and Philosophy

  • Ray Kroc focused on helping franchise operators succeed, believing their success was integral to his own.
  • Kroc chose not to involve the corporation as a supplier to the franchisees, allowing them to buy from the same suppliers but not directly from McDonald's.
  • This approach aimed at long-term franchise success over short-term sales.

"One of the basic decisions I made in this period affected the heart of my franchise system and how it would develop. It was that the corporation was not going to get involved in being a supplier for its operators."

This quote outlines Kroc's strategic decision to maintain a supportive role for franchise operators, rather than treating them as customers, which he believed would foster mutual success.

McDonald's Growth Strategy and System Uniformity

  • McDonald's aimed to be more than a name, focusing on consistent high-quality food and uniform preparation methods.
  • Kroc and his team recognized the importance of educating and assisting operators, along with reviewing their performance.
  • The growth strategy involved developing restaurants and selling franchises, rather than just franchising a name.
  • Financial constraints led to a change in the business model, which included the development of restaurants by the corporation.

"We wanted to build a restaurant system that would be known for food of consistently high quality and uniform methods of preparation."

This statement reflects the foundational goal of McDonald's to ensure repeat business through a reputation for consistency, which required a shift in their business model.

The Formation of Franchise Realty Corporation

  • Harry's financial acumen led to the creation of Franchise Realty Corporation.
  • Kroc invested all his assets to support this venture, demonstrating his commitment to the company's vision.
  • The innovative approach involved subordinated leases, allowing McDonald's to finance restaurant development effectively.

"Franchise Realty was a supreme example of a guy putting his money where his mouth is."

Kroc's quote illustrates the high stakes and his personal risk in establishing the Franchise Realty Corporation, which became a pivotal move for McDonald's growth.

Importance of Detail in Business

  • Kroc valued attention to detail and believed it was essential to perfect every fundamental aspect of the business.
  • He worked from part to whole, focusing on details before scaling ideas.
  • Kroc's approach was to be flexible and adaptable, rather than fixed on a grand design.

"You must perfect every fundamental of your business if you expect it to perform well."

This quote emphasizes Kroc's belief in the importance of mastering details in business to achieve overall success.

Attitude Toward Competition

  • Kroc was confident that his competitors could not replicate his strategic thinking, keeping him ahead.
  • He viewed competition as an incentive to innovate and maintain a lead in the industry.

"My attitude was that competition can try to steal my plans and copy my style, but they can't read my mind."

This quote conveys Kroc's competitive edge, highlighting his belief that while competitors could imitate, they couldn't replicate his unique vision.

Ending Relationship with McDonald's Brothers

  • Kroc sought to end the relationship with the McDonald's brothers due to their restrictive contract terms and business practices.
  • The brothers' reluctance to change the agreement was hindering the company's development.
  • Kroc's negotiations with the brothers led to a significant financial deal to buy them out and gain full control of the franchise.

"The most important item in my plans for the company was to end our relationship with the McDonald's brothers."

This quote indicates Kroc's determination to remove constraints and take full ownership of the McDonald's franchise, setting the stage for its future expansion.

Acquisition of McDonald's by Ray Kroc

  • Ray Kroc and his investors, nicknamed the Twelve Apostles, made a lucrative deal by acquiring McDonald's from the McDonald brothers.
  • The deal was beneficial for Kroc as it eliminated the 0.5% royalty payment to the McDonald brothers.
  • The cost of the transaction was minimal compared to the future earnings without the royalty fee.
  • The McDonald brothers could have made significantly more if they had retained their royalty agreement.

"Anyhow, the total cost of the transaction to us, about $14 million, was peanuts compared to what the corporation earned in the years that followed by retaining that 0.5% instead of paying it to Mac and Dick McDonald."

This quote emphasizes the financial savvy behind the acquisition, highlighting the long-term savings and earnings potential by eliminating the royalty payments.

Advertising's Impact on McDonald's Growth

  • McDonald's solved supply issues and expanded store count, but business was underperforming.
  • Nick Caros proposed a TV ad campaign, planning to fund it by increasing hamburger prices.
  • Ray Kroc decided against the price hike and instructed Caros to have Harry Sonneborn fund the campaign.
  • The ad campaign was highly successful, significantly increasing customer traffic.
  • Kroc learned the power of television advertising, which McDonald's continues to invest in heavily.

"The advertising campaign we put together was a smash hit. It turned Californians into our parking lots, as though blindfolds had been removed from their eyes, and suddenly they could see the golden arches."

This quote illustrates the transformative effect of the ad campaign on McDonald's visibility and customer traffic, underscoring the value of strategic advertising.

Ray Kroc's Personal Life and Quick Marriage

  • Ray Kroc felt incomplete without marriage and quickly fell for Jane Dobbins Green.
  • They had dinner for five consecutive nights and married within two weeks of meeting.
  • Kroc's quick decision-making in personal matters mirrors his business style.

"Within two weeks, we were married."

This quote shows Kroc's impulsive and decisive nature, not just in business, but also in his personal life.

McDonald's IPO and Management Philosophy

  • McDonald's went public to raise capital and provide funds for the founders.
  • The company was expanding rapidly, necessitating a decentralized management structure.
  • Kroc believed in empowering local managers, while Harry Sonneborn preferred central control.
  • Decentralization, according to Kroc, was key to encouraging growth and attracting strong talent.
  • The IPO was monumental, allowing women on the NYSE floor for the first time and showcasing McDonald's financial success.

"It has always been my belief that authority should be placed at the lowest possible level."

This quote captures Kroc's philosophy on management, emphasizing the importance of decentralization in fostering a strong and independent workforce.

Dissolution of Kroc's Partnership with Harry Sonneborn

  • Kroc and Sonneborn's differing visions led to tension and ultimately Sonneborn's resignation.
  • Sonneborn, conservative in expansion, placed a moratorium on new store development, which Kroc opposed.
  • After a heated confrontation, Sonneborn resigned and sold his McDonald's stock, missing out on future gains.

"I forced the issue all the way. And the result was that he resigned."

This quote highlights the intensity of the disagreement between Kroc and Sonneborn, leading to a pivotal change in the company's leadership.

Ray Kroc's Continued Involvement Post-IPO

  • Even after stepping back, Kroc remained actively involved in McDonald's operations.
  • He believed in continuous improvement and persistence, as reflected in McDonald's corporate slogan.
  • Kroc's work ethic persisted despite his wealth, and he continued to work daily until his death.

"But there were lots of areas that needed my attention."

This quote demonstrates Kroc's dedication to McDonald's and his unwillingness to become a mere figurehead within the company.

Ray Kroc's Views on Automation and Innovation

  • Kroc was skeptical of fully automated stores, preferring the human touch in McDonald's operations.
  • Despite this, McDonald's is moving towards automation with kiosks, showing a balance between innovation and tradition.

"Hell, if I had listened to the computers and did what they proposed with McDonald's, I'd have a store with a row of vending machines in it."

This quote reflects Kroc's hesitance to embrace full automation, valuing the customer experience over technological convenience.

Ray Kroc's Purchase of the San Diego Padres

  • Ray Kroc purchased the San Diego Padres, becoming publicly involved with the team.
  • His candid and direct approach was evident when he publicly criticized the team's performance.
  • The purchase highlighted Kroc's vast wealth and his willingness to invest in his passions.

"Everyone, including my wife and the commissioner of baseball, was shocked when I grabbed the public address microphone at the Padres first home game in 1974 and chewed out the players for putting on a rotten performance."

This quote shows Kroc's hands-on and forthright approach, not just in business but also in sports team ownership.

Ray Kroc's Business Failures and Lessons Learned

  • Kroc experienced several business failures, including unsuccessful restaurant ventures and McDonald's product flops.
  • He emphasized learning from failures and taking risks as part of business growth.
  • His philanthropy was significant, but he was critical of traditional college funding, advocating for trade schools.

"That's important, because if you're willing to take big risks, and I always have been, you are bound to blow one once in a while."

The quote conveys Kroc's perspective on risk-taking and failure as essential components of success, with the key takeaway being the value of learning from mistakes.

Ray Kroc's Philosophy on Success

  • Kroc believed determination and persistence were the most critical factors for success.
  • He dismissed the notion that talent, genius, or education alone could guarantee success.
  • His memoir 'Grinding It Out' reflects his belief in hard work and perseverance.

"Persistence and determination alone are omnipotent."

This quote encapsulates Kroc's core belief that relentless effort is the driving force behind achievement, a principle that he considered fundamental to his and McDonald's success.

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