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  • Writer's pictureDavid H. Kinder, RFC®, ChFC®, CLU®

Key Person Lesson from The Founder

I finally got a chance to watch The Founder with Michael Keaton portraying Ray Kroc... the founder of McDonald's Corporation. Very interesting business story.

Kroc was a salesman peddling commercial kitchen equipment (rather poorly as portrayed in the movie). Eventually he learns of McDonald's in San Bernardino since they placed an order for some of his company's milkshake machines. (He was quite surprised by the size of the order and, per the movie, they increased the order when he called to verify it.)

Kroc sees the kitchen setup of that single McDonald's location and sees a vision of franchising it across the country. The McDonald's brothers hire him as the Head of Franchise Development. (Sounds like a key person title to me.)

Where did it all go wrong? According to the movie, Kroc was taking on too much risk in that position. He signed a contract for a given percentage of the revenue and it just wasn't enough considering the overhead of each location and the fact that he mortgaged his home to help finance the expansion of McDonald's. (He should've negotiated that in the contract to help share the costs of financing THEIR business according to ownership or revenue sharing, but he didn't. It's also too bad he didn't have a method of raising capital with unstructured borrowing terms. Could've saved a lot of headache and hassle for everyone.)

He came up with a solution... that was brought to him by one of his franchisees. It was a milkshake mix that didn't require a freezer or the storage space of ice cream - which would've put Ray Kroc back in the black by greatly reducing the electricity needed for the walk-in freezer and preserve the business and contract as it was.

So what happened? According to the contract that Kroc signed, he couldn't make that decision on his own. He had to run it by the McDonald's brothers... who shot it down. Granted, Kroc's financial difficulties were not the McDonald's brother's fault... but they didn't even entertain the notion (per the movie).

That forced Kroc to find other ways to solve his financial issues. He found a way to completely circumvent the contract and take functional and financial control of that business.

The McDonald's Brothers effectively gave up control of their entire business because of one SMALL decision... that led to Kroc creating a new business entity which eventually led to financially buying them and forcing them out.

What does this have to do with my blog and insurance, etc.? Just this: Seemingly small business decisions can create massive problems.

While keeping an open mind and learning what's troubling their key people would be an essential ingredient to business success... having executive bonus and golden handcuff contracts in place can help to ethically prevent people from leaving to either create their own companies or joining the competition.

Ray Kroc certainly seemed to be a slimy individual as portrayed in the movie. However, it was the small decisions and short-sightedness of the McDonald's brothers that drove him to make far bigger plans and take over the entire operation.

Wouldn't it be better and far more economical to treat your people well and ethically bribe them to stay? I can help put together executive compensation plan packages that can help do exactly that.

Side note: Don't have me on a jury. I'll find the key triggering event in people's testimony and determine exactly what happened, who was at fault, and who was to blame. The last time I served on a jury, I did exactly that and swayed the entire jury panel to the way I thought.



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